Note 7 - 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 marketable equity securities, 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 U.S. Government sponsored enterprises and agencies, obligations of states and municipalities, collateralized mortgage obligations 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, certain equity investments, and private equity investments.

See Note 14 "Fair Value Accounting" to the consolidated financial statements of Synovus' 2015 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 June 30, 2016 and December 31, 2015, 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. Transfers between levels during the six and three months ended June 30, 2016 and year ended December 31, 2015 were inconsequential.



	June 30, 2016
(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	—		798	—	798
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		11	—	11
Other U.S. Government agencies			177		177
State and municipal securities	—		15	—	15
Total trading securities	$	—	1,001	—	1,001
Mortgage loans held for sale	—		87,824	—	87,824
Investment securities available for sale:
U.S. Treasury securities	74,823		—	—	74,823
U.S. Government agency securities	—		13,449	—	13,449
Securities issued by U.S. Government sponsored enterprises	—		50,117	—	50,117
Mortgage-backed securities issued by U.S. Government agencies	—		192,783	—	192,783
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,581,669	—	2,581,669
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		635,614	—	635,614
State and municipal securities	—		3,046	—	3,046
Equity securities	8,731		—	—	8,731
Other investments⁽¹⁾	3,169		15,333	1,625	20,127
Total investment securities available for sale	$	86,723	3,492,011	1,625	3,580,359
Private equity investments	—		658	26,866	27,524
Mutual funds held in rabbi trusts	11,141		—	—	11,141
Derivative assets:
Interest rate contracts	—		36,804	—	36,804
Mortgage derivatives⁽²⁾	—		2,541	—	2,541
Total derivative assets	$	—	39,345	—	39,345
Liabilities
Trading account liabilities	—		789	—	789
Derivative liabilities:
Interest rate contracts	—		37,221	—	37,221
Mortgage derivatives⁽²⁾	—		1,467	—	1,467
Visa derivative	—		—	1,415	1,415
Total derivative liabilities	$	—	38,688	1,415	40,103



	December 31, 2015
(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	—		2,922	—	2,922
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		1,078	—	1,078
State and municipal securities	—		1,097	—	1,097
Total trading securities	$	—	5,097	—	5,097
Mortgage loans held for sale	—		59,275	—	59,275
Investment securities available for sale:
U.S. Treasury securities	43,357		—	—	43,357
U.S. Government agency securities	—		13,623	—	13,623
Securities issued by U.S. Government sponsored enterprises	—		126,909	—	126,909
Mortgage-backed securities issued by U.S. Government agencies	—		210,004	—	210,004
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,630,419	—	2,630,419
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		529,597	—	529,597
State and municipal securities	—		4,434	—	4,434
Equity securities	9,672		—	—	9,672
Other investments⁽¹⁾	3,073		14,985	1,745	19,803
Total investment securities available for sale	$	56,102	3,529,971	1,745	3,587,818
Private equity investments	—		870	27,148	28,018
Mutual funds held in rabbi trusts	10,664		—	—	10,664
Derivative assets:
Interest rate contracts	—		25,580	—	25,580
Mortgage derivatives⁽²⁾	—		1,559	—	1,559
Total derivative assets	$	—	27,139	—	27,139

Liabilities
Trading account liabilities	—		1,032	—	1,032
Derivative liabilities:
Interest rate contracts	—		26,030	—	26,030
Visa derivative	—		—	1,415	1,415
Total derivative liabilities	$	—	26,030	1,415	27,445

⁽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

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 Six Months Ended June 30,				For the Three Months Ended June 30,
(in thousands)	2016		2015		2016		2015
Mortgage loans held for sale	$	1,850	(563	)	$	878	(973	)



Mortgage Loans Held for Sale
(in thousands)	As of June 30, 2016		As of December 31, 2015
Fair value	$	87,824	59,275
Unpaid principal balance	84,877		58,177
Fair value less aggregate unpaid principal balance	$	2,947	1,098

Changes in Level 3 Fair Value Measurements and Quantitative Information about 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 six and three months ended June 30, 2016 and 2015 (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 six and three months ended June 30, 2016 and 2015, Synovus did not have any transfers between levels in the fair value hierarchy.



	Six Months Ended June 30,
	2016							2015
(in thousands)	Investment Securities Available for Sale			Private Equity Investments		Visa Derivative		Investment Securities Available for Sale	Private Equity Investments		Visa Derivative
Beginning balance, January 1,	$	1,745		27,148		(1,415	)	1,645	27,367		(1,401	)
Total gains (losses) realized/unrealized:
Included in earnings	—			(278	)	(720	)	—	(408	)	(729	)
Unrealized gains (losses) included in other comprehensive income	(120		)	—		—		55	—		—
Purchases	—			—		—		—	—		—
Sales	—			—		—		—	—		—
Issuances	—			—		—		—	—		—
Settlements	—			(4	)	720		—	—		715
Amortization of discount/premium	—			—		—		—	—		—
Transfers in and/or out of Level 3	—			—		—		—	—		—
Ending balance, June 30,	$	1,625		26,866		(1,415	)	1,700	26,959		(1,415	)
Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at June 30,	$	—		(278	)	(720	)	—	(408	)	(729	)


	Three Months Ended June 30,
	2016							2015
(in thousands)	Investment Securities Available for Sale			Private Equity Investments		Visa Derivative		Investment Securities Available for Sale	Private Equity Investments		Visa Derivative
Beginning balance, April 1,	$	1,638		26,757		(1,415	)	1,654	27,081		(1,425	)
Total gains (losses) realized/unrealized:
Included in earnings	—			113		(360	)	—	(122	)	(354	)
Unrealized gains (losses) included in other comprehensive income	(13		)	—		—		46	—		—
Settlements	—			(4	)	360		—	—		364
Ending balance, June 30,	$	1,625		26,866		(1,415	)	1,700	26,959		(1,415	)
Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at June 30,	$	—		113		(360	)	—	(122	)	(354	)

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 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.



			June 30, 2016	December 31, 2015
	Valuation Technique	Significant Unobservable Input	Range (Weighted Average)⁽¹⁾	Range (Weighted Average)⁽¹⁾
Assets 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	530 bps	477 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	N/A	N/A
		Discount for lack of marketability⁽²⁾	15%	15%

Visa derivative liability	Internal valuation	Estimated future cumulative deposits to the litigation escrow for settlement of the Covered Litigation, and estimated future monthly fees payable to the derivative counterparty	N/A	N/A

⁽¹⁾ The range represents management's best estimate of the high and low of the value that would be assigned to a particular input.

⁽²⁾Represents management's estimate of discount that market participants would require based on the instrument's lack of liquidity.

Assets Measured at Fair Value on a Non-recurring Basis

Certain assets are 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.



	June 30, 2016					December 31, 2015
(in thousands)	Level 1		Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Impaired loans^*	$	—	—	3,680	3,680	—	—	11,264	11,264
Other loans held for sale	—		—	—	—	—	—	425	425
Other real estate	—		—	13,082	13,082	—	—	23,519	23,519
Other assets held for sale	$	—	—	8,043	8,043	—	—	3,425	3,425

The following table presents fair value adjustments recognized in earnings for the six and three months ended June 30, 2016 and 2015 for the assets measured at fair value on a non-recurring basis.



	Six Months Ended June 30,			Three Months Ended June 30,
(in thousands)	2016		2015	2016	2015
Impaired loans^*	$	1,162	1,792	—	1,546
Other real estate	3,306		8,962	2,053	4,714
Other assets held for sale	6,625		—	5,593	—

^*Collateral-dependent impaired loans that were written down to collateral 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.



			June 30, 2016	December 31, 2015
	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% - 83% (32%) 0% - 10% (7%)	0%-100% (51%) 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%-11% (7%) 0%-10% (7%)

Other real estate	Third-party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	0% - 32% (13%) 0% - 10% (7%)	0%-20% (7%) 0%-10% (7%)

Other assets held for sale	Third-party appraised value of collateral less estimated selling costs or BOV	Discount to appraised value ⁽²⁾ Estimated selling costs	0%-86% (65%) 0%-10% (7%)	0%-75% (42%) 0%-10% (7%)

⁽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.

Fair Value of Financial Instruments

The following table presents the carrying and fair values of financial instruments at June 30, 2016 and December 31, 2015. 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 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 June 30, 2016 and December 31, 2015 are as follows:



	June 30, 2016
(in thousands)	Carrying Value		Fair Value	Level 1	Level 2	Level 3
Financial assets
Cash and cash equivalents	$	377,334	377,334	377,334	—	—
Interest bearing funds with Federal Reserve Bank	904,406		904,406	904,406	—	—
Interest earning deposits with banks	24,541		24,541	24,541	—	—
Federal funds sold and securities purchased under resale agreements	77,685		77,685	77,685	—	—
Trading account assets	1,001		1,001	—	1,001	—
Mortgage loans held for sale	87,824		87,824	—	87,824	—
Investment securities available for sale	3,580,359		3,580,359	86,723	3,492,011	1,625
Private equity investments	27,524		27,524	—	658	26,866
Mutual funds held in rabbi trusts	11,141		11,141	11,141	—	—
Loans, net of deferred fees and costs	23,060,908		22,873,602	—	—	22,873,602
Derivative assets	39,345		39,345	—	39,345	—
Financial liabilities
Trading account liabilities	789		789	—	789	—
Non-interest bearing deposits	6,934,443		6,934,443	—	6,934,443	—
Interest bearing deposits	16,991,479		16,999,970	—	16,999,970	—
Federal funds purchased and securities sold under repurchase agreements	247,179		247,179	247,179	—	—
Long-term debt	2,135,892		2,203,518	—	2,203,518	—
Derivative liabilities	$	40,103	40,103	—	38,688	1,415



	December 31, 2015
(in thousands)	Carrying Value		Fair Value	Level 1	Level 2	Level 3
Financial assets
Cash and cash equivalents	$	367,092	367,092	367,092	—	—
Interest bearing funds with Federal Reserve Bank	829,887		829,887	829,887	—	—
Interest earning deposits with banks	17,387		17,387	17,387	—	—
Federal funds sold and securities purchased under resale agreements	69,819		69,819	69,819	—	—
Trading account assets	5,097		5,097		5,097	—
Mortgage loans held for sale	59,275		59,275		59,275	—
Other loans held for sale	425		425	—	—	425
Investment securities available for sale	3,587,818		3,587,818	56,102	3,529,971	1,745
Private equity investments	28,018		28,018	—	870	27,148
Mutual funds held in rabbi trusts	10,664		10,664	10,664	—	—
Loans, net of deferred fees and costs	22,429,565		22,192,903	—	—	22,192,903
Derivative assets	27,139		27,139	—	27,139	—

Financial liabilities
Trading account liabilities	1,032		1,032	—	1,032	—
Non-interest bearing deposits	6,732,970		6,732,970	—	6,732,970	—
Interest bearing deposits	16,509,691		16,516,222	—	16,516,222	—
Federal funds purchased and securities sold under repurchase agreements	177,025		177,025	177,025	—	—
Long-term debt	2,186,893		2,244,376	—	2,244,376	—
Derivative liabilities	$	27,445	27,445	—	26,030	1,415