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In November, 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 in August 1998. 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. Though settlement negotiations have
occurred, these negotiations have to date not resulted in a definitive
settlement agreement among the parties. TSYS is not in a position to
determine its possible exposure, if any, as a result of this litigation.
The following table sets forth certain information regarding
federal funds purchased and securities sold under agreement to repurchase,
the principal components of short-term borrowings.
Income Tax Expense
As reported in the consolidated statements of income, Synovus' income tax expense increased to $124.0 million in 1999, up from $107.6 million in 1998, and $96.2 million in 1997. The effective income tax rate was 35.5%, 35.4%, and 36.0% in 1999, 1998, and 1997, respectively. See Note 7 to Synovus' consolidated financial statements for a detailed analysis of income taxes.
Inflation
Inflation has an important impact on the growth of total assets in the banking industry and may create a need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Synovus has been able to maintain a high level of equity through retention of an appropriate percentage of its net income. Synovus copes with the effects of inflation by managing its interest rate sensitivity gap position through its asset/liability management program and by periodically adjusting its pricing of services and banking products to take into consideration current costs.
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Parent Company
The Parent Company's assets, primarily its investment in subsidiaries,
are funded, for the most part, by shareholders' equity. It also utilizes
short-term and long-term debt. The Parent Company is responsible for
providing the necessary funds to strengthen the capital of its subsidiaries,
acquire new business, fund internal growth, pay corporate operating
expenses, and pay dividends to its shareholders. These operations are
funded by dividends and fees received from subsidiaries, and borrowings
from outside sources.
In connection with dividend payments to the Parent Company
from its subsidiary banks, certain rules and regulations of the various
state and federal banking regulatory agencies limit the amount of dividends
which may be paid. Approximately $109.7 million in dividends could be
paid in 2000 to the Parent Company from its subsidiary banks without
prior regulatory approval. Synovus anticipates receiving regulatory
approval to allow certain subsidiaries to pay dividends in excess of
their respective regulatory limits.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued 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.
Forward-Looking Statements
Certain statements contained in this Annual Report which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the "Act"). In addition, certain statements in future filings by Synovus with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of Synovus which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not
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