10-Q 1 snv-09302012x10q.htm FORM 10-Q SNV-09.30.2012-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
 
FORM 10-Q
 
______________________________
Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2012
Commission file number 1-10312
 
______________________________
SYNOVUS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
______________________________
 
Georgia
 
58-1134883
(State or other jurisdiction of incorporation or organization)
 
   (I.R.S. Employer Identification No.)
1111 Bay Avenue
Suite 500, Columbus, Georgia
 
31901
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (706) 649-2311
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $1.00 Par Value
Tangible Equity Units
Series B Participating Cumulative Preferred Stock Purchase Rights
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
______________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES x  NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES x  NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer
x
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨    NO x
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.
Class
 
 
 
October 31, 2012
Common Stock, $1.00 Par Value
 
 
 
786,575,516 shares




Table of Contents
 
 
 
 
 
Page
Financial Information
 
 
 
Index of Defined Terms
 
Item 1.
Financial Statements
 
 
 
Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011 (unaudited)
 
 
Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2012 and 2011 (unaudited)
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Nine and Three Months Ended September 30, 2012 and 2011 (unaudited)
 
 
Consolidated Statements of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2012 and 2011 (unaudited)
 
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (unaudited)
 
 
Notes to Unaudited Interim Consolidated Financial Statements
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
 
Item 4.
Controls and Procedures
 
 
 
 
 
Other Information
 
 
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 6.
Exhibits
 
Signatures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






SYNOVUS FINANCIAL CORP.
INDEX OF DEFINED TERMS
2013 Senior Notes – Synovus' outstanding 4.875% Senior Notes due February 15, 2013
2019 Senior Notes – Synovus' outstanding 7.875% Senior Notes due February 15, 2019 
ALCO – Synovus' Asset Liability Management Committee
ALL – Allowance for Loan Losses
AMT – Alternative Minimum Tax
ARRA – American Recovery and Reinvestment Act of 2009
ASC – Accounting Standards Codification
ASU – Accounting Standards Update
AUM – Assets Under Management
BAM – Broadway Asset Management, Inc., a wholly-owned subsidiary of Synovus Financial Corp.
Basel III – a global regulatory framework developed by the Basel Committee on Banking Supervision
BCBS – Basel Committee on Banking Supervision
BSA/AML – Bank Secrecy Act / Anti-Money Laundering
BOV – broker’s opinion of value
b.p. – basis point (b.p.s - basis points)
CD – certificate of deposit
C&D – residential construction and development loans
C&I – commercial and industrial loans
CB&T – Columbus Bank and Trust Company, a division of Synovus Bank. Synovus Bank is a wholly-owned subsidiary of Synovus Financial Corp.
CAMELS Rating System – A term defined by bank supervisory authorities, referring to Capital, Assets, Management, Earnings, Liquidity, and Sensitivity to Market Risk
CEO – Chief Executive Officer
CFO – Chief Financial Officer
CFPB – Consumer Finance Protection Bureau
Charter Consolidation – Synovus’ consolidation of its 30 banking subsidiaries into a single bank charter in 2010
CMO – Collateralized Mortgage Obligation
Code – Internal Revenue Code of 1986, as amended
Common Stock – Common Stock, par value $1.00 per share, of Synovus Financial Corp.
Company – Synovus Financial Corp. and its wholly-owned subsidiaries, except where the context requires otherwise
Covered Litigation – Certain Visa litigation for which Visa is indemnified by Visa USA members
CPP – U.S. Department of the Treasury Capital Purchase Program
CRE – Commercial Real Estate
CROA – Credit Repair Organization Act
DIF – Deposit Insurance Fund
Dodd-Frank Act – The Dodd-Frank Wall Street Reform and Consumer Protection Act
DRR – Designated Reserve Ratio

i


DTA – deferred tax asset
EBITDA – earnings before interest, depreciation and amortization
EESA – Emergency Economic Stabilization Act of 2008
EITF – Emerging Issues Task Force
EL – expected loss
EPS – earnings per share
Exchange Act – Securities Exchange Act of 1934, as amended
FASB – Financial Accounting Standards Board
FDIC – Federal Deposit Insurance Corporation
Federal Reserve Bank – There are 12 banks that are the operating arms of the central bank. They implement the policies of the Federal Reserve Board and also conduct economic research.
Federal Reserve Board – The 7-member Board of Governors that oversees the Federal Reserve System establishes monetary policy (interest rates, credit, etc.) and monitors the economic health of the country. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms.
Federal Reserve System – The 12 Federal Reserve Banks, with each one serving member banks in its own district. This system, supervised by the Federal Reserve Board, has broad regulatory powers over the money supply and the credit structure.
FINRA – Financial Industry Regulatory Authority
FFIEC – Federal Financial Institutions Examination Council
FHLB – Federal Home Loan Bank
FICO – Fair Isaac Corporation
FIN – Financial Interpretation
GA DBF – Georgia Department of Banking and Finance
GAAP – Generally Accepted Accounting Principles in the United States of America
GDP – gross domestic product
Georgia Commissioner – Banking Commissioner of the State of Georgia
GSE – government sponsored enterprise
HAP – Home Affordability Program
HELOC – home equity line of credit
IASB – International Accounting Standards Board
IFRS – International Financial Reporting Standards
IOLTA – Interest on Lawyer Trust Account
IPO – Initial Public Offering
IRC – Internal Revenue Code of 1986, as amended
IRS – Internal Revenue Service
LGD – loss given default
LIBOR – London Interbank Offered Rate
LIHTC – Low Income Housing Tax Credit
LTV – loan-to-collateral value ratio
MAD – Managed Assets Division, a division of Synovus Bank
MBS – mortgage-backed securities
MOU – Memorandum of Understanding

ii


NBER – National Bureau of Economic Research
nm – not meaningful
NOL – net operating loss
NPA – non-performing assets
NPL – non-performing loans
NPR – notice of proposed rulemaking
NSF – non-sufficient funds
NYSE – New York Stock Exchange
OCI – other comprehensive income
OFAC – Office of Foreign Assets Control
ORE – other real estate
ORM – Operational Risk Management
OTTI – other-than-temporary impairment
Parent Company – Synovus Financial Corp.
PD – probability of default
POS – point-of-sale
RCSA – Risk Control Self-Assessment
SAB – SEC Staff Accounting Bulletin
SBA – Small Business Administration
SEC – U.S. Securities and Exchange Commission
Securities Act – Securities Act of 1933, as amended
Series A Preferred Stock – Synovus' Fixed Rate Cumulative Perpetual Preferred Stock, Series A, without par value
Shared Deposit – Prior to the Charter Consolidation, Synovus offered this deposit product which gave its customers the opportunity to access up to $7.5 million in FDIC insurance by spreading deposits across its 30 separately-chartered banks.
Synovus – Synovus Financial Corp.
Synovus Bank – A Georgia state-chartered bank, formerly known as Columbus Bank and Trust Company, and wholly-owned subsidiary of Synovus, through which Synovus conducts its banking operations
Synovus' 2011 Form 10-K – Synovus' Annual Report on Form 10-K for the year ended December 31, 2011
Synovus Mortgage – Synovus Mortgage Corp., a wholly-owned subsidiary of Synovus Bank
Synovus Trust Company, N. A. – a wholly-owned subsidiary of Synovus Bank
TAGP – Transaction Account Guarantee Program
TARP – Troubled Assets Relief Program
TBA – to-be-announced securities with respect to mortgage-related securities to be delivered in the future (MBSs and CMOs)
TDR – troubled debt restructuring (as defined in ASC 310-40)
Tender Offer – Offer by Synovus to purchase, for cash, all of its outstanding 2013 Notes, which commenced on February 7, 2012 and expired on March 6, 2012
the Treasury – United States Department of the Treasury
tMEDS – tangible equity units, each composed of a prepaid common stock purchase contract and a junior subordinated amortizing note
TSYS – Total System Services, Inc.
UCL – Unfair Competition Law

iii


USA PATRIOT Act – Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
VIE – variable interest entity, as defined in ASC 810-10
Visa – The Visa U.S.A. Inc. card association or its affiliates, collectively
Visa Class B shares – Class B shares of Common Stock issued by Visa which are subject to restrictions with respect to sale until all of the Covered Litigation has been settled
Visa Derivative – A derivative contract with the purchaser of Visa Class B shares which provides for settlements between the purchaser and Synovus based upon a change in the ratio for conversion of Visa Class B shares into Visa Class A shares
Visa IPO – The initial public offering of shares of Class A Common Stock by Visa, Inc. on March 25, 2008

iv



PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
September 30,
2012
 
December 31,
2011
ASSETS
 
 
 
Cash and cash equivalents
$
454,028

 
510,423

Interest bearing funds with Federal Reserve Bank
815,156

 
1,567,006

Interest earning deposits with banks
27,215

 
13,590

Federal funds sold and securities purchased under resale agreements
116,318

 
158,916

Trading account assets, at fair value
5,953

 
16,866

Mortgage loans held for sale, at fair value
246,224

 
161,509

Other loans held for sale
11,254

 
30,156

Investment securities available for sale, at fair value
3,229,440

 
3,690,125

Loans, net of deferred fees and costs
19,731,865

 
20,079,813

Allowance for loan losses
(420,404
)
 
(536,494
)
Loans, net
19,311,461

 
19,543,319

Premises and equipment, net
475,222

 
486,923

Goodwill
24,431

 
24,431

Other intangible assets, net
5,895

 
8,525

Other real estate
189,182

 
204,232

Other assets
852,865

 
746,824

Total assets
$
25,764,644

 
27,162,845

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest bearing deposits
$
5,503,288

 
5,366,868

Interest bearing deposits, excluding brokered deposits
14,423,583

 
15,261,710

Brokered deposits
919,959

 
1,783,174

Total deposits
20,846,830

 
22,411,752

Federal funds purchased and securities sold under repurchase agreements
165,865

 
313,757

Long-term debt
1,654,183

 
1,364,727

Other liabilities
222,066

 
245,157

Total liabilities
22,888,944

 
24,335,393

Shareholders' Equity
 
 
 
   Series A Preferred Stock – no par value. Authorized 100,000,000 shares; 967,870
    issued and outstanding at September 30, 2012 and December 31, 2011
954,690

 
947,017

   Common stock - $1.00 par value. Authorized 1,200,000,000 shares;
    issued 792,268,968 at September 30, 2012 and 790,988,880 at
    December 31, 2011; outstanding 786,575,516 at September 30, 2012
    and 785,295,428 at December 31, 2011    
792,269

 
790,989

Additional paid-in capital
2,202,903

 
2,241,171

   Treasury stock, at cost – 5,693,452 shares at September 30, 2012 and
    December 31, 2011    
(114,176
)
 
(114,176
)
Accumulated other comprehensive income
16,156

 
21,093

Accumulated deficit
(976,142
)
 
(1,058,642
)
Total shareholders’ equity
2,875,700

 
2,827,452

Total liabilities and shareholders' equity
$
25,764,644

 
27,162,845

See accompanying notes to unaudited interim consolidated financial statements.

1


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
Nine Months Ended September 30,
 
Three Months Ended September 30,
(in thousands, except per share data)
2012
 
2011
 
2012
 
2011
Interest income:
 
 
 
 
 
 
 
Loans, including fees
$
700,620

 
773,586

 
229,814

 
251,952

      Investment securities available for sale
55,511

 
83,969

 
15,039

 
26,620

      Trading account assets
770

 
691

 
255

 
212

      Mortgage loans held for sale
4,260

 
4,343

 
1,764

 
1,309

      Federal Reserve Bank balances
2,697

 
5,363

 
688

 
1,839

      Other earning assets
282

 
501

 
116

 
38

Total interest income
764,140

 
868,453

 
247,676

 
281,970

Interest expense:
 
 
 
 
 
 
 
Deposits
77,529

 
138,086

 
21,144

 
42,653

Federal funds purchased and securities sold under repurchase agreements
505

 
851

 
155

 
256

Long-term debt
39,445

 
32,518

 
14,032

 
10,458

Total interest expense
117,479

 
171,455

 
35,331

 
53,367

Net interest income
646,661

 
696,998

 
212,345

 
228,603

Provision for loan losses
173,843

 
364,230

 
63,572

 
102,325

Net interest income after provision for loan losses
472,818

 
332,768

 
148,773

 
126,278

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
57,319

 
59,595

 
20,404

 
20,039

Fiduciary and asset management fees
31,966

 
35,046

 
10,340

 
11,631

Brokerage revenue
19,786

 
19,067

 
6,844

 
6,556

Mortgage banking income
23,247

 
15,469

 
9,261

 
7,427

Bankcard fees
23,938

 
34,344

 
7,866

 
11,562

Investment securities gains, net
30,909

 
64,670

 
6,656

 
62,873

Other fee income
14,927

 
15,643

 
5,276

 
5,423

Increase (decrease) in fair value of private equity investments, net
6,428

 
(941
)
 
(944
)
 
(771
)
Other non-interest income
25,329

 
22,512

 
7,530

 
8,652

Total non-interest income
233,849

 
265,405

 
73,233

 
133,392

Non-interest expense:
 
 
 
 
 
 
 
Salaries and other personnel expense
280,972

 
278,431

 
93,177

 
93,184

Net occupancy and equipment expense
79,512

 
86,698

 
26,647

 
27,981

FDIC insurance and other regulatory fees
37,171

 
45,826

 
9,205

 
15,463

Foreclosed real estate expense, net
55,677

 
101,716

 
11,997

 
37,108

Losses (gains) on other loans held for sale, net
4,005

 
(2,591
)
 
4,104

 
(846
)
Professional fees
29,270

 
30,264

 
10,074

 
10,135

Data processing expense
25,020

 
27,225

 
8,284

 
9,024

Visa indemnification charges
5,546

 
96

 
833

 

Restructuring charges
3,444

 
30,026

 
1,192

 
2,587

Other operating expenses
82,273

 
86,992

 
25,979

 
27,916

Total non-interest expense
602,890

 
684,683

 
191,492

 
222,552

Income (loss) before income taxes
103,777

 
(86,510
)
 
30,514

 
37,118

Income tax (benefit) expense
(2,393
)
 
1,690

 
(211
)
 
6,910

Net income (loss)
106,170

 
(88,200
)
 
30,725

 
30,208

Net loss attributable to non-controlling interest

 
(220
)
 

 

Net income (loss) available to controlling interest
106,170

 
(87,980
)
 
30,725

 
30,208

Dividends and accretion of discount on preferred stock
43,968

 
43,510

 
14,695

 
14,541

Net income (loss) available to common shareholders
$
62,202

 
(131,490
)
 
16,030

 
15,667

Earnings per common share:
 
 
 
 
 
 
 
Net income (loss) available to common shareholders, basic
$
0.08

 
(0.17
)
 
0.02

 
0.02

Net income (loss) available to common shareholders, diluted
0.07

 
(0.17
)
 
0.02

 
0.02

Weighted average common shares outstanding, basic
786,429

 
785,267

 
786,576

 
785,280

Weighted average common shares outstanding, diluted
909,717

 
785,267

 
910,396

 
911,247

See accompanying notes to unaudited interim consolidated financial statements.

2


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
 
Nine Months Ended September 30, 2012
 
Nine Months Ended September 30, 2011
 
Three Months Ended September 30, 2012
 
Three Months Ended September 30, 2011
(in thousands)
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
Net income (loss)
$
103,777

 
2,393

 
106,170

 
(86,510
)
 
(1,690
)
 
(88,200
)
 
30,514

 
211

 
30,725

 
37,118

 
(6,910
)
 
30,208

Net unrealized gains (losses) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
(1,492
)
 
575

 
(917
)
 
(9,478
)
 
3,588

 
(5,890
)
 
49

 
(19
)
 
30

 
(2,504
)
 
974

 
(1,530
)
Valuation allowance for the change in deferred taxes arising from unrealized gains/losses(1)

 
(575
)
 
(575
)
 

 
(3,561
)
 
(3,561
)
 

 
33

 
33

 

 
(3,561
)
 
(3,561
)
Net unrealized gains (losses)
(1,492
)
 

 
(1,492
)
 
(9,478
)
 
27

 
(9,451
)
 
49

 
14

 
63

 
(2,504
)
 
(2,587
)
 
(5,091
)
Net unrealized gains (losses) on investment securities available for sale:
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
26,848

 
(10,333
)
 
16,515

 
49,169

 
(18,533
)
 
30,636

 
15,772

 
(6,069
)
 
9,703

 
26,706

 
(10,282
)
 
16,424

Reclassification adjustment for (gains) losses realized in net income
(30,909
)
 
11,900

 
(19,009
)
 
(64,670
)
 
24,899

 
(39,771
)
 
(6,656
)
 
2,563

 
(4,093
)
 
(62,873
)
 
24,207

 
(38,666
)
Valuation allowance for the change in deferred taxes arising from unrealized gains/losses(1)  

 
(1,567
)
 
(1,567
)
 

 
(6,383
)
 
(6,383
)
 

 
3,506

 
3,506

 

 
(6,383
)
 
(6,383
)
Net unrealized gains (losses)
(4,061
)
 

 
(4,061
)
 
(15,501
)
 
(17
)
 
(15,518
)
 
9,116

 

 
9,116

 
(36,167
)
 
7,542

 
(28,625
)
Amortization of post-retirement unfunded health benefit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization arising during the period
616

 
(237
)
 
379

 

 

 

 
(26
)
 
10

 
(16
)
 

 

 

Valuation allowance for the change in deferred taxes arising from amortization

 
237

 
237

 

 

 

 

 
(10
)
 
(10
)
 

 

 

Amortization
616

 

 
616

 

 

 

 
(26
)
 

 
(26
)
 

 

 

Other comprehensive income (loss)
(4,937
)
 

 
(4,937
)
 
(24,979
)
 
10

 
(24,969
)
 
9,139

 
14

 
9,153

 
(38,671
)
 
4,955

 
(33,716
)
Less: comprehensive loss attributable to non-controlling interest

 

 

 
(220
)
 

 
(220
)
 

 

 

 

 

 

Comprehensive income (loss)
$
98,840

 
2,393

 
101,233

 
(111,269
)
 
(1,680
)
 
(112,949
)
 
39,653

 
225

 
39,878

 
(1,553
)
 
(1,955
)
 
(3,508
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) In accordance with ASC 740-20-45-11(b), the deferred tax asset valuation allowance associated with unrealized gains and losses not recognized in income is charged directly to other comprehensive income (loss).

See accompanying notes to unaudited interim consolidated financial statements.



3


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
 
 
 
(in thousands, except per share data)
Preferred
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
 Deficit
 
Non-Controlling
Interest
 
Total
Balance at December 31, 2010
$
937,323

 
790,956

 
2,293,264

 
(114,176
)
 
57,158

 
(966,607
)
 
26,629

 
3,024,547

Net loss

 

 

 

 

 
(87,980
)
 
(220
)
 
(88,200
)
Other comprehensive loss, net of taxes

 

 

 

 
(24,969
)
 

 

 
(24,969
)
Cash dividends declared on common stock - $0.03 per share

 

 

 

 

 
(23,558
)
 

 
(23,558
)
Cash dividends paid on preferred stock

 

 
(36,296
)
 

 

 

 

 
(36,296
)
Accretion of discount on preferred stock
7,215

 

 
(7,215
)
 

 

 

 

 

Restricted share unit activity

 
18

 
(18
)
 

 

 

 

 

Share-based compensation expense

 

 
4,333

 

 

 

 

 
4,333

Change in ownership at majority-owned subsidiary

 

 

 

 

 

 
(26,409
)
 
(26,409
)
Balance at September 30, 2011
$
944,538

 
790,974

 
2,254,068

 
(114,176
)
 
32,189

 
(1,078,145
)
 

 
2,829,448

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2011
$
947,017

 
790,989

 
2,241,171

 
(114,176
)
 
21,093

 
(1,058,642
)
 

 
2,827,452

Net income

 

 

 

 

 
106,170

 

 
106,170

Other comprehensive loss, net of taxes

 

 

 

 
(4,937
)
 

 

 
(4,937
)
Cash dividends declared on common stock - $0.03 per share

 

 

 

 

 
(23,597
)
 

 
(23,597
)
Cash dividends paid on preferred stock

 

 
(36,295
)
 

 

 

 

 
(36,295
)
Accretion of discount on preferred stock
7,673

 

 
(7,673
)
 

 

 

 

 

Restricted share unit activity

 
1,280

 
(1,207
)
 

 

 
(73
)
 

 

Share-based compensation expense

 

 
6,907

 

 

 

 

 
6,907

Balance at September 30, 2012
$
954,690

 
792,269

 
2,202,903

 
(114,176
)
 
16,156

 
(976,142
)
 

 
2,875,700

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.



4


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
Nine Months Ended September 30,
(in thousands)
2012
 
2011
Operating Activities
 
 
 
Net income (loss)
$
106,170

 
(88,200
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Provision for loan losses
173,843

 
364,230

Depreciation, amortization, and accretion, net
46,940

 
34,911

Deferred income tax expense (benefit)
153

 
(341
)
Decrease in interest receivable
9,029

 
16,950

Decrease in interest payable
(8,406
)
 
(12,676
)
Decrease in trading account assets
10,913

 
4,827

Originations of mortgage loans held for sale
(892,573
)
 
(665,277
)
Proceeds from sales of mortgage loans held for sale
819,635

 
776,557

Gains on sale of mortgage loans held for sale, net
(10,809
)
 
(5,292
)
(Increase) decrease in prepaid and other assets
(116,519
)
 
75,637

Increase in accrued salaries and benefits
5,697

 
4,870

(Decrease) increase in other liabilities
(20,382
)
 
4,872

Investment securities gains, net
(30,909
)
 
(64,670
)
Losses (gains) on sales of other loans held for sale, net
4,005

 
(2,591
)
Losses on other real estate, net
42,695

 
87,814

(Increase) decrease in fair value of private equity investments, net
(6,428
)
 
941

Losses (gains) on sales of other assets held for sale, net
(162
)
 
(1,247
)
Write downs on other assets held for sale
2,063

 
7,005

Loss on curtailment of post-retirement health benefit plan

 
398

Share-based compensation
6,907

 
4,333

Other, net
(899
)
 
(7,332
)
Net cash provided by operating activities
140,963

 
535,719

Investing Activities
 
 
 
Net increase in interest earning deposits with banks
(13,625
)
 
(5,114
)
Net decrease (increase) in federal funds sold and securities purchased under resale agreements
42,598

 
(28,802
)
Net decrease in interest bearing funds with Federal Reserve Bank
751,850

 
352,943

Proceeds from maturities and principal collections of investment securities available for sale
1,063,512

 
784,961

Proceeds from sales of investment securities available for sale
909,485

 
1,753,686

Purchases of investment securities available for sale
(1,510,566
)
 
(2,444,695
)
Proceeds from sales of other loans held for sale
176,241

 
268,612

Proceeds from sale of other real estate
94,463

 
124,663

Principal payments on other loans held for sale
4,466

 
38,385

Net (increase) decrease in loans
(231,243
)
 
583,982

Purchases of premises and equipment
(17,405
)
 
(10,665
)
Proceeds from disposals of premises and equipment
3,179

 
6,414

Proceeds from sales of other assets held for sale
6,732

 
4,616

Net cash provided by investing activities
1,279,687

 
1,428,986

Financing Activities
 
 
 
Net increase in demand and savings deposits
73,630

 
490,521

Net (decrease) in certificates of deposit
(1,638,551
)
 
(1,881,398
)
Net (decrease) in federal funds purchased and securities sold under repurchase agreements
(147,893
)
 
(170,420
)
Principal repayments on long-term debt
(364,339
)
 
(445,538
)
Proceeds from issuance of long-term debt
660,000

 
165,000

Dividends paid to common shareholders
(23,597
)
 
(23,558
)
Dividends paid to preferred shareholders
(36,295
)
 
(36,296
)
Net cash used in financing activities
(1,477,045
)
 
(1,901,689
)

5


(Decrease) increase in cash and cash equivalents
(56,395
)
 
63,016

Cash and cash equivalents at beginning of period
510,423

 
389,021

Cash and cash equivalents at end of period
$
454,028

 
452,037

 
 
 
 
Supplemental Cash Flow Information
 
 
 
Cash (received) paid during the period for:
 
 
 
Income tax (refunds) payments, net
$
(7,804
)
 
2,821

Interest paid
107,201

 
154,456

Non-cash Activities:
 
 
 
Decrease in net unrealized gains on investment securities available for sale    
(4,061
)
 
(15,502
)
Decrease in net unrealized gains on hedging instruments
(1,492
)
 
(2,475
)
Amortization of post-retirement unfunded health benefit
616

 

Mortgage loans held for sale transferred to loans at fair value
1,542

 
6,442

Loans foreclosed and transferred to other real estate at fair value
113,966

 
173,461

Loans transferred to other loans held for sale, at fair value
176,891

 
280,324

Other loans held for sale foreclosed and transferred to other real estate at fair value
8,142

 
16,966

Other loans held for sale transferred to loans
58

 
20,043

Premises and equipment transferred to other assets held for sale
2,402

 
28,048

Securities purchased (sold) during the period but settled after period end
(178,267
)
 
205,938

Accretion of discount for preferred stock issued to the U. S. Treasury
7,673

 
7,215

 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.


6


Notes to Unaudited Interim Consolidated Financial Statements
Note 1 - Significant Accounting Policies
Business Operations
The accompanying unaudited interim consolidated financial statements of Synovus include the accounts of the Parent Company and its consolidated subsidiaries. Synovus provides integrated financial services, including commercial and retail banking, financial management, insurance, and mortgage services to its customers through 30 locally-branded divisions of its wholly-owned subsidiary bank, Synovus Bank, and other offices in Georgia, Alabama, South Carolina, Florida, and Tennessee.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to the SEC Form 10-Q and Article 10 of Regulation S-X; therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with GAAP. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the periods covered by this Report have been included. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes appearing in Synovus' 2011 Form 10-K. There have been no significant changes to the accounting policies as disclosed in Synovus' 2011 Form 10-K.
In preparing the unaudited interim consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the respective consolidated balance sheets and the reported amounts of revenues and expenses for the periods presented. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses; the valuation of other real estate; the valuation of impaired and other loans held for sale; the fair value of investment securities; the fair value of private equity investments, the valuation of long-lived assets, goodwill, and other intangible assets; the valuation of deferred tax assets; the valuation of the Visa indemnification liability; and other contingent liabilities. In connection with the determination of the allowance for loan losses and the valuation of certain impaired loans and other real estate, management obtains independent appraisals for significant properties and properties collateralizing impaired loans. In making this determination, management also considers other factors or recent developments, such as changes in absorption rates or market conditions at the time of valuation and anticipated sales prices based on management’s plans for disposition.
A substantial portion of Synovus’ loans are secured by real estate in five Southeastern states (Georgia, Alabama, Florida, South Carolina, and Tennessee). Accordingly, the ultimate collectability of a substantial portion of Synovus’ loan portfolio is susceptible to changes in market conditions in these areas. Total commercial real estate loans represent approximately 34% of the total loan portfolio at September 30, 2012. Due to declines in real estate values over the past four years, the commercial real estate portfolio loans may have a greater risk of non-collection than other loans. Based on available information, management believes that the allowance for loan losses is adequate. Management uses available information to recognize losses on loans, and future additions to the allowance may be necessary based on changes in economic conditions, the ability of borrowers to repay their loans, and management’s plans for disposition. In addition, various regulatory agencies, as an integral part of their examination process, periodically review Synovus’ allowance for loan losses. Such agencies may require Synovus to make changes to the allowance for loan losses based on their judgment of information available to them at the time of their examination.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and due from banks. At September 30, 2012 and December 31, 2011, cash and cash equivalents included $55.6 million and $73.3 million, respectively, on deposit to meet Federal Reserve Bank requirements. At September 30, 2012 and December 31, 2011, $15.6 million of the due from banks balance was restricted as to withdrawal, including $15.0 million on deposit pursuant to a payment network arrangement.
Short-term Investments
Short-term investments consist of interest bearing funds with the Federal Reserve Bank, interest earning deposits with banks, and federal funds sold and securities purchased under resale agreements. Interest earning deposits with banks include $14.7 million at September 30, 2012 and $10.4 million at December 31, 2011, which is pledged as collateral in connection with certain letters of credit. Federal funds sold include $110.0 million at September 30, 2012, and $141.0 million at December 31, 2011, which is pledged to collateralize certain derivative instruments in a net liability position. Federal funds sold and securities purchased under resale agreements, federal funds purchased and securities sold under repurchase agreements, generally mature in one day.
Recently Adopted Accounting Standards Updates
Effective January 1, 2012, Synovus adopted the provisions of the following ASUs:

7


ASU 2011-05, Presentation of Comprehensive Income. ASU 2011-05 was the result of a joint project with the IASB and FASB, and amends the guidance in ASC 220, Comprehensive Income, by eliminating the option to present components of OCI in the statement of changes in shareholders' equity. Instead, the new guidance now requires entities to present all non-owner changes in shareholders' equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements. Synovus elected the two separate statement approach. See the consolidated statements of comprehensive income (loss) for the disclosures required under the provisions of this ASU. In addition, certain provisions of ASU 2011-05 were temporarily amended by ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05. One of the provisions of ASU 2011-05 requires entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented (for both interim and annual financial statements). This requirement is indefinitely deferred by ASU 2011-12, and will be further deliberated by the FASB at a future date. During the deferral period, Synovus will comply with all existing requirements for reclassification adjustments in ASC 220, which states that "an entity may display reclassification adjustments on the face of the financial statement in which comprehensive income is reported, or it may disclose reclassification adjustments in the notes to the financial statements."
ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure in U.S. GAAP and IFRS. Most of the amendments of ASU 2011-04 are clarifications of the FASB's intent about the application of existing fair value measurement and disclosure requirements. Other amendments change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements. The new fair value measurement disclosures include additional quantitative and qualitative disclosures for Level 3 measurements, including a sensitivity analysis of fair value changes in unobservable inputs, and categorization by fair value hierarchy level for items for which the fair value is only disclosed. The adoption of this guidance impacted Synovus' financial statement disclosures, but did not affect Synovus' financial position or results of operations. Required changes to the fair value disclosures can be found in Note 7.
ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements. This ASU focuses the transferor's assessment of effective control on its contractual rights and obligations by removing the requirements to assess its ability to exercise those rights or honor those obligations. Synovus does not currently access wholesale funding markets through sales of securities with agreements to repurchase. Repurchase agreements are offered through a commercial banking sweep product as a short-term investment opportunity for customers. Such arrangements are common in the banking industry and are accounted for as borrowings at Synovus. There was no impact to Synovus' unaudited interim consolidated financial statements upon adoption of this standard.
ASU 2011-08, Testing Goodwill for Impairment. Under the provisions of this update to the accounting standards, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step goodwill impairment test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. An entity can choose to perform the qualitative assessment on none, some or all of its reporting units. Moreover, an entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the impairment test, and then resume performing the qualitative assessment in any subsequent period. Synovus completed its annual goodwill impairment testing effective June 30, 2012. Synovus did not apply the qualitative assessment provisions of this ASU when performing the impairment analysis. See Management's Discussion and Analysis for additional information regarding Synovus' annual goodwill impairment tests.
Recently Issued Accounting Standards Updates
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This ASU requires additional disclosures about financial instruments and derivative instruments that are offset or subject to an enforceable master netting arrangement or similar agreement. This ASU is effective for the interim reporting period ending March 31, 2013, with retrospective disclosure for all comparative periods presented. At this time, Synovus does not have any financial instruments that would be subject to the new requirements of ASU 2011-11; therefore, the ASU is not expected to impact Synovus' financial position, results of operations, or cash flows.
In July 2012, the FASB issued ASU 2012-02, Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU relates to testing intangibles other than goodwill for impairment. If certain conditions are met, the ASU provides for a qualitative impairment assessment instead of a quantitative assessment. For Synovus, the ASU primarily applies to core deposit intangibles, which have a current carrying value of only $4.5 million. The ASU is not expected to have an impact on Synovus' financial position, results of operations, or cash flows.
Reclassifications
Prior periods' consolidated financial statements are reclassified whenever necessary to conform to the current periods' presentation.

8


Subsequent Events
Synovus has evaluated for consideration, or disclosure, all transactions, events, and circumstances, if any, subsequent to the date of the consolidated balance sheet and through the date the accompanying unaudited interim consolidated financial statements were issued, and has reflected, or disclosed, those items within the unaudited interim consolidated financial statements and related footnotes as deemed appropriate.

Note 2 - Investment Securities
The following table summarizes Synovus' available for sale investment securities as of September 30, 2012 and December 31, 2011.
 
 
September 30, 2012
(in thousands)
 
Amortized Cost(1)
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
 Fair Value
U.S. Treasury securities
 
$
356

 

 

 
356

U.S. Government agency securities
 
35,806

 
2,441

 

 
38,247

Securities issued by U.S. Government sponsored enterprises
 
364,706

 
5,393

 

 
370,099

Mortgage-backed securities issued by U.S. Government agencies
 
268,484

 
10,122

 

 
278,606

Mortgage-backed securities issued by U.S. Government sponsored enterprises
 
1,874,602

 
54,416

 

 
1,929,018

Collateralized mortgage obligations issued by U.S. Government sponsored enterprises
 
586,757

 
2,716

 
(3,016
)
 
586,457

State and municipal securities
 
18,814

 
751

 
(19
)
 
19,546

Equity securities
 
3,647

 
174

 

 
3,821

Other investments
 
4,000

 
1

 
(711
)
 
3,290

Total
 
$
3,157,172

 
76,014

 
(3,746
)
 
3,229,440

 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
(in thousands)
 
Amortized Cost(1)
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
U.S. Treasury securities
 
$
426

 

 

 
426

U.S. Government agency securities
 
37,489

 
3,004

 

 
40,493

Securities issued by U.S. Government sponsored enterprises
 
667,707

 
8,333

 
(619
)
 
675,421

Mortgage-backed securities issued by U.S. Government agencies
 
266,682

 
19,071

 

 
285,753

Mortgage-backed securities issued by U.S. Government sponsored enterprises
 
1,955,988

 
46,275

 
(257
)
 
2,002,006

Collateralized mortgage obligations issued by U.S. Government sponsored enterprises
 
651,379

 
1,646

 
(1,525
)
 
651,500

State and municipal securities
 
24,530

 
808

 
(20
)
 
25,318

Equity securities
 
4,147

 

 
(388
)
 
3,759

Other investments
 
5,449

 

 

 
5,449

Total
 
$
3,613,797

 
79,137

 
(2,809
)
 
3,690,125

 
 
 
 
 
 
 
 
 
(1) Amortized cost is adjusted for other-than-temporary impairment charges in 2012 and 2011, which have been recognized on the consolidated statements of operations in the applicable period, and were considered inconsequential.
At September 30, 2012 and December 31, 2011, investment securities with a fair value of $2.11 billion and $2.48 billion, respectively, were pledged to secure certain deposits, securities sold under repurchase agreements, and payment network arrangements as required by law and contractual agreements.

9


Synovus has reviewed investment securities that are in an unrealized loss position as of September 30, 2012 and December 31, 2011 for OTTI and does not consider any securities in an unrealized loss position to be other-than-temporarily impaired. If Synovus intended to sell a security in an unrealized loss position, the entire unrealized loss would be reflected in income. Synovus does not intend to sell any of these investment securities prior to the recovery of the unrealized loss, which may be until maturity, and has the ability and intent to hold those securities for that period of time. Additionally, Synovus is not currently aware of any circumstances which will require it to sell any of the securities that are in an unrealized loss position.
Declines in the fair value of available for sale securities below their cost that are deemed to have OTTI are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. Currently, unrealized losses on debt securities are attributable to increases in interest rates on comparable securities from the date of purchase. Synovus regularly evaluates its investment securities portfolio to ensure that there are no conditions that would indicate that unrealized losses represent other-than-temporary impairment. These factors include length of time that the security has been in a loss position, the extent that the fair value has been below amortized cost, and the credit standing of the issuer.
Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2012 and December 31, 2011 are presented below.
 
September 30, 2012
 
Less than 12 Months
 
12 Months or Longer
 
Total Fair Value
(in thousands)
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises
5

 
268,096

 
(2,072
)
 
1

 
63,268

 
(944
)
 
6

 
331,364

 
(3,016
)
State and municipal securities

 

 

 
2

 
917

 
(19
)
 
2

 
917

 
(19
)
Other investments
2

 
2,289

 
(711
)
 

 

 

 
2

 
2,289

 
(711
)
Total
7

 
$
270,385

 
(2,783
)
 
3

 
$
64,185

 
(963
)
 
10

 
$
334,570

 
(3,746
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
Less than 12 Months
 
12 Months or Longer
 
Total Fair Value
(in thousands)
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
Securities issued by U.S. Government sponsored enterprises
5

 
$
349,370

 
(619
)
 

 
$

 

 
5

 
$
349,370

 
(619
)
Mortgage-backed securities issued by U.S. Government sponsored enterprises
3

 
148,283

 
(257
)
 

 

 

 
3

 
148,283

 
(257
)
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises
5

 
337,060

 
(1,521
)
 
1

 
297

 
(4
)
 
6

 
337,357

 
(1,525
)
State and municipal securities.
1

 
32

 
(3
)
 
1

 
883

 
(17
)
 
2

 
915

 
(20
)
Equity securities
2

 
2,367

 
(388
)
 

 

 

 
2

 
2,367

 
(388
)
Total
16

 
$
837,112

 
(2,788
)
 
2

 
$
1,180

 
(21
)
 
18

 
$
838,292

 
(2,809
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

10


The amortized cost and fair value by contractual maturity of investment securities available for sale at September 30, 2012 are shown below. The expected life of mortgage-backed securities or CMOs may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities and CMOs, which are not due at a single maturity date, have been classified based on the final contractual maturity date.
 
 
Distribution of Maturities at September 30, 2012
(in thousands)
 
Within One
Year
 
1 to 5
Years
 
5 to 10
Years
 
More Than
10 Years
 
No Stated
Maturity
 
Total
Amortized Cost
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$

 
356

 

 

 

 
356

U.S. Government agency securities
 

 
1,265

 
32,512

 
2,029

 

 
35,806

Securities issued by U.S. Government sponsored enterprises
 
39,455

 
325,251

 

 

 

 
364,706

Mortgage-backed securities issued by U.S. Government agencies
 
4

 
332

 
1

 
268,147

 

 
268,484

Mortgage-backed securities issued by U.S. Government sponsored enterprises
 
2,238

 
9,564

 
1,234,495

 
628,305

 

 
1,874,602

Collateralized mortgage obligations issued by U.S. Government sponsored enterprises
 

 

 

 
586,757

 

 
586,757

State and municipal securities
 
2,544

 
7,866

 
4,522

 
3,882

 

 
18,814

Other investments
 
1,000

 

 

 
3,000

 

 
4,000

Securities with no stated maturity
  (equity securities)    
 

 

 

 

 
3,647

 
3,647

Total
 
$
45,241

 
344,634

 
1,271,530

 
1,492,120

 
3,647

 
3,157,172

Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$

 
356

 

 

 

 
356

U.S. Government agency securities
 

 
1,440

 
34,371

 
2,436

 

 
38,247

Securities issued by U.S. Government sponsored enterprises
 
40,843

 
329,256

 

 

 

 
370,099

Mortgage-backed securities issued by U.S. Government agencies
 
4

 
352

 
1

 
278,249

 

 
278,606

Mortgage-backed securities issued by U.S. Government sponsored enterprises
 
2,322

 
10,039

 
1,251,878

 
664,779

 

 
1,929,018

Collateralized mortgage obligations issued by U.S. Government sponsored enterprises
 

 

 

 
586,457

 

 
586,457

State and municipal securities
 
2,568

 
8,131

 
4,685

 
4,162

 

 
19,546

Other investments
 
1,001

 

 

 
2,289

 

 
3,290

Securities with no stated maturity
  (equity securities)    
 

 

 

 

 
3,821

 
3,821

Total
 
$
46,738

 
349,574

 
1,290,935

 
1,538,372

 
3,821

 
3,229,440

 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sales, gross gains, and gross losses on sales of securities available for sale during the nine and three months ended September 30, 2012 and 2011 are presented below.
 
 
Nine Months Ended September 30,
 
Three Months Ended September 30,
(in thousands)
 
2012
 
2011
 
2012
 
2011
Proceeds
 
$
909,485

 
1,753,686

 
176,780

 
1,738,007

Gross realized gains
 
31,359

 
66,317

 
6,656

 
64,516

Gross realized losses
 
(450
)
 
(1,647
)
 

 
(1,643
)
Investment securities gains, net
 
$
30,909

 
64,670

 
6,656

 
62,873

 
 
 
 
 
 
 
 
 



11


Note 3 - Restructuring Charges
For the nine and three months ended September 30, 2012 and 2011 total restructuring charges are as follows:
 
Nine Months Ended September 30,
 
Three Months Ended September 30,
(in thousands)
2012
 
2011
 
2012
 
2011
Severance charges
$
2,488

 
17,310

 
1,456

 
1,000

Lease termination charges
(44
)
 
3,107

 
(69
)
 

Asset impairment charges
1,231

 
6,417

 
3

 
718

Gain on sale of assets held for sale
(452
)
 
(792
)
 
(288
)
 
(530
)
Professional fees and other charges
221

 
3,984

 
90

 
1,399

Total restructuring charges
$
3,444

 
30,026

 
1,192

 
2,587

 
 
 
 
 
 
 
 
In January 2011, Synovus announced efficiency and growth initiatives intended to streamline operations, boost productivity, reduce expenses, and increase revenue. During the nine months ended September 30, 2011, Synovus implemented most of the components of the initiatives, which resulted in restructuring charges of $30.0 million. During the nine and three months ended September 30, 2012, Synovus recognized restructuring charges of $3.4 million and $1.2 million, respectively, associated with these ongoing efficiency initiatives. As part of these efficiency initiatives, during the nine months ended September 30, 2012, Synovus transferred premises and equipment with a carrying value of $3.8 million, immediately preceding the transfer to other assets held for sale, a component of other assets on the consolidated balance sheet. For the nine months ended September 30, 2012, Synovus recognized impairment charges of $1.2 million related to these assets and net gains of $452 thousand on the sale of these assets. For the three months ended September 30, 2012, Synovus recognized net gains of $288 thousand on the sale of these assets. For the nine and three months ended September 30, 2012, Synovus received proceeds of $4.1 million and $2.4 million, respectively, from sales of these assets. The carrying value of the remaining held for sale assets was $5.8 million at September 30, 2012. The liability for restructuring activities was $1.0 million at September 30, 2012, and consists primarily of lease termination payments and estimated severance payments.

Note 4 - Other Loans Held for Sale
Loans are transferred to other loans held for sale at fair value when Synovus makes the determination to sell specifically identified loans. The fair value of other loans held for sale is primarily determined by analyzing the net sales proceeds for similar loans sold into the market or in certain cases, based upon the contract price or appraised value. At the time of transfer, if the fair value is less than the carrying amount, the difference is recorded as a charge-off against the allowance for loan losses. Decreases in the fair value subsequent to the transfer, as well as gains/losses realized from sale of these loans, are recognized as (gains) losses on other loans held for sale, net, a component of non-interest expense on the consolidated statements of operations.
During the nine months ended September 30, 2012, Synovus transferred loans with a carrying value immediately preceding the transfer totaling $353.1 million to other loans held for sale. Synovus recognized charge-offs upon transfer of these loans totaling $97.0 million which resulted in a new cost basis of $256.1 million and were based on the estimated fair value, less estimated costs to sell, of the loans at the time it was determined that the respective specific loans would be sold.
During the nine months ended September 30, 2011, Synovus transferred loans with a carrying value immediately preceding the transfer totaling $567.6 million to other loans held for sale. Synovus recognized charge-offs upon transfer on these loans totaling $159.9 million for the nine months ended September 30, 2011. These charge-offs which resulted in a new cost basis of $407.7 million for the loans transferred during the nine months ended September 30, 2011 were based on the estimated fair value, less estimated costs to sell, of the loans at the time it was determined that the respective specific loans would be sold.

        

12


Note 5 – Loans and Allowance for Loan Losses
The following is a summary of current, accruing past due, and non-accrual loans by portfolio class as of September 30, 2012 and December 31, 2011.
Current, Accruing Past Due, and Non-accrual Loans (1)
 
 
September 30, 2012
 
(in thousands)
Current
 
Accruing 30-89 Days Past Due
 
Accruing 90 Days or Greater Past Due
 
Total Accruing Past Due
 
Non-accrual
 
 Total
 
Investment properties
$
4,257,019

 
16,460

 
3,110

 
19,570

 
114,308

 
4,390,897

 
1-4 family properties
1,282,339

 
10,349

 
563

 
10,912

 
133,999

 
1,427,250

 
Land acquisition
724,293

 
1,497

 
505

 
2,002

 
183,125

 
909,420

 
Total commercial real estate
6,263,651

 
28,306

 
4,178

 
32,484

 
431,432

 
6,727,567

 
Commercial and industrial
8,835,681

 
30,018

 
269

 
30,287

 
186,724

 
9,052,692

 
Home equity lines
1,540,456

 
11,112

 
198

 
11,310

 
21,220

 
1,572,986

 
Consumer mortgages
1,325,930

 
19,087

 
2,102

 
21,189

 
52,313

 
1,399,432

 
Credit cards
253,119

 
2,886

 
1,917

 
4,803

 

 
257,922

 
Other retail loans
721,244

 
8,252

 
308

 
8,560

 
8,515

 
738,319