Note 17 - Variable Interest Entities

Synovus has a contractual ownership or other interests in certain VIEs for which the fair value of the VIE's net assets may change exclusive of the variable interests. Under ASC 810, Consolidation, Synovus is deemed to be the primary beneficiary and required to consolidate a VIE if it has a variable interest in the VIE that provides it with a controlling financial interest. For such purposes, the determination of whether a controlling financial interest exists is based on whether a single party has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb the losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. ASC 810-10-65, as amended, requires continual reconsideration of conclusions reached regarding which interest holder is a VIE's primary beneficiary.

Synovus’ involvement with VIEs is discussed below. Synovus consolidates VIEs for which it is deemed the primary beneficiary.

Consolidated Variable Interest Entities

Rabbi Trusts – Synovus has established certain rabbi trusts related to deferred compensation plans offered to its participants (employees and directors). Synovus contributes the participant's cash compensation deferrals to the trusts and directs the underlying investments made by the trusts. The assets of these trusts are available to Synovus creditors only in the event that Synovus becomes insolvent. These trusts are considered VIEs because either there is no equity at risk in the trusts or because Synovus provided the equity interest to their participants in exchange for services rendered. While the participants have the ability to direct their funds within the trusts, Synovus is considered the primary beneficiary of the rabbi trusts as it has the ability to direct the underlying investments made by the trusts as well as make funding decisions related to the trusts, the activities that most significantly impact the economic performance of the rabbi trusts. Synovus includes the assets of the rabbi trusts as a component of other assets and a corresponding liability for the associated benefit obligation in other liabilities in its consolidated balance sheets. At December 31, 2017 and 2016, the aggregate amount of rabbi trust assets and benefit obligations was $14.1 million and $11.5 million, respectively.

Non-consolidated Variable Interest Entities

Low Income Housing Tax Credit Partnerships – Synovus and its subsidiary bank, Synovus Bank, make equity investments as a limited partner in various partnerships which are engaged in the development and operation of affordable multi-family housing utilizing the LIHTC pursuant to Section 42 of the Code. The purpose of these investments is to earn a return on the investment and to support community reinvestment initiatives of Synovus Bank. The activities of these LIHTC partnerships are limited to development and operation of multi-family housing that is leased to qualifying residential tenants. These partnerships are generally located in southeastern communities where Synovus has a banking presence and are considered VIEs because Synovus, as the holder of an equity investment at risk, does not have voting or similar rights and does not participate in the management or direct the operations of the partnerships (activities which affect the economic performance of the partnerships). Synovus provides construction lending for certain of the LIHTC partnerships in which it also has an equity investment. Synovus is at risk for the amount of its equity investment plus the outstanding amount of any construction loans in excess of the fair value of the collateral for the loan but has no obligation to fund the operations or working capital of the partnerships. The general partners of these partnerships are considered the primary beneficiaries because they are charged with management responsibility which give them the power to direct the activities that most significantly impact the economic performance of the partnerships, and they are exposed to losses beyond Synovus’ equity investment. Synovus records its investment in LIHTC partnerships as a component of other assets in its consolidated balance sheet.

The following tables provide a summary of the investments in low income housing tax credit partnerships at December 31, 2017 and 2016 and income (loss) related to these investments for the years ended December 2017, 2016, and 2015.



	2017		2016
(in thousands)
Proportional amortization method investments included in other assets	$	58,343	$	—
Equity method investments included in other assets	1,725		26,495
Cumulative equity investments in LIHTC partnerships	46,659		34,065
Unfunded commitments included in other liabilities	39,994		17,420
Short-term construction loans and letter of credit commitments	7,180		—
Funded portion of short-term loans and letters of credit	—		—



	Years Ended December 31,
	2017			2016		2015
(in thousands)
Proportional amortization expense recognized as a component of income tax expense	$	1,820		$	—	$	—
Income (loss) from equity method investments recognized as a component of non-interest income	(1,648		)	389		553

Real Estate Partnerships – Synovus and its subsidiary bank, Synovus Bank, make equity investments as a limited partner in various partnerships which are engaged in the development and operation of real estate. For certain of these investments, Synovus is both an equity investor and a tenant where they occupy leasehold space in the real estate. The purpose of these investments is to earn a return on the investment and to provide for occupancy needs and banking presence location. The activities of these real estate partnerships are limited to development and operation of commercial real estate that is leased to qualifying commercial tenants. These partnerships are located in southeastern communities where Synovus has a banking presence and are considered VIEs because Synovus, as the holder of an equity investment at risk, does not participate in the management or direct the operations of the partnerships (activities which affect the economic performance of the partnerships), and allocation of distributions, operating results, and net exit proceeds for each investment is variable. Synovus is at risk for the amount of its equity investment and in certain circumstances may have an obligation to fund the operations or working capital of the partnerships. Synovus does have voting or similar rights for these real estate partnerships, however, the general partners of these partnerships are considered the primary beneficiaries because they are charged with management responsibilities which give them the power to direct the activities that most significantly impact the economic performance of the partnerships.

Additionally, Synovus has an investment in two former LIHTC partnerships for which the tax credit compliance period is complete and these investments are no longer held for tax credits or other tax benefits. These investments were reclassified from LIHTC investments to real estate investments during 2017. Like the LIHTC partnerships discussed above, the purpose of these investments is to earn a return on the investment and to support community reinvestment initiatives of Synovus Bank. The activities of these former LIHTC partnerships are limited to development and operation of multi-family housing that is leased to qualifying residential tenants. These partnerships are generally located in southeastern communities where Synovus has a banking presence and are considered VIEs because Synovus, as the holder of an equity investment at risk, does not have voting or similar rights and does not participate in the management or direct the operations of the partnerships (activities which affect the economic performance of the partnerships). Synovus is at risk for the amount of its equity investment and has no obligation to fund the operations or working capital of the partnerships. The general partners of these partnerships are considered the primary beneficiaries because they are charged with management responsibility which give them the power to direct the activities that most significantly impact the economic performance of the partnerships, and they are exposed to losses beyond Synovus’ equity investment. Synovus classifies these investments as real estate partnerships because they are no longer held for tax credits or other tax benefits.

Synovus records its investments in real estate partnerships as a component of other assets in its consolidated balance sheet. Synovus records equity method income (loss) from real estate partnerships as a component of non interest income in its consolidated income statement.

The following tables provide a summary of the investments in real estate partnerships at December 31, 2017 and 2016 and income related to these investments for the years ended December 2017, 2016, and 2015.



	2017		2016
(in thousands)
Equity method investments included in other assets	$	6,468	$	6,822
Unfunded commitments included in other liabilities	—		—



	Years Ended December 31,
	2017		2016		2015
(in thousands)
Income from equity method investments recognized as a component of non-interest income	$	1,584	$	1,040	$	1,212

Certain Commercial Loans – For certain troubled commercial loans, Synovus restructures the terms of the borrower’s debt in an effort to increase the probability of receipt of amounts contractually due. A TDR generally requires consideration of whether the borrowing entity is a VIE as economic events may have proven that the entity’s equity is not sufficient to permit it to finance its activities without additional subordinated financial support or a restructuring of the terms of its financing. As Synovus does not have the power to direct the activities that most significantly impact such troubled commercial borrowers’ operations, it is not considered the primary beneficiary, even in situations where, based on the size of the financing provided, Synovus is exposed to potentially significant benefits and losses of the borrowing entity. Synovus has no contractual requirements to provide financial support to the borrowing entities beyond certain funding commitments established upon restructuring of the terms of the debt that allow for preparation of the underlying collateral for sale.