10-Q 1 snv-03312016x10q.htm 10-Q 10-Q
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 March 31, 2016
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
Series B Participating Cumulative Preferred Stock Purchase Rights
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C
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 (232.405 of this chapter) 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
 
 
 
April 30, 2016

Common Stock, $1.00 Par Value
 
 
 
125,500,300





Table of Contents
 
 
 
 
 
Page
Financial Information
 
 
 
Index of Defined Terms
 
Item 1.
Financial Statements (Unaudited)
 
 
 
Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015
 
 
Consolidated Statements of Income for the Three Months Ended March 31, 2016 and 2015
 
 
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015
 
 
Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 2016 and 2015
 
 
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015
 
 
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 3.
Defaults Upon Senior Securities
 
Item 4.
Mine Safety Disclosures
 
Item 5.
Other Information
 
Item 6.
Exhibits
 
Signatures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






SYNOVUS FINANCIAL CORP.
INDEX OF DEFINED TERMS
ALCO – Synovus' Asset Liability Management Committee
ASC – Accounting Standards Codification
ASR – Accelerated share repurchase
ASU – Accounting Standards Update
Basel III – A global regulatory framework developed by the Basel Committee on Banking Supervision
BOLI – Bank-Owned Life Insurance
BOV – Broker’s opinion of value
bp – Basis point (bps - basis points)
C&I – Commercial and industrial loans
CCC – Central clearing counterparty
CET1 – Common Equity Tier 1 Capital defined by Basel III capital rules
CMO – Collateralized Mortgage Obligation
Code – Internal Revenue Code of 1986, as amended
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
CRE – Commercial real estate
DIF – Deposit Insurance Fund
Dodd-Frank Act – The Dodd-Frank Wall Street Reform and Consumer Protection Act
EVE – economic value of equity
Exchange Act – Securities Exchange Act of 1934, as amended
FASB – Financial Accounting Standards Board
FDIC – Federal Deposit Insurance Corporation
Federal Reserve Bank – The 12 banks that are the operating arms of the U.S. 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.
FFIEC – Federal Financial Institutions Examination Council
FHLB – Federal Home Loan Bank
FICO – Fair Isaac Corporation
GA DBF – Georgia Department of Banking and Finance
GAAP – Generally Accepted Accounting Principles in the United States of America
HELOC – Home equity line of credit
LIBOR – London Interbank Offered Rate
LTV – Loan-to-collateral value ratio
NAICS – North American Industry Classification System

i


nm – not meaningful
NPA – Non-performing assets
NPL – Non-performing loans
NSF – Non-sufficient funds
OCI – Other comprehensive income
ORE – Other real estate
OTTI – Other-than-temporary impairment
Parent Company – Synovus Financial Corp.
Rights Plan – Synovus' Shareholder Rights Plan dated April 26, 2010, as amended
SBA – Small Business Administration
SCM – State, county, and municipal
SEC – U.S. Securities and Exchange Commission
Securities Act – Securities Act of 1933, as amended
Series C Preferred Stock – Synovus' Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C, $25 liquidation preference
Synovus – Synovus Financial Corp.
Synovus Bank – A Georgia state-chartered bank and wholly-owned subsidiary of Synovus through which Synovus conducts its banking operations
Synovus' 2015 Form 10-K – Synovus' Annual Report on Form 10-K for the year ended December 31, 2015
Synovus Mortgage – Synovus Mortgage Corp., a wholly-owned subsidiary of Synovus Bank
Synovus Trust – Synovus Trust Company, N.A., a wholly-owned subsidiary of Synovus Bank
TDR – Troubled debt restructuring (as defined in ASC 310-40)
Treasury – United States Department of the Treasury
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
Warrant – A warrant issued to the Treasury by Synovus to purchase up to 2,215,820 shares of Synovus common stock at a per share exercise price of $65.52 expiring on December 19, 2018, as was issued by Synovus to Treasury in 2008 in connection with the Capital Purchase Program, promulgated under the Emergency Stabilization Act of 2008


ii



PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
March 31, 2016
 
December 31, 2015
ASSETS
 
 
 
Cash and cash equivalents
$
352,060

 
367,092

Interest bearing funds with Federal Reserve Bank
908,527

 
829,887

Interest earning deposits with banks
21,686

 
17,387

Federal funds sold and securities purchased under resale agreements
76,300

 
69,819

Trading account assets, at fair value
4,801

 
5,097

Mortgage loans held for sale, at fair value
62,867

 
59,275

Investment securities available for sale, at fair value
3,582,244

 
3,587,818

Loans, net of deferred fees and costs
22,758,203

 
22,429,565

Allowance for loan losses
(254,516
)
 
(252,496
)
Loans, net
$
22,503,687

 
22,177,069

Premises and equipment, net
439,122

 
445,155

Goodwill
24,431

 
24,431

Other real estate
38,462

 
47,030

Deferred tax asset, net
464,242

 
511,948

Other assets
692,828

 
650,645

Total assets
$
29,171,257

 
28,792,653

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest bearing deposits
$
6,896,547

 
6,732,970

Interest bearing deposits, excluding brokered deposits
15,348,864

 
15,434,171

Brokered deposits
1,204,517

 
1,075,520

Total deposits
23,449,928

 
23,242,661

Federal funds purchased and securities sold under repurchase agreements
203,979

 
177,025

Long-term debt
2,360,865

 
2,186,893

Other liabilities
203,217

 
185,878

Total liabilities
$
26,217,989

 
25,792,457

Shareholders' Equity
 
 
 
Series C Preferred Stock – no par value. Authorized 100,000,000 shares; 5,200,000 shares issued and outstanding at March 31, 2016 and December 31, 2015
125,980

 
125,980

Common stock - $1.00 par value. Authorized 342,857,143 shares; 140,793,916 issued at March 31, 2016 and 140,592,409 issued at December 31, 2015; 125,849,939 outstanding at March 31, 2016 and 129,547,032 outstanding at December 31, 2015
140,794

 
140,592

Additional paid-in capital
2,989,854

 
2,989,981

Treasury stock, at cost – 14,943,977 shares at March 31, 2016 and 11,045,377 shares at December 31, 2015
(512,496
)
 
(401,511
)
Accumulated other comprehensive loss, net
(740
)
 
(29,819
)
Retained earnings
209,876

 
174,973

Total shareholders’ equity
2,953,268

 
3,000,196

Total liabilities and shareholders' equity
$
29,171,257

 
28,792,653

 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

1


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
Three Months Ended March 31,
(in thousands, except per share data)
2016
 
2015
Interest income:
 
 
 
      Loans, including fees
$
229,917

 
215,269

      Investment securities available for sale
16,972

 
13,943

      Trading account assets
22

 
107

      Mortgage loans held for sale
588

 
632

      Federal Reserve Bank balances
999

 
645

      Other earning assets
825

 
805

Total interest income
249,323

 
231,401

Interest expense:
 
 
 
Deposits
16,015

 
14,819

Federal funds purchased and securities sold under repurchase agreements
45

 
43

Long-term debt
15,070

 
13,276

Total interest expense
31,130

 
28,138

Net interest income
218,193

 
203,263

Provision for loan losses
9,377

 
4,397

Net interest income after provision for loan losses
208,816

 
198,866

Non-interest income:
 
 
 
Service charges on deposit accounts
19,710

 
19,133

Fiduciary and asset management fees
11,274

 
11,571

Brokerage revenue
6,483

 
7,251

Mortgage banking income
5,484

 
6,484

Bankcard fees
8,372

 
8,077

Investment securities gains, net
67

 
725

Other fee income
4,804

 
5,246

Other non-interest income
6,953

 
7,367

Total non-interest income
63,147

 
65,854

Non-interest expense:
 
 
 
Salaries and other personnel expense
101,358

 
96,488

Net occupancy and equipment expense
26,577

 
26,172

Third-party processing expense
11,116

 
10,343

FDIC insurance and other regulatory fees
6,719

 
6,957

Professional fees
6,369

 
5,594

Advertising expense
2,410

 
3,443

Foreclosed real estate expense, net
2,684

 
9,496

Loss on early extinguishment of debt
4,735

 

Restructuring charges, net
1,140

 
(107
)
Other operating expenses
25,125

 
20,522

Total non-interest expense
188,233

 
178,908

Income before income taxes
83,730

 
85,812

Income tax expense
31,199

 
31,849

Net income
52,531

 
53,963

Dividends on preferred stock
2,559

 
2,559

Net income available to common shareholders
$
49,972

 
51,404

Net income per common share, basic
$
0.39

 
0.38

Net income per common share, diluted
0.39

 
0.38

Weighted average common shares outstanding, basic
127,227

 
134,933

Weighted average common shares outstanding, diluted
127,857

 
135,744

 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

2


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
(in thousands)
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
Net income
$
83,730

 
(31,199
)
 
52,531

 
85,812

 
(31,849
)
 
53,963

Net change related to cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for losses realized in net income
273

 
(105
)
 
168

 
112

 
(43
)
 
69

Net unrealized gains on investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for net gains realized in net income
(67
)
 
26

 
(41
)
 
(725
)
 
281

 
(444
)
Net unrealized gains arising during the period
47,172

 
(18,162
)
 
29,010

 
15,211

 
(5,856
)
 
9,355

Net unrealized gains
47,105

 
(18,136
)
 
28,969

 
14,486

 
(5,575
)
 
8,911

Post-retirement unfunded health benefit:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for gains realized in net income
(94
)
 
36

 
(58
)
 
(42
)
 
16

 
(26
)
Net unrealized gains
$
(94
)
 
36

 
(58
)
 
(42
)
 
16

 
(26
)
Other comprehensive income
$
47,284

 
(18,205
)
 
29,079

 
14,556

 
(5,602
)
 
8,954

Comprehensive income
 
 
 
 
$
81,610

 
 
 
 
 
62,917

 
 
 
 
 
 
 
 
 
 
 
 
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)
Series C Preferred Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Total
Balance at December 31, 2014
$
125,980

 
139,950

 
2,960,825

 
(187,774
)
 
(12,605
)
 
14,894

 
3,041,270

Net income

 

 

 

 

 
53,963

 
53,963

Other comprehensive income, net of income taxes

 

 

 

 
8,954

 

 
8,954

Cash dividends declared on common stock - $0.10 per share

 

 

 

 

 
(13,434
)
 
(13,434
)
Cash dividends paid on Series C Preferred Stock

 

 

 

 

 
(2,559
)
 
(2,559
)
Repurchases and completion of ASR agreement to repurchase shares of common stock

 

 
14,515

 
(73,628
)
 

 

 
(59,113
)
Restricted share unit activity

 
274

 
(4,325
)
 

 

 
(367
)
 
(4,418
)
Stock options exercised

 
105

 
1,587

 

 

 

 
1,692

Share-based compensation net tax benefit

 

 
1,046

 

 

 

 
1,046

Share-based compensation expense

 

 
3,234

 

 

 

 
3,234

Balance at March 31, 2015
$
125,980

 
140,329

 
2,976,882

 
(261,402
)
 
(3,651
)
 
52,497

 
3,030,635

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
125,980

 
140,592

 
2,989,981

 
(401,511
)
 
(29,819
)
 
174,973

 
3,000,196

Net income

 

 

 

 

 
52,531

 
52,531

Other comprehensive income, net of income taxes

 

 

 

 
29,079

 

 
29,079

Cash dividends declared on common stock - $0.12 per share

 

 

 

 

 
(15,069
)
 
(15,069
)
Cash dividends paid on Series C Preferred Stock

 

 

 

 

 
(2,559
)
 
(2,559
)
Repurchases of common stock

 

 

 
(110,985
)
 

 

 
(110,985
)
Restricted share unit activity

 
175

 
(2,993
)
 

 

 

 
(2,818
)
Stock options exercised

 
27

 
429

 

 

 

 
456

Share-based compensation net tax deficiency

 

 
(900
)
 

 

 

 
(900
)
Share-based compensation expense

 

 
3,337

 

 

 

 
3,337

Balance at March 31, 2016
$
125,980

 
140,794

 
2,989,854

 
(512,496
)
 
(740
)
 
209,876

 
2,953,268

 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

4


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
Three Months Ended March 31,
(in thousands)
2016
 
2015
Operating Activities
 
 
 
Net income
52,531

 
53,963

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
9,377

 
4,397

Depreciation, amortization, and accretion, net
13,785

 
13,799

Deferred income tax expense
28,601

 
28,718

Decrease (increase) in trading account assets
296

 
(6,139
)
Originations of mortgage loans held for sale
(138,695
)
 
(207,530
)
Proceeds from sales of mortgage loans held for sale
138,677

 
184,712

Gain on sales of mortgage loans held for sale, net
(3,424
)
 
(4,202
)
(Increase) in other assets
(39,363
)
 
(6,103
)
Increase (decrease) in other liabilities
17,341

 
(30,818
)
Investment securities gains, net
(67
)
 
(725
)
Losses and write-downs on other real estate, net
2,098

 
7,275

Losses and write-downs on other assets held for sale, net
1,270

 

Loss on early extinguishment of debt
4,735

 

Share-based compensation expense
3,337

 
3,234

Net cash provided by operating activities
$
90,499

 
40,581

Investing Activities
 
 
 
Net (increase) decrease in interest earning deposits with banks
(4,299
)
 
4,939

Net increase in federal funds sold and securities purchased under resale agreements
(6,481
)
 
(7,661
)
Net increase in interest bearing funds with Federal Reserve Bank
(78,640
)
 
(542,524
)
Proceeds from maturities and principal collections of investment securities available for sale
168,039

 
155,005

Proceeds from sales of investment securities available for sale
243,609

 
32,419

Purchases of investment securities available for sale
(363,788
)
 
(265,707
)
Proceeds from sales of loans and principal repayments on other loans held for sale
4,259

 
12,507

Proceeds from sales of other real estate
10,798

 
8,785

Net increase in loans
(344,159
)
 
(36,336
)
Net increase in premises and equipment
(7,830
)
 
(5,221
)
Proceeds from sales of other assets held for sale

 
351

Net cash used in investing activities
$
(378,492
)
 
(643,443
)
 
 
 
 
Financing Activities
 
 
 
Net increase in demand and savings deposits
110,837

 
411,991

Net increase in certificates of deposit
96,212

 
164,184

Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements
26,954

 
(1,593
)
Repayments on long-term debt
(830,067
)
 
(375,039
)
Proceeds from issuance of long-term debt
1,000,000

 
425,000

Dividends paid to common shareholders
(15,069
)
 
(13,434
)
Dividends paid to preferred shareholders
(2,559
)
 
(2,559
)
Stock options exercised
456

 
1,692

Repurchases of common stock
(110,985
)
 
(59,113
)
Restricted stock activity
(2,818
)
 
(4,418
)
Net cash provided by financing activities
$
272,961

 
546,711

Decrease in cash and cash equivalents
(15,032
)
 
(56,151
)
Cash and cash equivalents at beginning of period
367,092

 
485,489

Cash and cash equivalents at end of period
$
352,060

 
429,338

 
 
 
 
Supplemental Cash Flow Information
 
 
 
Cash paid (received) during the period for:
 
 
 

5


Income tax payments (refunds), net
(656
)
 
338

Interest paid
32,141

 
27,875

Non-cash Activities
 
 
 
Premises and equipment transferred to other assets held for sale
4,828

 

Loans foreclosed and transferred to other real estate
4,328

 
5,378

Loans transferred to other loans held for sale at fair value
3,834

 
10,100

 
 
 
 
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 Financial Corp. include the accounts of the Parent Company and its consolidated subsidiaries. Synovus Financial Corp. is a financial services company based in Columbus, Georgia, with approximately $29 billion in assets. Through our wholly-owned subsidiary, Synovus Bank, member FDIC, the company provides commercial and retail banking in addition to a full suite of specialized products and services including private banking, treasury management, wealth management, and international banking. Synovus also provides mortgage services, financial planning, and investment advisory services through its wholly-owned subsidiaries, Synovus Mortgage, Synovus Trust, and Synovus Securities, as well as its GLOBALT and Creative Financial Group divisions. These specialized offerings, combined with our traditional banking products and services, make Synovus Bank a great choice for retail and commercial customers.
Synovus Bank's 28 locally-branded bank divisions are positioned in some of the best markets in the Southeast, with 257 branches and 335 ATMs 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, comprehensive income, 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' 2015 Form 10-K. There have been no significant changes to the accounting policies as disclosed in Synovus' 2015 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 fair value of investment securities, the fair value of private equity investments, contingent liabilities related to legal matters, and the deferred tax assets valuation allowance.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and due from banks. At March 31, 2016 and December 31, 2015, $88 thousand and $100 thousand, respectively, of the due from banks balance was restricted as to withdrawal.
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. At March 31, 2016 and December 31, 2015, interest bearing funds with the Federal Reserve Bank included $130.2 million and $117.3 million, respectively, on deposit to meet Federal Reserve Bank requirements. Interest earning deposits with banks include $5.5 million and $2.2 million at March 31, 2016 and December 31, 2015, respectively, which is pledged as collateral in connection with certain letters of credit. Federal funds sold include $74.0 million and $65.9 million at March 31, 2016 and December 31, 2015, respectively, which are pledged to collateralize certain derivative financial instruments. Federal funds sold and securities purchased under resale agreements, and Federal funds purchased and securities sold under repurchase agreements, generally mature in one day.
Recently Adopted Accounting Standards Updates
During 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which became effective for Synovus on January 1, 2016. ASU 2015-02 was issued by the FASB to modify the analysis that companies must perform in order to determine whether a legal entity should be consolidated. ASU 2015-02 simplifies current consolidation rules by reducing the number of consolidation models; placing more emphasis on risk of loss when determining a controlling financial interest; reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a VIE; and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. Adoption of ASU 2015-02 did not have an impact on Synovus’ consolidated financial statements.

7


Reclassifications
Prior periods' consolidated financial statements are reclassified whenever necessary to conform to the current periods' presentation.
Subsequent Events
Synovus has evaluated for consideration, or disclosure, all transactions, events, and circumstances, 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 deemed appropriate within the unaudited interim consolidated financial statements.
Note 2 - Share Repurchase Program
During the third quarter of 2015, Synovus' Board of Directors authorized a $300 million share repurchase program to be completed over the next 15 months. As of March 31, 2016, Synovus had repurchased a total of $148.0 million or 5.1 million shares under the $300 million share repurchase program. During the first quarter of 2016, Synovus repurchased $110.9 million or 3.9 million shares and during the fourth quarter of 2015, Synovus repurchased $37.1 million or 1.2 million shares under the $300 million share repurchase program. At March 31, 2016, the remaining authorization under this program was $152.0 million.

8


Note 3 - Investment Securities
The amortized cost, gross unrealized gains and losses, and estimated fair values of investment securities available for sale at March 31, 2016 and December 31, 2015 are summarized below.
 
 
March 31, 2016
(in thousands)
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
 Fair Value
U.S. Treasury securities
 
$
43,147

 
559

 

 
43,706

U.S. Government agency securities
 
13,016

 
534

 

 
13,550

Securities issued by U.S. Government sponsored enterprises
 
126,305

 
297

 

 
126,602

Mortgage-backed securities issued by U.S. Government agencies
 
191,386

 
2,653

 
(143
)
 
193,896

Mortgage-backed securities issued by U.S. Government sponsored enterprises
 
2,599,118

 
24,787

 
(1,771
)
 
2,622,134

Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises
 
542,761

 
7,687

 
(393
)
 
550,055

State and municipal securities
 
3,964

 
76

 
(1
)
 
4,039

Equity securities
 
3,228

 
4,976

 

 
8,204

Other investments
 
20,194

 
286

 
(422
)
 
20,058

Total investment securities available for sale
 
$
3,543,119

 
41,855

 
(2,730
)
 
3,582,244

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
(in thousands)
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
U.S. Treasury securities
 
$
43,125

 
232

 

 
43,357

U.S. Government agency securities
 
13,087

 
536

 

 
13,623

Securities issued by U.S. Government sponsored enterprises
 
126,520

 
389

 

 
126,909

Mortgage-backed securities issued by U.S. Government agencies
 
209,785

 
1,340

 
(1,121
)
 
210,004

Mortgage-backed securities issued by U.S. Government sponsored enterprises
 
2,645,107

 
7,874

 
(22,562
)
 
2,630,419

Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises
 
530,426

 
2,396

 
(3,225
)
 
529,597

State and municipal securities
 
4,343

 
92

 
(1
)
 
4,434

Equity securities
 
3,228

 
6,444

 

 
9,672

Other investments
 
20,177

 

 
(374
)
 
19,803

Total investment securities available for sale
 
$
3,595,798

 
19,303

 
(27,283
)
 
3,587,818

 
 
 
 
 
 
 
 
 
At March 31, 2016 and December 31, 2015, investment securities with a carrying value of $2.27 billion and $2.43 billion respectively, were pledged to secure certain deposits and securities sold under repurchase agreements as required by law and contractual agreements.
Synovus has reviewed investment securities that are in an unrealized loss position as of March 31, 2016 and December 31, 2015 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 investment securities in an unrealized loss position 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 prior to the respective securities' recovery of all such unrealized losses.
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 OTTI. These factors include the length of time

9


the security has been in a loss position, the extent that the fair value is below amortized cost, and the credit standing of the issuer. As of March 31, 2016, Synovus had twenty-two investment securities in a loss position for less than twelve months and twelve investment securities in a loss position for twelve months or longer.
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 March 31, 2016 and December 31, 2015, are presented below.
 
March 31, 2016
 
Less than 12 Months
 
12 Months or Longer
 
Total
(in thousands)
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
Mortgage-backed securities issued by U.S. Government agencies

 

 
11,938

 
143

 
11,938

 
143

Mortgage-backed securities issued by U.S. Government sponsored enterprises
559,661

 
1,602

 
29,281

 
169

 
588,942

 
1,771

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

 

 
71,875

 
393

 
71,875

 
393

State and municipal securities

 

 
51

 
1

 
51

 
1

Other investments

 

 
4,771

 
422

 
4,771

 
422

    Total
$
559,661

 
1,602

 
117,916

 
1,128

 
677,577

 
2,730

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
Less than 12 Months
 
12 Months or Longer
 
Total
(in thousands)
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
Mortgage-backed securities issued by U.S. Government agencies
122,626

 
639

 
18,435

 
482

 
141,061

 
1,121

Mortgage-backed securities issued by U.S. Government sponsored enterprises
1,656,194

 
12,874

 
489,971

 
9,688

 
2,146,165

 
22,562

Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises
196,811

 
963

 
72,366

 
2,262

 
269,177

 
3,225

State and municipal securities

 

 
50

 
1

 
50

 
1

Other investments
14,985

 
15

 
4,818

 
359

 
19,803

 
374

Total
$
1,990,616

 
14,491

 
585,640

 
12,792

 
2,576,256

 
27,283

 
 
 
 
 
 
 
 
 
 
 
 

10


The amortized cost and fair value by contractual maturity of investment securities available for sale at March 31, 2016 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 March 31, 2016
(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
$
18,256

 
24,891

 

 

 

 
43,147

U.S. Government agency securities

 
6,614

 
6,402

 

 

 
13,016

Securities issued by U.S. Government sponsored enterprises
80,240

 
46,065

 

 

 

 
126,305

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

 

 
17,447

 
173,939

 

 
191,386

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

 
566

 
1,333,864

 
1,264,688

 

 
2,599,118

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

 

 

 
542,761

 

 
542,761

State and municipal securities
1,037

 
350

 

 
2,577

 

 
3,964

Equity securities

 

 

 

 
3,228

 
3,228

Other investments

 

 
15,000

 
2,000

 
3,194

 
20,194

Total amortized cost
$
99,533

 
78,486

 
1,372,713

 
1,985,965

 
6,422

 
3,543,119

 
 
 
 
 
 
 
 
 
 
 
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
18,256

 
25,450

 

 

 

 
43,706

U.S. Government agency securities

 
6,849

 
6,701

 

 

 
13,550

Securities issued by U.S. Government sponsored enterprises
80,398

 
46,204

 

 

 

 
126,602

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

 

 
17,810

 
176,086

 

 
193,896

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

 
588

 
1,341,168

 
1,280,378

 

 
2,622,134

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

 

 

 
550,055

 

 
550,055

State and municipal securities
1,049

 
352

 

 
2,638

 

 
4,039

Equity securities

 

 

 

 
8,204

 
8,204

Other investments

 

 
15,287

 
1,638

 
3,133

 
20,058

Total fair value
$
99,703

 
79,443

 
1,380,966

 
2,010,795

 
11,337

 
3,582,244

 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sales, gross gains, and gross losses on sales of securities available for sale for the three months ended March 31, 2016 and 2015 are presented below. The specific identification method is used to reclassify gains and losses out of other comprehensive income at the time of sale.
 
 
Three Months Ended March 31,
(in thousands)
 
2016
 
2015
Proceeds from sales of investment securities available for sale
 
$
243,609

 
32,419

Gross realized gains
 
954

 
725

Gross realized losses
 
(887
)
 

Investment securities gains, net
 
$
67

 
725

 
 
 
 
 

11


Note 4 - Restructuring Charges
For the three months ended March 31, 2016 and 2015, total restructuring charges consist of the following components:
 
Three Months Ended March 31,
(in thousands)
2016
 
2015
Lease termination charges
$
44

 

Asset impairment charges
1,045

 

Gain on sale of assets held for sale, net

 
(157
)
Professional fees and other charges
51

 
50

Total restructuring charges, net
$
1,140

 
(107
)
 
 
 
 
For the three months ended March 31, 2016, Synovus recorded restructuring charges of $1.1 million following the decision during the first quarter of 2016 to close four branches. During the three months ended March 31, 2015, Synovus recorded net gains of $157 thousand on the sale of certain branch locations and recorded additional expense of $50 thousand associated with branch closings that occurred during 2014.
The following table presents aggregate activity associated with accruals that resulted from restructuring charges during the three months ended March 31, 2016 and 2015:
(in thousands)
Severance Charges
 
Lease Termination Charges
 
Total
Balance at December 31, 2015
$
1,930

 
4,687

 
6,617

Accruals for lease terminations

 
44

 
44

Payments
(397
)
 
(186
)
 
(583
)
Balance at March 31, 2016
$
1,533

 
4,545

 
6,078

 
 
 
 
 
 
(in thousands)
Severance Charges
 
Lease Termination Charges
 
Total
Balance at December 31, 2014
$
3,291

 
5,539

 
8,830

Payments
(521
)
 
(221
)
 
(742
)
Balance at March 31, 2015
$
2,770

 
5,318

 
8,088

 
 
 
 
 
 
All professional fees and other charges were paid in the years that they were incurred. No other restructuring charges resulted in payment accruals.

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 March 31, 2016 and December 31, 2015.
Current, Accruing Past Due, and Non-accrual Loans
 
 
March 31, 2016
 
(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
$
5,954,011

 
9,484

 

 
9,484

 
23,749

 
5,987,244

 
1-4 family properties
1,113,140

 
3,860

 
234

 
4,094

 
17,358

 
1,134,592

 
Land acquisition
453,042

 
2,424

 

 
2,424

 
14,416

 
469,882

 
Total commercial real estate
7,520,193

 
15,768

 
234

 
16,002

 
55,523

 
7,591,718

 
Commercial, financial and agricultural
6,477,031

 
18,403

 
425

 
18,828

 
63,312

 
6,559,171

 
Owner-occupied
4,246,794

 
6,581

 
261

 
6,842

 
18,582

 
4,272,218

 
Total commercial and industrial
10,723,825

 
24,984

 
686

 
25,670

 
81,894

 
10,831,389

 
Home equity lines
1,647,483

 
5,321

 
170

 
5,491

 
16,432

 
1,669,406

 
Consumer mortgages
1,937,378

 
10,415

 
644

 
11,059

 
21,756

 
1,970,193

 
Credit cards
229,613

 
1,470

 
1,471

 
2,941

 

 
232,554

 
Other retail loans
487,023

 
2,680

 
9

 
2,689

 
2,562

 
492,274

 
Total retail
4,301,497

 
19,886

 
2,294

 
22,180

 
40,750

 
4,364,427

 
Total loans
$
22,545,515

 
60,638

 
3,214

 
63,852

 
178,167

 
22,787,534

(1 
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
(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
$
5,726,307

 
2,284

 

 
2,284

 
23,040

 
5,751,631

 
1-4 family properties
1,086,612

 
6,300

 
103

 
6,403

 
16,839

 
1,109,854

 
Land acquisition
495,542

 
639

 
32

 
671

 
17,768

 
513,981

 
Total commercial real estate
7,308,461

 
9,223

 
135

 
9,358

 
57,647

 
7,375,466

 
Commercial, financial and agricultural
6,410,338

 
12,222

 
785

 
13,007

 
49,137

 
6,472,482

 
Owner-occupied
4,293,308

 
5,254

 
95

 
5,349

 
20,293

 
4,318,950

 
Total commercial and industrial
10,703,646

 
17,476

 
880

 
18,356

 
69,430

 
10,791,432

 
Home equity lines
1,667,552

 
5,882

 

 
5,882

 
16,480

 
1,689,914

 
Consumer mortgages
1,907,644

 
8,657

 
134

 
8,791

 
22,248

 
1,938,683

 
Credit cards
237,742

 
1,663

 
1,446

 
3,109

 

 
240,851

 
Other retail loans
418,337

 
2,390

 
26

 
2,416

 
2,565

 
423,318

 
Total retail
4,231,275

 
18,592

 
1,606

 
20,198

 
41,293

 
4,292,766

 
Total loans
$
22,243,382

 
45,291

 
2,621

 
47,912

 
168,370

 
22,459,664

(2 
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Total before net deferred fees and costs of $29.3 million.
(2) Total before net deferred fees and costs of $30.1 million.







13


The credit quality of the loan portfolio is summarized no less frequently than quarterly using the standard asset classification system utilized by the federal banking agencies. These classifications are divided into three groups – Not Criticized (Pass), Special Mention, and Classified or Adverse rating (Substandard, Doubtful, and Loss) and are defined as follows:
Pass - loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell in a timely manner, of any underlying collateral.
Special Mention - loans which have potential weaknesses that deserve management's close attention. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.
Substandard - loans which are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful - loans which have all the weaknesses inherent in loans classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.
Loss - loans which are considered by management to be uncollectible and of such little value that their continuance on the institution's books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted.
In the following tables, retail loans are generally assigned a risk grade similar to the classifications described above; however, upon reaching 90 days and 120 days past due, they are generally downgraded to Substandard and Loss, respectively, in accordance with the FFIEC Uniform Retail Credit Classification and Account Management Policy. Additionally, in accordance with the Interagency Supervisory Guidance on Allowance for Loan and Lease Losses Estimation Practices for Loans and Lines of Credit Secured by Junior Liens on 1-4 Family Residential Properties, the risk grade classifications of retail loans (home equity lines and consumer mortgages) secured by junior liens on 1-4 family residential properties also consider available information on the payment status of the associated senior lien with other financial institutions.

14


Loan Portfolio Credit Exposure by Risk Grade
 
 
March 31, 2016
 
(in thousands)
Pass
 
Special
Mention
 
Substandard(1)
 
Doubtful(2)
 
Loss
 
Total
 
Investment properties
$5,810,969
 
104,404

 
71,871

 

 

 
5,987,244

 
1-4 family properties
1,011,558

 
56,557

 
59,284

 
7,193

 

 
1,134,592

 
Land acquisition
397,821

 
44,868

 
26,857

 
336

 

 
469,882

 
Total commercial real estate
7,220,348

 
205,829

 
158,012

 
7,529

 

 
7,591,718

 
Commercial, financial and agricultural
6,301,436

 
131,577

 
107,164

 
18,155

 
839

(3) 
6,559,171

 
Owner-occupied
4,083,220

 
72,771

 
114,341

 
1,427

 
459

(3) 
4,272,218

 
Total commercial and industrial
10,384,656

 
204,348

 
221,505

 
19,582

 
1,298

 
10,831,389

 
Home equity lines
1,645,741

 

 
20,906

 
1,109

 
1,650

(3) 
1,669,406

 
Consumer mortgages
1,941,082

 

 
27,167

 
1,697

 
247

(3) 
1,970,193

 
Credit cards
231,083

 

 
603

 

 
868

(4) 
232,554

 
Other retail loans
487,912

 

 
4,278

 

 
84

(3) 
492,274

 
Total retail
4,305,818

 

 
52,954

 
2,806

 
2,849

 
4,364,427

 
Total loans
21,910,822

 
410,177

 
432,471

 
29,917

 
4,147

 
22,787,534

(5 
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
(in thousands)
Pass
 
Special
Mention
 
Substandard(1)
 
Doubtful(2)
 
Loss
 
Total
 
Investment properties
$5,560,595
 
114,705

 
76,331

 

 

 
5,751,631

 
1-4 family properties
976,601

 
64,325

 
61,726

 
7,202

 

 
1,109,854

 
Land acquisition
436,835

 
46,208

 
30,574

 
364

 

 
513,981

 
Total commercial real estate
6,974,031

 
225,238

 
168,631

 
7,566

 


7,375,466

 
Commercial, financial and agricultural
6,203,481

 
152,189

 
100,658

 
13,330

 
2,824

(3) 
6,472,482

 
Owner-occupied
4,118,631

 
78,490

 
121,272

 
98

 
459

(3) 
4,318,950

 
Total commercial and industrial
10,322,112

 
230,679

 
221,930

 
13,428

 
3,283


10,791,432

 
Home equity lines
1,666,586

 

 
20,456

 
1,206

 
1,666

(3) 
1,689,914

 
Consumer mortgages
1,910,649

 

 
26,041

 
1,700

 
293

(3) 
1,938,683

 
Credit cards
239,405

 

 
480

 

 
966

(4) 
240,851

 
Other retail loans
418,929

 

 
4,315

 

 
74

(3) 
423,318

 
Total retail
4,235,569

 

 
51,292

 
2,906

 
2,999

 
4,292,766

 
Total loans
21,531,712

 
455,917

 
441,853

 
23,900

 
6,282

 
22,459,664

(6 
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Includes $288.4 million and $303.7 million of Substandard accruing loans at March 31, 2016 and December 31, 2015, respectively.
(2) The loans within this risk grade are on non-accrual status. Commercial loans generally have an allowance for loan losses in accordance with ASC 310, and retail loans generally have an allowance for loan losses equal to 50% of the loan amount.
(3) The loans within this risk grade are on non-accrual status and have an allowance for loan losses equal to the full loan amount.
(4) Represent amounts that were 120 days past due. These credits are downgraded to the Loss category with an allowance for loan losses equal to the full loan amount and are generally charged off upon reaching 181 days past due in accordance with the FFIEC Uniform Retail Credit Classification and Account Management Policy.
(5) Total before net deferred fees and costs of $29.3 million.
(6) Total before net deferred fees and costs of $30.1 million.




15


The following table details the changes in the allowance for loan losses by loan segment for the three months ended March 31, 2016 and 2015.
Allowance for Loan Losses and Recorded Investment in Loans

 
As Of and For The Three Months Ended March 31, 2016
(in thousands)
Commercial Real Estate
 
Commercial & Industrial
 
Retail
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
Beginning balance
$
87,133

 
122,989

 
42,374