Note 8 - Fair Value Accounting

Synovus carries various assets and liabilities at fair value based on the fair value accounting guidance under ASC 820, Fair Value Measurements, and ASC 825, Financial Instruments. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Fair Value Hierarchy

Synovus determines the fair value of its financial instruments based on the fair value hierarchy established under ASC 820-10, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the financial instrument's fair value measurement in its entirety. There are three levels of inputs that may be used to measure fair value. The three levels of inputs of the valuation hierarchy are defined below:



Level 1	Quoted prices (unadjusted) in active markets for identical assets and liabilities for the instrument or security to be valued. Level 1 assets include marketable equity securities, U.S. Treasury securities, and mutual funds.
Level 2	Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or model-based valuation techniques for which all significant assumptions are derived principally from or corroborated by observable market data. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined by using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. U.S. Government sponsored agency securities, mortgage-backed securities issued by U.S. Government sponsored enterprises and agencies, obligations of states and municipalities, collateralized mortgage obligations issued by U.S. Government sponsored enterprises, and mortgage loans held-for-sale are generally included in this category.
Level 3	Unobservable inputs that are supported by little, if any, market activity for the asset or liability. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow models and similar techniques, and may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability. These methods of valuation may result in a significant portion of the fair value being derived from unobservable assumptions that reflect Synovus' own estimates for assumptions that market participants would use in pricing the asset or liability. This category primarily includes collateral-dependent impaired loans, other real estate, certain equity investments, private equity investments, GGL/SBA loan servicing assets, and contingent consideration.

See "Part II - Item 8. Financial Statements and Supplementary Data - Note 16 - Fair Value Accounting" to the consolidated financial statements of Synovus' 2016 Form 10-K for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents all financial instruments measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016, according to the valuation hierarchy included in ASC 820-10. For equity and debt securities, class was determined based on the nature and risks of the investments. Transfers between levels during the six and three months ended June 30, 2017 and year ended December 31, 2016 were inconsequential.



	June 30, 2017
(in thousands)	Level 1		Level 2	Level 3	Total Assets and Liabilities at Fair Value
Assets
Trading securities:
U.S. Government agency securities	—		1,587	—	1,587
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		386	—	386
State and municipal securities	—		1,072	—	1,072
Total trading securities	$	—	3,045	—	3,045
Mortgage loans held for sale	—		61,893	—	61,893
Investment securities available for sale:
U.S. Treasury securities	83,133		—	—	83,133
U.S. Government agency securities	—		12,311	—	12,311
Mortgage-backed securities issued by U.S. Government agencies	—		132,225	—	132,225
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,856,405	—	2,856,405
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		722,420	—	722,420
State and municipal securities	—		290	—	290
Corporate debt and other securities⁽¹⁾	3,142		15,205	1,927	20,274
Total investment securities available for sale	$	86,275	3,738,856	1,927	3,827,058
Private equity investments			—	15,698	15,698
Mutual funds held in rabbi trusts	12,867		—	—	12,867
GGL/SBA loans servicing asset	—		—	4,297	4,297
Derivative assets:
Interest rate contracts	—		15,332	—	15,332
Mortgage derivatives⁽²⁾	—		1,393	—	1,393
Total derivative assets	$	—	16,725	—	16,725
Liabilities
Earnout liability⁽³⁾	—		—	13,941	13,941
Derivative liabilities:
Interest rate contracts	—		13,389	—	13,389
Visa derivative	—		—	5,053	5,053
Total derivative liabilities	$	—	13,389	5,053	18,442



	December 31, 2016
(in thousands)	Level 1		Level 2	Level 3	Total Assets and Liabilities at Fair Value
Assets
Trading securities:
Mortgage-backed securities issued by U.S. Government agencies	—		3,460	—	3,460
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		3,438	—	3,438
State and municipal securities	—		426	—	426
Other investments	1,890		100	—	1,990
Total trading securities	$	1,890	7,424	—	9,314
Mortgage loans held for sale	—		51,545	—	51,545
Investment securities available for sale:
U.S. Treasury securities	107,802		—	—	107,802
U.S. Government agency securities	—		12,993	—	12,993
Mortgage-backed securities issued by U.S. Government agencies	—		174,202	—	174,202
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,506,340	—	2,506,340
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		890,442	—	890,442
State and municipal securities	—		2,794	—	2,794
Equity securities	3,782		—	—	3,782
Corporate debt and other securities⁽¹⁾	3,092		14,952	1,796	19,840
Total investment securities available for sale	$	114,676	3,601,723	1,796	3,718,195
Private equity investments	—		—	25,493	25,493
Mutual funds held in rabbi trusts	11,479		—	—	11,479
Derivative assets:
Interest rate contracts	—		17,157	—	17,157
Mortgage derivatives⁽²⁾	—		3,466	—	3,466
Total derivative assets	$	—	20,623	—	20,623

Liabilities
Earnout liability⁽³⁾	—		—	14,000	14,000
Derivative liabilities:
Interest rate contracts	—		17,531	—	17,531
Visa derivative	—		—	5,768	5,768
Total derivative liabilities	$	—	17,531	5,768	23,299

⁽¹⁾ Based on an analysis of the nature and risks of these investments, Synovus has determined that presenting these investments as a single asset class is appropriate.

⁽²⁾Mortgage derivatives consist of customer interest rate lock commitments that relate to the potential origination of mortgage loans, which would be classified as held for sale and forward loan sales commitments with third-party investors.

⁽³⁾Earnout liability consists of contingent consideration obligation related to the Global One acquisition.

Fair Value Option

The following table summarizes the difference between the fair value and the unpaid principal balance of mortgage loans held for sale measured at fair value and the changes in fair value of these loans. Mortgage loans held for sale are initially measured at fair value with subsequent changes in fair value recognized in earnings. Changes in fair value are recorded as a component of mortgage banking income in the Consolidated Statements of Income. An immaterial portion of these changes in fair value was attributable to changes in instrument-specific credit risk.



Changes in Fair Value Included in Net Income
	For the Six Months Ended June 30,			For the Three Months Ended June 30,
(in thousands)	2017		2016	2017			2016
Mortgage loans held for sale	$	954	1,850	$	(249	)	878



Mortgage Loans Held for Sale
(in thousands)	As of June 30, 2017		As of December 31, 2016
Fair value	$	61,893	51,545
Unpaid principal balance	60,508		51,114
Fair value less aggregate unpaid principal balance	$	1,385	431

Changes in Level 3 Fair Value Measurements and Quantitative Information about Level 3 Fair Value Measurements

As noted above, Synovus uses significant unobservable inputs in determining the fair value of assets and liabilities classified as Level 3 in the fair value hierarchy. The table below includes a roll-forward of the amounts on the Consolidated Balance Sheets for the six and three months ended June 30, 2017 and 2016 (including the change in fair value), for financial instruments of a material nature that are classified by Synovus within Level 3 of the fair value hierarchy and are measured at fair value on a recurring basis. Transfers between fair value levels are recognized at the end of the reporting period in which the associated changes in inputs occur. During the six and three months ended June 30, 2017 and 2016, Synovus did not have any transfers between levels in the fair value hierarchy.




	Six Months Ended June 30, 2017
(in thousands)	Investment Securities Available for Sale		Private Equity Investments		Visa Derivative		Earnout Liability⁽¹⁾		GGL / SBA Loans Servicing Asset⁽²⁾
Beginning balance, January 1,	$	1,796	25,493		(5,768	)	(14,000	)	—
Total gains (losses) realized/unrealized:
Included in earnings	—		(3,166	)	—		(1,707	)	(694	)
Unrealized gains (losses) included in other comprehensive income	131		—		—		—		—
Additions	—		—		—		—		539
Sales and settlements	—		(6,629	)	715		—		—
Transfer from amortization method to fair value	—		—		—		—		4,452
Measurement period adjustments related to Global One acquisition	—		—		—		1,766		—
Ending balance, June 30,	$	1,927	15,698		(5,053	)	(13,941	)	4,297
Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at June 30,	$	—	(3,166	)	—		(1,707	)	(694	)


	Three Months Ended June 30, 2017
(in thousands)	Investment Securities Available for Sale		Private Equity Investments		Visa Derivative		Earnout Liability⁽¹⁾		GGL / SBA Loans Servicing Asset⁽²⁾
Beginning balance, April 1,	$	1,851	23,679		(5,412	)	(11,421	)	4,178
Total gains (losses) realized/unrealized:
Included in earnings	—		(1,352	)	—		(1,707	)	(376	)
Unrealized gains (losses) included in other comprehensive income	76		—		—		—		—
Additions	—		—		—		—		495
Sales and settlements	—		(6,629	)	359		—		—
Measurement period adjustments related to Global One acquisition	—		—		—		(813	)	—
Ending balance, June 30,	$	1,927	15,698		(5,053	)	(13,941	)	4,297
Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at June 30,	$	—	(1,352	)	—		(1,707	)	(376	)

⁽¹⁾Earnout liability consists of contingent consideration obligation related to the Global One acquisition.

⁽²⁾ Effective January 1, 2017, Synovus elected the fair value option for determining the value of the GGL/SBA loans servicing asset. Synovus has retained servicing responsibilities on sold GGL/SBA loans and receives a servicing fee. The servicing asset is established at fair value at the time of the sale based on an analysis of future cash flows that incorporates estimates for discount rates, prepayment speeds, and delinquency rates. The servicing asset is measured at fair value on a quarterly basis with changes in fair value included with the associated servicing fee in other non-interest income. Prior to 2017, Synovus accounted for the GGL/SBA loans servicing asset using the amortization method.




	Six Months Ended June 30, 2016
(in thousands)	Investment Securities Available for Sale			Private Equity Investments		Visa Derivative
Beginning balance, January 1,	$	1,745		27,148		(1,415	)
Total gains (losses) realized/unrealized:
Included in earnings	—			(278	)	(720	)
Unrealized gains (losses) included in other comprehensive income	(120		)	—		—
Settlements	—			(4	)	720
Ending balance, June 30,	$	1,625		26,866		(1,415	)
Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at June 30,	$	—		(278	)	(720	)


	Three Months Ended June 30, 2016
(in thousands)	Investment Securities Available for Sale			Private Equity Investments		Visa Derivative
Beginning balance, April 1,	$	1,638		26,757		(1,415	)
Total gains (losses) realized/unrealized:
Included in earnings	—			113		(360	)
Unrealized gains (losses) included in other comprehensive income	(13		)	—		—
Settlements	—			(4	)	360
Ending balance, June 30,	$	1,625		26,866		(1,415	)
Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at June 30,	$	—		113		(360	)



			June 30, 2017	December 31, 2016
	Valuation Technique	Significant Unobservable Input	Range/Weighted Average	Range/Weighted Average
Assets and liabilities measured at fair value on a recurring basis

Investment Securities Available for Sale - Other Investments:

Trust preferred securities	Discounted cash flow analysis	Credit spread embedded in discount rate	392 bps	442 bps

Private equity investments	Individual analysis of each investee company	Multiple factors, including but not limited to, current operations, financial condition, cash flows, evaluation of business management and financial plans, and recently executed financing transactions related to the investee companies	N/A	N/A
		Discount for lack of liquidity⁽¹⁾	N/A	15%

GGL/SBA loans servicing asset	Discounted cash flow analysis	Discount rate Prepayment speeds	12.01% 6.75%	N/A

Earnout liability	Option pricing methods and Monte Carlo simulation	Global One Earnout, as defined in merger agreement, for the five years ending October 1, 2021	$11.8 million - $16.7 million	$9.3 million - $14.2 million

Visa derivative liability	Discounted cash flow analysis	Estimated timing of resolution of covered litigation, future cumulative deposits to the litigation escrow for settlement of the covered litigation, and estimated future monthly fees payable to the derivative counterparty	1-5 years	1-5 years

⁽¹⁾Represents management's estimate of discount that market participants would require based on the instrument's lack of liquidity.

Assets Measured at Fair Value on a Non-recurring Basis

Certain assets are recorded at fair value on a non-recurring basis. These non-recurring fair value adjustments typically are a result of the application of lower of cost or fair value accounting or a write-down occurring during the period. For example, if the fair value of an asset in these categories falls below its cost basis, it is considered to be at fair value at the end of the period of the adjustment. The following table presents assets measured at fair value on a non-recurring basis as of the dates indicated for which there was a fair value adjustment during the period.



	June 30, 2017					December 31, 2016
(in thousands)	Level 1		Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Impaired loans^*	$	—	—	11,773	11,773	—	—	21,742	21,742
Other real estate	—		—	12,367	12,367	—	—	19,305	19,305
Other assets held for sale	—		—	—	—	—	—	12,083	12,083

^*Collateral-dependent impaired loans that were written down to fair value during the period.

The following table presents fair value adjustments recognized in earnings for the three months ended June 30, 2017 and 2016 for the assets measured at fair value on a non-recurring basis.



	Six Months Ended June 30,			Three Months Ended June 30,
(in thousands)	2017		2016	2017		2016
Impaired loans^*	$	5,808	1,162	$	5,776	—
Other loans held for sale	3,519		—	—		—
Other real estate	518		3,306	280		2,053
Other assets held for sale	238		6,625	—		5,593

^*Collateral-dependent impaired loans that were written down to fair value during the period.

The table below provides an overview of the valuation techniques and significant unobservable inputs used in those techniques to measure financial instruments that are classified within Level 3 of the valuation hierarchy and are measured at fair value on a non-recurring basis. The range of sensitivities that management utilized in its fair value calculations is deemed acceptable in the industry with respect to the identified financial instruments.



			June 30, 2017	December 31, 2016
	Valuation Technique	Significant Unobservable Input	Range (Weighted Average)⁽¹⁾	Range (Weighted Average)⁽¹⁾
Assets measured at fair value on a non-recurring basis

Collateral dependent impaired loans	Third-party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	0% - 60% (46%) 0% - 10% (7%)	0%-52% (25%) 0%-10% (7%)

Other loans held for sale	Third-party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	N/A	N/A

Other real estate	Third-party appraised value of real estate less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	0% - 35% (8%) 0% - 10% (7%)	0%-10% (5%) 0%-10% (7%)

Other assets held for sale	Third-party appraised value less estimated selling costs or BOV	Discount to appraised value ⁽²⁾ Estimated selling costs	N/A	0%-81% (47%) 0%-10% (7%)

⁽¹⁾The range represents management's estimate of the high and low of the value that would be assigned to a particular input. For assets measured at fair value on a non-recurring basis, the weighted average is the measure of central tendencies; it is not the value that management is using for the asset or liability.

⁽²⁾Synovus also makes adjustments to the values of the assets listed above for reasons including age of the appraisal, information known by management about the property, such as occupancy rates, changes to the physical condition of the property, and other factors.

Fair Value of Financial Instruments

The following table presents the carrying and fair values of financial instruments at June 30, 2017 and December 31, 2016. The fair values represent management’s estimates based on various methodologies and assumptions. For financial instruments that are not recorded at fair value on the balance sheet, such as loans held for investment, interest bearing deposits (including brokered deposits), and long-term debt, the fair value amounts should not be taken as an estimate of the amount that would be realized if all such financial instruments were to be settled immediately.

The carrying and estimated fair values of financial instruments, as well as the level within the fair value hierarchy, as of June 30, 2017 and December 31, 2016 are as follows:



	June 30, 2017
(in thousands)	Carrying Value		Fair Value	Level 1	Level 2	Level 3
Financial assets
Cash and cash equivalents	$	377,213	377,213	377,213	—	—
Interest bearing funds with Federal Reserve Bank	468,148		468,148	468,148	—	—
Interest earning deposits with banks	6,012		6,012	6,012	—	—
Federal funds sold and securities purchased under resale agreements	46,847		46,847	46,847	—	—
Trading account assets	3,045		3,045	—	3,045	—
Mortgage loans held for sale	61,893		61,893	—	61,893	—
Other loans held for sale	127		127	—	127	—
Investment securities available for sale	3,827,058		3,827,058	86,275	3,738,856	1,927
Private equity investments	15,698		15,698	—	—	15,698
Mutual funds held in rabbi trusts	12,867		12,867	12,867	—	—
Loans, net of deferred fees and costs	24,430,512		24,191,120	—	—	24,191,120
GGL/SBA loans servicing asset	4,297		4,297	—	—	4,297
Derivative assets	16,725		16,725	—	16,725	—

Financial liabilities
Non-interest bearing deposits	7,363,476		7,363,476	—	7,363,476	—
Interest bearing deposits	17,855,340		17,852,694	—	17,852,694	—
Federal funds purchased, other short-term borrowings and other short-term liabilities	150,379		150,379	150,379	—	—
Long-term debt	2,107,245		2,155,543	—	2,155,543	—
Other liabilities	13,941		13,941	—	—	13,941
Derivative liabilities	18,442		18,442	—	13,389	5,053



	December 31, 2016
(in thousands)	Carrying Value		Fair Value	Level 1	Level 2	Level 3
Financial assets
Cash and cash equivalents	$	395,175	395,175	395,175	—	—
Interest bearing funds with Federal Reserve Bank	527,090		527,090	527,090	—	—
Interest earning deposits with banks	18,720		18,720	18,720	—	—
Federal funds sold and securities purchased under resale agreements	58,060		58,060	58,060	—	—
Trading account assets	9,314		9,314	1,890	7,424	—
Mortgage loans held for sale	51,545		51,545	—	51,545	—
Investment securities available for sale	3,718,195		3,718,195	114,676	3,601,723	1,796
Private equity investments	25,493		25,493	—	—	25,493
Mutual funds held in rabbi trusts	11,479		11,479	11,479	—	—
Loans, net of deferred fees and costs	23,856,391		23,709,434	—	—	23,709,434
Derivative assets	20,623		20,623	—	20,623	—

Financial liabilities
Non-interest bearing deposits	7,085,804		7,085,804	—	7,085,804	—
Interest bearing deposits	17,562,256		17,560,021	—	17,560,021	—
Federal funds purchased, other short-term borrowings and other short-term liabilities	159,699		159,699	159,699	—	—
Long-term debt	2,160,881		2,217,544	—	2,217,544	—
Other liabilities	14,000		14,000	—	—	14,000
Derivative liabilities	23,299		23,299	—	17,531	5,768