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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, 2002
Commission File Number 1-10312

SYNOVUS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)

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, 2002, 299,850,084 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.

SYNOVUS FINANCIAL CORP.

INDEX

PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS


SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

3

4

5

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 recurring 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 the 2001 annual report previously filed on Form 10-K.

Note B — Supplemental Cash Flow Information

For the nine months ended September 30, 2002 and 2001, Synovus paid income taxes (net of refunds received) of $112.6 million and $87.7 million, respectively. For the nine months ended September 30, 2002 and 2001, Synovus paid interest of $244.0 million and $412.5 million, respectively.

Cash flows used by TSYS in additions to computer software for the nine months ended September 30, 2002 and 2001 are summarized as follows:

Cash flows used by TSYS in additions to contract acquisition costs for the nine months ended September 30, 2002 and 2001 are summarized as follows:

Noncash investing activities consisted of loans of approximately $19.8 million and $10.9 million, which were foreclosed and transferred to other real estate during the nine months September 30, 2002 and 2001, respectively. The noncash items relating to the acquisitions of GLOBALT, Inc. and Community Financial Group, Inc. are reflected in Note D.

Note C – Other Comprehensive Income (Loss)

Other comprehensive income (loss) consists of net unrealized gains (losses) on securities available for sale, net unrealized gains (losses) on cash flow hedges, 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, 2002 and 2001 was $99.1 million and $99.2 million, respectively. For the nine months ended September 30, 2002 and 2001, comprehensive income was $277.9 million and $264.5 million, respectively.

Note D – Business Combinations

On May 31, 2002, Synovus acquired all the issued and outstanding common shares of GLOBALT, Inc. (GLOBALT). The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of GLOBALT’s operations have been included in the consolidated financial statements beginning June 1, 2002. GLOBALT is a premier provider of investment advisory services based in Atlanta, Georgia, offering a full line of distinct large cap and mid cap growth equity strategies and products. GLOBALT’s assets under management at June 1, 2002 were approximately $1.3 billion. GLOBALT now operates as a wholly-owned subsidiary of Synovus and as a part of Synovus Financial Management Services, the financial management unit of Synovus.

The aggregate purchase price was $20.0 million, consisting of 702,433 shares of Synovus common stock valued at $19.0 million, $0.9 million in cash, and $100 thousand in direct acquisition costs (which consist primarily of external legal and accounting fees). The value of the common shares issued was determined based on the average market price of Synovus’ common stock over the 2-day period before and after the terms of the acquisition were agreed to and announced.

The terms of the merger agreement provide for additional consideration to the former GLOBALT shareholders. Such consideration will be based on a multiple of earnings before interest, taxes, and depreciation, as defined, for each of the three years ending December 31, 2004, 2005, and 2006.

Synovus is in the process of completing the purchase price allocation relating to the GLOBALT acquisition. The purchase price allocation has been preliminarily determined as follows:

Of the $19.9 million of acquired intangible assets, $15.5 million was allocated to goodwill. The goodwill will not be deductible for tax purposes. The identifiable intangible assets consist of customer contracts and employment/non-compete agreements. The customer contracts have an estimated fair value of $4.3 million, with a weighted-average useful life of 10 years. The employment/non-compete agreements have an estimated fair value of $91 thousand, and a weighted-average useful life of 4 years.

On July 31, 2002 Synovus acquired all the issued and outstanding common shares of Community Financial Group, Inc. (Community Financial). Community Financial is a $500 million asset bank holding company and the parent company of The Bank of Nashville, headquartered in Nashville, Tennessee. The acquisition was accounted for using the purchase method of accounting and accordingly, the results of The Bank of Nashville’s operations have been included in the consolidated financial statements beginning August 1, 2002.

The aggregate purchase price was $87.0 million, consisting of 3,065,235 shares of Synovus common stock valued at $82.207 million, stock options valued at $4.747 million, and $49 thousand in direct acquisition costs (which consist primarily of external legal and accounting fees). The value of the common shares issued was determined based on the average market price of Synovus’ common stock over the 2-day period before and after the terms of the acquisition were agreed to and announced. The fair value of the stock options was determined based on the use of the Black-Scholes option pricing model.

Of the $68.6 million of acquired intangible assets, $61.776 million was allocated to goodwill. The goodwill will not be deductible for tax purposes. The identifiable intangible assets consist of the core deposit premium. The core deposit premium has an estimated fair value of $6.864 million and a weighted-average useful life of 10 years.

Synovus is in the process of completing the purchase price allocation relating to the Community Financial acquisition. The purchase price allocation has been preliminarily determined as follows:

Proforma information relating to the impact of the two aforementioned 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 not significant.

Note E – Operating Segments

Synovus has two reportable segments: Financial Services (formerly banking operations) and Transaction Processing Services. The Financial Services segment is predominately involved in commercial banking activities and also provides retail banking, trust, mortgage, insurance, leasing, and brokerage services. The Transaction Processing Services segment consists of operations at Total System Services, Inc. (TSYS) and ProCard. TSYS provides electronic payment processing services and other related services to card issuing institutions. TSYS Total Debt Management (TDM), acquired by TSYS from Synovus on January 1, 2002, provides recovery collections work, bankruptcy process management, legal account management, and skip tracing. ProCard provides software and Internet tools designed to assist organizations with the management of purchasing, travel, and fleet card programs. With the exception of the newly adopted accounting pronouncements discussed in Note H, the accounting policies of these segments are the same as those described in the summary of significant accounting policies in the 2001 annual report previously filed on Form 10-K. 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, 2002 and 2001 is presented in the following tables:

1. Includes equity in income of joint ventures which is included in other operating income.
2. Consists of net interest income and non-interest income.
3. Principally, electronic payment processing services revenues provided to the Financial Services segment.
4. Minority interest in TSYS and GP Network Corporation (a TSYS subsidiary).
5. Primarily TSYS’ cash deposits with the Financial Services segment.

Note F – Legal Proceedings

Synovus and its subsidiaries are subject to various legal proceedings and claims that arise in the ordinary course of its business. Any litigation is vigorously defended by Synovus and, in the opinion of management, based on consultation with external legal counsel, any outcome of such litigation would not materially affect the consolidated financial position or results of operations.

Currently, a lawsuit seeking class action treatment is pending against one of the Alabama banking subsidiaries that involves the receipt of commissions by that subsidiary in connection with the sale of credit life insurance to its consumer credit customers and the charging of an interest surcharge and a processing fee in connection with consumer loans made by that subsidiary. This lawsuit seeks unspecified damages, including punitive damages. Synovus intends to vigorously contest this lawsuit 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. Two lawsuits seeking class action treatment that were previously pending against the same Alabama banking subsidiary that involved: (1) payment of service fees or interest rebates to automobile dealers in connection with the assignment of automobile credit sales contracts to that subsidiary; and (2) the forced placement of insurance to protect that subsidiary’s interest in collateral for which consumer credit customers have failed to obtain or maintain insurance were dismissed on the motion of the plaintiffs on August 6, 2002.

Note G — Derivative Instruments

As part of its overall interest rate risk management activities, Synovus utilizes interest rate related derivative instruments to manage its exposure to various types of interest rate risks. With the exception of commitments to fund and sell fixed-rate mortgage loans and trading instruments, all derivative instruments utilized by Synovus represent end user activities designed as either a hedge of a recognized fixed-rate asset or liability (a fair value hedge), or a hedge of a forecasted transaction or of the variability of future cash flows of a floating rate asset or liability (cash flow hedge). Synovus does not speculate using derivative instruments.

Synovus’ risk management policies emphasize the management of interest rate risk within acceptable guidelines. Synovus’ objective in maintaining these policies is to achieve consistent growth in net interest income while limiting volatility arising from changes in interest rates. Risks to be managed include both fair value and cash flow risks. Utilization of derivative instruments provides a valuable tool to assist in the management of these risks.

Synovus utilizes interest rate swap agreements to hedge the fair value risk of fixed-rate liabilities, primarily deposit liabilities. Fair value risk is measured as the volatility in the value of these liabilities as interest rates change. Interest rate swaps entered into to manage this risk are designed to have the same notional value as well as similar interest rates and interest calculation methods. These agreements entitle Synovus to receive fixed-rate interest payments and pay floating-rate interest payments based on the notional amount of the swap agreements. Swap agreements structured in this manner allow Synovus to effectively hedge the fair value risks of these fixed-rate liabilities.

Synovus is potentially exposed to cash flow risk due to its holding of loans whose interest payments are based on floating rate indices. Synovus monitors changes in these exposures and their impact on its risk management activities. These agreements, whose original terms are for up to five years, entitle Synovus to receive fixed-rate interest payments and pay floating-rate interest payments. The maturity date of the last agreement is June 1, 2004. These agreements allow Synovus to offset the variability of floating rate loan interest with the variable interest payments due on the interest rate swaps.

The effective portion of changes in the fair value of interest rate swaps designated as hedges of the variability of cash flows associated with floating rate loans are reported in accumulated other comprehensive income. These amounts are subsequently reclassified into interest income as the hedged cash flows affect earnings. The ineffective portion of the gain or loss on hedging derivative instruments, which is reported in earnings, is not material.

By using derivatives to hedge fair value and cash flow risks, Synovus exposes itself to potential credit risk. This potential credit risk is equal to the fair or replacement values of the swaps if the counterparty fails to perform on its obligations under the swap agreements. This credit risk is normally a very small percentage of the notional amount and fluctuates as interest rates change. Synovus minimizes this risk by subjecting the transaction to the same approval process as other credit activities, by dealing with highly rated counterparties, and by obtaining collateral agreements for exposures above predetermined limits.

Synovus enters into interest rate swaps as part of its trading activities which enable its customers to manage their exposures to interest rate risk. Synovus’ market risk from unfavorable movements in interest rates is generally minimized by concurrently entering into offsetting positions with nearly identical notional values, terms and indices.

Interest rate swaps designated as trading are recorded at fair value. Gains and losses arising from changes in fair value are recorded in other income.

Synovus also holds derivative instruments which consist of commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell individual fixed-rate mortgage loans. Synovus’ objective in obtaining the forward commitments is to mitigate the interest rate risk associated with the commitments to fund the fixed-rate mortgage loans and the mortgage loans that are held for sale. Both the rate-lock commitments and the forward commitments that are being used to mitigate the interest rate risk associated with the rate lock commitments, are reported at fair value, with adjustments being recorded in current period earnings, and are not accounted for as hedges. Synovus accounts for its forward sales commitments that are used to mitigate the interest rate risk of its mortgage loans held for sale as fair value hedges.

Note H — Recent Accounting Pronouncements

As a result of the Financial Accounting Standards Board’s (FASB’s) Emerging Issues Task Force Issue No. 01-14 (EITF 01-14), formerly known as Staff Announcement Topic D-103, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred,” reimbursements received by TSYS for out-of-pocket expenses have been included in revenue. Historically, Synovus has not reflected such reimbursements as revenue in its consolidated statements of income. The largest reimbursable items for which TSYS is reimbursed by clients are postage and express courier charges.

EITF 01-14 was adopted as of January 1, 2002. Upon application of EITF 01-14, comparative financial statements for prior periods have been restated to provide consistent presentation.

In July 2001, the FASB issued Statement No. 141 (SFAS No. 141), "Business Combinations" and Statement No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".

Synovus adopted the provisions of SFAS No. 141 effective July 1, 2001, and adopted the provisions of SFAS No. 142 effective January 1, 2002.

SFAS No. 141 required upon the adoption of SFAS No. 142 that Synovus evaluate its existing intangible assets and goodwill that were acquired in prior purchase business combinations, and make any necessary reclassifications to conform with the new criteria in SFAS No. 141 for recognition apart from goodwill. Upon adoption of SFAS No. 142, Synovus was required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments. In addition, to the extent an intangible asset was identified as having an indefinite useful life, Synovus was required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142. Any impairment would have been measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle.

As of June 30, 2002, Synovus had determined the fair value of each reporting unit and compared it to the reporting unit’s carrying amount, including goodwill allocated to the reporting unit. Based on this analysis, Synovus determined that there are no goodwill impairment losses to be recognized as the cumulative effect of a change in accounting principle, since fair values of each reporting unit exceeded the reporting unit’s carrying value.

The table below illustrates net income excluding goodwill amortization, net of tax, for the nine and three months ended September 30, 2001.

Segment information for the changes in the carrying amount of goodwill for the nine months ended September 30, 2002 are as follows:

Other intangible assets (excluding goodwill) as of September 30, 2002 and December 31, 2001 are held by the Financial Services segment, and are presented in the table below.

SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. Management does not expect the adoption of SFAS No. 143 to have a material effect on its financial condition or results of operations.

SFAS No. 144 improves financial reporting by requiring that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and by broadening the presentation of discontinued operations to include more disposal transactions.

SFAS No. 144 was effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The provisions are to be applied prospectively. Synovus adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 was not material to Synovus' financial condition or results of operations.

In April 2002, the FASB issued Statement No. 145 (SFAS No. 145), "Recission of FASB Statements No. 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. SFAS No. 145 requires that in certain circumstances previous items classified as extraordinary that do not meet the criteria in Opinion 30 must be reclassified. The Statement is effective for fiscal years beginning after May 15, 2002. Management does not expect the adoption of SFAS No. 145 to have a material effect on Synovus' financial condition or results of operations.

In July 2002, the FASB issued Statement No. 146 (SFAS No. 146), “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3 (EITF No. 94-3), “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” This Statement requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF No. 94-3. The Statement is effective prospectively for exit or disposal activities initiated after December 31, 2002. Management does not anticipate that the adoption of SFAS No. 146 will have a material impact on Synovus’ financial condition or results of operations.

In October, 2002, the FASB issued Statement No. 147 (SFAS No. 147), "Acquisitions of Certain Financial Institutions." SFAS No. 147 amends SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions", and SFAS No. 144. SFAS No. 147 also amends FASB Interpretation No. 9, "Applying APB Opinions No. 16 and 17, When a Savings and Loan Association or a Similar Institution is Acquired in a Business Combination Accounted for by the Purchase Method." SFAS No. 147 applies to all financial institution acquisitions except those between two or more mutual enterprises. The Statement was effective on October 1, 2002. Management does not expect that the adoption of SFAS No. 147 will have a material impact on Synovus' financial condition or results of operations.

Note I – Pending Acquisitions

On September 25, 2002, Synovus announced the execution of a definitive agreement to acquire the $408 million asset United Financial Holdings, Inc. (United Financial) in St. Petersburg, Florida. United Financial is the parent company of United Bank, United Bank of the Gulf Coast, United Trust Company, and EPW Investment Management, Inc. Both United Bank and United Bank of the Gulf Coast will operate under their existing names, management teams, and local boards of directors. Synovus will issue 2,483,444 shares of its common stock and $34 million in cash for all the outstanding common stock and common stock equivalents of United Financial. Each share of United Financial common stock will be exchanged for either .8021 shares of Synovus common stock, $16.47 of cash, or a combination thereof. The transaction is expected to be completed in the first quarter of 2003.

On September 26, 2002, Synovus announced the signing of a letter of intent to acquire the $341 million asset FNB Newton Bankshares, Inc. (FNB), the parent company of First Nation Bank in Covington, Georgia. FNB has branches serving Newton, Henry, and Rockdale counties, and will further expand Synovus’ growing presence in the high-growth Metro Atlanta area. Synovus will issue 2,503,172 shares of its common stock and $46 million in cash for all the outstanding common stock and common stock equivalents of FNB. Each share of FNB common stock will be exchanged for both 4.1353 shares of Synovus common stock and $85.15 of cash. FNB will continue to operate under its existing name and management team. The transaction is expected to be completed in the first quarter of 2003.

Note J – Other

Certain amounts in 2001 have been reclassified to conform to the presentation adopted in 2002.

ITEM 2 — MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Summary

Net income for the nine months ended September 30, 2002 was $260.9 million, up 15.2% from the same period a year ago. Diluted net income per share for the first nine months of 2002 was $0.87, an increase of 13.3% over $0.77 per share for the same period in 2001. Return on average assets was 2.05% and return on average equity was 19.34% for the nine months ended September 30, 2002. This compares to a return on average assets of 2.00% and a return on average equity of 19.99% for the first nine months of 2001.

Net income for the three months ended September 30, 2002 was $92.3 million, up 16.9% from the same period a year ago. Diluted net income per share was $0.31 for the third quarter, up 15.1% over $0.27 for the same period in 2001. Return on average assets was 2.06% and return on average equity was 19.12% for the three months ended September 30, 2002. This compares to a return on average assets of 2.02% and a return on average equity of 19.93% for the third quarter of 2001.

Critical Accounting Policies

The accounting and financial reporting policies of Synovus conform to accounting principles generally accepted in the United States of America and to general practices within the banking and electronic payment processing industries. Following is a description of the accounting policies applied by Synovus which are deemed “critical.” 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.

       Allowance for Loan Losses:

The allowance for loan losses is established through provisions for loan losses charged to operations. Loans are charged against the allowance for loan losses when management believes that the collection of principal is unlikely. Subsequent recoveries are added to the allowance. Management’s evaluation of the adequacy of the allowance for loan losses is based on a formal analysis which assesses the risk within the loan portfolio. This analysis includes consideration of historical performance, current economic conditions, level of nonperforming loans, loan concentrations, and review of certain individual loans.

Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the subsidiary banks’ allowances for loan losses. Such agencies may require the subsidiary banks to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination.

Management, considering current information and events regarding a borrowers’ ability to repay its obligations, considers a loan to be impaired when the ultimate collectibility of all amounts due, according to the contractual terms of the loan agreement, is in doubt. When a loan is considered to be impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate. If the loan is collateral-dependent, the fair value of the collateral is used to determine the amount of impairment. Impairment losses are included in the allowance for loan losses through a charge to the provision for losses on loans. Subsequent recoveries are added to the allowance for loan losses. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income.

The accounting for impaired loans described above applies to all loans, except for large pools of smaller-balance, homogeneous loans that are collectively evaluated for impairment, loans that are measured at fair value or at the lower of cost or fair value, and debt securities. The allowance for loan losses for large pools of smaller-balance, homogeneous loans is established through consideration of such factors as changes in the nature and volume of the portfolio, overall portfolio quality, adequacy of the underlying collateral, loan concentrations, historical charge-off trends, and economic conditions that may affect the borrowers’ ability to pay.

Certain economic and interest rate factors could have a material impact on the determination of the allowance for loan losses and corresponding credit costs. The depth, duration, and dispersion of any economic recession all have an impact on the credit risk profile of the loan portfolio. Additionally, a rapidly rising interest rate environment which may cause rates to reach double digits could as well have a material impact on certain borrowers’ ability to pay.

Another factor that we have considered in the determination of the allowance for loan losses is loan concentrations to individual borrowers or industries. At September 30, 2002, Synovus had 32 individual credit relationships with total commitments (inclusive of letters of credits) that exceeded $25 million. The average outstanding balance of these credits as of September 30, 2002 is $27.7 million.

A significant portion of the loan portfolio is in the commercial real estate sector. However, these loans are diversified by geography, industry, and loan type.

Synovus is closely monitoring its loan portfolio under the current environment. We have not identified any systemic problem segments within our portfolio.

       Contract Acquisition Costs:

TSYS capitalizes contract acquisition costs related to signing or renewing long-term contracts. These costs, primarily consisting of cash payments for rights to provide processing services and internal conversion and software development costs, are amortized using the straight-line method over the contract term beginning when the client’s cardholder accounts are converted to the system and generating revenues. All costs incurred prior to contract execution are expensed as incurred.

The amortization of contract acquisition costs associated with cash payments is recorded net of revenues in TSYS’ consolidated statements of income. The amortization of contract acquisition costs associated with conversion activity is recorded as other operating expenses in TSYS’ consolidated statements of income. TSYS evaluates the carrying value of contract acquisition costs for impairment for each customer on the basis of whether these costs are fully recoverable from expected undiscounted net operating cash flows of the related contract. The determination of expected undiscounted net operating cash flows requires management to make estimates.

These costs may become impaired with the loss of a contract, the financial decline of a customer, termination of conversion efforts after a contract is signed, diminished prospects for current customers or if TSYS estimates of future cash flows differ from actual results. Capitalized contract acquisition costs are classified in prepaid expenses and other current assets and in other assets.

       Software Development Costs:

TSYS develops software that is used in providing electronic payment processing and other services to clients. Software development costs are capitalized once technological feasibility of the software product has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when TSYS has completed all planning, designing, coding and testing activities that are necessary to determine that a product can be produced to meet its design specifications, including functions, features and technical performance requirements. Capitalization of costs ceases when the product is available to customers for general use. TSYS evaluates the unamortized capitalized costs of software development as compared to the net realizable value of the software product which is determined by projected future undiscounted net cash flows. The amount by which the unamortized software development costs exceed the net realizable value is written off. Software development costs are amortized using the greater of (1) the straight-line method over its estimated useful life (which ranges from 3-10 years) or (2) the ratio of current revenues to total anticipated revenue over its useful life.

Software development costs may become impaired in situations where development efforts are abandoned due to the viability of the planned project becoming doubtful or due to technological obsolescence of the planned software product.

Business Combinations

Refer to notes D and I of the Notes to Consolidated Financial Statements for a discussion of business combinations.

Balance Sheet

During the first nine months of 2002, total assets increased $1.86 billion. This growth includes approximately $600 million in assets from the GLOBALT and Community Financial acquisitions. Loans increased by $1.64 billion, or 17.6 % annualized. Federal funds sold increased by $74.0 million, while mortgage loans held for sale decreased by $160.3 million. Providing the necessary funding for the balance sheet growth during the first nine months of 2002, the deposit base grew $1.50 billion, long-term debt consisting primarily of Federal Home Loan Bank (FHLB) advances increased $241.1 million, and shareholders’ equity increased $264.3 million. These increases were partially offset by a $231.1 million decrease in Federal funds purchased.

Loans

Since year-end 2001, loans have increased by $1.64 billion, or 17.6% annualized. Compared to a year ago, loans grew by 18.6%. Since year-end, 23 of our 39 banks have reported annualized double-digit loan growth. Compared to a year ago, 25 of our banks had double-digit growth. The majority of our loan growth continues to be in the commercial real estate sector. A strong real estate sector in some of our larger markets as well as the coastal regions of Georgia and Florida contributed to the growth in this sector. These loans are diversified by geography, industry, and loan type.

Since lending activities are a significant source of revenue, our main objective is to adhere to sound practices. Operating under a decentralized structure, our lending philosophy is based upon relationship lending as opposed to project lending.

Asset Quality

While charge-offs for the first nine months of 2002 have been higher than historical levels, asset quality has remained strong during 2002. The net charge-off ratio for the first nine months of 2002 was .35% compared to ..30% for the year ended December 31, 2001. The nonperforming assets ratio is 0.59% at September 30, 2002, compared to 0.54% at year-end 2001. The increase in nonperforming loans was due primarily to a large real estate credit added to non-accrual status during the second quarter of 2002. Additionally, The Bank of Nashville acquisition accounted for approximately 2 basis points of the total increase. This increase was partially offset by the charge-off of a large commercial credit in the trucking and transportation industry. Other real estate has increased by $10.0 million since year-end 2001. The increase consists primarily of a $2 million residential development loan, a $2.5 million credit secured by various residential real estate properties, and a $2.8 million agricultural credit.

Past due levels are very positive and near historically low levels. Loans 90 days past due and still accruing at September 30, 2002 were $26.6 million, or 0.19% of total loans, down from $27.1 million, or 0.22% of total loans at December 31, 2001. Past due levels are also lower than a year ago, when loans past due over 90 days were .24% of total loans. These loans are in the process of collection, and management believes that sufficient collateral value securing these loans exists to cover contractual interest and principal payments on the loans. Management further believes the resolution of these delinquencies will not cause a material increase in nonperforming assets.

The allowance for loan losses is $194.0 million, or 1.38% of net loans, at September 30, 2002 compared to $170.8 million, or 1.38% of net loans, at December 31, 2001. For the nine months ended September 30, 2002, the provision for losses on loans was $49.5 million, up 42% from $35.0 million for the nine months ended September 30, 2001. For the three months ended September 30, 2002 the provision for loan losses was $16.4 million, up 52% from $10.8 million for the same period a year ago. The higher provision expense is primarily due to higher charge-offs and robust loan growth. The provision to net charge-offs coverage for the three and nine months ended September 30, 2002 was 1.51 times and 1.44 times, respectively.

The following table shows the composition of the loan portfolio and non-performing loans (sorted by loan purpose) as of September 30, 2002.

Management continuously monitors nonperforming and past due loans, to prevent further deterioration regarding the condition of these loans. Management is not aware of any material loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have been excluded from nonperforming assets. Management further believes nonperforming assets include all material loans in which doubts exist as to the collectibility of amounts due according to the contractual terms of the loan agreement.

Capital Resources and Liquidity

Synovus has always placed great emphasis on maintaining a strong capital base and continues to exceed regulatory capital requirements. Additionally, based on internal calculations and previous regulatory exams, each of the subsidiary banks is currently in compliance with regulatory capital guidelines. Total risk-based capital was $2.106 billion at September 30, 2002, compared to $1.905 billion at December 31, 2001. The ratio of total risk-based capital to risk-weighted assets was 12.52% at September 30, 2002 compared to 12.95% at December 31, 2001. The leverage ratio at the end of the third quarter of 2002 was 10.84% compared to 10.86% at the end of 2001. The equity-to-assets ratio was 10.58% at September 30, 2002 compared to 10.17% at year-end 2001. The equity-to-assets ratio, exclusive of net unrealized gains (losses) on investment securities available for sale, was 10.33% at September 30, 2002, compared to 9.98% at year-end 2001.

Synovus’ management actively analyzes and manages the liquidity position in coordination with the appropriate committees at subsidiary banks. 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. Banking liquidity and sources of funds have not changed significantly since December 31, 2001.

Additionally, subsidiary banks have access to overnight Federal funds lines with various financial institutions, which total approximately $2.9 billion and can be drawn upon for short-term liquidity needs. Synovus also has access to a $25 million line of credit with an unaffiliated banking organization.

The consolidated statements of cash flows detail cash flows from operating, investing, and financing activities. Operating activities provided net cash of $540.0 million during the first nine months of 2002, while $1.461 billion was used by investing activities. Financing activities provided $925.2 million of this amount, resulting in an increase in cash and cash equivalents of $3.7 million.

In 1997, TSYS entered into an operating lease agreement with a special purpose entity (SPE) for the TSYS corporate campus. The business purpose of the SPE was to provide a means of financing TSYS’ corporate campus. The assets and liabilities of the SPE consist solely of the cost of the building and the loans from a consortium of banks. The cost of the building and the outstanding principal balance of the debt included on the financial statements of the SPE both approximate $93.5 million. The lease, which is guaranteed by Synovus, provides for substantial residual value guarantees. The amount of TSYS’ residual value guarantee relative to the assets under this lease is approximately $81.4 million. In accordance with current accounting principles, no asset or obligation is recorded on Synovus’ consolidated balance sheets.

The terms of this lease financing arrangement require, among other things, that TSYS maintain certain minimum financial ratios and provide certain information to the lessor. TSYS is also subject to interest rate risk associated with the lease on its campus facilities because of the short-term variable rate nature of the SPE’s debt. The payments under the operating lease arrangement, which can be locked in for six month intervals, are tied to the London Interbank Offered Rate (LIBOR) plus a margin ranging from 45 basis points to 135 basis points. In the event that LIBOR rates increase, operating expenses could increase proportionately.

The campus lease expires November 2002. TSYS has the option to either renew the lease subject to prevailing market rates or purchase the property at its original cost. TSYS is in the process of renewing the lease for a period up to 12 months. Under the proposed 12-month renewal, payments under the operating lease arrangement will be tied to the LIBOR plus a margin ranging from 95 basis points to 185 basis points. TSYS is currently evaluating its financing alternatives for 2003 after the renewal period expires but expects to refinance in a manner in which operating expenses are estimated to increase.

If TSYS elects to purchase the property from the SPE, such funds would be used to repay the SPE loan facility. TSYS has several options available for financing the purchase of the property. Sources of financing may include short-term and/or long-term borrowings from financial institutions or the issuance of equity or debt securities.

Earning Assets, Sources of Funds, and Net Interest Income

Average total assets for the first nine months of 2002 were $17.0 billion, up 12.4% over the first nine months of 2001. Average earning assets were up 12.9% in the first nine months of 2002 over the same period last year and represented 90.6% of average total assets. When compared to the same period last year, average deposits increased $1.4 billion, average Federal funds purchased and securities sold under repurchase agreements increased $35 million, average long-term debt consisting primarily of FHLB advances and two senior notes increased $259.3 million, and average shareholders’ equity increased $289.8 million. This growth provided the funding for the $1.7 billion growth in average net loans and a $39.9 million growth in average mortgage loans held for sale.

Net interest income was $530.9 million for the nine months ended September 30, 2002, up $71.9 million, or 15.7% over the $459.0 million reported for the nine months ended September 30, 2001. Net interest income, on a tax-equivalent basis, for the first nine months of 2002 increased $71.9 million, or 15.5%, over the same period in 2001.

The year-to-date 2002 net interest margin was 4.70%, up eleven basis points from the prior year-to-date. This increase resulted from a 164 basis point decrease in the yield on earning assets, which was offset by a 175 basis point decrease in the effective cost of funds. The decreased yield on earning assets was primarily due to lower yields on loans. This was largely due to a 275 basis point decrease in the average Prime rate as compared to the prior year-to-date. The decreased effective cost of funds was due to lower average rates paid on interest-bearing funding.

Net interest income was $182.9 million for the third quarter of 2002, up $24.2 million, or 15.3% over the $158.7 million reported for the third quarter of 2001. Net interest income, on a tax-equivalent basis, for the third quarter of 2002 increased $24.2 million, or 15.1%, over the third quarter of 2001.

The third quarter 2002 net interest margin was 4.64%, up two basis points from the same period last year. This increase resulted from a 133 basis point decrease in the yield on earning assets, which was offset by a 135 basis point decrease in the effective cost of funds. The decreased yield on earning assets was primarily due to lower yields on loans. This was largely due to a 182 basis point decrease in the average Prime rate as compared to the third quarter of 2001. The decreased effective cost of funds was due to lower average rates paid on interest-bearing funding.

On a sequential quarter basis, the net interest margin was down 7 basis points while net interest income was up $7.6 million. The moderate decrease in the margin was primarily due to the continued strong growth of the Prime rate-based floating rate loan portfolio. Due to the current low interest rate environment and steep yield curve, these loans are lower yielding than fixed rate loans. While these floating rate loans modestly reduce the overall margin at the present time, they should serve us well when the economy strengthens and short-term rates increase from their current historically low level.

Synovus had anticipated further modest pressure on the margin during the fourth quarter, primarily due to fixed rate asset repricing. In addition to this repricing, action taken by the Federal Reserve on November 6^th to reduce short term interest rates by 50 basis points is expected to have a moderate negative impact on the margin. Currently, Synovus anticipates that its net interest margin will decrease by 9 basis points to approximately 4.55% in the fourth quarter.

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 table below. The taxable-equivalent adjustment is based on a 35% Federal income tax rate.

Non-Interest Income

Total non-interest income during the first nine months of 2002 increased $39.2 million, or 4.6%, over the same period in 2001. Total non-interest income excluding reimbursable items and an impairment loss on a private equity investment during the first nine months of 2002 increased $51.2 million, or 7.5%, over the same period in 2001.

For the year-to-date, Financial Services’ reported non-interest income was up 2.1% as compared to the same period a year ago. Non-interest income for the nine months ended September 30, 2001 included a $10 million pre-tax gain from the sale of our ownership in the Star System ATM network. The first nine months of 2002 include an $8.4 million impairment loss on a private equity investment. Excluding these two items, non-interest income is up 13% over the prior year. Service charges on deposits, the single largest component of Financial Services non-interest income, are up 11.5% over the prior year. Financial Management Services and insurance revenues increased 17.4% over the same period last year. Mortgage revenues were unchanged compared to the same period a year ago, after increasing by over 77% in 2001.

For the three months ended September 30, 2002, Financial Services’ non-interest income was up 17.4% as compared to the third quarter last year. Mortgage revenues were up 20.8% compared to the third quarter of 2001. Mortgage production for the third quarter of 2002 was $613.0 million, up 30% from $469.9 million for the same period in 2001. Financial Management Services and insurance revenues increased 19.4% over the third quarter last year, while service charges on deposits increased 14.8%.

Financial Services’ fee income as a percentage of total revenues – excluding securities gains and losses – was 26.37% for the first nine months of 2002, and 27.04% for the third quarter of 2002.

Transaction Processing Services’ revenues consist of revenues from TSYS and ProCard. The majority of these revenues are derived from providing electronic payment processing and related services to banks and other institutions, generally under long-term processing contracts. TSYS’ services are provided throughout the United States, Mexico, Canada, Honduras, the Caribbean, and Europe. TSYS also offers merchant services to financial institutions and other organizations in Japan.

Due to the seasonal nature of credit card transactions, TSYS’ revenues and results of operations have generally increased in the fourth quarter of each year because of increased transaction and authorization volumes during the traditional holiday shopping season. Furthermore, growth in card portfolios of existing clients, the conversion of cardholder accounts of new clients to TSYS processing platforms, and the loss of cardholder accounts impact the results of operations from period to period. Another factor, among others, which may affect TSYS’ revenues and results of operations from time to time is the sale by a client of its business, its card portfolio, or a segment of its accounts to a party which processes cardholder accounts internally or uses another third-party processor.

TSYS’ revenues from electronic payment processing services increased $11.6 million, or 8.2%, and $30.6 million, or 7.4%, for the three and nine months ended September 30, 2002, respectively, compared to the same periods in 2001. Due to the number of cardholder accounts processed by TSYS and the expanding use of cards, as well as increases in the scope of services offered to clients, revenues relating to electronic payment processing services have continued to grow.

Average cardholder accounts on file for the three months ended September 30, 2002 were 231.8 million, an increase of approximately 10.0% over the average of 210.7 million for the same period in 2001. Average cardholder accounts on file for the nine months ended September 30, 2002 were 228.4 million, an increase of approximately 12.7% over the average of 202.7 million for the same period in 2001. Cardholder accounts on file at September 30, 2002 were 235.8 million, an 11.0% increase compared to the 212.4 million accounts on file at September 30, 2001. The change in cardholder accounts on file from September 2001 to September 2002 included the deconversion and purging of 11.0 million accounts, the addition of approximately 22.2 million accounts attributable to the internal growth of existing clients, and approximately 12.2 million accounts for new clients.

TSYS expects to continue expanding its market share in the consumer, retail, and commercial card arenas. TSYS’ future growth in consumer cards is dependent upon new clients, international expansion, and continued internal growth of clients’ portfolios.

A significant amount of TSYS’ revenues is derived from long-term contracts with large clients, including certain major clients. For the three months ended September 30, 2002, TSYS had two major clients. The two major clients for the quarter ended September 30, 2002 accounted for approximately 31.4%, or $73.5 million, of TSYS’ total revenues. For the three months ended September 30, 2001, TSYS had two major clients that accounted for 36.7%, or $79.2 million, of TSYS’ total revenues. The two major clients for the nine months ended September 30, 2002 accounted for approximately 33.4%, or $232.3 million, of TSYS’ revenues. For the nine months ended September 30, 2001, TSYS had two major clients that accounted for 37.1%, or $242.0 million, of its revenues. The loss of one of TSYS’ major clients, or other significant clients, could have a material adverse effect on TSYS’ financial condition and results of operations.

In October 2001, TSYS announced it had signed a 10-year extension to its long-term credit card processing agreement with one of its major clients, Providian Financial Corporation (Providian), which included a cash payment for processing rights of $12.7 million. In late 2001 and in 2002, Providian made several announcements regarding concerns about its financial status, related changes in management, and the sale of a portion of its portfolio. As a result of these announcements, TSYS management is actively monitoring Providian’s financial status through frequent interaction with Providian’s senior management.

Non-Interest Expense

Total non-interest expense for the nine months ended September 30, 2002 increased $43.6 million, or 4.8%, over the same period in 2001. Total non-interest expense excluding reimbursable items for the nine months ended September 30, 2002 increased $47.2 million, or 6.4%. Management analyzes non-interest expense in two separate components: Financial Services and Transaction Processing Services.

The following tables summarize this data for the nine and three months ended September 30, 2002 and 2001.

(*) The added totals are greater than the consolidated totals due to inter-segment balances which are eliminated in consolidation.

Financial Services’ non-interest expense increased $26.6 million, or 7.7%, for the nine months ended September 30, 2002, compared to the same period in 2001. For the three months ended September 30, 2002 reported non-interest expense increased $16.8 million or 14.4% compared to the same period in 2001. Non-interest expense growth in the third quarter of 2002 was impacted by acquisitions and an increase in incentive pay expense. The efficiency ratio for the quarter was 52.78% compared to 53.29% for the third quarter of 2001. The number of full-time equivalent employees at September 30, 2002 was 5,654, compared to 5,338 a year ago. Acquisitions account for 208 of the total increase in full-time equivalent employees.

Approximately 98% of total Transaction Processing Services’ non-interest expense relates to TSYS, with the remainder related to ProCard. The increase in salaries and other personnel expenses is primarily related to the growth in the number of employees, normal salary increases, and related benefits. Full-time equivalent employees for Transaction Processing Services are 5,234 at September 30, 2002 compared to 5,206 at December 31, 2001.

During 2000, TSYS established a data processing center in Europe and purchased a building to house client services personnel. Although TSYS only began processing accounts for its new European clients in mid-2001, TSYS had to build the necessary infrastructure in order to begin processing those accounts in 2001. Through the first nine months of 2001, TSYS incurred $9.4 million of net operating expenses related to the expansion in Europe.

Net occupancy and equipment expense for the nine months ended September 30, 2002 reflects the benefit of an approximtely $4 million sales and use tax refund recorded in the second quarter of 2002. This refund was the result of new legislation whereby TSYS recovered approximately $4 million of sales and use tax paid and expensed in 2001. The sales and use tax was associated with computer equipment and software rentals which occurred in 2001.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2002 was $145.6 million compared to $129.9 million for the same period a year ago. The effective tax rate for the first nine months of 2002 was 35.8% compared to 36.5% for the same period in 2001.

Income tax expense for the three months ended September 30, 2002 was $51.6 million compared to $44.9 million for the same period a year ago. The effective tax rate for the three months ended September 30, 2002 was 35.9% compared to 36.3% for the same period in 2001.

Earnings Outlook

Synovus expects to achieve 15% growth in earnings per share in 2002.

Two years ago we believed, under the then existing economic environment, that our earnings per share growth for 2003 would be in the 15-18% range. The majority of the assumptions on which we based these growth targets have changed, most significantly, TSYS signing and converting a major client that would have provided substantial revenues in 2003. Since this signing and conversion has not occurred to date, we now expect our earnings per share growth to be within the 10-14% range for 2003 based, in part, upon the following assumptions:

• Banking services’ net income increases between 10-14%, with a net interest margin of approximately 4.60%, loan growth of between 10-12%, and credit quality will remain at currently stable levels.

• Financial Management Services and insurance revenues will increase between 15-20%.

• Increases in Financial Services’ expenses will not exceed 4%.

• TSYS will increase net income between 12-15%.

Synovus expects to continue its strategy of selling banking locations in low growth markets and aggressively redeploying the capital and resources derived from exiting these markets into high growth markets. As part of this strategy, Synovus will exit several banking markets in the current year and expects to recognize a gain from the sale of its banking locations in these markets in the fourth quarter of 2002.

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”). These forward-looking statements include, among others, statements regarding management’s belief concerning the expected impact on Synovus of recent accounting pronouncements; management’s belief with respect to the adequacy of the allowance for loan losses, the impact of the resolution of certain loan delinquencies on nonperforming assets, and the inclusion of all material loans in which doubt exists as to collectibility in nonperforming assets and impaired loans; Synovus’ expected net interest margin for the fourth quarter of 2002; Synovus’ expected growth in earnings per share for 2002 and 2003; the expected redeployment of capital derived from the anticipated sale of several of its banking locations; and the assumptions underlying such statements, including, with respect to Synovus’ expected increases in earnings per share for 2003; expected increases of 10-14% in banking services’ net income, with a net interest margin of approximately 4.60%, loan growth of between 10-12%, and credit quality remaining stable; expected increase of 15-20% in Financial Management Services and insurance revenues; expected increase of 12-15% in net income of TSYS; and expected increase in Financial Services’ expenses of not more than 4%. 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.

Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements. Many of these factors are beyond Synovus’ ability to control or predict. These factors include, but are not limited to: (i) Synovus’ inability to increase its revenues derived from Financial Management Services and insurance; (ii) TSYS’ inability to achieve its net income goal for 2003 (whether arising out of TSYS’ inability to successfully bring new products and services to market, adverse developments with respect to TSYS’ sub-prime clients, TSYS’ inability to control expenses, or otherwise); (iii) Synovus’ inability to achieve its net income goals for banking services; (iv) Synovus’ inability to control Financial Services’ expenses; (v) TSYS’ inability to sign new clients; (vi) the strength of the U.S. economy in general and the strength of the local economies in which operations are conducted; (vii) the effects of and changes in trade, monetary and fiscal policies, and laws, including interest rate policies of the Federal Reserve Board; (viii) inflation, interest rate, market and monetary fluctuations; (ix) the timely development of and acceptance of new products and services and perceived overall value of these products and services by users; (x) changes in consumer spending, borrowing, and saving habits; (xi) technological changes are more difficult or expensive than anticipated; (xii) acquisitions; (xiii) the ability to increase market share and control expenses; (xiv) 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; (xv) 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; (xvi) changes in Synovus’ organization, compensation, and benefit plans; (xvii) the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; (xviii) a deterioration in credit quality or a reduced demand for credit; (xix) Synovus’ inability to successfully manage any impact from slowing economic conditions or consumer spending; (xx) the occurrence of catastrophic events that could impact Synovus or TSYS or its major clients’ operating facilities, communication systems and technology or that has a material negative impact on current economic conditions or levels of consumer spending; (xxi) successfully managing the potential both for patent protection and patent liability in the context of rapidly developing legal framework for expansive software patent protection; (xxii) Synovus’ inability to divest itself of assets in low growth markets and successfully redeploy the capital derived from divestitures; (xxiii) hostilities in the Middle East or elsewhere; and (xxiv) 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

During the first nine months of 2002, Synovus has experienced a shortening of the expected average maturity and repricing frequency of its earning asset base. This shortening is primarily due to substantially all of its net loan growth in 2002 having its interest rate tied to a short term index, primarily the Prime rate. Lower market rates have also led to a higher level of prepayment activity in Synovus’ investment portfolio which serves to shorten the expected average life of this portfolio. This shortening of Synovus’ earning asset base has been more significant than the concurrent shortening of the funding supporting this earning asset base. These changes in Synovus’ asset liability mix have resulted in an increased level of net asset sensitivity to changes in market interest rates.

Synovus measures its sensitivity to changes in market interest rates through the use of a simulation model. Synovus uses this simulation model to determine a baseline net interest income forecast and the sensitivity of this forecast to changes in interest rates. These simulations include all of Synovus’ earning assets, liabilities, and derivative instruments. Forecasted balance sheet changes, primarily reflecting loan and deposit growth forecasts, are included in the periods modeled.

Synovus models its baseline net interest income forecast assuming an unchanged or flat interest rate environment. Synovus has modeled the impact of a gradual increase and decrease in short term rates of 100 basis points to determine the sensitivity of net interest income for the next twelve months. In the gradual 100 basis point decrease scenario, net interest income is expected to decrease by approximately 2% as compared to an unchanged interest rate environment. In the gradual 100 basis point increase scenario, net interest income is expected to increase by 3% as compared to an unchanged interest rate environment. While these estimates are reflective of the general interest rate sensitivity of Synovus, local market conditions and their impact on loan and deposit pricing would be expected to have a significant impact on the realized level of net interest income. Actual realized balance sheet growth and mix will also impact the realized level of net interest income.

ITEM 4 – CONTROLS AND PROCEDURES

As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures within 90 days of the filing date of this quarterly report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of our disclosure controls and procedures are effective. There were no significant changes to our internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

(b) Reports on Form 8-K

The following reports on Form 8-K were filed subsequent to the second quarter of 2002.

     The report filed on October 15, 2002, included the following event:

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Certification of Chief Executive Officer

Certification of Chief Financial Officer

INDEX TO EXHIBITS

Exhibit Number          Description