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 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 GSEs and agencies, obligations of states and municipalities, collateralized mortgage obligations issued by GSEs, 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 loans held for sale, other real estate, certain corporate securities, private equity investments, GGL/SBA loan servicing assets, and the earnout liability.

See "Part II - Item 8. Financial Statements and Supplementary Data - Note 15 - Fair Value Accounting" to the consolidated financial statements of Synovus' 2017 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 March 31, 2018 and December 31, 2017, according to the valuation hierarchy included in ASC 820-10. For debt securities, class was determined based on the nature and risks of the investments. Synovus did not have any transfers between levels during the three months ended March 31, 2018 and year ended December 31, 2017.



	March 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total Assets and Liabilities at Fair Value
Assets
Trading securities:
U.S. Government agency securities	$	—	$	25,971	$	—	$	25,971
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		240		—		240
State and municipal securities	—		40		—		40
Total trading securities	$	—	$	26,251	$	—	$	26,251
Mortgage loans held for sale	—		50,439		—		50,439

Investment securities available for sale:
U.S. Treasury securities	120,931		—		—		120,931
U.S. Government agency securities	—		10,897		—		10,897
Mortgage-backed securities issued by U.S. Government agencies	—		112,868		—		112,868
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,664,000		—		2,664,000
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		1,065,041		—		1,065,041
State and municipal securities	—		115		—		115
Corporate debt and other debt securities⁽¹⁾	—		15,274		1,852		17,126
Total investment securities available for sale	$	120,931	$	3,868,195	$	1,852	$	3,990,978
Private equity investments	—		—		12,715		12,715
Mutual funds	3,131		—		—		3,131
Mutual funds held in rabbi trusts	13,385		—		—		13,385
GGL/SBA loans servicing asset	—		—		3,971		3,971
Derivative assets:
Interest rate contracts	—		7,672		—		7,672
Mortgage derivatives⁽²⁾	—		1,735		—		1,735
Total derivative assets	$	—	$	9,407	$	—	$	9,407
Liabilities
Trading account liabilities	—		23,856		—		23,856
Earnout liability⁽³⁾	—		—		11,348		11,348
Derivative liabilities:
Interest rate contracts	—		16,122		—		16,122
Visa derivative	—		—		3,974		3,974
Total derivative liabilities	$	—	$	16,122	$	3,974	$	20,096



	December 31, 2017
(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	$	—	$	3,002	$	—	$	3,002
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		296		—		296
Other investments	522		—		—		522
Total trading securities	$	522	$	3,298	$	—	$	3,820
Mortgage loans held for sale	—		48,024		—		48,024

Investment securities available for sale:
U.S. Treasury securities	82,674		—		—		82,674
U.S. Government agency securities	—		10,862		—		10,862
Mortgage-backed securities issued by U.S. Government agencies	—		120,440		—		120,440
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,640,523		—		2,640,523
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		1,111,999		—		1,111,999
State and municipal securities	—		180		—		180
Corporate debt and other securities⁽¹⁾	3,162		15,294		1,935		20,391
Total investment securities available for sale	$	85,836	$	3,899,298	$	1,935	$	3,987,069
Private equity investments	—		—		15,771		15,771
Mutual funds held in rabbi trusts	14,140		—		—		14,140
GGL/SBA loan servicing asset	—		—		4,101		4,101
Derivative assets:
Interest rate contracts	—		10,786		—		10,786
Mortgage derivatives⁽²⁾	—		936		—		936
Total derivative assets	$	—	$	11,722	$	—	$	11,722
Liabilities
Trading account liabilities	—		1,000		—		1,000
Earnout liability⁽³⁾	—		—		11,348		11,348
Derivative liabilities:
Interest rate contracts	—		12,638		—		12,638
Mortgage derivatives⁽²⁾	—		129		—		129
Visa derivative	—		—		4,330		4,330
Total derivative liabilities	$	—	$	12,767	$	4,330	$	17,097

⁽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 Three Months Ended March 31,
(in thousands)	2018		2017
Mortgage loans held for sale	$	115	$	1,203



Mortgage Loans Held for Sale
(in thousands)	As of March 31, 2018		As of December 31, 2017
Fair value	$	50,439	$	48,024
Unpaid principal balance	49,139		46,839
Fair value less aggregate unpaid principal balance	$	1,300	$	1,185

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 sheet for the three months ended March 31, 2018 and 2017 (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 three months ended March 31, 2018 and 2017, Synovus did not have any transfers between levels in the fair value hierarchy.



	Three Months Ended March 31, 2018
(in thousands)	Investment Securities Available for Sale			Private Equity Investments			Visa Derivative			Earnout Liability⁽¹⁾			GGL / SBA Loans Servicing Asset
Beginning balance, January 1, 2018	$	1,935		$	15,771		$	(4,330	)	$	(11,348	)	$	4,101
Total (losses) gains realized/unrealized:
Included in earnings	—			(3,056		)	—			—			(422		)
Unrealized (losses) gains included in other comprehensive income	(83		)	—			—			—			—
Additions	—			—			—			—			292
Settlements	—			—			356			—			—
Ending balance, March 31, 2018	$	1,852		$	12,715		$	(3,974	)	$	(11,348	)	$	3,971
Total net (losses) for the period included in earnings attributable to the change in unrealized losses relating to assets/liabilities still held at March 31, 2018	$	—		$	(3,056	)	$	—		$	—		$	(422	)



	Three Months Ended March 31, 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, 2017	$	1,796	$	25,493		$	(5,768	)	$	(14,000	)	$	—
Total gains (losses) realized/unrealized:
Included in earnings	—		(1,814		)	—			—			—
Unrealized gains included in other comprehensive income	55		—			—			—			—
Settlements	—		—			356			—			—
Transfer from amortization method to fair value	—		—			—			—			4,178
Measurement period adjustments related to Global One acquisition	$	—	—			—			2,579			—
Ending balance, March 31, 2017	$	1,851	$	23,679		$	(5,412	)	$	(11,421	)	$	4,178
Total net (losses) for the period included in earnings attributable to the change in unrealized losses relating to assets still held at March 31, 2017	$	—	$	(1,814	)	$	—		$	—		$	—

⁽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. Prior to 2017, Synovus accounted for the GGL/SBA loans servicing asset using the amortization method.



			March 31, 2018		December 31, 2017
	Valuation Technique	Significant Unobservable Input	Level 3 Fair Value	Range/Weighted Average	Level 3 Fair Value	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	$1,852	439 bps	$1,935	398 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	12,715	N/A	15,771	N/A

GGL/SBA loans servicing asset	Discounted cash flow analysis	Discount rate Prepayment speeds	3,971	13.57% 7.98%	4,101	13.16% 7.50%

Earnout liability	Option pricing methods and Monte Carlo simulation	Financial projections of Global One	11,348	N/A	11,348	N/A

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	3,974	1-4 years	4,330	1-4 years

Assets Measured at Fair Value on a Non-recurring Basis

Certain assets are recorded at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis. 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.



	March 31, 2018								December 31, 2017
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Impaired loans^*	$	—	$	—	$	4,531	$	4,531	$	—	$	—	$	3,603	$	3,603
Other loans held for sale	—		—		3,295		3,295		—		—		10,197		10,197
Other real estate	—		—		1,447		1,447		—		—		3,363		3,363
Other assets held for sale	—		—		1,395		1,395		—		—		5,334		5,334

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

Other real estate (ORE) properties are included in other assets on the consolidated balance sheet. The carrying value of ORE at March 31, 2018 and December 31, 2017 was $4.5 million and $3.8 million, respectively.

The following table presents fair value adjustments recognized in earnings for the three months ended March 31, 2018 and 2017 for assets measured at fair value on a non-recurring basis still held at period-end.



	Three Months Ended March 31,
(in thousands)	2018		2017
Impaired loans^*	$	720	$	2,230
Other loans held for sale	1,512		3,519
Other real estate	731		399
Other assets held for sale	107		238

^*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.



			March 31, 2018	December 31, 2017
	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% - 23% (9%) 0% - 10% (7%)	0%-50% (15%) 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	0% - 85% (30%) 0% - 10% (2%)	5% - 99% (54%) 0% - 10% (2%)

Other real estate	Third-party appraised value of real estate less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	0% - 39% (21%) 0% - 10% (7%)	0%-85% (35%) 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%-10% (7%)	21%-52% (25%) 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 March 31, 2018 and December 31, 2017. 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 March 31, 2018 and December 31, 2017 are as follows:



	March 31, 2018
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	1,059,017	$	1,059,017	$	1,059,017	$	—	$	—
Trading account assets	26,251		26,251		—		26,251		—
Mortgage loans held for sale	50,439		50,439		—		50,439		—
Other loans held for sale	6,591		6,591		—		—		6,591
Investment securities available for sale	3,990,978		3,990,978		120,931		3,868,195		1,852
Private equity investments	12,715		12,715		—		—		12,715
Mutual funds	3,131		3,131		3,131		—		—
Mutual funds held in rabbi trusts	13,385		13,385		13,385		—		—
Loans, net	24,625,273		24,538,259		—		—		24,538,259
GGL/SBA loans servicing asset	3,971		3,971		—		—		3,971
Derivative assets	9,407		9,407		—		9,407		—

Financial liabilities
Trading account liabilities	23,856		—		—		23,856		—

Non-interest bearing deposits	7,381,070		7,381,070		—		7,381,070		—
Non-time interest bearing deposits	14,030,247		14,030,247		—		14,030,247		—
Time deposits	4,842,190		4,834,135		—		4,834,135		—
Total deposits	$	26,253,507	$	26,245,452	$	—	$	26,245,452	$	—
Federal funds purchased, other short-term borrowings and other short-term liabilities	185,531		185,531		185,531		—		—
Long-term debt	1,856,392		1,861,008		—		1,861,008		—
Earnout liabilities	11,348		11,348		—		—		11,348
Derivative liabilities	20,096		20,096		—		16,122		3,974



	December 31, 2017
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	932,933	$	932,933	$	932,933	$	—	$	—
Trading account assets	3,820		3,820		522		3,298		—
Mortgage loans held for sale	48,024		48,024		—		48,024		—
Other loans for sale	11,356		11,356		—		—		11,356
Investment securities available for sale	3,987,069		3,987,069		85,836		3,899,298		1,935
Private equity investments	15,771		15,771		—		—		15,771
Mutual funds held in rabbi trusts	14,140		14,140		14,140		—		—
Loans, net	24,538,196		24,507,141		—		—		24,507,141
GGL/SBA loans servicing asset	4,101		4,101		—		—		4,101
Derivative assets	11,722		11,722		—		11,722		—

Financial liabilities
Trading account liabilities	1,000		1,000		—		1,000		—

Non-interest bearing deposits	7,686,339		7,686,339		—		7,686,339		—
Non-time interest bearing deposits	13,941,814		13,941,814		—		13,941,814		—
Time deposits	4,519,747		4,523,661		—		4,523,661		—
Total deposits	$	26,147,900	$	26,151,814	$	—	$	26,151,814	$	—
Federal funds purchased, other short-term borrowings and other short-term liabilities	161,190		161,190		161,190		—		—
Long-term debt	1,706,138		1,721,814		—		1,721,814		—
Earnout liabilities	11,348		11,348		—		—		11,348
Derivative liabilities	17,097		17,097		—		12,767		4,330