Note 13 - Fair Value Accounting

Fair value accounting guidance defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants, on the measurement date. See "Note 1 - Summary of Significant Accounting Policies" of this Report for a description of how fair value measurements are determined.

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 December 31, 2018 and 2017.



	December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total Assets and Liabilities at Fair Value
Assets
Trading securities:
U.S. Government agency securities	$	—	$	44	$	—	$	44
State and municipal securities	—		1,064		—		1,064
Other investments	1,128		894		—		2,022
Total trading securities	$	1,128	$	2,002	$	—	$	3,130
Mortgage loans held for sale	—		37,129		—		37,129
Investment securities available for sale:
U.S. Treasury securities	$	122,077	$	—	$	—	$	122,077
U.S. Government agency securities	—		38,382		—		38,382
Mortgage-backed securities issued by U.S. Government agencies	—		97,205		—		97,205
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,398,650		—		2,398,650
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		1,188,518		—		1,188,518
Commercial mortgage-backed securities issued by U.S. Government sponsored enterprises	—		129,865		—		129,865
Corporate debt and other debt securities	—		15,150		1,785		16,935
Total investment securities available for sale	$	122,077	$	3,867,770	$	1,785	$	3,991,632
Private equity investments	—		—		11,028		11,028
Mutual funds	3,168		—		—		3,168
Mutual funds held in rabbi trusts	12,844		—		—		12,844
GGL/SBA loans servicing asset	—		—		3,729		3,729
Derivative assets:
Interest rate contracts	$	—	$	18,388	$	—	$	18,388
Mortgage derivatives⁽¹⁾	—		944		—		944
Total derivative assets	$	—	$	19,332	$	—	$	19,332
Liabilities
Earnout liability⁽²⁾	—		—		14,353		14,353
Derivative liabilities:							—
Interest rate contracts	$	—	$	15,716	$	—	$	15,716
Mortgage derivatives⁽¹⁾	—		819		—		819
Visa derivative	—		—		1,673		1,673
Total derivative liabilities	$	—	$	16,535	$	1,673	$	18,208



	December 31, 2017
(in thousands)	Level 1		Level 2		Level 3		Total Assets and Liabilities at Fair Value
Assets
Trading securities:
U.S. Government agency securities	$	—	$	3,002	$	—	$	3,002
Collateralized mortgage obligations issued by U.S. Government sponsored agencies or enterprises	—		296		—		296
Other investments	522		—		—		522
Total trading securities	$	522	$	3,298	$	—	$	3,820
Mortgage loans held for sale	—		48,024		—		48,024
Investment securities available for sale:
U.S. Treasury securities	$	82,674	$	—	$	—	$	82,674
U.S. Government agency securities	—		10,862		—		10,862
Mortgage-backed securities issued by U.S.Government agencies	—		120,440		—		120,440
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,595,626		—		2,595,626
Collateralized mortgage obligations issued by U.S. Government sponsored agencies or enterprises	—		1,111,999		—		1,111,999
Commercial mortgage-backed securities issued by U.S. Government sponsored enterprises	—		44,897		—		44,897
State and municipal securities	—		180		—		180
Corporate debt and other securities	3,162		15,294		1,935		20,391
Total investment securities available for sale	$	85,836	$	3,899,298	$	1,935	$	3,987,069
Private equity investments	—		—		15,771		15,771
Mutual funds held in rabbi trusts	14,140		—		—		14,140
GGL/SBA loans servicing asset	—		—		4,101		4,101
Derivative assets:
Interest rate contracts	$	—	$	10,786	$	—	$	10,786
Mortgage derivatives ⁽¹⁾	—		936		—		936
Total derivative assets	$	—	$	11,722	$	—	$	11,722
Liabilities
Trading account liabilities	—		1,000		—		1,000
Earnout liability⁽²⁾	—		—		11,348		11,348
Derivative liabilities:
Interest rate contracts	$	—	$	12,638	$	—	$	12,638
Mortgage derivatives⁽¹⁾	—		129		—		129
Visa derivative	—		—		4,330		4,330
Total derivative liabilities	$	—	$	12,767	$	4,330	$	17,097

^{(1 )}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.


^{(2 )}	Earnout liability consists of contingent consideration obligation related to Global One acquisition.

Fair Value Option

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

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



	Years Ended December 31,
(in thousands)	2018		2017		2016
Changes in fair value included in net income:
Mortgage loans held for sale	$	95	$	754	$	(667	)
Mortgage loans held for sale:
Fair value	37,129		48,024		51,545
Unpaid principal balance	35,848		46,839		51,114
Fair value less aggregate unpaid principal balance	$	1,281	$	1,185	$	431

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

During 2018 and 2017, Synovus did not have any transfers in or out of Level 3 in the fair value hierarchy. For the years ended December 31, 2018 and 2017, total net losses included in earnings attributable to the change in net unrealized losses relating to assets/liabilities still held at December 31, 2018 and 2017 was $18.1 million and $8.6 million, respectively.



	2018
(in thousands)	Investment Securities Available for Sale			Private Equity Investments			GGL/SBA Loans Servicing Asset⁽¹⁾			Earnout Liability⁽²⁾			Visa Derivative Liability
Beginning balance, January 1, 2018	$	1,935		$	15,771		$	4,101		$	(11,348	)	$	(4,330	)
Total (losses) gains realized/unrealized:
Included in earnings	—			(4,743		)	(1,752		)	(11,652		)	(2,328		)
Unrealized (losses) gains included in other comprehensive income	(150		)	—			—			—			—
Additions	—			—			1,380			—			—
Settlements	—			—			—			8,647			4,985
Ending balance, December 31, 2018	$	1,785		$	11,028		$	3,729		$	(14,353	)	$	(1,673	)
Total net losses for the year included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at December 31, 2018	$	—		$	(4,743	)	$	—		$	(11,652	)	$	(1,673	)



	2017
(in thousands)	Investment Securities Available for Sale		Private Equity Investments			GGL/SBA Loans Servicing Asset⁽¹⁾			Earnout Liability⁽²⁾			Visa Derivative Liability
Beginning balance, January 1, 2017	$	1,796	$	25,493		$	—		$	(14,000	)	$	(5,768	)
Total (losses) gains realized/unrealized:
Included in earnings	—		(3,093		)	(1,681		)	(5,466		)	—
Unrealized gains included in other comprehensive income	139		—			—			—			—
Additions	—		—			1,330			—			—
Sales	—		(6,629		)	—			—			—
Settlements	—		—			—			6,352			1,438
Transfer from amortization method to fair value	—		—			4,452			—			—
Measurement period adjustments related to Global One acquisition	—		—			—			1,766			—
Ending balance, December 31, 2017	$	1,935	$	15,771		$	4,101		$	(11,348	)	$	(4,330	)
Total net losses for the year included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at December 31, 2017	$	—	$	(3,093	)	$	—		$	(5,466	)	$	—


⁽¹⁾	Effective January 1, 2017, Synovus elected the fair value option for determining the value of the GGL/SBA loans servicing asset. Prior to 2017, Synovus accounted for the GGL/SBA loans servicing asset using the amortization method.


⁽²⁾	Earnout liability consists of contingent consideration obligation related to the Global One acquisition.

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 occurring during the period recorded as a charge-off with associated provision expense or write-down in non-interest expense. 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 tables present 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.



	As of December 31, 2018						Fair Value Adjustments for the Year Ended December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Fair Value Adjustments for the Year Ended December 31, 2018
Impaired loans*	$	—	$	—	$	21,742	$	7,575
Other loans held for sale	—		—		1,494		809
Other real estate	—		—		3,827		523
Other assets held for sale	—		—		1,104		482

	As of December 31, 2017						Fair Value Adjustments for the Year Ended December 31, 2017
	Level 1		Level 2		Level 3		Fair Value Adjustments for the Year Ended December 31, 2017
Impaired loans*	$	—	$	—	$	3,603	$	991
Other loans held for sale	—		—		10,197		13,004
Other real estate	—		—		3,363		2,413
Other assets held for sale	—		—		5,334		2,491


*	Collateral-dependent impaired loans that are written down to fair value during the period.

Fair Value of Financial Instruments

The following table presents the carrying and estimated fair values of financial instruments at December 31, 2018 and 2017. The fair values represent management’s best estimates based on a range of methodologies and assumptions. See Note 1 - "Summary of Significant Accounting Policies" of this Report for a description of how fair value measurements are determined.



	December 31, 2018
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	1,143,564	$	1,143,564	$	1,143,564	$	—	$	—
Trading account assets	3,130		3,130		1,128		2,002		—
Mortgage loans held for sale	37,129		37,129		—		37,129		—
Other loans held for sale	1,506		1,506		—		—		1,506
Investment securities available for sale	3,991,632		3,991,632		122,077		3,867,770		1,785
Private equity investments	11,028		11,028		—		—		11,028
Mutual funds	3,168		3,168		3,168		—		—
Mutual funds held in rabbi trusts	12,844		12,844		12,844		—		—
Loans, net	25,696,018		25,438,890		—		—		25,438,890
GGL/SBA loans servicing asset	3,729		3,729		—		—		3,729
Derivative assets	19,332		19,332		—		19,332		—
Financial Liabilities
Non-interest-bearing deposits	$	7,650,967	$	7,650,967	$	—	$	7,650,967	$	—
Non-time interest-bearing deposits	14,065,959		14,065,959		—		14,065,959		—
Time deposits	5,003,396		4,989,570		—		4,989,570		—
Total deposits	$	26,720,322	$	26,706,496	$	—	$	26,706,496	$	—
Federal funds purchased and securities sold under repurchase agreements	237,692		237,692		237,692		—		—
Other short-term borrowings	650,000		650,000		—		650,000		—
Long-term debt	1,657,157		1,649,642		—		1,649,642		—
Earnout liability	14,353		14,353		—		—		14,353
Derivative liabilities	18,208		18,208		—		16,535		1,673



	December 31, 2017
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	932,933	$	932,933	$	932,933	$	—	$	—
Trading account assets	3,820		3,820		522		3,298		—
Mortgage loans held for sale	48,024		48,024		—		48,024		—
Other loans held for sale	11,356		11,356		—		—		11,356
Investment securities available for sale	3,987,069		3,987,069		85,836		3,899,298		1,935
Private equity investments	15,771		15,771		—		—		15,771
Mutual funds held in rabbi trusts	14,140		14,140		14,140		—		—
Loans, net	24,538,196		24,507,141		—		—		24,507,141
GGL/SBA loans servicing asset	4,101		4,101		—		—		4,101
Derivative assets	11,722		11,722		—		11,722		—
Financial Liabilities
Trading account liabilities	1,000		1,000		—		1,000		—
Non-interest-bearing deposits	$	7,686,339	$	7,686,339	$	—	$	7,686,339	$	—
Non-time interest-bearing deposits	13,941,814		13,941,814		—		13,941,814		—
Time deposits	4,519,747		4,523,661		—		4,523,661		—
Total deposits	$	26,147,900	$	26,151,814	$	—	$	26,151,814	$	—
Federal funds purchased and securities sold under repurchase agreements	161,190		161,190		161,190		—		—
Other short-term borrowings	100,000		100,000		—		100,000		—
Long-term debt	1,606,138		1,621,814		—		1,621,814		—
Earnout liability	11,348		11,348		—		—		11,348
Derivative liabilities	17,097		17,097		—		12,767		4,330