10-Q 1 snv-06302016x10q.htm 10-Q Document
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 June 30, 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
 
 
 
July 31, 2016

Common Stock, $1.00 Par Value
 
 
 
122,932,237





Table of Contents
 
 
 
 
 
Page
Financial Information
 
 
 
Index of Defined Terms
 
Item 1.
Financial Statements (Unaudited)
 
 
 
Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015
 
 
Consolidated Statements of Income for the Six and Three Months Ended June 30, 2016 and 2015
 
 
Consolidated Statements of Comprehensive Income for the Six and Three Months Ended June 30, 2016 and 2015
 
 
Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended June 30, 2016 and 2015
 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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, 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)
June 30, 2016
 
December 31, 2015
ASSETS
 
 
 
Cash and cash equivalents
$
377,334

 
367,092

Interest bearing funds with Federal Reserve Bank
904,406

 
829,887

Interest earning deposits with banks
24,541

 
17,387

Federal funds sold and securities purchased under resale agreements
77,685

 
69,819

Trading account assets, at fair value
1,001

 
5,097

Mortgage loans held for sale, at fair value
87,824

 
59,275

Investment securities available for sale, at fair value
3,580,359

 
3,587,818

Loans, net of deferred fees and costs
23,060,908

 
22,429,565

Allowance for loan losses
(255,076
)
 
(252,496
)
Loans, net
$
22,805,832

 
22,177,069

Premises and equipment, net
424,967

 
445,155

Goodwill
24,431

 
24,431

Other real estate
33,289

 
47,030

Deferred tax asset, net
425,160

 
511,948

Other assets
692,862

 
650,645

Total assets
$
29,459,691

 
28,792,653

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest bearing deposits
$
6,934,443

 
6,732,970

Interest bearing deposits, excluding brokered deposits
15,495,318

 
15,434,171

Brokered deposits
1,496,161

 
1,075,520

Total deposits
23,925,922

 
23,242,661

Federal funds purchased and securities sold under repurchase agreements
247,179

 
177,025

Long-term debt
2,135,892

 
2,186,893

Other liabilities
199,039

 
185,878

Total liabilities
$
26,508,032

 
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 June 30, 2016 and December 31, 2015
125,980

 
125,980

Common stock - $1.00 par value. Authorized 342,857,143 shares; 141,007,636 issued at June 30, 2016 and 140,592,409 issued at December 31, 2015; 124,047,659 outstanding at June 30, 2016 and 129,547,032 outstanding at December 31, 2015
141,008

 
140,592

Additional paid-in capital
2,993,985

 
2,989,981

Treasury stock, at cost – 16,959,977 shares at June 30, 2016 and 11,045,377 shares at December 31, 2015
(573,058
)
 
(401,511
)
Accumulated other comprehensive gain (loss)
11,005

 
(29,819
)
Retained earnings
252,739

 
174,973

Total shareholders’ equity
2,951,659

 
3,000,196

Total liabilities and shareholders' equity
$
29,459,691

 
28,792,653

 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

1


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
Six Months Ended June 30,
 
Three Months Ended June 30,
(in thousands, except per share data)
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
      Loans, including fees
$
462,892

 
432,026

 
$
232,974

 
216,756

      Investment securities available for sale
33,655

 
28,117

 
16,685

 
14,175

      Trading account assets
34

 
224

 
12

 
117

      Mortgage loans held for sale
1,238

 
1,397

 
650

 
766

      Federal Reserve Bank balances
2,019

 
1,592

 
1,020

 
947

      Other earning assets
1,878

 
1,698

 
1,052

 
893

Total interest income
501,716

 
465,054

 
252,393

 
233,654

Interest expense:
 
 
 
 
 
 
 
Deposits
32,214

 
31,631

 
16,200

 
16,813

Federal funds purchased and securities sold under repurchase agreements
96

 
89

 
51

 
46

Long-term debt
29,763

 
26,427

 
14,693

 
13,151

Total interest expense
62,073

 
58,147

 
30,944

 
30,010

Net interest income
439,643

 
406,907

 
221,449

 
203,644

Provision for loan losses
16,070

 
11,034

 
6,693

 
6,636

Net interest income after provision for loan losses
423,573

 
395,873

 
214,756

 
197,008

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
39,950

 
38,928

 
20,240

 
19,795

Fiduciary and asset management fees
22,854

 
23,414

 
11,580

 
11,843

Brokerage revenue
13,821

 
14,032

 
7,338

 
6,782

Mortgage banking income
11,425

 
13,995

 
5,941

 
7,511

Bankcard fees
16,718

 
16,576

 
8,346

 
8,499

Investment securities gains, net
67

 
2,710

 

 
1,985

Other fee income
10,084

 
9,851

 
5,280

 
4,605

Other non-interest income
16,114

 
15,181

 
9,161

 
7,812

Total non-interest income
131,033

 
134,687

 
67,886

 
68,832

Non-interest expense:
 
 
 
 
 
 
 
Salaries and other personnel expense
198,419

 
191,054

 
97,061

 
94,565

Net occupancy and equipment expense
53,360

 
52,713

 
26,783

 
26,541

Third-party processing expense
22,814

 
21,015

 
11,698

 
10,672

FDIC insurance and other regulatory fees
13,344

 
13,725

 
6,625

 
6,767

Professional fees
13,307

 
12,011

 
6,938

 
6,417

Advertising expense
9,761

 
6,309

 
7,351

 
2,865

Foreclosed real estate expense, net
7,272

 
13,847

 
4,588

 
4,351

Loss on early extinguishment of debt
4,735

 

 

 

Restructuring charges, net
6,981

 
(102
)
 
5,841

 
5

Other operating expenses
46,851

 
46,141

 
21,726

 
25,623

Total non-interest expense
376,844

 
356,713

 
188,611

 
177,806

Income before income taxes
177,762

 
173,847

 
94,031

 
88,034

Income tax expense
64,773

 
64,091

 
33,574

 
32,242

Net income
112,989

 
109,756

 
60,457

 
55,792

Dividends on preferred stock
5,119

 
5,119

 
2,559

 
2,559

Net income available to common shareholders
$
107,870

 
104,637

 
$
57,898

 
53,233

Net income per common share, basic
$
0.85

 
0.78

 
$
0.46

 
0.40

Net income per common share, diluted
0.85

 
0.78

 
0.46

 
0.40

Weighted average common shares outstanding, basic
126,164

 
133,935

 
125,100

 
132,947

Weighted average common shares outstanding, diluted
126,778

 
134,678

 
125,699

 
133,625

 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

2


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
Six Months Ended June 30,
 
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
177,762

 
(64,773
)
 
112,989

 
173,847

 
(64,091
)
 
109,756

Net change related to cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for losses realized in net income
337

 
(130
)
 
207

 
224

 
(87
)
 
137

Net unrealized gains (losses) on investment securities available for sale:


 


 


 
 
 
 
 
 
Reclassification adjustment for net gains realized in net income
(67
)
 
26

 
(41
)
 
(2,710
)
 
1,043

 
(1,667
)
Net unrealized gains (losses) arising during the period
66,215

 
(25,493
)
 
40,722

 
(13,467
)
 
5,188

 
(8,279
)
Net unrealized gains (losses)
66,148

 
(25,467
)
 
40,681

 
(16,177
)
 
6,231

 
(9,946
)
Post-retirement unfunded health benefit:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for gains realized in net income
(104
)
 
40

 
(64
)
 
(84
)
 
32

 
(52
)
Actuarial gains arising during the period

 

 

 
236

 
(93
)
 
143

Net unrealized (realized) gains
$
(104
)
 
40

 
(64
)
 
152

 
(61
)
 
91

Other comprehensive income (loss)
$
66,381

 
(25,557
)
 
40,824

 
(15,801
)
 
6,083

 
(9,718
)
Comprehensive income
 
 
 
 
$
153,813

 
 
 
 
 
100,038

 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.


 
Three Months Ended June 30,
 
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
94,031

 
(33,574
)
 
60,457

 
88,034

 
(32,242
)
 
55,792

Net change related to cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for losses realized in net income
64

 
(25
)
 
39

 
112

 
(44
)
 
68

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

 

 

 
(1,985
)
 
764

 
(1,221
)
Net unrealized gains (losses) arising during the period
19,044

 
(7,332
)
 
11,712

 
(28,678
)
 
11,042

 
(17,636
)
Net unrealized gains (losses)
19,044

 
(7,332
)
 
11,712

 
(30,663
)
 
11,806

 
(18,857
)
Post-retirement unfunded health benefit:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for gains realized in net income
(10
)
 
4

 
(6
)
 
(42
)
 
16

 
(26
)
Actuarial gains arising during the period

 

 

 
236

 
(93
)
 
143

Net unrealized (realized) gains
$
(10
)
 
4

 
(6
)
 
194

 
(77
)
 
117

Other comprehensive income (loss)
$
19,098

 
(7,353
)
 
11,745

 
(30,357
)
 
11,685

 
(18,672
)
Comprehensive income
 
 
 
 
$
72,202

 
 
 
 
 
37,120

 
 
 
 
 
 
 
 
 
 
 
 
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

 

 

 

 

 
109,756

 
109,756

Other comprehensive loss, net of income taxes

 

 

 

 
(9,718
)
 

 
(9,718
)
Cash dividends declared on common stock -$0.20 per share

 

 

 

 

 
(26,664
)
 
(26,664
)
Cash dividends paid on Series C Preferred Stock

 

 

 

 

 
(5,119
)
 
(5,119
)
Repurchases and completion of ASR agreement to repurchase shares of common stock

 

 
14,515

 
(124,085
)
 

 

 
(109,570
)
Restricted share unit activity

 
278

 
(4,314
)
 

 

 
(367
)
 
(4,403
)
Stock options exercised

 
197

 
3,074

 

 

 

 
3,271

Share-based compensation net tax benefit

 

 
1,063

 

 

 

 
1,063

Share-based compensation expense

 

 
6,271

 

 

 

 
6,271

Balance at June 30, 2015
$
125,980

 
140,425

 
2,981,434

 
(311,859
)
 
(22,323
)
 
92,500

 
3,006,157

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
125,980

 
140,592

 
2,989,981

 
(401,511
)
 
(29,819
)
 
174,973

 
3,000,196

Net income

 

 

 

 

 
112,989

 
112,989

Other comprehensive income, net of income taxes

 

 

 

 
40,824

 

 
40,824

Cash dividends declared on common stock - $0.24 per share

 

 

 

 

 
(30,015
)
 
(30,015
)
Cash dividends paid on Series C Preferred Stock

 

 

 

 

 
(5,119
)
 
(5,119
)
Repurchases of common stock

 

 

 
(171,547
)
 

 

 
(171,547
)
Restricted share unit activity

 
298

 
(4,814
)
 

 

 
(89
)
 
(4,605
)
Stock options exercised

 
118

 
1,917

 

 

 

 
2,035

Share-based compensation net tax benefit

 

 
52

 

 

 

 
52

Share-based compensation expense

 

 
6,849

 

 

 

 
6,849

Balance at June 30, 2016
$
125,980

 
$
141,008

 
2,993,985

 
(573,058
)
 
11,005

 
252,739

 
2,951,659

 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

4


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
Six Months Ended June 30,
(in thousands)
2016
 
2015
Operating Activities
 
 
 
Net income
112,989

 
109,756

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
16,070

 
11,034

Depreciation, amortization, and accretion, net
28,506

 
28,169

Deferred income tax expense
61,283

 
58,302

Decrease in trading account assets
4,096

 
1,891

Originations of mortgage loans held for sale
(320,304
)
 
(454,708
)
Proceeds from sales of mortgage loans held for sale
299,186

 
426,430

Gain on sales of mortgage loans held for sale, net
(6,946
)
 
(8,988
)
Increase in other assets
(32,874
)
 
(36,398
)
Increase (decrease) in other liabilities
13,162

 
(34,914
)
Investment securities gains, net
(67
)
 
(2,710
)
Losses and write-downs on other real estate, net
6,089

 
11,066

Losses and write-downs on other assets held for sale, net
7,902

 

Loss on early extinguishment of debt
4,735

 

Share-based compensation expense
6,849

 
6,271

Net cash provided by operating activities
$
200,676

 
115,201

Investing Activities
 
 
 
Net increase in interest earning deposits with banks
(7,154
)
 
(6,884
)
Net (increase) decrease in federal funds sold and securities purchased under resale agreements
(7,866
)
 
623

Net increase in interest bearing funds with Federal Reserve Bank
(74,519
)
 
(567,843
)
Proceeds from maturities and principal collections of investment securities available for sale
443,128

 
314,239

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

 
82,156

Purchases of investment securities available for sale
(623,046
)
 
(686,074
)
Proceeds from sales of loans and principal repayments on other loans held for sale
7,739

 
21,866

Proceeds from sales of other real estate
16,282

 
19,348

Net increase in loans
(660,778
)
 
(445,124
)
Net increase in premises and equipment
(16,769
)
 
(8,805
)
Proceeds from sales of other assets held for sale
296

 
351

Net cash used in investing activities
$
(679,078
)
 
(1,276,147
)
 
 
 
 
Financing Activities
 
 
 
Net increase in demand and savings deposits
595,342

 
1,039,670

Net increase in certificates of deposit
87,466

 
77,813

Net increase in federal funds purchased and securities sold under repurchase agreements
70,154

 
61,369

Repayments on long-term debt
(1,455,067
)
 
(425,078
)
Proceeds from issuance of long-term debt
1,400,000

 
425,000

Dividends paid to common shareholders
(30,015
)
 
(26,664
)
Dividends paid to preferred shareholders
(5,119
)
 
(5,119
)
Stock options exercised
2,035

 
3,271

Repurchases of common stock
(171,547
)
 
(109,570
)
Restricted stock activity
(4,605
)
 
(4,403
)
Net cash provided by financing activities
$
488,644

 
1,036,289

Increase (decrease) in cash and cash equivalents
10,242

 
(124,657
)
Cash and cash equivalents at beginning of period
367,092

 
485,489

Cash and cash equivalents at end of period
$
377,334

 
360,832

 
 
 
 
 
 
 
 

5


Supplemental Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
Income tax payments, net
5,849

 
8,751

Interest paid
64,424

 
55,747

Non-cash Activities
 
 
 
Premises and equipment transferred to other assets held for sale
18,677

 
939

Loans foreclosed and transferred to other real estate
8,631

 
11,391

Loans transferred to other loans held for sale at fair value
7,314

 
19,459

Securities purchased during the period but settled after period-end

 
47,159

 
 
 
 
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. Through its 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 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 253 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 fair value of investment securities, the fair value of private equity investments, and contingent liabilities related to legal matters.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and due from banks. At June 30, 2016, there were no cash and cash equivalents restricted as to withdrawal. At December 31, 2015, $100 thousand 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 June 30, 2016 and December 31, 2015, interest bearing funds with the Federal Reserve Bank included $132.5 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 June 30, 2016 and December 31, 2015, respectively, which are pledged as collateral in connection with certain letters of credit. Federal funds sold include $75.2 million and $65.9 million at June 30, 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 June 30, 2016, Synovus had repurchased a total of $208.5 million or 7.1 million shares under the $300 million share repurchase program. Share repurchases under the program by quarter are as follows: second quarter of 2016 - $60.5 million (2.0 million shares), first quarter of 2016 - $110.9 million (3.9 million shares), and fourth quarter of 2015 - $37.1 million (1.2 million shares). At June 30, 2016, the remaining authorization under this program was $91.5 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 June 30, 2016 and December 31, 2015 are summarized below.
 
 
June 30, 2016
(in thousands)
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
 Fair Value
U.S. Treasury securities
 
$
73,741

 
1,082

 

 
74,823

U.S. Government agency securities
 
13,006

 
443

 

 
13,449

Securities issued by U.S. Government sponsored enterprises
 
50,063

 
54

 

 
50,117

Mortgage-backed securities issued by U.S. Government agencies
 
189,281

 
3,583

 
(81
)
 
192,783

Mortgage-backed securities issued by U.S. Government sponsored enterprises
 
2,544,204

 
37,817

 
(352
)
 
2,581,669

Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises
 
625,458

 
10,298

 
(142
)
 
635,614

State and municipal securities
 
3,000

 
47

 
(1
)
 
3,046

Equity securities
 
3,228

 
5,503

 

 
8,731

Other investments
 
20,210

 
333

 
(416
)
 
20,127

Total investment securities available for sale
 
$
3,522,191

 
59,160

 
(992
)
 
3,580,359

 
 
 
 
 
 
 
 
 
 
 
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 June 30, 2016 and December 31, 2015, investment securities with a carrying value of $2.19 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 June 30, 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 June 30, 2016, Synovus had five investment securities in a loss position for less than twelve months and eight 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 June 30, 2016 and December 31, 2015, are presented below.
 
June 30, 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

 

 
9,785

 
81

 
9,785

 
81

Mortgage-backed securities issued by U.S. Government sponsored enterprises
170,365

 
352

 

 

 
170,365

 
352

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

 

 
27,827

 
142

 
27,827

 
142

State and municipal securities

 

 
53

 
1

 
53

 
1

Other investments

 

 
4,794

 
416

 
4,794

 
416

    Total
$
170,365

 
352

 
42,459

 
640

 
212,824

 
992

 
 
 
 
 
 
 
 
 
 
 
 
 
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 June 30, 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 June 30, 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
$
18,758

 
54,983

 

 

 

 
73,741

U.S. Government agency securities

 
6,613

 
6,393

 

 

 
13,006

Securities issued by U.S. Government sponsored enterprises
50,063

 

 

 

 

 
50,063

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

 

 
16,261

 
173,020

 

 
189,281

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

 
454

 
1,254,247

 
1,289,503

 

 
2,544,204

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

 

 

 
625,458

 

 
625,458

State and municipal securities
184

 
350

 

 
2,466

 

 
3,000

Equity securities

 

 

 

 
3,228

 
3,228

Other investments

 

 
15,000

 
2,000

 
3,210

 
20,210

Total amortized cost
$
69,005

 
62,400

 
1,291,901

 
2,092,447

 
6,438

 
3,522,191

 
 
 
 
 
 
 
 
 
 
 
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
18,758

 
56,065

 

 

 

 
74,823

U.S. Government agency securities

 
6,800

 
6,649

 

 

 
13,449

Securities issued by U.S. Government sponsored enterprises
50,117

 

 

 

 

 
50,117

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

 

 
16,653

 
176,130

 

 
192,783

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

 
469

 
1,269,397

 
1,311,803

 

 
2,581,669

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

 

 

 
635,614

 

 
635,614

State and municipal securities
184

 
350

 

 
2,512

 

 
3,046

Equity securities

 

 

 

 
8,731

 
8,731

Other investments

 

 
15,333

 
1,625

 
3,169

 
20,127

Total fair value
$
69,059

 
63,684

 
1,308,032

 
2,127,684

 
11,900

 
3,580,359

 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sales, gross gains, and gross losses on sales of securities available for sale for the six and three months ended June 30, 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.
 
 
Six Months Ended June 30,
 
Three Months Ended June 30,
(in thousands)
 
2016
 
2015
 
2016
 
2015
Proceeds from sales of investment securities available for sale
 
$
243,609

 
82,156

 
$

 
49,737

Gross realized gains
 
954

 
2,710

 

 
1,985

Gross realized losses
 
(887
)
 

 

 

Investment securities gains, net
 
$
67

 
2,710

 
$

 
1,985

 
 
 
 
 
 
 
 
 

11


Note 4 - Restructuring Charges
For the six and three months ended June 30, 2016 and 2015, total restructuring charges consist of the following components:
 
Six Months Ended June 30,
 
Three Months Ended June 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Lease termination charges
$
31

 
(4
)
 
$
(13
)
 
(4
)
Asset impairment charges
6,866

 

 
5,821

 

Loss (gain) on sale of assets held for sale, net
13

 
(157
)
 
13

 

Professional fees and other charges
71

 
59

 
20

 
9

Total restructuring charges, net
$
6,981

 
(102
)
 
$
5,841

 
5

 
 
 
 
 
 
 
 
For the three months ended June 30, 2016, Synovus recorded restructuring charges of $5.8 million with $4.8 million of these charges related to Synovus' continued corporate real estate optimization activities. Synovus continues to evaluate its branch network while deploying additional digital and on-line capabilities to increase convenience for customers while lowering transaction costs, and identified during the second quarter three branch closures to be completed by year-end, which will be in addition to the four branches closed earlier this year.   Restructuring charges associated with branch closures identified during 2016 totaled $1.0 million and $1.1 million during the second and first quarter of 2016, respectively. After these closures, the branch network will consist of 250 locations by year-end, which will represent a 22.6% reduction from year-end 2010.  
During the six months ended June 30, 2015, Synovus recorded net gains of $157 thousand on the sale of certain branch locations.
The following tables present aggregate activity within the accrual for restructuring charges for the six and three months ended June 30, 2016 and 2015:
(in thousands)
Severance Charges
 
Lease Termination Charges
 
Total
Balance at December 31, 2015
$
1,930

 
4,687

 
6,617

Accruals for efficiency initiatives

 
31

 
31

Payments
(1,337
)
 
(343
)
 
(1,680
)
Balance at June 30, 2016
$
593

 
4,375

 
4,968

 
 
 
 
 
 
Balance at April 1, 2016
1,533

 
4,545

 
6,078

Accruals for efficiency initiatives

 
(13
)
 
(13
)
Payments
(940
)
 
(157
)
 
(1,097
)
Balance at June 30, 2016
$
593

 
4,375

 
4,968

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

 
5,539

 
8,830

Accruals for efficiency initiatives

 
(4
)
 
(4
)
Payments
(1,038
)
 
(411
)
 
(1,449
)
Balance at June 30, 2015
$
2,253

 
5,124

 
7,377

 
 
 
 
 
 
Balance at April 1, 2015
2,770

 
5,318

 
8,088

Accruals for efficiency initiatives

 
(4
)
 
(4
)
Payments
(517
)
 
(190
)
 
(707
)
Balance at June 30, 2015
$
2,253

 
5,124

 
7,377

 
 
 
 
 
 
All professional fees and other charges were paid in the quarters 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 June 30, 2016 and December 31, 2015.
Current, Accruing Past Due, and Non-accrual Loans
 
 
June 30, 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
$
5,901,061

 
5,451

 

 
5,451

 
14,149

 
5,920,661

 
1-4 family properties
1,106,507

 
3,270

 
134

 
3,404

 
17,869

 
1,127,780

 
Land acquisition
448,740

 
2,698

 
206

 
2,904

 
7,610

 
459,254

 
Total commercial real estate
7,456,308

 
11,419

 
340

 
11,759

 
39,628

 
7,507,695

 
Commercial, financial and agricultural
6,526,947

 
10,025

 
4,042

 
14,067

 
55,821

 
6,596,835

 
Owner-occupied
4,331,804

 
9,673

 

 
9,673

 
17,118

 
4,358,595

 
Total commercial and industrial
10,858,751

 
19,698

 
4,042

 
23,740

 
72,939

 
10,955,430

 
Home equity lines
1,633,322

 
6,604

 
271

 
6,875

 
16,912

 
1,657,109

 
Consumer mortgages
2,103,106

 
7,113

 

 
7,113

 
21,895

 
2,132,114

 
Credit cards
233,118

 
1,610

 
1,306

 
2,916

 

 
236,034

 
Other retail loans
594,142

 
3,308

 
5

 
3,313

 
2,698

 
600,153

 
Total retail
4,563,688

 
18,635

 
1,582

 
20,217

 
41,505

 
4,625,410

 
Total loans
$
22,878,747

 
49,752

 
5,964

 
55,716

 
154,072

 
23,088,535

(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
1,105,914

 
6,300

 
103

 
6,403

 
16,839

 
1,129,156

 
Land acquisition
495,542

 
639

 
32

 
671

 
17,768

 
513,981

 
Total commercial real estate
7,327,763

 
9,223

 
135

 
9,358

 
57,647

 
7,394,768

 
Commercial, financial and agricultural
6,391,036

 
12,222

 
785

 
13,007

 
49,137

 
6,453,180

 
Owner-occupied
4,293,308

 
5,254

 
95

 
5,349

 
20,293

 
4,318,950

 
Total commercial and industrial
10,684,344

 
17,476

 
880

 
18,356

 
69,430

 
10,772,130

 
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