Fair Value Accounting

3 Months Ended

Mar. 31, 2023

Note 6 - Fair Value Accounting

See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" of Synovus' 2022 Form 10-K for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis.

The following table presents assets and liabilities measured at estimated fair value on a recurring basis.


	March 31, 2023								December 31, 2022
(in thousands)	Level 1		Level 2		Level 3		Total Estimated Fair Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
Assets
Trading securities:
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	$	—	$	2,954	$	—	$	2,954	$	—	$	2,991	$	—	$	2,991
Other mortgage-backed securities	—		2,909		—		2,909		—		3,185		—		3,185
State and municipal securities	—		69		—		69		—		48		—		48
Asset-backed securities	—		19,185		—		19,185		—		2,071		—		2,071
Other investments	—		798		—		798		—		—		—		—
Total trading securities	$	—	$	25,915	$	—	$	25,915	$	—	$	8,295	$	—	$	8,295
Investment securities available for sale:
U.S. Treasury securities	$	480,280	$	—	$	—	$	480,280	$	471,813	$	—	$	—	$	471,813
U.S. Government agency securities	—		48,945		—		48,945		—		48,798		—		48,798
Mortgage-backed securities issued by U.S. Government agencies	—		708,545		—		708,545		—		792,749		—		792,749
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		7,025,500		—		7,025,500		—		6,895,070		—		6,895,070
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		648,559		—		648,559		—		655,127		—		655,127
Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises	—		812,023		—		812,023		—		805,945		—		805,945
Corporate debt securities and other debt securities	—		8,766		—		8,766		—		8,601		—		8,601
Total investment securities available for sale	$	480,280	$	9,252,338	$	—	$	9,732,618	$	471,813	$	9,206,290	$	—	$	9,678,103
Mortgage loans held for sale	$	—	$	44,400	$	—	$	44,400	$	—	$	51,136	$	—	$	51,136
Other investments	—		—		11,655		11,655		—		—		11,172		11,172
Mutual funds and mutual funds held in rabbi trusts	48,428		—		—		48,428		42,659		—		—		42,659
SBA loans servicing asset	—		—		2,412		2,412		—		—		2,354		2,354
Derivative assets	—		88,257		—		88,257		—		89,815		—		89,815
Liabilities
Securities sold short	$	3,152	$	—	$	—	$	3,152	$	3,370	$	—	$	—	$	3,370
Mutual funds held in rabbi trusts	33,470		—		—		33,470		27,944		—		—		27,944
Derivative liabilities	—		318,999		1,111		320,110		—		339,227		3,453		342,680

Fair Value Option

Synovus has elected the fair value option for mortgage loans held for sale primarily to ease the operational burden required to maintain hedge accounting for these loans. Synovus is still able to achieve effective economic hedges on mortgage loans held for sale without the time and expense needed to manage a hedge accounting program.

The following table summarizes the difference between the fair value and the UPB of mortgage loans held for sale and the changes in fair value of these loans. An immaterial portion of these changes in fair value was attributable to changes in instrument-specific credit risk.


Mortgage Loans Held for Sale
(in thousands)	As of March 31, 2023		As of December 31, 2022
Fair value	$	44,400	$	51,136
Unpaid principal balance	43,225		50,264
Fair value less aggregate unpaid principal balance	$	1,175	$	872


Changes in Fair Value Included in Net Income	Three Months Ended March 31,				Location in Consolidated Statements of Income
(in thousands)	2023		2022
Mortgage loans held for sale	$	303	$	(2,350)		Mortgage banking income

Activity for Level 3 Assets and Liabilities

See "Part II - Item 8. Financial Statements and Supplementary Data - Note 12 - Fair Value Accounting" of Synovus' 2022 Form 10-K for a description of the valuation techniques and significant inputs for Level 3 assets and liabilities that are measured at fair value on a recurring and non-recurring basis. During the three months ended March 31, 2023 and 2022, Synovus did not have any transfers in or out of Level 3 in the fair value hierarchy. The following tables provide rollforwards of Level 3 assets and liabilities measured at fair value on a recurring basis.


		Three Months Ended March 31, 2023
(in thousands)		Other Investments		SBA Loans Servicing Asset		Visa Derivative
Beginning balance		$	11,172	$	2,354	$	(3,453)
Total gains (losses) realized/unrealized:
Included in earnings		(28)		(212)		—
Additions		511		270		—
Settlements		—		—		2,342
Ending balance		$	11,655	$	2,412	$	(1,111)
Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains/(losses) relating to assets/liabilities still held at March 31, 2023		$	(28)	$	(212)	$	—

	Three Months Ended March 31, 2022
(in thousands)		Other Investments		SBA Loans Servicing Asset		Visa Derivative
Beginning balance		$	12,185	$	3,233	$	(3,535)
Total gains (losses) realized/unrealized:
Included in earnings		(92)		(262)		—
Additions		—		480		—
Settlements		—		—		1,759
Ending balance		$	12,093	$	3,451	$	(1,776)
Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains/(losses) relating to assets/liabilities still held at March 31, 2022		$	(92)	$	(262)	$	—

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.


	March 31, 2023						Fair Value Adjustments for the		Location in Consolidated Statements of Income
(in thousands)	Level 1		Level 2		Level 3		Three Months Ended March 31, 2023
Loans(1)	$	—	$	—	$	49	$	50		Provision for credit losses
Other loans held for sale	—		—		391,157		16,750			Loss on other loans held for sale
Qualpay receivable	—		—		31,109		15,789			Recovery of NPA; Other operating expense(2)
Other assets held for sale	—		—		450		50			Other operating expense

	March 31, 2022						Fair Value Adjustments for the		Location in Consolidated Statements of Income
	Level 1		Level 2		Level 3		Three Months Ended March 31, 2022
Loans(1)	$	—	$	—	$	7,483	$	339		Provision for credit losses
Other assets held for sale	—		—		2,725		492			Other operating expense

(1) Collateral-dependent loans that were written down to fair value of collateral.

(2) Recovery of NPA amount was $13.1 million in non-interest revenue while other operating expense amount was a reversal of $2.7 million. See Note 9 - Commitments and Contingencies for further discussion.

Fair Value of Financial Instruments

The following tables present the carrying and estimated fair values of financial instruments at March 31, 2023 and December 31, 2022. The fair values represent management’s best estimates based on a range of methodologies and assumptions. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" to the consolidated financial statements of Synovus' 2022 Form 10-K for a description of how fair value measurements are determined.


	March 31, 2023
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Total cash, cash equivalents, and restricted cash	$	3,365,400	$	3,365,400	$	3,365,400	$	—	$	—
Trading securities	25,915		25,915		—		25,915		—
Investment securities available for sale	9,732,618		9,732,618		480,280		9,252,338		—
Loans held for sale	669,447		669,042		—		44,400		624,642
Other investments	11,655		11,655		—		—		11,655
Mutual funds and mutual funds held in rabbi trusts	48,428		48,428		48,428		—		—
Loans, net	43,587,929		41,958,157		—		—		41,958,157
SBA loans servicing asset	2,412		2,412		—		—		2,412
FRB and FHLB stock	322,869		322,869		—		322,869
Derivative assets	88,257		88,257		—		88,257		—
Financial liabilities
Non-interest-bearing deposits	$	14,642,677	$	14,642,677	$	—	$	14,642,677	$	—
Non-time interest-bearing deposits	27,173,132		27,173,132		—		27,173,132		—
Time deposits	8,138,127		8,154,023		—		8,154,023		—
Total deposits(1)	$	49,953,936	$	49,969,832	$	—	$	49,969,832	$	—
Federal funds purchased and securities sold under repurchase agreements	195,695		195,695		195,695		—		—
Securities sold short	3,152		3,152		3,152		—		—
Short-term FHLB advances	250,000		250,000		—		250,000		—
Long-term debt	5,146,252		5,019,616		—		5,019,616		—
Mutual funds held in rabbi trusts	33,470		33,470		33,470		—		—
Derivative liabilities	320,110		320,110		—		318,999		1,111

(1) The fair value of deposits with no stated maturity, such as non-interest-bearing demand, interest bearing demand, money market, and savings accounts reflects the carrying amount which is payable on demand, as of the respective date, and may not align with other valuation methods or processes. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.


	December 31, 2022
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Total cash, cash equivalents, and restricted cash	$	1,977,780	$	1,977,780	$	1,977,780	$	—	$	—
Trading securities	8,295		8,295		—		8,295		—
Investment securities available for sale	9,678,103		9,678,103		471,813		9,206,290		—
Loans held for sale	391,502		391,085		—		51,136		339,949
Other investments	11,172		11,172		—		—		11,172
Mutual funds and mutual funds held in rabbi trusts	42,659		42,659		42,659		—		—
Loans, net	43,272,929		42,192,295		—		—		42,192,295
SBA loans servicing asset	2,354		2,354		—		—		2,354
FRB and FHLB stock	308,321		308,321		—		308,321		—
Derivative assets	89,815		89,815		—		89,815		—

Financial liabilities
Non-interest-bearing deposits	$	15,639,899	$	15,639,899	$	—	$	15,639,899	$	—
Non-time interest-bearing deposits	26,936,635		26,936,635		—		26,936,635		—
Time deposits	6,295,025		6,260,315		—		6,260,315		—
Total deposits(1)	$	48,871,559	$	48,836,849	$	—	$	48,836,849	$	—
Federal funds purchased and securities sold under repurchase agreements	146,588		146,588		146,588		—		—
Securities sold short	3,370		3,370		3,370		—		—
Short-term FHLB advances	600,014		600,014		—		600,014		—
Long-term debt	4,109,597		4,120,113		—		4,120,113		—
Mutual funds held in rabbi trusts	27,944		27,944		27,944		—		—
Derivative liabilities	342,680		342,680		—		339,227		3,453

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details