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Acquisitions
12 Months Ended
Dec. 31, 2017
Business Combinations [Abstract]  
Acquisition
Note 2 - Acquisitions
Cabela's Transaction
On September 25, 2017, Synovus' wholly owned subsidiary, Synovus Bank, completed the acquisition of certain assets and assumption of certain liabilities of World's Foremost Bank, or WFB. Immediately following the closing of this transaction, Synovus Bank sold WFB’s credit card assets and related liabilities to Capital One Bank (USA), National Association, a bank subsidiary of Capital One Financial Corporation.
Synovus retained WFB’s $1.10 billion brokered time deposits portfolio, which had a weighted average remaining maturity of approximately 2.53 years and a weighted average rate of 1.83% as of September 25, 2017. The transaction was accounted for as an assumption of a liability (accounted for under the asset acquisition model). In accordance with ASC 820, Fair Value Measurements and Disclosures, the brokered time deposit portfolio was recorded at $1.10 billion, which was the amount of cash received for the deposits and represented the estimated fair value of the deposits at the transaction date. Additionally, Synovus received a $75.0 million transaction fee from Cabela’s Incorporated and Capital One, which was recognized into earnings upon closing of the transaction, based on having achieved the recognition criteria outlined in SEC SAB Topic 13.A, Revenue Recognition.
Acquisition of Global One
On October 1, 2016, Synovus completed its acquisition of all of the outstanding stock of Global One. Prior to its acquisition, Global One was an Atlanta-based private specialty financial services company that provided financing primarily to commercial entities, with all loans fully collateralized by cash value life insurance policies and/or annuities issued by investment grade life insurance companies. Under the terms of the merger agreement, Synovus acquired Global One for an up-front payment of $30 million, consisting of the issuance of 821 thousand shares of Synovus common stock valued at $26.6 million and $3.4 million in cash, with additional payments to Global One's former shareholders over the next three to five years based on earnings from the Global One business as further discussed below.
The acquisition of Global One constituted a business combination. Accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values as shown in the following table. The determination of fair value required management to make estimates about discount rates, future expected earnings and cash flows, market conditions, future loan growth, and other future events that are highly subjective in nature and subject to change. During the three months ended September 30, 2017, Synovus completed the determination of the final allocation of the purchase price with respect to the assets acquired and liabilities assumed; thus, these fair value estimates reflect measurement period adjustments to the amounts reported as of December 31, 2016, the most significant of which consisted of a reduction in goodwill of $2.4 million and a decrease in the estimated fair value of the earnout liability of $1.8 million (the income statement impact of such adjustments was insignificant).
Global One
 
Acquisition Date
(in thousands)
 
Fair Value
Assets acquired:
 
 
Cash and due from banks
 
$
9,554

      Commercial and industrial loans(1)
 
357,307

Goodwill(2)
 
32,884

Other intangible assets
 
12,500

Other assets
 
3,681

Total assets acquired
 
$
415,926

 
 
 
Liabilities assumed:
 
 
Notes payable(3)
 
$
358,560

Earnout liability
 
12,234

Deferred tax liability, net
 
3,229

Other liabilities
 
11,903

Total liabilities assumed
 
$
385,926

Consideration paid
 
$
30,000

 
 
 
Cash paid
 
$
3,408

Fair value of common stock issued
 
26,592

 
 
 
(1) The unpaid principal balance of the loans was $356.7 million.  
(2) The goodwill is not expected to be deductible for tax purposes.
(3) The unpaid principal balance of the notes payable was $357.0 million.
Under the terms of the merger agreement, the purchase price includes additional annual payments ("Earnout Payments") to Global One's former shareholders over the next three to five years, with amounts based on a percentage of "Global One Earnings," as defined in the merger agreement. The Earnout Payments will consist of shares of Synovus common stock as well as a smaller cash consideration component. The first annual Earnout Payment of stock and cash valued at $6.4 million was made during November 2017. The balance of the earnout liability at December 31, 2017 was $11.3 million based on the estimated fair value of the remaining Earnout Payments.
Other intangible assets consist of existing borrower relationships (11 years useful life), trade name (10 years useful life), and distribution network (8 years useful life) with December 31, 2017 net carrying values of $9.6 million, $962 thousand, and $506 thousand, respectively.
The following is a description of the methods used to determine the fair values of significant assets and liabilities:
Commercial and industrial loans: The fair value of loans was determined based on a discounted cash flow approach. The most significant assumptions used in the valuation of the loan portfolio consisted of the prepayment rate, the probability of extension at maturity, the interest rates on extended loans, and the discount rates. All loans are fully collateralized by cash value life insurance policies and/or annuities issued by investment grade insurance companies. Based on a history of no principal losses on the loan portfolio since inception as well as the collateral position, no losses were estimated in the event of default.
Notes payable: The notes payable were extinguished immediately after the closing of the acquisition. Accordingly, the fair value of notes payable was determined based on the amounts paid to extinguish such notes, inclusive of applicable prepayment penalties, which is consistent with the perspective of a market participant.
Earnout liability: The fair value of the earnout liability, which represents the fair value of the above referenced Earnout Payments, was determined based on option pricing methods and a Monte Carlo simulation. The most significant assumptions used in the valuation of the earnout liability were the expected cash flows, volatility, and discount rates. Subsequent changes in the fair value of the earnout liability are recognized in earnings until the earnout liability arrangement is settled.