Note 10 - Fair Value Accounting

Synovus carries various assets and liabilities at fair value based on the fair value accounting guidance under ASC 820 and ASC 825. 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 marketable equity securities as well as U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.
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 U.S. Government sponsored enterprises and agencies, obligations of states and municipalities, CMOs issued by U.S. Government sponsored enterprises, and mortgage loans held-for-sale are generally included in this category. Certain private equity investments that invest in publicly traded companies are also considered Level 2 assets.
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 real estate, and certain private equity investments.

See Note 16 "Fair Value Accounting" to the consolidated financial statements of Synovus' 2013 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 September 30, 2014 and December 31, 2013, according to the valuation hierarchy included in ASC 820-10. For equity and debt securities, class was determined based on the nature and risks of the investments.



	September 30, 2014
(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	$	—	3,502	—	3,502
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		3,677	—	3,677
State and municipal securities	—		—	—	—
All other mortgage-backed securities	—		4,174	—	4,174
Other investments	97		1,255	—	1,352
Total trading securities	$	97	12,608	—	12,705
Mortgage loans held for sale	—		72,333	—	72,333
Investment securities available for sale:
U.S. Treasury securities	42,668		—	—	42,668
U.S. Government agency securities	—		27,469	—	27,469
Securities issued by U.S. Government sponsored enterprises	—		82,327	—	82,327
Mortgage-backed securities issued by U.S. Government agencies	—		177,395	—	177,395
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,316,608	—	2,316,608
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		373,459	—	373,459
State and municipal securities	—		5,301	—	5,301
Equity securities	6,357		—	—	6,357
Other investments⁽¹⁾	2,006		14,882	1,785	18,673
Total investment securities available for sale	$	51,031	2,997,441	1,785	3,050,257
Private equity investments	—		1,094	27,232	28,326
Mutual funds held in Rabbi Trusts	10,817		—	—	10,817
Derivative assets:
Interest rate contracts	—		30,184	—	30,184
Mortgage derivatives⁽²⁾	—		1,138	—	1,138
Total derivative assets	$	—	31,322	—	31,322
Liabilities
Trading account liabilities	—		6,264	—	6,264
Salary stock units	728		—	—	728
Derivative liabilities:
Interest rate contracts	—		30,689	—	30,689
Mortgage derivatives⁽²⁾	—		320	—	320
Visa derivative	—		—	4,021	4,021
Total derivative liabilities	$	—	31,009	4,021	35,030



	December 31, 2013
(in thousands)	Level 1		Level 2	Level 3	Total Assets and Liabilities at Fair Value
Assets
Trading securities:
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		2,465	—	2,465
State and municipal securities	—		429	—	429
All other mortgage-backed securities	—		968	—	968
Other investments	—		2,251	—	2,251
Total trading securities	$	—	6,113	—	6,113
Mortgage loans held for sale	—		45,384	—	45,384
Investment securities available for sale:
U.S. Treasury securities	17,791		—	—	17,791
U.S. Government agency securities	—		34,641	—	34,641
Securities issued by U.S. Government sponsored enterprises	—		113,745	—	113,745
Mortgage-backed securities issued by U.S. Government agencies	—		195,117	—	195,117
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,421,360	—	2,421,360
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		398,540	—	398,540
State and municipal securities	—		6,889	—	6,889
Equity securities	6,956		—	628	7,584
Other investments⁽¹⁾	1,969		—	1,722	3,691
Total investment securities available for sale	$	26,716	3,170,292	2,350	3,199,358
Private equity investments	—		1,615	27,745	29,360
Mutual funds held in Rabbi Trusts	11,246		—	—	11,246
Derivative assets:
Interest rate contracts	—		38,482	—	38,482
Mortgage derivatives⁽²⁾	—		1,522	—	1,522
Total derivative assets	$	—	40,004	—	40,004
Liabilities
Trading account liabilities	—		1,763	—	1,763
Salary stock units	1,764		—	—	1,764
Derivative liabilities:
Interest rate contracts	—		39,436	—	39,436
Visa derivative	—		—	2,706	2,706
Total derivative liabilities	$	—	39,436	2,706	42,142

⁽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.

Fair Value Option

Synovus has elected the fair value option for mortgage loans held for sale primarily to ease the operational burdens 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 operational time and expense needed to manage a hedge accounting program.

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 were 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 Nine Months Ended September 30,			For the Three Months Ended September 30,
(in thousands)	2014	2013		2014		2013
Mortgage loans held for sale	$969	(3,838	)	(813	)	4,092



Mortgage Loans Held for Sale
(in thousands)	As of September 30, 2014		As of December 31, 2013
Fair value	$	72,333	45,384
Unpaid principal balance	70,924		44,943
Fair value less aggregate unpaid principal balance	$	1,409	441

Changes in Level 3 Fair Value Measurements

As noted above, Synovus uses significant unobservable inputs (Level 3) 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 nine and three months ended September 30, 2014 and 2013 (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 first nine months of 2014 and 2013, Synovus did not have any material transfers between levels in the fair value hierarchy.



	Nine Months Ended September 30,
	2014							2013
(in thousands)	Investment Securities Available for Sale			Private Equity Investments		Other Derivative Contracts, Net		Investment Securities Available for Sale	Private Equity Investments		Other Derivative Contracts, Net
Beginning balance, January 1,	$	2,350		27,745		(2,706	)	$3,178	30,708		(2,956	)
Total gains (losses) realized/unrealized:
Included in earnings^*	(88		)	(513	)	(2,731	)	—	(856	)	(801	)
Unrealized gains (losses) included in other comprehensive income	63			—		—		401	—		—
Purchases	—					—		—	—		—
Sales	—			—		—		—	—		—
Issuances	—			—		—		—	—		—
Settlements	(540		)	—		1,416		—	—		1,252
Amortization of discount/premium	—			—		—		—	—		—
Transfers in and/or out of Level 3	—			—		—		—	—		—
Ending balance, September 30,	$	1,785		27,232		(4,021	)	3,579	29,852		(2,505	)
Total net gains (losses) for the nine months included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at September 30,	$	(88	)	(513	)	(2,731	)	—	(856	)	(801	)

^* Included in earnings as a component of non-interest income (expense).



	Three Months Ended September 30,
	2014							2013
(in thousands)	Investment Securities Available for Sale			Private Equity Investments		Other Derivative Contracts, Net		Investment Securities Available for Sale	Private Equity Investments	Other Derivative Contracts, Net
Beginning balance, July 1,	$	1,866		27,376		(2,438	)	3,454	29,568	(2,977	)
Total gains (losses) realized/unrealized:
Included in earnings^*	—			(144	)	(1,979	)	—	284	—
Unrealized gains (losses) included in other comprehensive income	(81		)	—		—		125	—	—
Purchases	—			—		—		—	—	—
Sales	—			—		—		—	—	—
Issuances	—			—		—		—	—	—
Settlements	—			—		396		—	—	472
Amortization of discount/premium	—			—		—		—	—	—
Transfers in and/or out of Level 3	—			—		—		—	—	—
Ending balance, September 30,	$	1,785		27,232		(4,021	)	3,579	29,852	(2,505	)
Total net gains (losses) for the three months included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at September 30,	$	—		(144	)	(1,979	)	—	284	—

^* Included in earnings as a component of non-interest income (expense).

Assets Measured at Fair Value on a Non-recurring Basis

From time to time, certain assets may be recorded at fair value on a non-recurring basis. These 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, according to the valuation hierarchy included in ASC 820-10.



	September 30, 2014					December 31, 2013
(in thousands)	Level 1		Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Impaired loans^*	$	—	—	37,790	37,790	—	—	170,693	170,693
Other loans held for sale	—		—	338	338	—	—	9,670	9,670
Other real estate	—		—	25,928	25,928	—	—	50,070	50,070
Other assets held for sale	$	—	—	7,744	7,744	—	—	4,945	4,945

The following table presents fair value adjustments recognized for the nine and three months ended September 30, 2014 and 2013 for the assets measured at fair value on a non-recurring basis.



	Nine Months Ended September 30,			Three Months Ended September 30,
(in thousands)	2014		2013	2014		2013
Impaired loans^*	$	20,661	27,624	$	9,380	4,630
Other loans held for sale	285		2,844	285		2,833
Other real estate	7,343		5,919	4,114		1,406
Other assets held for sale	$	7,608	246	$	100	76

^*Impaired loans that are collateral-dependent.

Quantitative Information about Level 3 Fair Value Measurements

The tables below provide 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. 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. The tables below present both the total balance as of the dates indicated for assets measured at fair value on a recurring basis and the assets measured at fair value on a non-recurring basis for which there was a fair value adjustment during the period, according to the valuation hierarchy included in ASC 820-10.



September 30, 2014
(dollars in thousands)	Level 3 Fair Value	Valuation Technique	Significant Unobservable Input	Range (Weighted Average)⁽¹⁾
Assets measured at fair value on a recurring basis

Investment Securities Available for Sale:
Other Investments:

Trust preferred securities	1,785	Discounted cash flow analysis	Credit spread embedded in discount rate	450-550 bps (500 bps)

Private equity investments	27,232	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	N/A

Visa derivative liability	4,021	Internal valuation	Multiple factors, including but not limited to, 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.	N/A



September 30, 2014
(dollars in thousands)	Level 3 Fair Value		Valuation Technique	Significant Unobservable Input	Range (Weighted Average)⁽¹⁾
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans	$	37,790	Third party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	0% - 100% (48%) 0% - 10% (7%)

Other loans held for sale	338		Third party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	0% - 23% (23%) 0% - 10% (7%)

Other real estate	25,928		Third party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	0% - 38% (16%) 0% - 10% (7%)

Other assets held for sale	7,744		Third party appraised value of collateral less estimated selling costs or BOV	Discount to appraised value ⁽²⁾ Estimated selling costs	0%-100% (69%) 0%-10% (10%)

⁽¹⁾ The range represents management's best 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 various reasons, including age of the appraisal, information known by management about the property, such as occupancy rates, changes to the physical conditions of the property, and other factors.



December 31, 2013
(dollars in thousands)	Level 3 Fair Value		Valuation Technique	Significant Unobservable Input	Range (Weighted Average)⁽¹⁾
Assets measured at fair value on a recurring basis

Investment Securities Available for Sale:
Equity securities	$	628	Individual analysis of each investment	Multiple data points, including, but not limited to evaluation of past and projected business performance	N/A⁽³⁾

Other Investments:

Trust preferred securities	1,722		Discounted cash flow analysis	Credit spread embedded in discount rate	400-480 bps (441 bps)

Private equity investments	27,745		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 company transactions related to the investee companies	N/A

Visa derivative liability	2,706		Internal valuation	Multiple factors, including but not limited to, 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.	N/A



December 31, 2013
(dollars in thousands)	Level 3 Fair Value		Valuation Technique	Significant Unobservable Input	Range (Weighted Average)⁽¹⁾
Assets measured at fair value on a non-recurring basis
Collateral dependent impaired loans	$	170,693	Third party appraised value of collateral less estimated selling costs	Discount to appraised value⁽²⁾ Estimated selling costs	0%-65% (25%) 0%-10% (7%)

Other loans held for sale	9,670		Third party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	0%-12% (4%) 0%-10% (7%)

Other real estate	50,070		Third party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	0%-7% (2%) 0%-10% (7%)

Other assets held for sale	4,945		Third party appraised value of collateral less estimated selling costs or BOV	Discount to appraised value ⁽²⁾ Estimated selling costs	5%-36% (20%) 0%-10% (7%)

⁽³⁾ The range has not been disclosed due to the wide range of possible values given the methodology used.

Sensitivity Analysis of Level 3 Unobservable Inputs Measured on a Recurring Basis

Included in the fair value estimates of financial instruments carried at fair value on the consolidated balance sheet are those estimated in full or in part using valuation techniques based on assumptions that are not supported by observable market prices, rates, or other inputs. Unobservable inputs are assessed carefully, considering the current economic environment and market conditions. However, by their very nature, unobservable inputs imply a degree of uncertainty in their determination, because they are supported by little, if any, market activity for the related asset or liability.

Investment Securities Available for Sale

For the trust preferred securities in Level 3 assets, raising the credit spread, and raising the discount for lack of liquidity assumptions will result in a lower fair value measurement.

Private Equity Investments

In the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of private equity investments, significant judgment is required to value these investments. The significant unobservable inputs used in the fair value measurement of private equity investments include current operations, financial condition, and cash flows, comparables and private sales, when available; and recently executed financing transactions related to investee companies. Significant increases or decreases in any of these inputs in isolation would result in a significantly lower or higher fair value measurement.

Visa Derivative Liability

The fair value of the Visa 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. Significant increases (decreases) in any of these inputs in isolation could result in a significantly higher (lower) valuation of the Visa derivative liability.

Fair Value of Financial Instruments

The following table presents the carrying and fair values of financial instruments at September 30, 2014 and December 31, 2013. The fair value represents management’s best estimates based on a range of methodologies and assumptions. For financial instruments that are not recorded at fair value on the balance sheet, such as loans, interest bearing deposits (including brokered deposits), and long-term debt, the amounts disclosed in the notes should not be considered an estimate of the amount that would be realized if all such financial instruments were to be settled immediately. See Note 16 "Fair Value Accounting" to the consolidated financial statements of Synovus' 2013 Form 10-K for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis and financial instruments that are not recorded at fair value on the balance sheet.

The carrying and estimated fair values of financial instruments, as well as the level within the fair value hierarchy, as of September 30, 2014 and December 31, 2013 are as follows:



	September 30, 2014
(in thousands)	Carrying Value		Estimated Fair Value	Level 1	Level 2	Level 3
Financial assets
Cash and cash equivalents	$	386,402	386,402	386,402	—	—
Interest bearing funds with Federal Reserve Bank	750,446		750,446	750,446	—	—
Interest earning deposits with banks	13,612		13,612	13,612	—	—
Federal funds sold and securities purchased under resale agreements	70,918		70,918	70,918	—	—
Trading account assets	12,705		12,705	97	12,608	—
Mortgage loans held for sale	72,333		72,333	—	72,333	—
Other loans held for sale	338		338	—	—	338
Investment securities available for sale	3,050,257		3,050,257	51,031	2,997,441	1,785
Private equity investments	28,326		28,326	—	1,094	27,232
Mutual funds held in Rabbi Trusts	10,817		10,817	10,817	—	—
Loans, net of deferred fees and costs	20,588,566		20,334,382	—	—	20,334,382
Derivative assets	31,322		31,322	—	31,322	—
Financial liabilities
Trading account liabilities	6,264		6,264	—	6,264	—
Non-interest bearing deposits	5,813,809		5,813,809	—	5,813,809	—
Interest bearing deposits	15,175,972		15,177,126	—	15,177,126	—
Federal funds purchased and securities sold under repurchase agreements	107,160		107,160	107,160	—	—
Salary stock units	728		728	728	—	—
Long-term debt	2,130,934		2,185,455	—	2,185,455	—
Derivative liabilities	$	35,030	35,030	—	31,009	4,021



	December 31, 2013
(in thousands)	Carrying Value		Estimated Fair Value	Level 1	Level 2	Level 3
Financial assets
Cash and cash equivalents	$	469,630	469,630	469,630	—	—
Interest bearing funds with Federal Reserve Bank	644,528		644,528	644,528	—	—
Interest earning deposits with banks	24,325		24,325	24,325	—	—
Federal funds sold and securities purchased under resale agreements	80,975		80,975	80,975	—	—
Trading account assets	6,113		6,113	—	6,113	—
Mortgage loans held for sale	45,384		45,384	—	45,384	—
Other loans held for sale	10,685		10,685	—	—	10,685
Investment securities available for sale	3,199,358		3,199,358	26,716	3,170,292	2,350
Private equity investments	29,360		29,360	—	1,615	27,745
Mutual funds held in Rabbi Trusts	11,246		11,246	11,246	—	—
Loans, net of deferred fees and costs	20,057,798		19,763,708	—	—	19,763,708
Derivative assets	40,004		40,004	—	40,004	—
Financial liabilities
Trading account liabilities	1,763		1,763	—	1,763	—
Non-interest bearing deposits	5,642,751		5,642,751	—	5,642,751	—
Interest bearing deposits	15,234,039		15,244,020	—	15,244,020	—
Federal funds purchased and securities sold under repurchase agreements	148,132		148,132	148,132	—	—
Salary stock units	1,764		1,764	1,764	—	—
Long-term debt	2,033,141		2,095,720	—	2,095,720	—
Derivative liabilities	$	42,142	42,142	—	39,436	2,706