Note 6 - Fair Value Accounting

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 the fair value hierarchy and 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 tables present all financial instruments measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017.



	September 30, 2018
(in thousands)	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Assets and Liabilities at Fair Value
Assets
Trading securities:
U.S. Government agency securities	$	—	$	6,532	$	—	$	6,532
Mortgage-backed securities issued by U.S. Government agencies	—		921		—		921
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		183		—		183
State and municipal securities	—		177		—		177
Other investments	998		38		—		1,036
Total trading securities	$	998	$	7,851	$	—	$	8,849
Mortgage loans held for sale	—		37,276		—		37,276
Investment securities available for sale:
U.S. Treasury securities	$	120,639	$	—	$	—	$	120,639
U.S. Government agency securities	—		37,864		—		37,864
Mortgage-backed securities issued by U.S. Government agencies	—		100,883		—		100,883
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,489,365		—		2,489,365
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		1,117,703		—		1,117,703
Corporate debt and other debt securities	—		15,155		1,965		17,120
Total investment securities available for sale	$	120,639	$	3,760,970	$	1,965	$	3,883,574
Private equity investments	—		—		13,112		13,112
Mutual funds	3,118		—		—		3,118
Mutual funds held in rabbi trusts	14,100		—		—		14,100
GGL/SBA loans servicing asset	—		—		3,761		3,761
Derivative assets:
Interest rate contracts	$	—	$	8,892	$	—	$	8,892
Mortgage derivatives⁽¹⁾	—		1,122		—		1,122
Total derivative assets	$	—	$	10,014	$	—	$	10,014
Liabilities
Trading account liabilities	—		3,540		—		3,540
Earnout liability⁽²⁾	—		—		23,000		23,000
Derivative liabilities:
Interest rate contracts	$	—	$	20,822	$	—	20,822
Visa derivative	—		—		1,990		1,990
Total derivative liabilities	$	—	$	20,822	$	1,990	$	22,812



	December 31, 2017
(in thousands)	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (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	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⁽¹⁾	—		936		—		936
Total derivative assets	$	—	$	11,722	$	—	$	11,722
Liabilities
Trading account liabilities	—		1,000		—		1,000
Earnout liability⁽²⁾	—		—		11,348		11,348
Derivative liabilities:
Interest rate contracts	$	—	$	12,638	$	—	$	12,638
Mortgage derivatives⁽¹⁾	—		129		—		129
Visa derivative	—		—		4,330		4,330
Total derivative liabilities	$	—	$	12,767	$	4,330	$	17,097

⁽¹⁾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.

⁽²⁾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 September 30,						For the Nine Months Ended September 30,
(in thousands)	2018			2017			2018			2017
Mortgage loans held for sale	$	(569	)	$	(104	)	$	(414	)	$	850



Mortgage Loans Held for Sale
(in thousands)	As of September 30, 2018		As of December 31, 2017
Fair value	$	37,276	$	48,024
Unpaid principal balance	36,505		46,839
Fair value less aggregate unpaid principal balance	$	771	$	1,185

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

During the three and nine months ended September 30, 2018 and 2017, Synovus did not have any transfers in or out of Level 3 in the fair value hierarchy. For the three and nine months ended September 30, 2018, total net losses included in earnings attributable to the change in unrealized losses relating to assets/liabilities still held at September 30, 2018 was $11.8 million and $17.9 million, respectively. For the three and nine months ended September 30, 2017, total net losses included in earnings attributable to the change in unrealized losses relating to assets/liabilities still held at September 30, 2017 was $2.1 million and $7.7 million, respectively.



	Three Months Ended September 30, 2018
(in thousands)	Investment Securities Available for Sale			Private Equity Investments			GGL / SBA Loans Servicing Asset			Earnout Liability			Visa Derivative
Beginning balance, July 1, 2018	$	1,857		$	12,678		$	4,186		$	(11,348	)	$	(5,943	)
Total (losses) gains realized/unrealized:
Included in earnings	—			434			(561		)	(11,652		)	—
Unrealized gains (losses) included in OCI	108			—			—			—			—
Additions	—			—			136			—			—
Settlements	—			—			—			—			3,953
Ending balance, September 30, 2018	$	1,965		$	13,112		$	3,761		$	(23,000	)	$	(1,990	)
Total net losses for the period included in earnings attributable to the change in unrealized losses relating to assets/liabilities still held at September 30, 2018	$	—		$	434		$	(561	)	$	(11,652	)	$	—

	Three Months Ended September 30, 2017
(in thousands)	Investment Securities Available for Sale			Private Equity Investments			GGL / SBA Loans Servicing Asset			Earnout Liability			Visa Derivative
Beginning balance, July 1, 2017	$	1,927		$	15,698		$	4,297		$	(13,941	)	$	(5,053	)
Total (losses) gains realized/unrealized:
Included in earnings	—			(27		)	(27		)	(2,059		)	—
Unrealized gains (losses) included in OCI	(9		)	—			—			—			—
Settlements	—			—			—			—			360
Ending balance, September 30, 2017	$	1,918		$	15,671		$	4,270		$	(16,000	)	$	(4,693	)
Total net losses for the period included in earnings attributable to the change in unrealized losses relating to assets/liabilities still held at September 30, 2017	$	—		$	(27	)	$	(27	)	$	(2,059	)	$	—



	Nine Months Ended September 30, 2018
(in thousands)	Investment Securities Available for Sale		Private Equity Investments			GGL / SBA Loans Servicing Asset			Earnout Liability			Visa Derivative
Beginning balance, January 1, 2018	$	1,935	$	15,771		$	4,101		$	(11,348	)	$	(4,330	)
Total (losses) gains realized/unrealized:
Included in earnings	—		(2,659		)	(1,295		)	(11,652		)	(2,328		)
Unrealized gains (losses) included in OCI	30		—			—			—			—
Additions	—		—			955			—			—
Settlements	—		—			—			—			4,668
Ending balance, September 30, 2018	$	1,965	$	13,112		$	3,761		$	(23,000	)	$	(1,990	)
Total net losses for the period included in earnings attributable to the change in unrealized losses relating to assets/liabilities still held at September 30, 2018	$	—	$	(2,659	)	$	(1,295	)	$	(11,652	)	$	(2,328	)

	Nine Months Ended September 30, 2017
(in thousands)	Investment Securities Available for Sale		Private Equity Investments			GGL / SBA Loans Servicing Asset			Earnout Liability			Visa Derivative
Beginning balance, January 1, 2017	$	1,796	$	25,493		$	—		$	(14,000	)	$	(5,768	)
Total (losses) gains realized/unrealized:
Included in earnings	—		(3,193		)	(721		)	(3,766		)	—
Unrealized gains (losses) included in OCI	122		—			—			—			—
Additions	—		—			539			—			—
Sales and settlements	—		(6,629		)	—			—			1,075
Transfer from amortization method to fair value	—		—			4,452			—			—
Measurement period adjustments related to Global One	—		—			—			1,766			—
Ending balance, September 30, 2017	$	1,918	$	15,671		$	4,270		$	(16,000	)	$	(4,693	)
Total net losses for the period included in earnings attributable to the change in unrealized losses relating to assets/liabilities still held at September 30, 2017	$	—	$	(3,193	)	$	(721	)	$	(3,766	)	$	—

Quantitative Information about Level 3 Fair Value Measurements



			September 30, 2018		December 31, 2017
Assets and liabilities measured at fair value on a recurring basis	Valuation Technique	Significant Unobservable Input	Level 3 Fair Value	Range or Weighted Average	Level 3 Fair Value	Range or Weighted Average

Investment Securities Available for Sale - Other Investments: Trust preferred securities	Discounted cash flow analysis	Credit spread embedded in discount rate	$1,965	389 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	13,112	N/A	15,771	N/A

GGL/SBA loans servicing asset	Discounted cash flow analysis	Discount rate Prepayment speeds	3,761	13.40% 8.64%	4,101	13.16% 7.50%

Earnout liability	Option pricing methods and Monte Carlo simulation	Earning projections of Global One	23,000	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	1,990	1-2 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. 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 nine months ended September 30, 2018 and year ended December 31, 2017.



	September 30, 2018								December 31, 2017
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Impaired loans⁽¹⁾	$	—	$	—	$	17,270	$	17,270	$	—	$	—	$	3,603	$	3,603
Other loans held for sale	—		—		—		—		—		—		10,197		10,197
Other real estate	—		—		507		507		—		—		3,363		3,363
Other assets held for sale	—		—		302		302		—		—		5,334		5,334

⁽¹⁾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 sheets. The carrying value of ORE at September 30, 2018 and December 31, 2017 was $8.5 million and $3.8 million, respectively.

The following table presents fair value adjustments recognized in earnings for the three and nine months ended September 30, 2018 and 2017 for assets measured at fair value on a non-recurring basis still held at period-end.



	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2018		2017		2018		2017
Impaired loans⁽¹⁾	$	1,223	$	83	$	4,594	$	1,075
Other loans held for sale	—		25,051		—		25,051
Other real estate	61		5,165		61		5,165
Other assets held for sale	—		1,683		499		1,683

⁽¹⁾Collateral-dependent impaired loans that were written down to fair value during the period.

Quantitative Information about Level 3 Fair Value Measurements



			September 30, 2018	December 31, 2017
Assets measured at fair value on a non-recurring basis	Valuation Technique	Significant Unobservable Input	Range (Weighted Average)⁽¹⁾	Range (Weighted Average)⁽¹⁾

Collateral dependent impaired loans	Third-party appraised value of collateral less estimated selling costs	Discount to appraised value Estimated selling costs	0% - 68% (25%) 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 Estimated selling costs	N/A N/A	5% - 99% (54%) 0% - 10% (2%)

Other real estate	Third-party appraised value of real estate less estimated selling costs	Discount to appraised value Estimated selling costs	0% - 7% (4%) 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 Estimated selling costs	0%-42% (42%) 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.

Fair Value of Financial Instruments

The following tables present the carrying and fair values of financial instruments, as well as the level within the fair value value hierarchy, at September 30, 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, 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.



	September 30, 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	$	1,011,933	$	1,011,933	$	1,011,933	$	—	$	—
Trading account assets	8,849		8,849		998		7,851		—
Mortgage loans held for sale	37,276		37,276		—		37,276		—
Other loans held for sale	12		12		—		—		12
Investment securities available for sale	3,883,574		3,883,574		120,639		3,760,970		1,965
Private equity investments	13,112		13,112		—		—		13,112
Mutual funds	3,118		3,118		3,118		—		—
Mutual funds held in rabbi trusts	14,100		14,100		14,100		—		—
Loans, net	25,325,666		25,138,896		—		—		25,138,896
GGL/SBA loans servicing asset	3,761		3,761		—		—		3,761
Derivative assets	10,014		10,014		—		10,014		—

Financial liabilities
Trading account liabilities	3,540		3,540		—		3,540		—
Non-interest bearing deposits	$	7,628,736	$	7,628,736	$	—	$	7,628,736	$	—
Non-time interest-bearing deposits	13,847,104		13,847,104		—		13,847,104		—
Time deposits	4,957,818		4,937,216		—		4,937,216		—
Total deposits	$	26,433,658	$	26,413,056	$	—	$	26,413,056	$	—
Federal funds purchased and securities sold under repurchase agreements	191,145		191,145		191,145		—		—
Other short-term borrowings	475,000		475,000		—		475,000		—
Long-term debt	1,656,909		1,654,002		—		1,654,002		—
Earnout liabilities	23,000		23,000		—		—		23,000
Derivative liabilities	$	22,812	$	22,812	$	—	$	20,822	$	1,990



	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 and securities sold under repurchase agreements	161,190		161,190		161,190		—		—
Other short-term borrowings	100,000		100,000		—		100,000		—
Long-term debt	1,606,138		1,621,814		—		1,621,814		—
Earnout liabilities	11,348		11,348		—		—		11,348
Derivative liabilities	$	17,097	$	17,097	$	—	$	12,767	$	4,330