UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

Commission File Number 1-10312

(Exact name of registrant as specified in its charter)

GEORGIA		58-1134883
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1111 Bay Avenue, Suite # 500
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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12B-2 of the Exchange Act.

Large Accelerated Filer þ   Accelerated Filer o   Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12B-2 of the Exchange Act).

Yes o   No þ

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.

Class		July 31, 2006
Common Stock, $1.00 Par Value		324,030,639 shares

 

 

SYNOVUS FINANCIAL CORP.

INDEX

Part I.		Financial Information:
Item 1.		Unaudited Financial Statements
		Consolidated Balance Sheets June 30, 2006 and December 31, 2005			3
		Consolidated Statements of Income Six and Three Months Ended June 30, 2006 and 2005			4
		Consolidated Statements of Cash Flows Six Months Ended June 30, 2006 and 2005			5
		Notes to Consolidated Financial Statements			6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			44
Item 4.		Controls and Procedures			45
Part II.		Other Information:
Item 1A		Risk Factors			46
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 4.		Submission of Matters to a Vote of Security Holders			47
Item 6.		Exhibits			49
Signature Page					50
Exhibit Index					51
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32 SECTION 906 CERTIFICATION OF THE CEO & CFO

PART I. FINANCIAL INFORMATION

SYNOVUS FINANCIAL CORP.

		June 30,				December 31,
(In thousands, except share data)		2006				2005
ASSETS
Cash and due from banks		$	887,154				880,886
Interest earning deposits with banks			11,885				2,980
Federal funds sold and securities purchased under resale agreements			203,631				68,922
Trading account assets			46,939				27,322
Mortgage loans held for sale			170,650				143,144
Investment securities available for sale			3,137,486				2,958,320
Loans, net of unearned income			23,661,964				21,392,347
Allowance for loan losses			(313,694	)			(289,612	)
Loans, net			23,348,270				21,102,735
Premises and equipment, net			707,988				669,425
Contract acquisition costs and computer software, net			406,793				431,849
Goodwill, net			607,501				458,382
Other intangible assets, net			52,894				44,867
Other assets			945,897				831,840
Total assets		$	30,527,088				27,620,672
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing retail and commercial deposits		$	3,806,277				3,700,750
Interest bearing retail and commercial deposits			16,124,042				14,798,845
Total retail and commercial deposits			19,930,319				18,499,595
Brokered time deposits			3,123,380				2,284,770
Total deposits			23,053,699				20,784,365
Federal funds purchased and securities sold under repurchase agreements			1,974,272				1,158,669
Long-term debt			1,421,578				1,933,638
Other liabilities			488,559				597,698
Total liabilities			26,938,108				24,474,370
Minority interest in consolidated subsidiaries			215,521				196,973
Shareholders’ equity:
Common stock — $1.00 par value. Authorized 600,000,000 shares; issued 329,097,369 in 2006 and 318,301,275 in 2005; outstanding 323,435,831 in 2006 and 312,639,737 in 2005			329,097				318,301
Surplus			960,054				686,447
Treasury stock – 5,661,538 shares in 2006 and 2005			(113,944	)			(113,944	)
Unearned compensation			—				(3,126	)
Accumulated other comprehensive loss			(54,783	)			(29,536	)
Retained earnings			2,253,035				2,091,187
Total shareholders’ equity			3,373,459				2,949,329
Total liabilities and shareholders’ equity		$	30,527,088				27,620,672

See accompanying Notes to Consolidated Financial Statements.

SYNOVUS FINANCIAL CORP.

		Six Months Ended								Three Months Ended
		June 30,								June 30,
(In thousands, except per share data)		2006				2005				2006				2005
Interest income:
Loans, including fees		$	863,961				632,900				459,111				329,785
Investment securities			64,520				52,735				33,809				26,615
Trading account assets			1,384				—				685				—
Mortgage loans held for sale			4,274				3,092				2,340				1,745
Federal funds sold and securities purchased under resale agreements			2,946				1,699				1,705				993
Interest earning deposits with banks			121				55				63				37
Total interest income			937,206				690,481				497,713				359,175
Interest expense:
Deposits			312,171				170,917				171,757				93,397
Federal funds purchased and securities sold under repurchase agreements			37,162				17,504				21,010				8,606
Long-term debt			38,234				38,133				17,743				20,107
Total interest expense			387,567				226,554				210,510				122,110
Net interest income			549,639				463,927				287,203				237,065
Provision for losses on loans			38,083				42,106				18,534				22,823
Net interest income after provision for losses on loans			511,556				421,821				268,669				214,242
Non-interest income:
Electronic payment processing services			454,990				420,947				234,518				215,784
Merchant services			129,769				95,801				65,820				68,696
Other transaction processing services revenue			91,588				93,838				46,463				45,324
Service charges on deposit accounts			56,123				54,994				29,410				28,004
Fiduciary and asset management fees			23,222				22,175				11,509				11,138
Brokerage and investment banking revenue			13,506				12,070				6,559				5,807
Mortgage banking income			13,978				13,328				8,105				7,430
Bankcard fees			21,527				17,691				10,992				9,462
Securities gains (losses), net			(1,136	)			598				(1,062	)			327
Other fee income			18,988				15,319				10,038				7,834
Other operating income			18,435				16,311				9,263				7,325
Non-interest income before reimbursable items			840,990				763,072				431,615				407,131
Reimbursable items			168,638				148,330				86,138				79,161
Total non-interest income			1,009,628				911,402				517,753				486,292
Non-interest expense:
Salaries and other personnel expense			461,605				398,425				233,847				208,596
Net occupancy and equipment expense			197,195				175,473				99,495				88,839
Other operating expenses			218,770				202,623				112,934				110,015
Non-interest expense before reimbursable items			877,570				776,521				446,276				407,450
Reimbursable items			168,638				148,330				86,138				79,161
Total non-interest expense			1,046,208				924,851				532,414				486,611
Minority interest in subsidiaries’ net income			20,905				18,504				11,165				9,672
Income before income taxes			454,071				389,868				242,843				204,251
Income tax expense			166,767				144,674				90,046				75,791
Net income		$	287,304				245,194				152,797				128,460
Net income per share:
Basic		$	0.90				0.79				0.47				0.41
Diluted			0.90				0.78				0.47				0.41
Weighted average shares outstanding:
Basic			318,236				310,890				322,783				311,154
Diluted			320,840				314,297				325,421				314,691
Dividends declared per share		$	0.39				0.37				0.20				0.18

See accompanying Notes to Consolidated Financial Statements.

SYNOVUS FINANCIAL CORP.

		Six months Ended
		June 30,
(In thousands)		2006				2005
Cash flows from operating activities:
Net income		$	287,304				245,194
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for losses on loans			38,083				42,106
Depreciation, amortization and accretion, net			97,970				92,258
Increase in interest receivable			(63,054	)			(16,977	)
Increase in interest payable			25,311				7,729
Equity in income of joint ventures			(1,871	)			(4,340	)
Minority interest in subsidiaries’ net income			20,905				18,504
Increase in trading account assets			(19,617	)			—
Originations of mortgage loans held for sale			(736,200	)			(696,752	)
Proceeds from sales of mortgage loans held for sale			708,415				661,709
Increase in prepaid and other assets			(10,614	)			(106,614	)
Decrease in other liabilities			(8,614	)			(37,774	)
Impairment of developed software			—				3,137
Share-based compensation			13,259				1,114
Decrease in accrued salaries and employee benefits			(63,362	)			(29,568	)
Other, net			913				(38,455	)
Net cash provided by operating activities			288,828				141,271
Cash flows from investing activities:
Net cash received from (paid for) acquisitions			14,800				(56,983	)
Net increase in interest earning deposits with banks			(8,905	)			(10,117	)
Net increase in federal funds sold and securities purchased under resale agreements			(129,927	)			(209,487	)
Proceeds from maturities and principal collections of investment securities available for sale			235,293				458,081
Proceeds from sales of investment securities available for sale			111,593				33,744
Purchases of investment securities available for sale			(444,720	)			(562,517	)
Net increase in loans			(1,491,044	)			(999,438	)
Purchases of premises and equipment			(64,361	)			(52,085	)
Proceeds from disposal of premises and equipment			348				1,799
Increase in contract acquisition costs			(22,339	)			(10,981	)
Additions to licensed computer software from vendors			(4,437	)			(12,020	)
Additions to internally developed computer software			(8,999	)			(9,015	)
Net cash used by investing activities			(1,812,698	)			(1,429,019	)
Cash flows from financing activities:
Net increase in demand and savings deposits			449,389				768,655
Net increase in certificates of deposit			1,006,439				760,355
Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements			762,864				(483,635	)
Principal repayments on long-term debt			(570,679	)			(159,280	)
Proceeds from issuance of long-term debt			23,500				614,841
Excess tax benefit from share-based payment arrangements			4,853				—
Dividends paid to shareholders			(181,317	)			(110,460	)
Proceeds from issuance of common stock			33,294				28,018
Net cash provided by financing activities			1,528,343				1,418,494
Effect of exchange rate changes on cash and cash equivalent balances held in foreign currencies			1,795				(2,000	)
Increase in cash and due from banks			6,268				128,746
Cash and due from banks at beginning of period			880,886				683,035
Cash and due from banks at end of period		$	887,154				811,781

See accompanying Notes to Consolidated Financial Statements.

SYNOVUS FINANCIAL CORP.

Note 1 — 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 that, 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 2005 annual report previously filed on Form 10-K.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the respective balance sheets and the reported amounts of revenues and expenses for the periods presented. Actual results could differ significantly from those estimates.

Note 2 — Supplemental Cash Flow Information

For the six months ended June 30, 2006 and 2005, Synovus paid income taxes (net of refunds received) of $190.4 million and $143.6 million, respectively. For the six months ended June 30, 2006 and 2005, Synovus paid interest of $360.4 million and $216.1 million, respectively.

Non-cash investing activities consisted of loans of approximately $19.9 million and $11.2 million, which were foreclosed and transferred to other real estate during the six months ended June 30, 2006 and 2005, respectively.

Significant non-cash items for the six months ended June 30, 2006 related to the acquisition of Riverside Bancshares, Inc. and Banking Corporation of Florida consist of $812.5 million in net loans, $121.3 million in investment securities available for sale, $155.0 million in goodwill, and $813.5 million in deposits.

Note 3 — Comprehensive Income

Other comprehensive income (loss) consists of change in net unrealized gains (losses) on cash flow hedges, change in net unrealized gains (losses) on investment securities available for sale, and gains (losses) on foreign currency translation. Comprehensive income consists of net income plus other comprehensive income (loss). Comprehensive income for the six and three months ended June 30, 2006 and 2005 is presented below:

		Six Months Ended June 30,								Three Months Ended June 30,
(in thousands)		2006				2005				2006				2005
Comprehensive income:
Net income		$	287,304				245,194				152,797				128,460
Other comprehensive income (loss), net of tax:
Change in net unrealized gains (losses) on cash flow hedges			(1,054	)			869				48				(1,532	)
Change in net unrealized gains/losses on investment securities available for sale, net of reclassification adjustment			(28,000	)			(5,940	)			(15,113	)			14,986
Gains (losses) on foreign currency translation			3,807				(4,348	)			3,472				(2,384	)
Other comprehensive income (loss)			(25,247	)			(9,419	)			(11,593	)			11,070
Comprehensive income		$	262,057				235,775				141,204				139,530

Note 4 — Derivative Instruments

Synovus accounts for its derivative financial instruments under Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 requires recognition of all derivatives as either assets or

liabilities on the balance sheet and requires measurement of those instruments at fair value through adjustments to either the hedged items, accumulated other comprehensive income, or current earnings, as appropriate. As part of its overall interest rate risk management activities, Synovus utilizes derivative instruments to manage its exposure to various types of interest rate risks. These derivative instruments consist primarily of interest rate swaps and commitments to sell mortgage loans. The interest rate lock commitments made to prospective mortgage loan customers also represent derivative instruments since it is intended that such loans will be sold.

Interest rate swap transactions generally involve the exchange of fixed-rate and floating-rate interest payment obligations without the exchange of the underlying notional amounts. Entering into interest rate contracts involves not only interest rate risk, but also the risk of counterparties’ failure to fulfill their legal obligations. Notional amounts often are used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller.

A summary of interest rate swap contracts utilized for interest rate risk management at June 30, 2006 is shown in the following table.

						Weighted-Average
														Maturity												Net
		Notional				Receive				Pay				In				Unrealized								Unrealized
(Dollars in		Amount				Rate				Rate(*)				Months				Gains				Losses				Gains
thousands)																										(Losses)
Receive fixed swaps:
Fair value hedges		$	1,762,500				4.76	%			4.80	%			40				5,872				(33,038	)			(27,166	)
Cash flow hedges			750,000				7.74	%			8.25	%			41				27				(10,000	)			(9,973	)
Total		$	2,512,500				5.65	%			5.83	%			40				5,899				(43,038	)			(37,139	)

At June 30, 2006, outstanding commitments to sell mortgage loans amounted to approximately $217.4 million. Such commitments are entered into to reduce the exposure to market risk arising from potential changes in interest rates, which could affect the fair value of mortgage loans held for sale and outstanding commitments to originate mortgage loans for resale. The commitments to sell mortgage loans are at fixed prices and are scheduled to settle at specified dates that generally do not exceed 90 days. The fair value of outstanding commitments to sell mortgage loans at June 30, 2006 was an unrealized gain of $1.0 million.

At June 30, 2006, Synovus had commitments to fund fixed-rate mortgage loans to customers in the amount of $143.7 million. The fair value of these commitments at June 30, 2006 was an unrealized loss of $690,000.

Synovus also enters into derivative financial instruments to meet the financing and interest rate risk management needs of its customers. Upon entering into these instruments to meet customer needs, Synovus enters into offsetting positions in order to minimize the risk to Synovus. These derivative financial instruments are recorded at fair value with any resulting gain or loss recorded in current period earnings. As of June 30, 2006, the notional amount of customer related derivative financial instruments was $1.53 billion.

Note 5 – Share-Based Compensation

General Description of Share-Based Compensation Plans

Synovus has various long-term incentive plans under which the Compensation Committee of the Board of Directors has the authority to grant share-based compensation to Synovus employees. At June 30, 2006, Synovus had a total of 3,982,444 shares of its authorized but unissued common stock reserved for future grants under three long-term incentive plans. The general terms of each of these plans are substantially the same, permitting the grant of share-based compensation including stock options, non-vested shares, and stock appreciation rights. These plans include vesting periods ranging from two to three years and contractual terms ranging from five to ten years. Stock options are granted at exercise prices which equal the fair market value of a share of common stock on the grant-date. Synovus historically issues new shares to satisfy share option exercises.

Stock options granted in 2006 generally become exercisable over a three-year period, with one-third of the total grant amount vesting on each anniversary of the grant-date, and expire ten years from the date of grant. Vesting for stock options granted during 2006 accelerates upon retirement for plan participants who have reached age 62 and who also have no less than fifteen years of service at the date of their election to retire. For stock options granted in 2006, share-based compensation expense is recognized for plan participants on a straight-line basis over the shorter of the vesting period or the period until reaching retirement eligibility.

Stock options granted prior to 2006 generally become exercisable at the end of a two to three-year vesting period and expire ten years from the date of grant. Vesting for stock options granted prior to 2006 accelerates upon retirement for plan participants who have reached age 50 and who also have no less than fifteen years of service at the date of their election to retire. Prior to adoption of SFAS No. 123R “Share-Based Payment,” on January 1, 2006, share-based compensation expense was recognized in Synovus’ pro forma disclosure over the nominal vesting period without consideration for retirement eligibility. Following adoption of SFAS No. 123R, share-based compensation expense for all new awards is recognized in income over the shorter of the vesting period or the period until reaching retirement eligibility.

Accounting Policy

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award.

SFAS No. 123R is effective for all awards granted on or after January 1, 2006 and for awards modified, repurchased, or cancelled after that date. SFAS No. 123R requires that compensation cost be recognized on or after the effective date for the unvested portion of outstanding awards, as of the effective date, based on the grant-date fair value of those awards calculated under SFAS No. 123, “Accounting for Stock-Based Compensation.” Share-based compensation expenses include the impact of expensing the fair value of stock options as well as expenses associated

with non-vested share awards. Synovus adopted the provisions of SFAS No. 123R effective January 1, 2006, using the modified prospective transition method.

Prior to 2006, Synovus applied the intrinsic-value based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, including FASB Interpretation (FIN) No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25.” Under this methodology, Synovus adopted the disclosure requirements of SFAS No. 123, and recognized compensation expense only if, on the date of grant, the market price of the underlying stock exceeded the exercise price.

The following table illustrates the effect on net income and earnings per share for the six and three months ended June 30, 2005 as if Synovus had applied the fair value recognition provisions of SFAS No. 123 to share-based employee compensation granted to purchase shares of Synovus stock.

		Six Months Ended				Three Months
		June 30,				Ended June 30,
(In thousands, except per share data)		2005				2005
Net income as reported		$	245,194			$	128,460
Add: Share-based employee compensation expense recognized, net of tax			615				195
Deduct: Total share-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(7,115	)			(3,342	)
Net income – pro forma		$	238,694			$	125,313
Earnings per share:
Basic – as reported		$	0.79			$	0.41
Basic – pro forma			0.77				0.40
Diluted – as reported			0.78				0.41
Diluted – pro forma			0.76				0.40

Prior to the adoption of SFAS No. 123R, Synovus elected to calculate compensation cost for purposes of pro forma disclosure assuming that all options would vest and reverse any recognized compensation costs for forfeited awards when the awards were actually forfeited. SFAS No. 123R requires that compensation cost be recognized net of estimated forfeitures. The estimate of forfeitures is adjusted as actual forfeitures differ from estimates, resulting in compensation cost only for those awards that actually vest. The effect of the change in estimated forfeitures is recognized as compensation cost in the period of the change in estimate. In estimating the forfeiture rate, Synovus stratified its data based on historical experience to determine separate forfeiture rates for the different award grants. Currently, Synovus estimates a forfeiture rate in the range of 0% to 7.5%.

Share-Based Compensation Expense

Synovus’ share-based compensation costs are recorded as a component of salaries and other personnel expense in the Consolidated Statements of Income. Share-based compensation expense recognized in income is presented below:

(in thousands)		Six Months Ended June 30,								Three Months Ended June 30,
		2006				2005				2006				2005
Share-based compensation expense:
Stock options		$	11,348			$	—			$	4,773			$	—
Non-vested shares			1,911				1,114				1,073				321
Total share-based compensation expense		$	13,259			$	1,114			$	5,846			$	321

Aggregate compensation expense recognized in the six and three months ended June 30, 2006 with respect to the foregoing Synovus stock options included $4.6 million and $2.2 million, respectively, that would have been recognized in previous periods had the policy under SFAS No. 123R with respect to retirement eligibility been applied to awards granted prior to January 1, 2006. At June 30, 2006, there was total unrecognized compensation cost of approximately $33.1 million related to the unvested portion of share-based compensation arrangements involving shares of Synovus stock, and approximately $4.4 million related to the unvested portion of share-based compensation arrangements involving shares of TSYS stock.

As stock options for purchase of Synovus common stock are exercised and non-vested shares vest, Synovus recognizes a tax benefit which is recorded as a component of surplus within shareholders’ equity. Synovus recognized a tax benefit in the amount of $5.3 million and $6.3 million for the six months ended June 30, 2006 and 2005, respectively, and recognized a tax benefit in the amount of $2.8 million and $2.0 million for the three months ended June 30, 2006 and 2005, respectively.

Stock Option Awards

The weighted-average grant-date fair value of stock options granted to key Synovus employees during the six months ended June 30, 2006 and 2005 was $6.40 and $7.06, respectively, and during the three months ended June 30, 2006 and 2005 was $6.52 and $6.95, respectively. The fair value of the option grants was determined using the Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:

		Six Months Ended June 30,								Three Months Ended June 30
		2006				2005				2006				2005
Risk-free interest rate			4.47	%			4.14	%			4.82	%			4.07	%
Expected stock price volatility			24.87				21.37				24.61				20.40
Dividend Yield			2.80				2.44				2.80				2.40
Expected life of options		5.8 years				8.6 years				6.0 years				8.5 years

The expected volatility for stock option awards in 2006 was determined with equal weighting of implied volatility and historical volatility. For awards prior to 2006, it was determined using implied volatility. The expected life for stock options granted during the six months ended June 30, 2006 was determined using the “simplified” method, as prescribed by the Securities and Exchange Commission’s (SEC’s) Staff Accounting Bulletin No. 107. Option awards for plan participants who met the early retirement provisions, as described above, on the grant-date were assigned an expected life of 5 years and all other option awards were assigned an expected life of 6 years.

A summary of stock options outstanding (including performance-accelerated stock options as described below) as of June 30, 2006 and changes during the six months then ended is presented below:

										Weighted-
										Average
						Weighted-				Remaining				Aggregate
						Average				Contractual				Intrinsic
Stock Options		Shares				Exercise Price				Term				Value
Outstanding at January 1, 2006			25,546,776			$	22.66
Granted			866,466				27.66
Assumed in connection with acquisitions			877,915				8.93
Exercised			(1,790,022	)			18.47
Forfeited or expired			(161,412	)			27.51
Outstanding at June 30, 2006			25,339,723			$	22.60			4.94 Years				$	105,904,781
Exercisable at June 30, 2006			13,878,879			$	21.11			3.88 Years				$	78,674,354

During the first six months of 2006, a total of 2,477,793 stock options vested with a weighted-average grant-date fair value of $5.38. The intrinsic value of stock options exercised during the six months ended June 30, 2006 was $16.0 million. At June 30, 2006, there was approximately $27.4 million of total unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted-average remaining period of 1.39 years.

During the six months ended June 30, 2005, Synovus granted 2,571,053 stock options to key Synovus officers. The exercise price for these grants was equal to the market price on the date of grant. Accordingly, no compensation expense was recorded for stock options granted during the six months ended June 30, 2005 under the intrinsic-value based method as described above. The intrinsic value of stock options exercised during the six months ended June 30, 2005 was $15.7 million.

Synovus has granted performance-accelerated stock options to certain key executives. The exercise price per share is equal to the fair market value at the date of grant. The options are exercisable in equal installments when the per share market price of Synovus common stock exceeds $40, $45, and $50. However, all options may be exercised after seven years from the grant-date. The grant-date fair value is being amortized on a straight-line basis over seven years with the portion related to periods prior to 2006 having previously been included in pro forma disclosures and the portion related to periods from January 1, 2006 to the respective vesting dates being recognized in the results of operations.

Summary information regarding these performance-accelerated stock options is presented below. There were no performance-accelerated stock options granted during the six months ended June 30, 2006 or 2005.

										Options
Year Options		Number of				Exercise Price				Outstanding at
Granted		Stock Options				Per Share				June 30, 2006
2000			4,100,000			$	17.69 – 18.06				4,100,000
2001			2,600,000				28.99				2,600,000

Non-Vested Shares

In addition to the stock options described above, non-transferable, non-vested shares of Synovus common stock have been awarded to certain key executives and non-employee directors of Synovus. Except for the grant of 63,386 performance-vesting shares described below, the market value of the common stock at the date of issuance is amortized as compensation expense using the straight-line method over the vesting period of the awards.

A summary of non-vested shares outstanding (excluding the 63,386 performance-vesting shares as described below) as of June 30, 2006 is presented below:

						Weighted-
						Average
						Grant-Date
Non-Vested Shares		Shares				Fair Value
Outstanding at January 1, 2006			82,583			$	27.28
Granted			167,169				27.59
Vested			(5,220	)			26.82
Forfeited or cancelled			(1,500	)			27.54
Outstanding at June 30, 2006			243,032			$	27.50

At June 30, 2006, there was approximately $5.5 million of total unrecognized compensation cost related to the foregoing non-vested share based compensation arrangements. This cost is expected to be recognized over a weighted-average remaining period of 1.9 years.

During the six months ended June 30, 2005, Synovus issued 66,083 non-vested shares to key Synovus executives and non-management members of its board of directors, with a weighted-average grant-date fair value of $26.87 per share.

Synovus granted 63,386 non-vested shares to a key executive with a performance-vesting schedule (performance-vesting shares) during the three months ended March 31, 2005. There were no performance-vesting shares granted in 2006 or during the three months ended June 30, 2005. These performance-vesting shares have seven one-year performance periods (2005-2011) during each of which the Compensation Committee establishes an earnings per share goal and, if such goal is attained during any performance period, 20% of the performance-vesting shares will vest. Compensation expense for each traunch of this grant is measured based on the quoted market value of Synovus’ stock as of the date that each period’s earnings per share goal is determined and is recorded as a charge to expense on a straight-line basis during each year in which the performance criteria is expected to be met.

The following is a summary of performance-vesting shares outstanding at June 30, 2006:

						Grant-Date
Performance-Vesting Shares		Shares				Fair Value
Outstanding at January 1, 2006			12,677			$	26.82
Granted			12,677				27.72
Vested			(12,677	)			26.82
Forfeited or cancelled			—				—
Outstanding at June 30, 2006			12,677			$	27.72

At June 30, 2006, there was approximately $176,000 of total unrecognized compensation cost related to performance-vesting shares based on the quoted market price of Synovus’ stock at June 30, 2006. This cost is expected to be recognized over the remainder of 2006.

TSYS Share-Based Compensation

Total System Services, Inc. (TSYS), an 81% owned subsidiary, also grants share-based compensation to certain executives and non-employee directors in the form of options to purchase shares of TSYS common stock (TSYS stock options) or non-vested shares of TSYS common stock (TSYS non-vested shares), which are described below.

TSYS did not grant any TSYS stock options during the six months ended June 30, 2006 or 2005. At June 30, 2006, there were 1,370,000 TSYS stock options outstanding with a weighted-average exercise price of $15.15, weighted-average remaining contractual life of 2.5 years, and an aggregate intrinsic value of $13.5 million. Of these 1,370,000 stock options, 1,347,000 were exercisable at June 30, 2006 with a weighted-average exercise price of $14.94, a weighted-average remaining contractual life of 2.4 years, and an aggregate intrinsic value of $13.0 million. At June 30, 2006, there was approximately $102,000 of total unrecognized compensation cost related to TSYS stock options that is expected to be recognized over a weighted-average period of 0.7 years.

During the six months ended June 30, 2006 and 2005, TSYS issued 150,775 and 95,815 TSYS non-vested shares with a grant-date fair value of $3.0 million and $2.2 million, respectively, to certain key executives and non-employee directors of TSYS. There were no non-vested TSYS shares issued during the three months ended June 30, 2006 and 2005. At June 30, 2006, there was approximately $4.0 million of total unrecognized compensation cost related to TSYS’ non-vested share based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.7 years.

Additionally, during the three months ended March 31, 2005, TSYS granted 126,087 TSYS non-vested shares to two key executives with a performance-vesting schedule (TSYS performance-vesting shares). There were no performance-vesting shares granted in 2006 or during the three months ended June 30, 2005. These performance-vesting shares have seven one-year performance periods (2005-2011) during each of which the Compensation Committee of TSYS’ Board of Directors establishes an earnings per share goal and, if such goal is attained during any performance period, 20% of the performance-vesting shares will vest. Compensation expense for each traunch of this grant is measured based on the quoted market value of TSYS’ stock as of the date that each period’s earnings per share goal is determined and is recorded as a charge to expense on a straight-line basis during each year in which the performance criteria is expected to be met. At June 30, 2006, there were 25,217 non-vested TSYS performance-vesting shares outstanding, with a weighted-average grant-date fair value of $20.00 per share. At June 30, 2006, there was approximately $252,000 of total unrecognized compensation cost related to

TSYS performance-vesting shares. This cost is expected to be recognized over the remainder of 2006.

Note 6 – Business Combinations

Effective on April 1, 2006, Synovus acquired all of the issued and outstanding common shares of Banking Corporation of Florida, the parent company of First Florida Bank (First Florida), headquartered in Naples, Florida. The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations of First Florida have been included in Synovus’ consolidated financial statements beginning April 1, 2006.

The aggregate purchase price was $83.2 million, consisting of 2,938,791 shares of Synovus common stock valued at $78.5 million, stock options valued at $4.7 million and $9,200 in direct acquisition costs. Synovus has not yet completed the allocation of the purchase price of this acquisition to the respective assets acquired, including identifiable intangible assets, and liabilities assumed.

The preliminary purchase price allocation is presented below:

(In thousands)		At April 1, 2006
Cash and due from banks		$	2,614
Federal funds sold			4,782
Investments			5,655
Loans, net			342,509
Premises and equipment			2,317
Goodwill			43,532
Core deposits premium			906
Other assets			3,655
Total assets acquired			405,970
Deposits(A)			321,767
Other liabilities			1,046
Total liabilities assumed			322,813
Net assets acquired		$	83,157

(a)  Includes time deposits in the amount of $232.4 million.

Effective on March 25, 2006, Synovus acquired all of the issued and outstanding common shares of Riverside Bancshares, Inc., the parent company of Riverside Bank (Riverside), headquartered in Marietta, Georgia. Concurrent with the acquisition, Riverside was merged into a subsidiary of Synovus, Bank of North Georgia. The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations of Riverside Bancshares have been included in Synovus’ consolidated financial statements beginning March 25, 2006.

The aggregate purchase price was $171.3 million, consisting of 5,883,427 shares of Synovus common stock valued at $159.7 million, stock options valued at $11.4 million, and $100,500 in

direct acquisition costs. Synovus has not yet completed the allocation of the purchase price of this acquisition to the respective assets acquired, including identifiable intangible assets, and liabilities assumed.

The preliminary purchase price allocation is presented below:

(In thousands)		At March 25, 2006
Cash and due from banks		$	12,186
Investments			115,665
Loans, net			469,983
Premises and equipment			11,973
Goodwill			111,464
Core deposits premium			11,688
Other assets			16,815
Total assets acquired			749,774
Deposits(A)			491,739
Federal funds purchased			2,069
Securities sold under repurchase agreements			50,670
FHLB advances			27,318
Other liabilities			6,649
Total liabilities assumed			578,445
Net assets acquired		$	171,329

(a)  Includes time deposits in the amount of $175.7 million.

On March 1, 2005, TSYS completed the acquisition of Vital Processing Services, L.L.C. (Vital), by purchasing the 50-percent equity stake formerly held by Visa U.S.A. for $95.8 million, including $794,000 of direct acquisition costs. In April, 2006, Vital was renamed TSYS Acquiring Solutions, L.L.C. (TSYS Acquiring). TSYS recorded the acquisition of the 50% interest as a purchase business combination, requiring that TSYS allocate the purchase price to the assets acquired and liabilities assumed based on their relative fair values. TSYS finalized the purchase price allocation during the first quarter of 2006 and has allocated $30.2 million to goodwill, $12.0 million to intangible assets and the remaining amount to the assets and liabilities acquired. TSYS Acquiring’s results of operations have been included in the consolidated financial results beginning March 1, 2005.

The final purchase price allocation is presented below:

(In thousands)		At March 1, 2005
Cash and cash equivalents		$	19,399
Contract acquisition costs and computer software, net			31,656
Intangible assets			12,000
Goodwill			30,210
Other assets			34,407
Total assets acquired			127,672
Total liabilities assumed			31,829
Minority interest			49
Net assets acquired		$	95,794

Pro forma information related to the impact of these 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.

On July 11, 2006, TSYS completed the acquisition of Card Tech, Ltd., a privately owned London-based payments firm, and related companies. TSYS paid aggregate consideration of approximately $58.0 million.

Note 7 – Operating Segments

Synovus has two reportable segments: Financial Services and Transaction Processing Services, which is comprised of TSYS. The Financial Services segment provides financial services including banking, financial management, insurance, mortgage and leasing services through 40 subsidiary banks and other Synovus offices in Georgia, Alabama, South Carolina, Florida, and Tennessee. TSYS provides electronic payment processing and other related services to card-issuing institutions in the United States, Mexico, Canada, Honduras, Puerto Rico and Europe. The significant accounting policies of the segments are described in the summary of significant accounting policies in the 2005 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 results of operations of the respective segments and are eliminated to arrive at consolidated totals.

Segment information as of and for the six months ended June 30, 2006 and 2005, respectively, is presented in the following table:

						Financial
(In thousands)						Services				TSYS (a)				Eliminations				Consolidated
Interest income			2006			$	937,206				3,554				(3,554	) (b)		$	937,206
			2005				690,518				1,487				(1,524	) (b)			690,481
Interest expense			2006				391,043				78				(3,554	) (b)			387,567
			2005				227,956				122				(1,524	) (b)			226,554
Net interest income			2006				546,163				3,476				—				549,639
			2005				462,562				1,365				—				463,927
Provision for losses on loans			2006				38,083				—				—				38,083
			2005				42,106				—				—				42,106
Net interest income after provision			2006				508,080				3,476				—				511,556
for losses on loans			2005				420,456				1,365				—				421,821
Total non-interest income			2006				172,517				845,618				(8,507	) (c)			1,009,628
			2005				155,215				766,079				(9,892	) (c)			911,402
Total non-interest expense			2006				369,796				684,919				(8,507	) (c)			1,046,208
			2005				315,586				619,157				(9,892	) (c)			924,851
Income before income taxes			2006				310,801				164,175				(20,905	) (d)			454,071
			2005				260,085				148,287				(18,504	) (d)			389,868
Income tax expense			2006				110,656				56,111				—				166,767
			2005				93,263				51,411				—				144,674
Net income			2006				200,145				108,064				(20,905	) (d)			287,304
			2005				166,822				96,876				(18,504	) (d)			245,194
Total assets			2006				29,311,947				1,426,850				(211,710	) (e)			30,527,088
			2005				25,483,657				1,316,910				(87,273	) (e)			26,713,294

Segment information as of and for the three months ended June 30, 2006 and 2005, respectively, is presented in the following table:

						Financial
(In thousands)						Services				TSYS (a)				Eliminations				Consolidated
Interest income			2006			$	497,713				2,034				(2,034	) (b)		$	497,713
			2005				359,204				700				(729	) (b)			359,175
Interest expense			2006				212,499				45				(2,034	) (b)			210,510
			2005				122,768				71				(729	) (b)			122,110
Net interest income			2006				285,214				1,989				—				287,203
			2005				236,436				629				—				237,065
Provision for losses on loans			2006				18,534				—				—				18,534
			2005				22,823				—				—				22,823
Net interest income after provision			2006				266,680				1,989				—				268,669
for losses on loans			2005				213,613				629				—				214,242
Total non-interest income			2006				89,453				431,212				(2,912	) (c)			517,753
			2005				80,646				410,717				(5,071	) (c)			486,292
Total non-interest expense			2006				190,850				344,476				(2,912	) (c)			532,414
			2005				157,752				333,930				(5,071	) (c)			486,611
Income before income taxes			2006				165,283				88,725				(11,165	) (d)			242,843
			2005				136,507				77,416				(9,672	) (d)			204,251
Income tax expense			2006				58,899				31,147				—				90,046
			2005				49,060				26,731				—				75,791
Net income			2006				106,384				57,578				(11,165	) (d)			152,797
			2005				87,447				50,685				(9,672	) (d)			128,460
Total assets			2006				29,311,947				1,426,850				(211,710	) (e)			30,527,088
			2005				25,483,657				1,316,910				(87,273	) (e)			26,713,294

Segment information for the changes in the carrying amount of goodwill for the six months ended June 30, 2006 is shown in the following table:

		Financial
(In thousands)		Services				TSYS				Total
Balance as of December 31, 2005		$	345,517				112,865				458,382
Goodwill acquired during period			155,594	(1)(2)			23				155,617
Impairment losses			—				—				—
Other			—				(6,498	)(3)			(6,498	)
Balance as of June 30, 2006		$	501,111				106,390				607,501

Intangible assets (excluding goodwill) net of accumulated amortization as of June 30, 2006 and December 31, 2005, respectively, are presented in the table below.

(In thousands)		June 30, 2006				December 31, 2005
Purchased trust revenues		$	2,783				2,924
Core deposit premiums			33,800				23,550
Employment contracts / non-competition agreements			300				460
Acquired customer contracts			3,271				3,913
Intangibles associated with the acquisition of minority interest in TSYS			1,944				2,087
Customer relationships			10,650				11,700
Other			146				233
Total carrying value		$	52,894				44,867

Note 8 – Dividends per Share

Dividends declared per share for the quarter ended June 30, 2006 were $0.1950, up 6.8% from $0.1825 for the second quarter of 2005. For the six months ended June 30, 2006, dividends declared per share were $0.390, an increase of 6.8% from $0.365 for the same period in 2005.

Note 9 – Guarantees and Indemnifications

TSYS has entered into processing and licensing agreements with clients that include intellectual property indemnification clauses. TSYS generally agrees to indemnify its clients, subject to certain exceptions, against legal claims that TSYS’ services or systems infringes on certain third party patents, copyrights or other proprietary rights. In the event of such a claim, TSYS is generally obligated to hold the client harmless and pay for related losses, liabilities, costs and expenses, including, without limitation, court costs and reasonable attorney’s fees. TSYS has not made any indemnification payments in relation to these indemnification clauses.

Synovus has not recorded a liability for guarantees or indemnities in the accompanying consolidated balance sheets since the maximum amount of potential future payments under such guarantees and indemnities is not determinable.

Note 10 – Other

Certain amounts in 2005 have been reclassified to conform to the presentation adopted in 2006.

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

Executive Summary

The following financial review provides a discussion of Synovus’ financial condition, changes in financial condition, and results of operations.

About Our Business

Synovus is a diversified financial services holding company, based in Columbus, Georgia, with more than $30 billion in assets. Synovus operates two business segments: the Financial Services and the Transaction Processing Services segments. The Financial Services segment provides integrated financial services including banking, financial management, insurance, mortgage and leasing services through 40 subsidiary banks and other Synovus offices in five southeastern states. At June 30, 2006, our subsidiary banks ranged in size from $59.6 million to $5.8 billion in total assets. The Transaction Processing Services segment provides electronic payment processing services through our 81% owned subsidiary Total System Services, Inc. (TSYS), one of the world’s largest companies for outsourced payment services. Our ownership in TSYS gives us a unique business mix; for the first six months of 2006, 54% of our consolidated revenues and 30% of our net income came from TSYS.

Our Key Financial Performance Indicators

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

Financial Services
		• Loan Growth		• Credit Quality
		• Deposit Growth		• Fee Income Growth
		• Net Interest Margin		• Expense Management
TSYS
		• Revenue Growth		• Expense Management

2006 Financial Performance Highlights

Consolidated

	•		Net income of $152.8 million, up 18.9%, and $287.3 million, up 17.2% for the three and six months ended June 30, 2006 as compared to the same periods in 2005.
	•		Diluted earnings per share of $0.47 for the three months ended June 30, 2006 and $0.90 for the six months ended June 30, 2006, up 15.0% and 14.8%, respectively, over the same periods a year ago.
	•		The 2006 financial results include the impact of incremental (as compared to 2005) share-based compensation related to expensing the fair value of stock options and non-vested shares. This incremental expense resulted from the adoption of Statement of Financial Accounting Standards No. 123R “Share-Based Payment,” effective January 1, 2006 as well as an increased utilization of non-vested shares as an alternative to stock options. The incremental share-based

			compensation expense represented 2.3 cents per diluted share for the six months ended June 30, 2006.
	•		Effective April 1, 2006, Synovus completed the acquisition of Banking Corporation of Florida (First Florida). The acquisition resulted in the addition of $342.5 million in net loans and $321.8 million in total deposits.
	•		Effective March 25, 2006, Synovus completed the acquisition of Riverside Bancshares, Inc. (Riverside). The acquisition resulted in the addition of $470.0 million in net loans and $491.7 million in total deposits.
	•		The first quarter of 2006 results include a reduction of income tax expense of $3.7 million in connection with the completion of a tax examination for the tax years 2000 through 2003.

Financial Services

	•		Net income growth: 21.7% and 20.0 % for the three and six months ended June 30, 2006, respectively, over the corresponding periods in the prior year.
	•		Net interest margin: 4.39% and 4.36 % for the three and six months ended June 30, 2006, respectively, as compared to 4.15% and 4.13% for the same periods in 2005.
	•		Loan growth: 15.5% increase from June 30, 2005 (11.5% excluding the impact of the First Florida and the Riverside acquisitions).
	•		Credit quality measures remained strong:

	•		Non-performing assets ratio of 0.48%, compared to 0.46% at December 31, 2005 and 0.51% at June 30, 2005.
	•		Past dues over 90 days and still accruing interest as a percentage of total loans of 0.08%, compared to 0.07% at December 31, 2005 and 0.08 % at June 30, 2005.
	•		Total past dues and still accruing interest as a percentage of total loans of 0.47% compared to 0.44% at December 31, 2005 and 0.59% at June 30, 2005.
	•		Net charge-off ratio of 0.17% for the second quarter of 2006 compared to 0.27% for the first quarter of 2006, and 0.37% for the second quarter of 2005, and 0.21% compared to 0.30% for the first six months of 2006 and 2005, respectively.

	•		Deposit growth: 14.7% increase from a year ago (14.3% growth excluding brokered time deposits and 9.9% growth excluding brokered time deposits and the impact of the First Florida and the Riverside acquisitions)
	•		Fee income: up 10.9% for the quarter and 11.1% for first six months of 2006 compared to the corresponding periods in the prior year.
	•		Non-Interest expenses up by 21.0% for the quarter and 17.2% for the first six months of 2006 over the corresponding periods in the prior year (15.5% and 12.8% increases excluding the impact of share-based compensation and the Riverside and First Florida acquisitions).

TSYS

	•		Revenue growth before reimbursable items: 3.5% and 10.0% for the three and six months ended June 30, 2006 over the corresponding periods in the prior year.
	•		Expense growth before reimbursable items: 1.3% and 10.0% for the three and six months ended June 30, 2006 over the corresponding periods in the prior year.
	•		Net income growth: 13.4% and 11.4% for the three months and six months ended June 30, 2006, respectively, over the corresponding periods in the prior year.

Other highlights at TSYS include:

	•		TSYS expanded its global footprint with the acquisition of London-based Card Tech, Ltd. in July of 2006.
	•		TSYS reached a long-term agreement with Wachovia Corporation, the No. 4 bank-holding company in the U.S., to provide core processing and other related services in support of their re-entry into the consumer credit card line of business.
	•		TSYS announced that its Board of Directors approved a share repurchase plan to purchase up to 2 million shares of TSYS common stock over the next 2 years.
	•		TSYS entered the healthcare payments market by signing a long-term agreement with Exante Bank, a wholly-owned subsidiary of UnitedHealth Group, Inc., to provide a broad range of payment processing and related services.

2006 Earnings Outlook

Synovus expects its earnings per share growth for 2006 to be at the upper end of the 12% to 14% range, based in part upon the following assumptions:

	•		The Federal Reserve is at or near the end of its interest rate increase cycle.
	•		A favorable credit environment.
	•		TSYS’ earnings growth in the 21% to 23% range.
	•		Incremental (as compared to 2005) share-based compensation expense of approximately 5 cents per diluted share.

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. Synovus has identified certain of its accounting policies as “critical accounting policies.” In determining which accounting policies are critical in nature, Synovus has identified the policies that require significant judgment or involve complex estimates. The application of these policies has a significant impact on Synovus’ financial statements. Synovus’ financial results could differ significantly if different judgments or estimates are applied in the application of these policies.

Synovus’ critical accounting policies are described in the “Financial Review” section of Synovus’ 2005 annual report on Form 10-K. There have been no material changes to Synovus’ critical accounting policies, estimates, and assumptions, or the judgments affecting the application of these estimates and assumptions in 2006.

Business Combinations

Refer to Note 6 of the Notes to Unaudited Consolidated Financial Statements for a discussion of business combinations.

Balance Sheet

Effective on April 1, 2006 Synovus completed the acquisition of Banking Corporation of Florida, the parent company of First Florida Bank, (First Florida) headquartered in Naples, Florida. Effective on March 25, 2006, Synovus completed the acquisition of Riverside Bancshares, Inc., the parent company of Riverside Bank (Riverside), headquartered in Marietta, Georgia. The comparison of Synovus’ consolidated balance sheet at June 30, 2006 to December 31, 2005 is impacted by the First Florida and the Riverside acquisitions. The more significant of the changes were the net loans addition of $812.5 million, the investment securities addition of $121.3 million, the goodwill addition of $155.0 million, and the deposits addition of $813.5 million.

During the first six months of 2006, total assets increased $2.91 billion, and excluding the impact of the aforementioned acquisitions, total assets increased $1.75 billion. The more significant increases consisted of loans, net of unearned income, up $2.27 billion, federal funds sold and securities purchased under resale agreements up $134.7 million, investment securities available for sale up $179.2 million, and goodwill up $149.2 million.

Providing the necessary funding for the balance sheet growth during the first six months of 2006, the core deposit base (excluding brokered time deposits) grew $1.43 billion, brokered time deposits grew $838,600, federal funds purchased and securities sold under repurchase agreements increased $815.6 million, and shareholders’ equity increased $424.1 million. These increases were partially offset by a $512.1 million decrease in long-term debt.

Loans

Compared to June 30, 2005, total loans grew by 15.5%, and excluding the impact of acquisitions, total loans grew by $2.3 billion, or 11.5%. On a sequential quarter basis, total loans outstanding grew by $1.24 billion or 11.2% annualized. Excluding the impact of the First Florida acquisition, total loans grew by $907.4 million or 16.6% annualized.

The tables on pages 27 and 28 illustrate the composition of the loan portfolio (classified by loan purpose) as of June 30, 2006. The commercial real estate portfolio totals $14.6 billion, which represents 61.9% of the total loan portfolio. Loans for the purpose of financing investment properties total $4.1 billion, which is only 17.3% of the total loan portfolio, or less than one-third of the total commercial real estate portfolio. The investment properties loan category includes $746.9 million in loans in the Atlanta market. This amount represents 3.2% of the total loan portfolio, or 5.1% of the total commercial real estate portfolio. The primary source of repayment on investment property loans is the income from the underlying property (e.g., hotels, office buildings, shopping centers, and apartment units’ rental income), with the collateral as the secondary source of repayment. Additionally, in almost all cases, these loans are made on a recourse basis, which provides another source of repayment. Among other factors, the underwriting of these loans is evaluated by determining the impact of higher interest rates, as well as lower occupancy rates, on the borrower’s ability to service debt.

Commercial loans for the purpose of financing 1-4 family properties represent $5.2 billion or 21.9% of the total loan portfolio, and 35.4% of the total commercial real estate portfolio. The

1-4 family properties category includes $1.5 billion in loans in the Atlanta market, which is 6.3% of the total loan portfolio, or 28.9% of the 1-4 family properties category.

Included in total commercial real estate loans are $4.2 billion in commercial and industrial related real estate loans. These loans are categorized as owner-occupied and other property loans in the tables shown on pages 27 and 28. These loans represent 17.6% of the total loan portfolio, or 28.4% of the total commercial real estate portfolio. The primary source of repayment on these loans is revenue generated from products or services offered by the business or organization (e.g., accounting; legal and medical services; retailers; manufacturers and wholesalers). These loans typically carry the personal guarantees of the principals of the business.

Commercial and industrial (C&I) loans represent $5.5 billion or 23.4% of the total loan portfolio at June 30, 2006. The primary source of repayment on these loans is revenue generated from products or services offered by the business or organization (e.g., accounting; legal and medical services; retailers; manufacturers and wholesalers). These loans typically carry the personal guarantees of the principals of the business. These loans are diversified by geography, industry, and loan type. While Synovus has not experienced strong growth in C&I loans in recent years, Synovus is implementing a C&I growth strategy that is beginning to be reflected in the second quarter results as well as the commercial loan pipeline.

Consumer loans at June 30, 2006 total $3.5 billion, representing 14.9% of the total loan portfolio. Overall, consumer loans have experienced moderate growth on both sequential quarter and year over year basis, led principally by growth in consumer mortgages and home equity lines. Credit card balances are up slightly over the prior year following the normal seasonal decline in the first quarter of 2006.

Credit Quality

Credit quality measures remained strong. The non-performing assets ratio was 0.48% at June 30, 2006 compared to 0.46% at December 31, 2005 and 0.51% at June 30, 2005. Total non-performing assets were $114.4 million at June 30, 2006, up $15.8 million from December 31, 2005. This increase included a commercial and industrial loan of approximately $7.6 million that was placed on non-accrual status during the second quarter of 2006 as well as approximately $4.1 million in non-performing assets that were added as a result of 2006 acquisitions. The quality of our commercial real estate portfolio remains strong with a non-performing loan ratio of only 0.25% of total commercial real estate loans at June 30, 2006. This compares to an overall non-performing loan ratio for the total loan portfolio of 0.38%. The year-to-date net charge-off ratio for the first six months of 2006 was 0.17% compared to 0.37% for the same period of 2005. We expect that the net charge-off ratio for the year will be under 0.30%.

Past due levels remained very favorable, with total loans past due (and still accruing interest) at 0.47% of loans. Loans 90 days past due and still accruing interest at June 30, 2006 were $19.3 million, or 0.08% of total loans, compared to 0.07% at December 31, 2005 and 0.08% at June 30, 2005. 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 non-performing assets.

The allowance for loan losses is $313.7 million, or 1.33% of net loans, at June 30, 2006 compared to $289.6 million, or 1.35% of net loans, at December 31, 2005. The allowance to non-performing loans coverage was 353% at June 30, 2006, compared to 352% at

December 31, 2005.

The provision for losses on loans was $18.5 million for the second quarter of 2006 compared to $19.5 million for the first quarter of 2006 and $22.8 million for the second quarter of 2005. For the first six months of 2006, the provision for loan losses was $38.1 million compared to $42.1 million for the same period in 2005. For the first six months of 2006, total provision expense covered net charge-offs by 1.59 times compared to 1.39 times for the same period a year ago.

(Dollars in thousands)		June 30, 2006				December 31, 2005
Non-performing loans		$	88,805			$	82,175
Other real estate			25,634				16,500
Non-performing assets		$	114,439			$	98,675
Loans 90 days past due and still accruing		$	19,340			$	16,023
As a % of loans			0.08	%			0.07	%
Allowance for loan losses		$	313,694			$	289,612
Allowance for loan losses as a % of loans			1.33	%			1.35	%
As a % of loans and other real estate:
Non-performing loans			0.38	%			0.38	%
Other real estate			0.10				0.08
Non-performing assets			0.48	%			0.46	%
Allowance to non-performing loans			353.24	%			352.43	%