Synovus utilizes derivative instruments to manage its exposure to various types of interest rate risk, exposures related to liquidity and credit risk, and to facilitate customer transactions. The primary types of derivative instruments utilized by Synovus consist of interest rate swaps, interest rate lock commitments made to prospective mortgage loan customers, commitments to sell fixed-rate mortgage loans, and foreign currency exchange forwards. Interest rate lock commitments represent derivative instruments since it is intended that such loans will be sold. Synovus is party to master netting arrangements with its dealer counterparties; however, Synovus does not offset assets and liabilities under these arrangements for financial statement presentation purposes.

Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. Synovus has entered into interest rate swap contracts to manage overall cash flow changes related to interest rate risk exposure on index-based variable rate loans. The contracts effectively modify Synovus' exposure to interest rate risk by utilizing receive fixed/pay index-based variable rate interest rate swaps.

For cash flow hedges, the effective portion of the gain or loss related to the derivative instrument is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. As of December 31, 2019, the maximum length of time over which Synovus is hedging its exposure to the variability in future cash flows is through the first quarter of 2024. As of December 31, 2019, Synovus expects to reclassify approximately $2 million of pre-tax losses from AOCI into interest income on cash flow hedges over the next twelve months.

Entering into derivative contracts potentially exposes Synovus to the risk of counterparties’ failure to fulfill their legal obligations, including, but not limited to, potential amounts due or payable under each derivative contract. Notional principal amounts are often used to express the volume of these transactions, but the amounts potentially subject to credit risk are much

smaller. Synovus assesses the credit risk of its dealer counterparties by regularly monitoring publicly available credit rating information, evaluating other market indicators, and periodically reviewing detailed financials. Dealer collateral requirements are determined via risk-based policies and procedures and in accordance with existing agreements. Synovus seeks to minimize dealer credit risk by dealing with highly rated counterparties and by obtaining collateral for exposures above certain predetermined limits. Management closely monitors credit conditions within the customer swap portfolio, which management deems to be of higher risk than dealer counterparties. Collateral is secured at origination and credit related fair value adjustments are recorded against the asset value of the derivative as deemed necessary based upon an analysis, which includes consideration of the current asset value of the swap, customer credit rating, collateral value, and customer standing with regards to its swap contractual obligations and other related matters. Such asset values fluctuate based upon changes in interest rates regardless of changes in notional amounts and changes in customer specific risk.

Synovus enters into interest rate swap agreements to facilitate the risk management strategies of certain commercial banking customers. Synovus mitigates this risk by entering into equal and offsetting interest rate swap agreements with highly rated counterparties. The interest rate swap agreements are free-standing derivatives and are recorded at fair value on Synovus' consolidated balance sheets. The credit risk to these customers is evaluated and included in the calculation of fair value. Fair value changes including credit-related adjustments are recorded as a component of capital markets income.

Synovus originates first lien residential mortgage loans for sale into the secondary market. Mortgage loans are sold either individually or in a bulk sale by Synovus on a whole loan servicing release basis to third-party servicing aggregators for potential conversion into mortgage backed securities which can be traded in the secondary market or retained on their respective balance sheet.

Synovus enters into interest rate lock commitments for residential mortgage loans which commits it to lend funds to a potential borrower at a specific interest rate and within a specified period of time. Interest rate lock commitments that relate to the origination of mortgage loans that, if originated, will be held for sale, are considered derivative financial instruments under applicable accounting guidance. Outstanding interest rate lock commitments expose Synovus to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan and the eventual commitment for sale into the secondary market.

Forward commitments to sell primarily fixed-rate mortgage loans are entered into to reduce the exposure to market risk arising from potential changes in interest rates, which could affect the fair value of mortgage loans held for sale and outstanding rate lock commitments, which guarantee a certain interest rate if the loan is ultimately funded or granted by Synovus as a mortgage loan held for sale. The commitments to sell mortgage loans are at fixed prices and are scheduled to settle at specified dates that generally do not exceed 90 days.

In conjunction with the sale of Class B shares of common stock issued by Visa to Synovus as a Visa USA member, Synovus entered into a derivative contract with the purchaser, which provides for settlements between the parties based upon a change in the ratio for conversion of Visa Class B shares to Visa Class A shares. The conversion ratio changes when Visa deposits funds to a litigation escrow established by Visa to pay settlements for certain litigation, for which Visa is indemnified by Visa USA members. The litigation escrow is funded by proceeds from Visa’s conversion of Class B shares. The fair value of the derivative contract is determined based on management's estimate of the timing and amount of the Covered Litigation settlement, and the resulting payments due to the counterparty under the terms of the contract. Fair value changes are recorded as a component of other non-interest expense. Management believes that the estimate of Synovus' exposure to the Visa indemnification including fees associated with the Visa derivative is adequate based on current information, including Visa's recent announcements and disclosures. However, future developments in the litigation could require changes to Synovus' estimate.

Pursuant to the Dodd-Frank Act, certain derivative transactions have collateral requirements, both at the inception of the trade, and as the value of each derivative position changes. As of December 31, 2019 and 2018, collateral totaling $84.6 million and $22.4 million, respectively, was pledged to the derivative counterparties to comply with collateral requirements. For derivatives cleared through central clearing houses, the variation margin payments made are legally characterized as settlements of the derivatives. As a result, these variation margin payments are netted against the fair value of the respective derivative contracts in the consolidated balance sheets and related disclosures. At December 31, 2019 and 2018, Synovus had a variation margin of $113.7 million and $3.1 million, respectively, each reducing the derivative liability.



	December 31, 2019						December 31, 2018
			Fair Value						Fair Value
(in thousands)	Notional Amount		Derivative Assets⁽¹⁾		Derivative Liabilities⁽²⁾		Notional Amount		Derivative Assets⁽¹⁾		Derivative Liabilities⁽²⁾
Derivatives in cash flow hedging relationships:
Interest rate contracts	$	2,000,000	$	54	$	8,624	$	—	$	—	$	—
Total derivatives designated as hedging instruments			$	54	$	8,624			$	—	$	—

Derivatives not designated as hedging instruments:
Interest rate contracts⁽³⁾	$	7,258,159	$	138,672	$	25,849	$	1,840,288	$	18,388	$	15,716
Mortgage derivatives - interest rate lock commitments	70,481		1,290		—		52,420		944		—
Mortgage derivatives - forward commitments to sell fixed-rate mortgage loans	107,000		—		168		65,500		—		819
Other contracts⁽⁴⁾	145,764		—		91		69,902		—		—
Visa derivative	—		—		2,339		—		—		1,673
Total derivatives not designated as hedging instruments			$	139,962	$	28,447			$	19,332	$	18,208

Synovus has entered into risk participation agreements with counterparties to transfer or assume credit exposures related to interest rate derivatives. The notional amount of risk participation agreements sold was $145.8 million and $69.9 million at December 31, 2019 and 2018, respectively. The notional amount of risk participation agreements purchased was $3.0 million at December 31, 2019. Assuming all underlying third-party customers referenced in the swap contracts defaulted at December 31, 2019 and 2018, the exposure from these agreements would not be material based on the fair value of the underlying swaps.

Synovus also provides foreign currency exchange services, primarily forward contracts, with counterparties to allow commercial customers to mitigate exchange rate risk. Synovus covers its risk by entering into an offsetting foreign currency exchange forward contract. The notional amount of foreign currency exchange forwards was $32.9 million and $28.8 million at December 31, 2019 and 2018, respectively. The fair value of foreign currency exchange forwards was negligible at December 31, 2019 and 2018 due to the very short duration of these contracts.



		Gain (Loss) Recognized in Consolidated Statements of Income
		For The Years Ended December 31,
(in thousands)	Location in Consolidated Statements of Income	2019			2018			2017
Derivatives not designated as hedging instruments:
Interest rate contracts⁽¹⁾	Capital markets income	$	(338	)	$	(29	)	$	20
Mortgage derivatives - interest rate lock commitments	Mortgage banking income	346			8			(634		)
Mortgage derivatives - forward commitments to sell fixed-rate mortgage loans	Mortgage banking income	651			(691		)	(2,025		)
Visa derivative	Other non-interest expense	(3,611		)	(2,328		)	—
Other contracts⁽²⁾	Capital markets income	(91		)	—			—
Total derivatives not designated as hedging instruments		$	(3,043	)	$	(3,040	)	$	(2,639	)