Note 9 - 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 16 "Fair Value Accounting" to the consolidated financial statements of Synovus' 2014 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, 2015 and December 31, 2014, 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 betweens levels during the nine months ended September 30, 2015 and year ended December 31, 2014 were inconsequential.



	September 30, 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	—		3,141	—	3,141
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		1,926	—	1,926
State and municipal securities	—		757	—	757
Other investments	—		20	—	20
Total trading securities	$	—	5,844	—	5,844
Mortgage loans held for sale	—		73,623	—	73,623
Investment securities available for sale:
U.S. Treasury securities	43,673		—	—	43,673
U.S. Government agency securities	—		13,801	—	13,801
Securities issued by U.S. Government sponsored enterprises	—		127,600	—	127,600
Mortgage-backed securities issued by U.S. Government agencies	—		210,855	—	210,855
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,548,093	—	2,548,093
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		510,620	—	510,620
State and municipal securities	—		4,546	—	4,546
Equity securities	8,471		—	—	8,471
Other investments⁽¹⁾	3,091		15,051	1,531	19,673
Total investment securities available for sale	$	55,235	3,430,566	1,531	3,487,332
Private equity investments	—		867	26,850	27,717
Mutual funds held in rabbi trusts	10,233		—	—	10,233
Derivative assets:
Interest rate contracts	—		32,710	—	32,710
Mortgage derivatives⁽²⁾	—		1,845	—	1,845
Total derivative assets	$	—	34,555	—	34,555
Liabilities
Trading account liabilities	—		3,002	—	3,002
Derivative liabilities:
Interest rate contracts	—		33,158	—	33,158
Mortgage derivatives⁽²⁾	—		1,110	—	1,110
Visa derivative	—		—	1,415	1,415
Total derivative liabilities	$	—	34,268	1,415	35,683



	December 31, 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	—		145	—	145
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises	—		2,449	—	2,449
State and municipal securities	—		1,976	—	1,976
All other mortgage-backed securities	—		2,483	—	2,483
Other investments	—		6,810	—	6,810
Total trading securities	$	—	13,863	—	13,863
Mortgage loans held for sale	—		63,328	—	63,328
Investment securities available for sale:
U.S. Treasury securities	42,826		—	—	42,826
U.S. Government agency securities	—		27,324	—	27,324
Securities issued by U.S. Government sponsored enterprises	—		82,042	—	82,042
Mortgage-backed securities issued by U.S. Government agencies	—		179,816	—	179,816
Mortgage-backed securities issued by U.S. Government sponsored enterprises	—		2,261,681	—	2,261,681
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises	—		417,076	—	417,076
State and municipal securities	—		5,206	—	5,206
Equity securities	6,748		—	—	6,748
Other investments⁽¹⁾	2,035		15,007	1,645	18,687
Total investment securities available for sale	$	51,609	2,988,152	1,645	3,041,406
Private equity investments	—		995	27,367	28,362
Mutual funds held in rabbi trusts	11,252		—	—	11,252
Derivative assets:
Interest rate contracts	—		30,904	—	30,904
Mortgage derivatives⁽²⁾	—		1,213	—	1,213
Total derivative assets	$	—	32,117	—	32,117
Liabilities
Trading account liabilities	—		2,100	—	2,100
Salary stock units	1,206		—	—	1,206
Derivative liabilities:
Interest rate contracts	—		31,398	—	31,398
Mortgage derivatives⁽²⁾	—		753	—	753
Visa derivative	—		—	1,401	1,401
Total derivative liabilities	$	—	32,151	1,401	33,552

⁽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 Nine Months Ended September 30,			For the Three Months Ended September 30,
(in thousands)	2015		2014	2015	2014
Mortgage loans held for sale	$	450	969	1,012	(813	)



Mortgage Loans Held for Sale
(in thousands)	As of September 30, 2015		As of December 31, 2014
Fair value	73,623		63,328
Unpaid principal balance	71,333		61,488
Fair value less aggregate unpaid principal balance	$	2,290	1,840

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, 2015 and 2014 (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 nine and three months ended September 30, 2015 and 2014, Synovus did not have any transfers between levels in the fair value hierarchy.



	Nine Months Ended September 30,
	2015							2014
(in thousands)	Investment Securities Available for Sale			Private Equity Investments		Visa Derivative		Investment Securities Available for Sale		Private Equity Investments		Other Derivative Contracts, Net
Beginning balance, January 1,	$	1,645		27,367		(1,401	)	2,350		27,745		(2,706	)
Total gains (losses) realized/unrealized:
Included in earnings	—			(517	)	(1,092	)	(88	)	(513	)	(2,731	)
Unrealized gains (losses) included in other comprehensive income	(114		)	—		—		63		—		—
Purchases	—			—		—		—		—		—
Sales	—			—		—		—		—		—
Issuances	—			—		—		—		—		—
Settlements	—			—		1,078		(540	)	—		1,416
Amortization of discount/premium	—			—		—		—		—		—
Transfers in and/or out of Level 3	—			—		—		—		—		—
Ending balance, September 30,	$	1,531		26,850		(1,415	)	1,785		27,232		(4,021	)
Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at September 30,	$	—		(517	)	(1,092	)	(88	)	(513	)	(2,731	)


	Three Months Ended September 30,
	2015							2014
(in thousands)	Investment Securities Available for Sale			Private Equity Investments		Visa Derivative		Investment Securities Available for Sale		Private Equity Investments		Visa Derivative
Beginning balance, July 1,	$	1,700		26,959		(1,415	)	1,866		27,376		(2,438	)
Total gains (losses) realized/unrealized:
Included in earnings	—			(109	)	(363	)	—		(144	)	(1,979	)
Unrealized gains (losses) included in other comprehensive income	(169		)	—		—		(81	)	—		—
Purchases	—			—		—		—		—		—
Sales	—			—		—		—		—		—
Issuances	—			—		—		—		—		—
Settlements	—			—		363		—		—		396
Amortization of discount/premium	—			—		—		—		—		—
Transfers in and/or out of Level 3	—			—		—		—		—		—
Ending balance, September 30,	$	1,531		26,850		(1,415	)	1,785		27,232		(4,021	)
Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at September 30,	$	—		(109	)	(363	)	—		(144	)	(1,979	)

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.



	September 30, 2015					December 31, 2014
(in thousands)	Level 1		Level 2	Level 3	Total	Level 1		Level 2	Level 3	Total
Impaired loans^*	—		—	12,430	12,430	—		—	28,588	28,588
Other loans held for sale	—		—	—	—	—		—	3,411	3,411
Other real estate	—		—	23,457	23,457	—		—	32,046	32,046
Other assets held for sale	$	—	—	1,844	1,844	$	—	—	3,718	3,718

The following table presents fair value adjustments recognized in earnings for the nine and three months ended September 30, 2015 and 2014 for the assets measured at fair value on a non-recurring basis.



	Nine Months Ended September 30,			Three Months Ended September 30,
(in thousands)	2015		2014	2015		2014
Impaired loans^*	3,549		20,661	1,789		9,380
Other loans held for sale	—		285	—		285
Other real estate	7,405		7,343	2,645		4,114
Other assets held for sale	$	1,043	7,608	$	1,043	100

^*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.



September 30, 2015
(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	$	1,531	Discounted cash flow analysis	Credit spread embedded in discount rate	549-649 bps (599 bps)

				Discount for lack of marketability⁽²⁾	0%-10% (0%)

Private equity investments	26,850		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	1,415		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



September 30, 2015
(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	$	12,430	Third-party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽³⁾ Estimated selling costs	0% - 100% (44%) 0% - 10% (7%)

Other real estate	23,457		Third-party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽³⁾ Estimated selling costs	0% - 25% (8%) 0% - 10% (7%)

Other assets held for sale	1,844		Third-party appraised value of collateral less estimated selling costs or BOV	Discount to appraised value ⁽³⁾ Estimated selling costs	0%-100% (55%) 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⁾Represents management's estimate of discount that market participants would require based on the instrument's lack of liquidity.

⁽³⁾ 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, 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	$	1,645	Discounted cash flow analysis	Credit spread embedded in discount rate	600-675 bps (639 bps)

				Discount for lack of marketability⁽²⁾	0%-10% (0%)

Private equity investments	27,367		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⁽²⁾	N/A

Visa derivative liability	1,401		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



December 31, 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	$	28,588	Third-party appraised value of collateral less estimated selling costs	Discount to appraised value⁽²⁾ Estimated selling costs	0%-100% (46%) 0%-10% (7%)

Other loans held for sale	3,411		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	32,046		Third-party appraised value of collateral less estimated selling costs	Discount to appraised value ⁽²⁾ Estimated selling costs	0%-61% (16%) 0%-10% (7%)

Other assets held for sale	3,718		Third-party appraised value of collateral less estimated selling costs or BOV	Discount to appraised value ⁽²⁾ Estimated selling costs	0%-100% (49%) 0%-10% (7%)

⁽¹⁾The range represents management's best estimate of the high and low end 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⁾ Represents management's estimate of discount that market participants would require based on the instrument's lack of liquidity.

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

The significant unobservable inputs used in the fair value measurement of the corporate obligations in Level 3 assets are the credit spread embedded in the discount rate and the discount for lack of liquidity. Generally, a change in one or more assumptions, and the degree or sensitivity of the change used, can have a significant impact on fair value. With regard to 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 changes in any of these inputs in isolation could result in a significantly higher (lower) valuation of the Visa derivative liability. Also, additional funding into the escrow generally results in a proportional increase in our derivative liability.

Fair Value of Financial Instruments

The following table presents the carrying and fair values of financial instruments at September 30, 2015 and December 31, 2014. 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 September 30, 2015 and December 31, 2014 are as follows:



	September 30, 2015
(in thousands)	Carrying Value		Fair Value	Level 1	Level 2	Level 3
Financial assets
Cash and cash equivalents	$	329,396	329,396	329,396	—	—
Interest bearing funds with Federal Reserve Bank	837,641		837,641	837,641	—	—
Interest earning deposits with banks	21,170		21,170	21,170	—	—
Federal funds sold and securities purchased under resale agreements	69,732		69,732	69,732	—	—
Trading account assets	5,844		5,844	—	5,844	—
Mortgage loans held for sale	73,623		73,623	—	73,623	—
Investment securities available for sale	3,487,332		3,487,332	55,235	3,430,566	1,531
Private equity investments	27,717		27,717	—	867	26,850
Mutual funds held in rabbi trusts	10,233		10,233	10,233	—	—
Loans, net of deferred fees and costs	21,864,309		21,677,842	—	—	21,677,842
Derivative assets	34,555		34,555	—	34,555	—
Financial liabilities
Trading account liabilities	3,002		3,002	—	3,002	—
Non-interest bearing deposits	6,570,227		6,570,227	—	6,570,227	—
Interest bearing deposits	16,207,186		16,218,720	—	16,218,720	—
Federal funds purchased and securities sold under repurchase agreements	135,475		135,475	135,475	—	—
Long-term debt	2,038,719		2,098,864	—	2,098,864	—
Derivative liabilities	$	35,683	35,683	—	34,268	1,415



	December 31, 2014
(in thousands)	Carrying Value		Fair Value	Level 1	Level 2	Level 3
Financial assets
Cash and cash equivalents	$	485,489	485,489	485,489	—	—
Interest bearing funds with Federal Reserve Bank	721,362		721,362	721,362	—	—
Interest earning deposits with banks	11,810		11,810	11,810	—	—
Federal funds sold and securities purchased under resale agreements	73,111		73,111	73,111	—	—
Trading account assets	13,863		13,863	—	13,863	—
Mortgage loans held for sale	63,328		63,328	—	63,328	—
Other loans held for sale	3,606		3,606	—	—	3,606
Investment securities available for sale	3,041,406		3,041,406	51,609	2,988,152	1,645
Private equity investments	28,362		28,362	—	995	27,367
Mutual funds held in rabbi trusts	11,252		11,252	11,252	—	—
Loans, net of deferred fees and costs	21,097,699		20,872,939	—	—	20,872,939
Derivative assets	32,117		32,117	—	32,117	—
Financial liabilities
Trading account liabilities	2,100		2,100	—	2,100	—
Non-interest bearing deposits	6,228,472		6,228,472	—	6,228,472	—
Interest bearing deposits	15,303,228		15,299,372	—	15,299,372	—
Federal funds purchased and securities sold under repurchase agreements	126,916		126,916	126,916	—	—
Salary stock units	1,206		1,206	1,206	—	—
Long-term debt	2,140,319		2,191,279	—	2,191,279	—
Derivative liabilities	$	33,553	33,553	—	32,151	1,401