Note 1 - Summary of Significant Accounting Policies
Business Operations
Synovus provides commercial and consumer banking in addition to a full suite of specialized products and services including private banking, treasury management, wealth management, mortgage services, premium finance, asset-based lending, structured lending, and international banking to its clients through its wholly-owned subsidiary bank, Synovus Bank, primarily in offices located throughout Alabama, Florida, Georgia, South Carolina and Tennessee.
In addition to our banking operations, we also provide various other financial planning and investment advisory services to our clients through direct and indirect wholly-owned non-bank subsidiaries, including: Synovus Securities, headquartered in Columbus, Georgia, which specializes in professional portfolio management for fixed-income securities, investment banking, the execution of securities transactions as a broker/dealer, and the provision of individual investment advice on equity and other securities; and Synovus Trust, headquartered in Columbus, Georgia, which provides trust, asset management, and financial planning services.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements of Synovus include the accounts of the Parent Company and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies of Synovus are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Prior period consolidated financial statements are reclassified whenever necessary to conform to the current period presentation. No reclassifications of prior period balances were material to the consolidated financial statements unless specifically disclosed.
The Company’s consolidated financial statements include all entities in which the Company has a controlling financial interest. A VIE for which Synovus or a subsidiary has been determined to be the primary beneficiary is also consolidated. The determination of whether a controlling financial interest exists is based on whether a single party has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb the losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Investments in VIEs where Synovus is not the primary beneficiary are accounted for using either the proportional amortization method or equity method of accounting. The Company uses the hypothetical liquidation at book value (HLBV) method for equity investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership interests.
Investments in VIEs are included in other assets on the consolidated balance sheets, and the Company's proportionate share of income or loss is included as either a component of income tax expense (proportional amortization method) or non-interest income (equity method). The maximum potential exposure to losses relative to investments in VIEs is generally limited to the sum of the outstanding balance, future funding commitments and any related loans to the entity. The assessment of whether or not the Company has a controlling interest (i.e., the primary beneficiary) in a VIE is performed on an on-going basis. Refer to "Part II - Item 8. Financial Statements and Supplementary Data - Note 14 - Commitments and Contingencies" of this Report for additional details regarding Synovus' involvement with VIEs.
Immaterial Correction of Prior Period Financial Statements
During the third quarter of 2021, the Company made corrections to proceeds and purchases of investment securities available for sale by adjusting for the impact of timing differences associated with unsettled trades that crossed certain reporting periods. The Company concluded that the corrections were not material to any prior or current periods from a combined qualitative and quantitative perspective.
A summary of corrections is presented below.
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Corrected Consolidated Statement of Cash Flows | | |
(unaudited) | | | | | |
| Year Ended December 31, 2020 |
(in thousands) | As Reported | | Adjustment | | As Corrected |
| | | | | |
Investing Activities | | | | | |
Proceeds from sales of investment securities available for sale | $ | 4,054,670 | | | $ | (1,404,984) | | | $ | 2,649,686 | |
Purchases of investment securities available for sale | (7,441,163) | | | 1,404,984 | | | (6,036,179) | |
Net cash used in investing activities | $ | 2,352,973 | | | $ | — | | | $ | 2,352,973 | |
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Use of Estimates
In preparing the 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 revenue and expense 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 ACL, estimates of fair value, income taxes, and contingent liabilities.
Business Combinations
Assets and liabilities acquired in business combinations are recorded at their acquisition date fair values, except as provided for by the applicable accounting guidance, with any excess recorded as goodwill. The results of operations of the acquired company are combined with Synovus’ results from the acquisition date forward. In accordance with ASC Topic 805, Business Combinations, the Company generally records provisional amounts at the time of acquisition based on the information available to the Company. The provisional estimates of fair values may be adjusted for a period of up to one year (“measurement period”) from the date of acquisition if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Subsequent to the acquisition date, adjustments recorded during the measurement period are recognized in the current reporting period. Acquisition costs are expensed when incurred.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents consist of cash and due from banks as well as interest-bearing funds with Federal Reserve Bank, interest earning deposits with banks, and federal funds sold and securities purchased under resale agreements, which are inclusive of any restricted cash and restricted cash equivalents. On March 15, 2020, the Federal Reserve Board announced that, effective March 26, 2020, it would reduce reserve requirement ratios to zero percent for all depository institutions. Cash and cash equivalents included $65.1 million at December 31, 2021 and $158.7 million at December 31, 2020, which were pledged to collateralize certain derivative instruments and letters of credit.
Investment Securities Available for Sale
Investment securities available for sale are carried at fair value with unrealized gains and losses, net of the related tax effect, excluded from earnings and reported as a separate component of shareholders' equity within accumulated other comprehensive income (loss) until realized.
For investment securities available for sale in an unrealized loss position, if Synovus has an intention to sell the security, or it is more likely than not that the security will be required to be sold prior to recovery, the security is written down to its fair value. The write down is charged against the ACL with any additional impairment recorded in earnings. If the aforementioned criteria are not met, Synovus performs a quarterly assessment of its available for sale debt securities to determine if the decline in fair value of a security below its amortized cost is related to credit losses or other factors. Management considers the extent to which fair value is less than amortized cost, the issuer of the security, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. In assessing whether credit-related impairment exists, the present value of cash flows expected to be collected from the security is compared to the security's amortized cost. If the present value of cash flows expected to be collected is less than the security's amortized cost basis, the difference is attributable to credit losses. For such differences, Synovus records an ACL with an offset to provision for credit losses. Synovus limits the ACL recorded to the amount the security's fair value is less than the amortized cost basis. Impairment losses related to other factors are recognized in other comprehensive income (loss).
Interest income on securities available for sale is recorded on the accrual basis. Accrued interest on available for sale debt securities is excluded from the ACL determination and is recognized within other assets on the consolidated balance sheets. Available for sale debt securities are placed on non-accrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status. Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.
Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method unless the premium is related to callable debt securities. For these securities, the amortization period is shortened to the earliest call date.
Realized gains and losses for securities are included in investment securities gains (losses), net, on the consolidated statements of income and are derived using the specific identification method, on a trade date basis.
Mortgage Loans Held for Sale and Mortgage Banking Income
Mortgage Loans Held for Sale
Mortgage loans held for sale are initially measured at fair value under the fair value option election with subsequent changes in fair value recognized in mortgage banking income on the consolidated statements of income.
Mortgage Banking Income
Mortgage banking income consists primarily of origination and ancillary fees on mortgage loans originated for sale, and gains and losses from the sale of those loans. Mortgage loans are sold servicing released, without recourse or continuing involvement, and meet ASC Topic 860, Transfers and Servicing criteria for sale accounting.
Other Loans Held for Sale
Other loans held for sale are carried at the lower of cost or estimated fair value.
Loans Held for Investment and Interest Income
Loans the Company has the intent and ability to hold for the foreseeable future are reported at principal amounts outstanding less amounts charged off, net of deferred fees and costs, and purchase premium/discount. Interest income is recognized on a level yield basis.
Non-accrual Loans
Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest is discontinued on loans when reasonable doubt exists as to the full collection of interest or principal, or when loans become contractually past due for 90 days or more as to either interest or principal, in accordance with the terms of the loan agreement, unless they are both well-secured and in the process of collection. When a loan is placed on non-accrual status, previously accrued and uncollected interest is reversed as an adjustment to interest income on loans. Interest payments received on non-accrual loans are generally recorded as a reduction of principal. As payments are received on non-accruing loans, interest income can be recognized on a cash basis; however, there must be an expectation of full repayment of the remaining recorded principal balance. The remaining portion of this payment is recorded as a reduction to principal. Loans are generally returned to accruing status when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest, and the borrower has sustained repayment performance under the terms of the loan agreement for a reasonable period of time (generally six months).
Troubled Debt Restructurings
When borrowers are experiencing financial difficulties, Synovus may, in order to assist the borrowers in repaying the principal and interest owed to Synovus, make certain modifications to the borrower's loan. All loan modifications, renewals, and refinances are evaluated for TDR classification. The ALL on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate, and not the rate specified with the restructuring, is used to discount the expected cash flows. Concessions provided by Synovus in a TDR are generally made in order to assist borrowers so that debt service is not interrupted and to mitigate the potential for loan losses. A number of factors are reviewed when a loan is renewed, refinanced, or modified, including cash flows, collateral values, guarantees, and loan structures. Concessions are primarily in the form of providing a below market interest rate given the borrower's credit risk to assist the borrower in managing cash flows, an extension of the maturity of the loan generally for less than one year, or a period of time generally less than one year with a reduction of required principal and/or interest payments (e.g., interest only for a period of time). Insignificant periods of reduction of principal and/or interest payments, or short-term deferrals, are generally not considered to be financial concessions. Further, it is generally Synovus' practice not to defer principal and/or interest for more than twelve months.
Non-accruing TDRs may generally be returned to accrual status if there has been a period of performance, usually at least a six-month sustained period of repayment performance in accordance with the agreement. In the fiscal year subsequent to a loan's initial reporting as a TDR, a TDR for a borrower who is no longer experiencing financial difficulty (as evidenced by a period of performance), which yields a market rate of interest at the time of a renewal, and for which no principal was forgiven, is no longer considered a TDR.
Concentrations of Credit Risk
A substantial portion of the loan portfolio is secured by real estate in markets located throughout Alabama, Florida, Georgia, South Carolina and Tennessee. Accordingly, the ultimate collectability of a substantial portion of the loan portfolio is susceptible to changes in market conditions in these areas.
Loan Origination Fees and Costs
Loan origination fees and direct loan origination costs are deferred and amortized to net interest income over the life of the related loan or over the commitment period as a yield adjustment.
Allowance for Credit Losses (ACL)
On January 1, 2020, Synovus adopted ASU 2016-13 (and all subsequent ASUs on this topic, collectively, ASC 326), which replaced the existing incurred loss impairment guidance with an expected credit loss methodology (referred to as CECL). CECL requires management’s estimate of credit losses over the full remaining expected life of loans and other financial instruments and for Synovus, applies to loans, unfunded loan commitments, accrued interest receivable, and available for sale debt securities. Upon adoption, Synovus applied the modified retrospective approach and recorded an after-tax cumulative-effect adjustment to beginning retained earnings for non-PCD assets (formerly non-PCI assets) and unfunded commitments of $35.7 million. Additionally, an initial estimate of expected credit losses on PCD assets (formerly PCI or ASC 310-30) was recognized with an offset to the cost basis of the related loans of $62.2 million. As permitted by transition guidance, Synovus did not reassess whether PCI assets met the criteria of PCD assets as of the adoption date. The remaining non-credit discount (based on the adjusted amortized cost basis) will be accreted into interest income. Results for reporting periods after adoption are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.
The following table illustrates the impact of ASC 326 adoption:
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| As of January 1, 2020 |
in thousands | Pre-ASC 326 Adoption | | Impact of ASC 326 Adoption | | As Reported under ASC 326 |
Assets | | | | | |
Allowance for loan losses: | | | | | |
Commercial and industrial | $ | 145,782 | | | $ | (2,310) | | | $ | 143,472 | |
Commercial real estate | 67,430 | | | (651) | | | 66,779 | |
Consumer | 68,190 | | | 85,955 | | | 154,145 | |
Total allowance for loan losses | $ | 281,402 | | | $ | 82,994 | | | $ | 364,396 | |
Liabilities | | | | | |
Reserve for unfunded commitments | $ | 1,375 | | | $ | 27,440 | | | $ | 28,815 | |
Allowance for credit losses | $ | 282,777 | | | $ | 110,434 | | | $ | 393,211 | |
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The following table illustrates the distribution of the ASC 326 adoption impact to loans and equity:
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| As of January 1, 2020 |
in thousands | Pre-ASC 326 Adoption | | Impact of ASC 326 Adoption | | As Reported under ASC 326 |
Loans, net | $ | 36,881,048 | | | $ | (20,767) | | | $ | 36,860,281 | |
Retained earnings | 1,068,327 | | | (35,721) | | | 1,032,606 | |
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Allowance for Loan Losses (ALL)
The ALL on loans held for investment represents management's estimate of credit losses expected over the life of the loans included in Synovus' existing loans held for investment portfolio. Changes to the allowance are recorded through a provision for credit losses and reduced by loans charged-off, net of recoveries. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain.
Accrued but uncollected interest is recorded in other assets on the consolidated balance sheets. In general, the Company does not record an ACL for accrued interest receivables as allowable per ASC 326-20-30-5A as Synovus' non-accrual policies result in the timely write-off of accrued but uncollected interest.
Credit loss measurement
Synovus' loan loss estimation process includes procedures to appropriately consider the unique characteristics of its loan portfolio segments (C&I, CRE and consumer). These segments are further disaggregated into loan classes, the level at which credit quality is assessed and monitored (as described in the subsequent sections).
The ALL is measured on a collective (pool) basis when similar risk characteristics exist. Loans are grouped based upon the nature of the loan type and are further segregated based upon the methods for risk assessment. Credit loss assumptions are primarily estimated using a DCF model applied to the aforementioned loan groupings. This model calculates an expected life-of-loan loss percentage for each loan category by considering the forecasted PD, which is the probability that a borrower will default, adjusted for relevant forecasted macroeconomic factors comprising multiple weighted scenarios representing different plausible outcomes, and LGD, which is the estimate of the amount of net loss in the event of default.
Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments and curtailments when appropriate. Management's determination of the contract term excludes expected extensions, renewals, and modifications unless either of the following applies: there is a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower, or an extension or renewal option is included in the contract at the reporting date that is not unconditionally cancellable by Synovus.
To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made (which is two years for Synovus), the Company reverts, on a straight-line basis back to the historical rates over a one year period.
Life-of-loan loss percentages may also be adjusted, as necessary, for certain quantitative and qualitative factors that in management's judgment are necessary to reflect losses expected in the portfolio. These adjustments address inherent limitations in the quantitative model including uncertainty and limitations, among others.
The above reflects the ALL estimation process for most commercial and consumer sub-pools. In some cases, Synovus may apply other acceptable loss rate models to smaller sub-pools.
Loans that do not share risk characteristics are individually evaluated on a loan by loan basis with specific reserves, if any, recorded as appropriate. Specific reserves are determined based on two methods: discounted cash flow based upon the loan's contractual effective interest rate or at the fair value of the collateral, less costs to sell if the loan is collateral-dependent.
For individually evaluated loans, under the DCF method, resulting expected credit losses are recorded as a specific reserve with a charge-off for any portion of the expected credit loss that is determined not to be recoverable. The reserve is reassessed each quarter and adjusted as appropriate based on changes in estimated cash flows. Additionally, where guarantors are determined to be a source of repayment, an assessment of the guarantee is required. This guarantee assessment would include, but not be limited to, factors such as type and feature of the guarantee, consideration for the guarantor's financial strength and capacity to service the loan in combination with the guarantor's other financial obligations as well as the guarantor's willingness to assist in servicing the loan.
For individually evaluated loans, if the loan is collateral-dependent, then the fair value of the loan's collateral, less estimated selling costs, is compared to the loan's carrying amount to determine impairment. Fair value is estimated using appraisals performed by a certified or licensed appraiser. Management also considers other factors or recent developments, such as changes in absorption rates or market conditions at the time of valuation, selling costs and anticipated sales values, taking into account management's plans for disposition, which could result in adjustments to the fair value estimates indicated in the appraisals. The assumptions used in determining the amount of the impairment are subject to significant judgment. Use of different assumptions, for example, changes in the fair value of the collateral or management's plans for disposition could have a significant impact on the amount of impairment.
Purchased Loans with Credit Deterioration
Purchased loans are evaluated upon acquisition in order to determine if the loan, or pool of loans, has experienced more-than-insignificant deterioration in credit quality since origination or issuance. In the performance of this evaluation, Synovus considers migration of the credit quality of the loans at origination in comparison to the credit quality at acquisition.
Purchased loans classified as PCD are recognized in accordance with ASC 326-20-30, whereby the amortized cost basis of the PCD asset is ‘grossed-up’ by the initial estimate of credit losses with an offset to the ALL. This acquisition date allowance has no income statement effect. Post-acquisition, any changes in estimates of expected credit losses are recorded through the provision for credit losses. Non-credit discounts or premiums are accreted or amortized, respectively into interest income using the interest method.
Loans formerly accounted for as purchased credit-impaired in accordance with ASC 310-30 were automatically transitioned to PCD classification. The Company did not maintain ASC 310-30 pools. PCD loans were integrated into existing pool structures based upon the nature of the loan type and are further segregated based upon the individual loan risk ratings as noted above.
The accounting treatment for purchased loans classified as non-PCD is the same as loans held for investment as detailed in the above section.
Allowance for Credit Losses on Off-balance-sheet Credit Exposures
Synovus maintains a separate ACL for off-balance-sheet credit exposures, including unfunded loan commitments, unless the associated obligation is unconditionally cancellable by the Company. This allowance is included in other liabilities on the consolidated balance sheets with associated expense recognized as a component of the provision for credit losses on the consolidated statements of income. The reserve for off-balance-sheet credit exposures considers the likelihood that funding will occur and estimates the expected credit losses on resulting commitments expected to be funded over their estimated life using the estimated loss rates on loans held for investment.
Commercial Loans - Risk Ratings
Synovus utilizes two primary methods for risk assessment of the commercial loan portfolio: SRR Assessment and DRR Assessment. DRR is a statistical model approach to risk rating that includes a PD and a LGD. The SRR model is an expert judgment based model that results in a blended (i.e. single) rating. The single and dual risk ratings are based on the borrowers' credit risk profile, considering factors such as debt service history, current and estimated prospective cash flow information, collateral supporting the credit, source of repayment as well as other variables, as appropriate.
Each loan is assigned a risk rating during its initial approval process. For SRR loans, this process begins with a loan rating recommendation from the loan officer responsible for originating the loan. Commercial SRR loans are graded on a 10-point scale and include classifications of special mention, substandard, doubtful, and loss consistent with bank regulatory classifications. The primary determinants of the risk ratings for commercial SRR loans are the reliability of the primary source of repayment and the borrower's expected performance (i.e., the likelihood that the borrower will be able to service its obligations in accordance with the terms). Expected performance is based upon a full analysis of the borrower's historical financial results, current financial strength and future prospects, which includes any external drivers.
The DRR methodology is used for larger relationships within the C&I loan portfolio as well as certain IPRE loans. At December 31, 2021 and 2020, approximately 41% and 40% of total commercial loans were rated using the DRR methodology, respectively. The DRR includes sixteen PD categories.
The loan rating (for both SRR and DRR loans) is subject to approvals from other members of management, regional credit and/or loan committees depending on the size of the loan and credit attributes. Loan ratings are regularly re-evaluated based upon annual scheduled credit reviews or on a more frequent basis if determined prudent by management. Additionally, an independent loan review function evaluates Synovus' risk rating processes on a continuous basis.
Consumer Loans – Risk Ratings
Consumer loans are subject to uniform lending policies and consist primarily of loans with strong borrower credit scores. Synovus makes consumer lending decisions based upon a number of key credit risk determinants including FICO scores as well as loan-to-value and debt-to-income ratios. Consumer loans are generally assigned a risk rating on a 9-point scale based on credit bureau scores, with a loan grade of 1 assigned as the lowest level of risk and a loan grade of 6 as the highest level of risk. No loans graded higher than 6 at origination are approved for funding. At 90-119 days past due, a loan grade of 7-substandard non-accrual is applied and at 120 days past due, the loan is generally downgraded to grade 9-loss or is charged-off. The consumer loan portfolio is sent on a quarterly basis to a consumer credit reporting agency for a refresh of clients' credit scores so that management can evaluate ongoing consistency or negative migration in the quality of the portfolio. Revolving lines of credit are reviewed for a material change in financial circumstances and, when appropriate, the line of credit may be suspended for further advances. FICO scores within the residential real estate portfolio have generally remained stable over the last several years.
The Allowance for Loan Losses, for periods before 2020, was established as follows:
a.Impaired loans were generally evaluated on a loan by loan basis with specific reserves, if any, recorded as appropriate. Specific reserves were determined based on ASC 310-10-35, which provided for measurement of a loan's impairment based on one of three methods: i) discounted cash flow based upon the loan's contractual effective interest rate, ii) at the loan's observable market price, or iii) at the fair value of the collateral, less costs to sell if the loan was collateral-dependent.
b.For loans that were not considered impaired, the allocated allowance for loan losses was calculated consistent with ASC 450, and determined based upon EL factors, which were applied to groupings of specific loan types by loan risk ratings. Allocated EL factors were also adjusted, as necessary, for certain qualitative factors that in management's judgment were necessary to reflect losses incurred in the portfolio.
Transfers of Financial Assets
Transfers of financial assets in which Synovus has surrendered control over the transferred assets are accounted for as sales. Control over transferred assets is considered to be surrendered when 1) the assets have been legally isolated from Synovus or any consolidated affiliates, even in bankruptcy or other receivership, 2) the transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and provide more than a trivial benefit to Synovus, and 3) Synovus does not maintain effective control over the transferred assets. If the transfer is accounted for as a sale, the transferred assets are derecognized from the balance sheet and a gain or loss on sale is recognized on the consolidated statements of income. If the sale criteria are not met, the transfer is accounted for as a secured borrowing and the transferred assets remain on Synovus' consolidated balance sheets and the proceeds from the transaction are recognized as a liability.
Cash Surrender Value of Bank-Owned Life Insurance
Investments in bank-owned life insurance policies on certain current and former officers and employees of Synovus are recorded at the net realizable value of the policies. Net realizable value is the cash surrender value of the policies less any applicable surrender charges and any policy loans. Synovus has not borrowed against the cash surrender value of these policies. Changes in the cash surrender value of the policies as well as proceeds from insurance benefits are recorded in income from bank-owned life insurance on the consolidated statements of income.
Premises, Equipment and Software
Premises, equipment and software including bank owned branch locations and leasehold improvements are reported at cost, less accumulated depreciation and amortization, which are computed using the straight-line method over the estimated useful lives of the related assets. Buildings and improvements are depreciated over an average of 10 to 40 years, while furniture, equipment, and software are depreciated and amortized over a range of 3 to 10 years. Synovus capitalizes certain costs associated with the acquisition or development of internal-use software. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the software’s expected useful life over a range of the lesser of contract terms or 3 to 7 years. Leasehold improvements are depreciated over the shorter of the estimated useful life or the remainder of the lease term. Synovus reviews long-lived assets, such as premises and equipment, for impairment whenever events and circumstances indicate that the carrying amount of an asset may not be recoverable. Maintenance and repairs are charged to non-interest expense and improvements that extend the useful life of the asset are capitalized to the asset's carrying value and depreciated.
Goodwill and Other Intangible Assets
Goodwill represents the excess purchase price over the fair value of identifiable net assets of acquired businesses. Goodwill is tested for impairment at the reporting unit level, equivalent to a business segment or one level below. Synovus performs its annual evaluation of goodwill impairment during the fourth quarter of each year and as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Refer to "Part II - Item 8. Financial Statements and Supplementary Data - Note 5 - Goodwill and Other Intangible Assets" of this Report for details of the evaluation.
Other intangible assets relate primarily to a core deposit intangible and borrower relationships resulting from business acquisitions. The core deposit intangible is amortized over its estimated useful life of approximately ten years utilizing an accelerated method. The remaining intangible assets are amortized using straight line methods based on the remaining lives of the assets with amortization periods ranging from eight to ten years. Amortization periods for intangible assets are monitored to determine if events and circumstances require such periods to be reduced.
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of the intangible assets is measured by a comparison of the asset's carrying amount to future undiscounted cash flows expected to be generated by the asset. Any resulting impairment is measured by the amount by which the carrying value exceeds the fair value of the asset (based on the undiscounted cash flows expected to be generated by the asset).
Segment Disclosures
ASC Topic 280, Segment Reporting, requires information be reported about a company’s operating segments using a “management approach.” Reportable segments are identified as those revenue-producing components for which discrete financial information is produced internally and which are subject to evaluation by the chief operating decision maker in making resource allocation decisions. Based on this guidance, Synovus identified three major reportable business segments: Community Banking, Wholesale Banking, and Financial Management Services (FMS), with functional activities such as treasury, technology, operations, marketing, finance, enterprise risk, legal, human resources, corporate communications, executive management, among others, included in Treasury and Corporate Other. Refer to "Part II - Item 8. Financial Statements and Supplementary Data - Note 17 - Segment Reporting" of this Report for additional details. The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable segment may be periodically revised.
Other Assets
Other assets include ROU assets, FRB and FHLB stock, derivative asset positions, net deferred tax assets, accrued interest receivable and investments in tax credits, other investments, and other balances as shown in "Part II - Item 8. Financial Statements and Supplementary Data - Note 6 - Other Assets" of this Report.
As a member of the Federal Reserve System, Synovus is currently required to purchase and hold shares of capital stock in the Federal Reserve Bank of Atlanta (recorded at amortized cost, which approximates fair value, of $143.7 million and $142.5 million at December 31, 2021 and 2020, respectively) in an amount equal to the greater of 6% of its capital and surplus or 0.6%
of deposits. As a member of the FHLB, Synovus is also required to purchase and hold shares or capital stock in the FHLB (recorded at amortized cost, which approximates fair value, of $16.2 million and $15.0 million at December 31, 2021 and 2020, respectively) in an amount equal to its membership base investment plus an activity-based investment determined according to the level of outstanding FHLB advances.
Derivative Instruments
Synovus’ risk management policies emphasize the management of interest rate risk within acceptable guidelines. Synovus’ objective in maintaining these policies is to limit volatility in net interest income arising from changes in interest rates. Risks to be managed include both fair value and cash flow risks. Utilization of derivative financial instruments provides a valuable tool to assist in the management of these risks.
All derivative instruments are recorded on the consolidated balance sheets at their respective fair values, net of variation margin payments, as components of other assets and other liabilities. The accounting for changes in fair value (i.e., unrealized gains or losses) of a derivative instrument depends on whether it qualifies and has been designated as part of a hedging relationship in accordance with ASC Topic 815, Derivatives and Hedging. Synovus formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items.
Fair value hedges - If the hedged exposure is a fair value exposure, the unrealized gain or loss on the derivative instrument is recognized in earnings in the period of change, in the same income statement line as the offsetting unrealized loss or gain on the hedged item attributable to the risk being hedged. When a fair value hedge is discontinued, the remaining cumulative adjustments to the hedged item and accumulated amounts in OCI are accounted for in the same manner as other components of the carrying amount of the asset or liability. If the hedged item is derecognized, the accumulated amounts in OCI are immediately reclassified to net income.
Cash flow hedges - If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of accumulated other comprehensive income (loss), net of the tax impact, and subsequently reclassified into earnings when the hedged transaction affects earnings with the impacts recorded in the same income statement line item used to present the earnings effect of the hedged item. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions are still expected to affect earnings. If, however, it is probable the forecasted transactions will no longer occur, the accumulated amounts in OCI at the de-designation date are immediately recognized in earnings.
If the derivative instrument is not designated as a hedge, the gain or loss on the derivative instrument is recognized in earnings as a component of other non-interest revenue on the consolidated statements of income in the period of change.
Synovus also holds derivative instruments, which consist of interest rate lock agreements related to expected funding of fixed-rate mortgage loans to clients (interest rate lock commitments) and forward commitments to sell mortgage-backed securities and individual fixed-rate mortgage loans. Synovus’ objective in obtaining the forward commitments is to mitigate the interest rate risk associated with the interest rate lock commitments and the mortgage loans that are held for sale. Both the interest rate lock commitments and the forward commitments are reported at fair value, with adjustments recorded in current period earnings in mortgage banking income.
Synovus also enters into interest rate swap agreements to facilitate the risk management strategies of certain commercial banking clients. Synovus mitigates this risk by entering into equal and offsetting interest rate swap agreements with highly rated third-party financial institutions. The interest rate swap agreements are free-standing derivatives and are recorded at fair value with any unrealized gain or loss recorded in current period earnings in other non-interest revenue. These instruments, and their offsetting positions, are recorded in other assets and other liabilities on the consolidated balance sheets.
Non-interest Revenue
Synovus' contracts with clients generally do not contain terms that require significant judgment to determine the amount of revenue to recognize. Synovus' policies for recognizing non-interest revenue within the scope of ASC Topic 606, Revenue from Contracts with Customers, including the nature and timing of such revenue streams, are included below.
Service Charges on Deposit Accounts: Revenue from service charges on deposit accounts is earned through cash management, wire transfer, and other deposit-related services, as well as overdraft, NSF, account management and other deposit-related fees. Revenue is recognized for these services either over time, corresponding with deposit accounts' monthly cycle, or at a point in time for transaction-related services and fees. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to clients' accounts.
Fiduciary and Asset Management Fees: Fiduciary and asset management fees are primarily comprised of fees earned from the management and administration of trusts and other client assets. Synovus' performance obligation is generally satisfied over
time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month-end through a direct charge to clients' accounts. Synovus does not earn performance-based incentives.
Card Fees: Card fees consist primarily of interchange fees from consumer credit and debit cards processed by card association networks, as well as merchant discounts, and other card-related services. Interchange rates are generally set by the credit card associations and based on purchase volumes and other factors. Interchange fees and merchant discounts are recognized concurrently with the delivery of service on a daily basis as transactions occur. Payment is typically received immediately or in the following month. Card fees are reported net of certain associated expense items including loyalty program expense and network expense.
Brokerage Revenue: Brokerage revenue consists primarily of commissions. Additionally, brokerage revenue includes advisory fees earned from the management of client assets. Transactional revenues are based on the size and number of transactions executed at the client's direction and are generally recognized on the trade date with payment received on the settlement date. Advisory fees for brokerage services are recognized and collected monthly and are based upon the month-end market value of the assets under management at a rate predetermined in the contract.
Capital Markets Income (within the scope of ASC Topic 606): Investment banking income, a component of capital markets income, is comprised primarily of securities underwriting fees and remarketing fees. Synovus assists corporate clients in raising capital by offering equity or debt securities to potential investors. The transaction fees are based on a percentage of the total transaction amount. The underwriting and remarketing fees are recognized on the trade date when the securities are sold to third-party investors with payment received on the settlement date.
Insurance Revenue (included in other non-interest revenue on the consolidated statements of income): Insurance revenue primarily consists of commissions received on annuity and life product sales. The commissions are recognized as revenue when the client executes an insurance policy with the insurance carrier. In some cases, Synovus receives payment of trailing commissions each year when the client pays its annual premium.
Other Fees (included in other non-interest revenue on the consolidated statements of income): Other fees within the scope of ASC Topic 606 primarily consist of revenue generated from safe deposit box rental fees and lockbox services. Fees are recognized over time, on a monthly basis, as Synovus' performance obligation for services is satisfied. Payment is received upfront for safe deposit box rentals and in the following month for lockbox services.
Income Taxes
Synovus is a domestic corporation that files a consolidated federal income tax return with its wholly-owned subsidiaries and files state income tax returns on a consolidated or separate entity basis with the various taxing jurisdictions based on its taxable presence. The current income tax payable or receivable is an estimate of the amounts currently owed to or due from taxing authorities in which Synovus conducts business. It also includes increases and decreases in the amount of taxes payable for uncertain tax positions reported in tax returns for the current and/or prior years.
Synovus uses the asset and liability method to account for future income taxes expected to be paid or received (i.e., deferred income taxes). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement (GAAP) carrying amounts of existing assets and liabilities and their respective tax bases, including operating losses and tax credit carryforwards. The deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance is required for deferred tax assets if, based on available evidence, it is more likely than not that all or some portion of the asset will not be realized. In making this assessment, all sources of taxable income available to realize the deferred tax asset are considered, including taxable income in prior carryback years, future reversals of existing temporary differences, tax planning strategies, and future taxable income exclusive of reversing temporary differences and carryforwards. The predictability that future taxable income, exclusive of reversing temporary differences, will occur is the most subjective of these four sources. Changes in the valuation allowance are recorded through income tax expense.
Significant estimates used in accounting for income taxes relate to the valuation allowance for deferred tax assets, estimates of the realizability of income tax credits, utilization of NOLs, the determination of taxable income, and the determination of temporary differences between book and tax bases.
Synovus accrues tax liabilities for uncertain income tax positions based on current assumptions regarding the expected outcome by weighing the facts and circumstances available at the reporting date. If related tax benefits of a transaction are not more likely than not of being sustained upon examination, Synovus will accrue a tax liability or reduce a deferred tax asset for the expected tax impact associated with the transaction. Events and circumstances may alter the estimates and assumptions used
in the analysis of its income tax positions and, accordingly, Synovus' effective tax rate may fluctuate in the future. Synovus recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense.
Share-based Compensation
Synovus has a long-term incentive plan under which the Compensation and Human Capital Committee of the Board of Directors has the authority to grant share-based awards to Synovus employees. Synovus' share-based compensation costs associated with employee grants are recorded as a component of salaries and other personnel expense on the consolidated statements of income. Share-based compensation costs associated with grants made to non-employee directors of Synovus are recorded as a component of other operating expense. Vesting for grants of share-based awards granted to Synovus employees accelerates upon retirement for plan participants who have reached age 65 and who also have no less than ten years of service at the date of their election to retire. Share-based compensation expense for service-based awards that contain a graded vesting schedule is recognized net of estimated forfeitures for plan participants on a straight-line basis over the shorter of the requisite service period for the entire award or the period until reaching retirement eligibility. The non-employee director restricted share units become fully vested and transferable upon the earlier to occur of the completion of three years of service or the date the holder reaches the mandatory retirement age, as set forth in the Company's Corporate Governance Guidelines. Thus, share-based compensation expense for non-employee awards is recognized over the shorter of three years or mandatory retirement. Synovus records all tax effects associated with share-based compensation through the income statement.
Earnings per Share
Basic net income per common share is computed by dividing net income available to common shareholders by the average common shares outstanding for the period. Diluted net income per common share reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted. The dilutive effect of outstanding options and restricted share units is reflected in diluted net income per common share, unless the impact is anti-dilutive, by application of the treasury stock method.
Share Repurchases
Common stock repurchases are recorded at cost. At the date of repurchase, shareholders' equity is reduced by the repurchase price and includes commissions and other transaction expenses that arise from the repurchases. The Company has not historically retired shares repurchased, but Synovus' policy is to record retirement of shares in accordance with ASC 505-30-30. If treasury shares are subsequently reissued, treasury stock is reduced by the cost of such stock with differences between cost and the re-issuance date fair value recorded in additional paid-in capital or retained earnings, as applicable.
Fair Value Measurements and Disclosures
Synovus carries various assets and liabilities at fair value based on the fair value accounting guidance under ASC Topic 820, Fair Value Measurements, and ASC Topic 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 820-10-35, 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 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 3 | Unobservable inputs that are supported by little, if any, market activity for the asset or liability. |
Valuation Methodology by Instrument - Recurring Basis
The following is a description of the valuation methodologies used for the major categories of financial assets and liabilities measured at fair value on a recurring basis.
Investment Securities Available for Sale and Trading Account Assets/Liabilities
The fair values of investment securities available for sale and trading securities are primarily based on actively traded markets where prices are based on either quoted market prices or observed transactions. Management employs independent third-party pricing services to provide fair value estimates for Synovus' investment securities available for sale and trading securities. Fair values for fixed income investment securities are typically determined based upon quoted market prices, and/or inputs that are observable in the market, either directly or indirectly, for substantially similar securities. Level 1 securities are typically exchange quoted prices and include financial instruments such as U.S. Treasury securities and marketable equity securities. Level 2 securities are typically matrix priced by the third-party pricing service to calculate the fair value. Such fair value measurements consider observable data such as market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and the respective terms and conditions for debt instruments. The types of securities classified as Level 2 within the valuation hierarchy primarily consist of collateralized mortgage obligations, mortgage-backed securities, debt securities of GSEs and agencies, corporate debt, asset-backed securities, and state and municipal securities.
Management uses various validation procedures to confirm the prices received from pricing services are reasonable. Such validation procedures include reference to market quotes and a review of valuations and trade activity of comparable securities. Consideration is given to the nature of the quotes (e.g., indicative or firm) and the relationship of recently evidenced market activity to the prices provided by the third-party pricing service. Further, management also employs the services of an additional independent pricing firm as a means to verify and confirm the fair values of the primary independent pricing firms.
When there is limited activity or less transparency around inputs to valuation, Synovus develops valuations based on assumptions that are not readily observable in the marketplace; these securities are classified as Level 3 within the valuation hierarchy.
Mortgage Loans Held for Sale
Synovus elected to apply the fair value option for mortgage loans originated with the intent to sell to investors in the secondary market. When loans are not committed to an investor at a set price, fair value is derived from a hypothetical bulk sale model using current market pricing indicators. A best execution valuation model is used for loan pricing for similar assets based upon forward settlements of a pool of loans of similar coupon, maturity, product, and credit attributes. The inputs to the model are continuously updated with available market and historical data. As the loans are sold in the secondary market and primarily used as collateral for securitizations, the valuation model methodology attempts to reflect the pricing execution available to Synovus’ principal market. Mortgage loans held for sale are classified within Level 2 of the valuation hierarchy.
Other investments
The other investments in which Synovus holds a limited partner interest consist of i) funds that invest in privately held companies and ii) funds previously invested in privately held companies which become publicly traded securities. Funds invested in privately held companies are classified as Level 3 and the estimated fair value of the company is the estimated fair value as an exit price the fund would receive if it were to sell the company in the marketplace. The fair value of the fund's underlying investments is estimated through the use of valuation models, such as option pricing or a discounted cash flow model. Synovus typically sells shares in any investment after initial public offering (IPO) lock-up periods have ended.
Mutual Funds
Mutual funds (including those held in rabbi trusts) primarily invest in equity and fixed income securities. Shares of mutual funds are valued based on quoted market prices and are therefore classified within Level 1 of the fair value hierarchy.
Derivative Assets and Liabilities
Fair values of interest rate lock commitments and forward commitments are estimated based on an internally developed model that uses readily observable market data such as interest rates, prices and indices to generate continuous yield or pricing curves, volatility factors, and client credit-related adjustments, subject to the anticipated loan funding probability (pull-through rate). These fair value estimates are classified as Level 2 within the valuation hierarchy.
Fair values of interest rate swaps are determined using a discounted cash flow analysis on the expected cash flows of each derivative which also includes a credit value adjustment for client swaps or provided by the clearing house, or centralized counter party (CCP), for swaps within our hedging program. An independent third-party valuation is used to verify and confirm these values, which are classified as Level 2 within the fair value hierarchy.
Valuation Methodology by Instrument - Non-recurring Basis
The following is a description of the valuation methodologies used for the major categories of financial assets and liabilities measured at fair value on a non-recurring basis.
Loans
Loans measured at fair value on a non-recurring basis consist of loans that do not share similar risk characteristics. These loans are typically collateral dependent loans that are valued using third-party appraised value of collateral less estimated selling price (Level 3).
Other Loans Held for Sale
Loans are transferred to other loans held for sale at amortized cost when Synovus makes the determination to sell specifically identified loans. If the amortized cost exceeds fair value a valuation allowance is established for the difference. The fair value of the loans is primarily determined by analyzing the anticipated market prices of similar assets less estimated costs to sell. At the time of transfer, any credit losses are determined in accordance with Synovus' policy and recorded as a charge-off against the allowance for loan losses. Subsequent changes in the valuation allowance due to changes in the fair value subsequent to the transfer, as well as gains/losses realized from the sale of these assets, are recorded as gains/losses on other loans held for sale, net, as a component of non-interest expense on the consolidated statements of income (Level 3).
Other Real Estate
Other Real Estate (ORE) consists of properties obtained through a foreclosure proceeding or through an in-substance foreclosure in satisfaction of loans. A loan is classified as an in-substance foreclosure when Synovus has taken possession of the collateral regardless of whether formal foreclosure proceedings have taken place.
At foreclosure, ORE is recorded at fair value less estimated selling costs, which establishes a new cost basis. Subsequent to foreclosure, ORE is evaluated quarterly and reported at fair value less estimated selling costs, not to exceed the new cost basis, determined by review of current appraisals, as well as the review of comparable sales and other estimates of fair value obtained principally from independent sources, adjusted for estimated selling costs (Level 3). Any adjustments are recorded as a component of foreclosed real estate expense, net on the consolidated statements of income.
Other Assets Held for Sale
Other assets held for sale consist of certain premises and equipment held for sale. The fair value of these assets is determined primarily on the basis of appraisals or BOV, as circumstances warrant, adjusted for estimated selling costs. Both techniques engage licensed or certified professionals that use inputs such as absorption rates, capitalization rates, and market comparables (Level 3).
Fair Value of Financial Instruments
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents, interest bearing funds with the Federal Reserve Bank, interest earning deposits with banks, and federal funds sold and securities purchased under resale agreements are repriced on a short-term basis; as such, the carrying value closely approximates fair value. Since these amounts relate to highly liquid assets, these are considered a Level 1 measurement.
Loans, net of Deferred Fees and Costs
Synovus estimates the fair value of loans based on the present value of the future cash flows using the interest rate that would be charged for a similar loan to a borrower with similar risk, adjusted for a discount based on the estimated time period to complete a sale transaction with a market participant. Loans are considered a Level 3 fair value measurement.
Deposits
The fair value of deposits with no stated maturity, such as non-interest-bearing demand accounts, interest bearing demand deposits, money market accounts, and savings accounts, is estimated to be equal to the amount payable on demand as of that respective date. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. Synovus has determined that the appropriate classification for deposits is Level 2 due to the ability to reasonably measure all inputs to valuation based on observable market variables.
Short-term and Long-term Debt
Short-term and long-term debt is considered a Level 2 valuation, as management relies on market prices for bonds or debt that is similar, but not necessarily identical, to the debt being valued. Short-term debt that matures within ten days is assumed to be at fair value and is considered a Level 1 measurement.
Long-term Debt
Long-term debt balances are presented net of discounts and premiums as well as debt issuance costs that arise from the issuance of long-term debt. Discounts, premiums and debt issuance costs are amortized using the effective interest rate method
or straight-line method (when the financial statement impacts of this method are not materially different from the former method).
Contingent Liabilities and Legal Costs
Synovus estimates its contingent liabilities with respect to outstanding legal matters based on information currently available to management, management’s estimates about the probability of outcomes of each case and the advice of legal counsel. Management accrues an estimated loss from a loss contingency when information available indicates that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in making these estimates and management must make assumptions about matters that are highly uncertain. Accordingly, the actual loss may be more or less than the current estimate.
In many situations, Synovus may be unable to estimate reasonably possible losses due to the preliminary nature of the legal matters, as well as a variety of other factors and uncertainties. As there are further developments, Synovus will reassess these legal matters and the related potential liabilities and will revise, when needed, its estimate of contingent liabilities.
Legal costs, including attorney fees, incurred in connection with pending litigation and other loss contingencies are expensed as incurred.
Recently Adopted Accounting Standards
ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs. The guidance in this ASU pertains to the shortened amortization period for certain purchased callable debt securities held at a premium, which premium is amortized to the next call date, and clarifies that each reporting period an entity should reevaluate the effective yield if there is no remaining premium or no further call dates remaining. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. Synovus adopted ASU 2020-08 effective January 1, 2021 with no material impact to the consolidated financial statements.
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU 2019-12 to simplify and reduce complexities when accounting for income taxes by removing certain exceptions. Among the provisions of this guidance is the requirement that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020. Synovus adopted ASU 2019-12 effective January 1, 2021 with no material impact to the consolidated financial statements unless there are changes in tax law that require recognition as set forth in this guidance.
ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services - Depository and Lending (Topic 942), and Financial Services-Investment Companies (Topic 946). In August 2021, the FASB issued ASU 2021-06 which amends SEC paragraphs in the codification pursuant to SEC Final Rule Releases No. 33-10786 and No. 33-10835. These rule releases amend disclosure requirements applicable to acquisitions and dispositions of businesses and also amend statistical disclosures that banks and bank holding companies provide to investors. ASU 2021-06 eliminates disclosures that overlap with SEC rules or US GAAP. The amendments in this ASU were effective upon its addition to the FASB codification with no material effect to the consolidated financial statements
Recently Issued Accounting Standards Not Yet Adopted
2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. In October 2021, the FASB issued ASU 2021-08 to address diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree (in accordance with ASC 606). The guidance in ASU 2021-08 should be applied prospectively to acquisitions occurring on or after the effective date. For Synovus, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in an interim period.
ASU 2021-01, Reference Rate Reform (Topic 848). In January 2021, the FASB issued ASU 2021-01 which provides optional expedients and exceptions in Topic 848 for derivative instruments and hedge accounting modifications resulting from the discounting transition of reference rate reform. The expedients and exceptions provided by ASU 2021-01 will not be available after December 31, 2022, other than for existing hedging relationships entered into by December 31, 2022. The ASU may be applied as of the beginning of an interim period that includes or is subsequent to March 12, 2020, until the sunset date of December 31, 2022. Synovus adopted ASU 2020-04 Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting on October 1, 2020. While Synovus has not yet finalized the election of optional expedients for ASU 2021-01, we do not currently expect there to be a material financial impact to the Company regardless of which optional expedients the Company selects to replace LIBOR.
Note 2 - Investment Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair values of investment securities available for sale at December 31, 2021 and 2020 are summarized below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
(in thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. Treasury securities | | $ | 120,465 | | | $ | — | | | $ | (2,627) | | | $ | 117,838 | |
U.S. Government agency securities | | 53,214 | | | 1,374 | | | (387) | | | 54,201 | |
Mortgage-backed securities issued by U.S. Government agencies | | 790,329 | | | 768 | | | (11,464) | | | 779,633 | |
Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 8,063,890 | | | 50,491 | | | (102,080) | | | 8,012,301 | |
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 951,691 | | | 4,658 | | | (16,726) | | | 939,623 | |
Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | | 479,420 | | | 8,644 | | | (6,320) | | | 481,744 | |
Asset-backed securities | | 514,188 | | | — | | | — | | | 514,188 | |
Corporate debt securities and other debt securities | | 18,309 | | | 492 | | | — | | | 18,801 | |
Total investment securities available for sale | | $ | 10,991,506 | | | $ | 66,427 | | | $ | (139,604) | | | $ | 10,918,329 | |
| | | | | | | | |
| | December 31, 2020 |
(in thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. Treasury securities | | $ | 20,257 | | | $ | — | | | $ | — | | | $ | 20,257 | |
U.S. Government agency securities | | 79,638 | | | 2,682 | | | — | | | 82,320 | |
Mortgage-backed securities issued by U.S. Government agencies | | 1,216,012 | | | 7,930 | | | (5,925) | | | 1,218,017 | |
Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 4,865,858 | | | 134,188 | | | — | | | 5,000,046 | |
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 1,245,644 | | | 15,309 | | | (10,576) | | | 1,250,377 | |
Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | | 354,244 | | | 16,677 | | | — | | | 370,921 | |
Corporate debt securities and other debt securities | | 20,211 | | | 457 | | | (168) | | | 20,500 | |
Total investment securities available for sale | | $ | 7,801,864 | | | $ | 177,243 | | | $ | (16,669) | | | $ | 7,962,438 | |
| | | | | | | | |
At December 31, 2021 and 2020, investment securities with a carrying value of $4.03 billion and $3.84 billion, respectively, were pledged to secure certain deposits and other liabilities, as required by law or contractual agreements.
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 December 31, 2021 and December 31, 2020 are presented below.
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| | December 31, 2021 |
| | 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 |
U.S. Treasury securities | | $ | 49,648 | | | $ | (379) | | | $ | 47,590 | | | $ | (2,248) | | | $ | 97,238 | | | $ | (2,627) | |
U.S. Government agency securities | | 21,760 | | | (387) | | | — | | | — | | | 21,760 | | | (387) | |
Mortgage-backed securities issued by U.S. Government agencies | | 461,078 | | | (5,858) | | | 244,264 | | | (5,606) | | | 705,342 | | | (11,464) | |
Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 5,729,476 | | | (82,671) | | | 643,758 | | | (19,409) | | | 6,373,234 | | | (102,080) | |
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 187,431 | | | (3,981) | | | 504,238 | | | (12,745) | | | 691,669 | | | (16,726) | |
Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | | 146,672 | | | (2,951) | | | 83,533 | | | (3,369) | | | 230,205 | | | (6,320) | |
Total | | $ | 6,596,065 | | | $ | (96,227) | | | $ | 1,523,383 | | | $ | (43,377) | | | $ | 8,119,448 | | | $ | (139,604) | |
| | | | | | | | | | | | |
| | December 31, 2020 |
| | 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 | | $ | 566,896 | | | $ | (5,925) | | | $ | — | | | $ | — | | | $ | 566,896 | | | $ | (5,925) | |
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 803,429 | | | (10,576) | | | — | | | — | | | 803,429 | | | (10,576) | |
Corporate debt securities and other debt securities | | 9,337 | | | (168) | | | — | | | — | | | 9,337 | | | (168) | |
Total | | $ | 1,379,662 | | | $ | (16,669) | | | $ | — | | | $ | — | | | $ | 1,379,662 | | | $ | (16,669) | |
| | | | | | | | | | | | |
As of December 31, 2021, Synovus had 143 investment securities in a loss position for less than twelve months and 37 investment securities in a loss position for twelve months or longer. Synovus does not intend to sell investment securities in an unrealized loss position prior to the recovery of the unrealized loss, which may not 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. As such, no write-downs to the amortized cost basis of the portfolio were recorded at December 31, 2021.
At December 31, 2021, no ACL was established for investment securities. Substantially all of the unrealized losses on the securities portfolio were the result of changes in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans. U.S. Treasury and agency securities and agency mortgage-backed securities are issued, guaranteed or otherwise supported by the United States government, an agency of the United States government, or a government sponsored enterprise.
The amortized cost and fair value by contractual maturity of investment securities available for sale at December 31, 2021 are shown below. The expected life of MBSs 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, MBSs and CMOs, which are not due at a single maturity date, have been classified based on the final contractual maturity date.
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| | Distribution of Maturities at December 31, 2021 |
(in thousands) | | Within One Year | | 1 to 5 Years | | 5 to 10 Years | | More Than 10 Years | | Total |
Amortized Cost | | | | | | | | | | |
U.S. Treasury securities | | $ | 20,600 | | | $ | — | | | $ | 99,865 | | | $ | — | | | $ | 120,465 | |
U.S. Government agency securities | | 756 | | | 321 | | | 52,137 | | | — | | | 53,214 | |
Mortgage-backed securities issued by U.S. Government agencies | | — | | | 842 | | | 131 | | | 789,356 | | | 790,329 | |
Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 28 | | | — | | | 80,539 | | | 7,983,323 | | | 8,063,890 | |
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | — | | | — | | | 146 | | | 951,545 | | | 951,691 | |
Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | | — | | | 181,144 | | | 211,328 | | | 86,948 | | | 479,420 | |
Asset-backed securities | | 514,188 | | | — | | | — | | | — | | | 514,188 | |
Corporate debt securities and other debt securities | | 9,502 | | | — | | | 8,807 | | | — | | | 18,309 | |
Total amortized cost | | $ | 545,074 | | | $ | 182,307 | | | $ | 452,953 | | | $ | 9,811,172 | | | $ | 10,991,506 | |
| | | | | | | | | | |
Fair Value | | | | | | | | | | |
U.S. Treasury securities | | $ | 20,600 | | | $ | — | | | $ | 97,238 | | | $ | — | | | $ | 117,838 | |
U.S. Government agency securities | | 760 | | | 322 | | | 53,119 | | | — | | | 54,201 | |
Mortgage-backed securities issued by U.S. Government agencies | | — | | | 870 | | | 136 | | | 778,627 | | | 779,633 | |
Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 28 | | | — | | | 83,271 | | | 7,929,002 | | | 8,012,301 | |
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | — | | | — | | | 150 | | | 939,473 | | | 939,623 | |
Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | | — | | | 182,821 | | | 209,311 | | | 89,612 | | | 481,744 | |
Asset-backed securities | | 514,188 | | | — | | | — | | | — | | | 514,188 | |
Corporate debt securities and other debt securities | | 9,730 | | | — | | | 9,071 | | | — | | | 18,801 | |
Total fair value | | $ | 545,306 | | | $ | 184,013 | | | $ | 452,296 | | | $ | 9,736,714 | | | $ | 10,918,329 | |
| | | | | | | | | | |
Gross gains and gross losses on sales of securities available for sale for the years ended December 31, 2021, 2020, and 2019 are presented below. The specific identification method is used to reclassify gains and losses out of other comprehensive income at the time of sale.
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 2021 | | 2020 | | 2019 |
Gross realized gains on sales | | $ | 1,191 | | | $ | 85,375 | | | $ | 10,370 | |
Gross realized losses on sales | | (1,990) | | | (6,444) | | | (18,029) | |
Investment securities gains (losses), net | | $ | (799) | | | $ | 78,931 | | | $ | (7,659) | |
| | | | | | |
Note 3 - Loans and Allowance for Loan Losses
Aging and Non-Accrual Analysis
The following tables provide a summary of current, accruing past due, and non-accrual loans by portfolio class as of December 31, 2021 and December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | |
(in thousands) | Current | | Accruing 30-89 Days Past Due | | Accruing 90 Days or Greater Past Due | | Total Accruing Past Due | | Non-accrual with an ALL | | Non-accrual without an ALL | | Total | |
Commercial, financial, and agricultural | $ | 11,973,974 | | | $ | 13,028 | | | $ | 3,686 | | | $ | 16,714 | | | $ | 37,918 | | | $ | 23,869 | | | $ | 12,052,475 | | |
Owner-occupied | 7,493,804 | | | 3,627 | | | 59 | | | 3,686 | | | 7,146 | | | 4,050 | | | 7,508,686 | | |
Total commercial and industrial | 19,467,778 | | | 16,655 | | | 3,745 | | | 20,400 | | | 45,064 | | | 27,919 | | | 19,561,161 | | |
Investment properties | 9,861,303 | | | 1,285 | | | 717 | | | 2,002 | | | 3,273 | | | 2,577 | | | 9,869,155 | | |
1-4 family properties | 639,631 | | | 1,182 | | | 93 | | | 1,275 | | | 4,535 | | | 28 | | | 645,469 | | |
Land and development | 463,949 | | | 845 | | | 154 | | | 999 | | | 1,918 | | | — | | | 466,866 | | |
Total commercial real estate | 10,964,883 | | | 3,312 | | | 964 | | | 4,276 | | | 9,726 | | | 2,605 | | | 10,981,490 | | |
Consumer mortgages | 5,033,579 | | | 6,256 | | | 126 | | | 6,382 | | | 29,078 | | | — | | | 5,069,039 | | |
Home equity lines | 1,269,610 | | | 2,619 | | | — | | | 2,619 | | | 9,760 | | | — | | | 1,281,989 | | |
Credit cards | 296,695 | | | 1,584 | | | 1,277 | | | 2,861 | | | — | | | — | | | 299,556 | | |
Other consumer loans | 2,090,806 | | | 20,369 | | | 658 | | | 21,027 | | | 6,890 | | | — | | | 2,118,723 | | |
Total consumer | 8,690,690 | | | 30,828 | | | 2,061 | | | 32,889 | | | 45,728 | | | — | | | 8,769,307 | | |
Loans, net of deferred fees and costs | $ | 39,123,351 | | | $ | 50,795 | | | $ | 6,770 | | | $ | 57,565 | | | $ | 100,518 | | | $ | 30,524 | | | $ | 39,311,958 | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | |
(in thousands) | Current | | Accruing 30-89 Days Past Due | | Accruing 90 Days or Greater Past Due | | Total Accruing Past Due | | Non-accrual with an ALL | | Non-accrual without an ALL | | Total | |
Commercial, financial, and agricultural | $ | 12,321,514 | | | $ | 10,256 | | | $ | 996 | | | $ | 11,252 | | | $ | 55,527 | | | $ | 21,859 | | | $ | 12,410,152 | | |
Owner-occupied | 7,087,992 | | | 1,913 | | | 92 | | | 2,005 | | | 20,019 | | | — | | | 7,110,016 | | |
Total commercial and industrial | 19,409,506 | | | 12,169 | | | 1,088 | | | 13,257 | | | 75,546 | | | 21,859 | | | 19,520,168 | | |
Investment properties | 9,075,843 | | | 2,751 | | | 154 | | | 2,905 | | | 24,631 | | | — | | | 9,103,379 | | |
1-4 family properties | 621,492 | | | 3,548 | | | 36 | | | 3,584 | | | 2,383 | | | 1,236 | | | 628,695 | | |
Land and development | 591,048 | | | 422 | | | — | | | 422 | | | 1,899 | | | 264 | | | 593,633 | | |
Total commercial real estate | 10,288,383 | | | 6,721 | | | 190 | | | 6,911 | | | 28,913 | | | 1,500 | | | 10,325,707 | | |
Consumer mortgages | 5,495,415 | | | 8,851 | | | 485 | | | 9,336 | | | 8,740 | | | — | | | 5,513,491 | | |
Home equity lines | 1,521,575 | | | 4,006 | | | — | | | 4,006 | | | 12,145 | | | — | | | 1,537,726 | | |
Credit cards | 276,778 | | | 2,363 | | | 1,877 | | | 4,240 | | | — | | | — | | | 281,018 | | |
Other consumer loans | 1,062,899 | | | 9,122 | | | 477 | | | 9,599 | | | 2,376 | | | — | | | 1,074,874 | | |
Total consumer | 8,356,667 | | | 24,342 | | | 2,839 | | | 27,181 | | | 23,261 | | | — | | | 8,407,109 | | |
Loans, net of deferred fees and costs | $ | 38,054,556 | | | $ | 43,232 | | | $ | 4,117 | | | $ | 47,349 | | | $ | 127,720 | | | $ | 23,359 | | | $ | 38,252,984 | | |
| | | | | | | | | | | | | | |
Interest income on non-accrual loans outstanding that would have been recorded if the loans had been current and performing in accordance with their original terms was $11.1 million and $12.6 million during the years ended December 31, 2021 and 2020, respectively. Of the interest income recognized during the years ended December 31, 2021 and 2020, cash-basis interest income was $1.8 million and $3.9 million, respectively.
Pledged Loans
Loans with carrying values of $14.19 billion and $15.05 billion, respectively, were pledged as collateral for borrowings and capacity at December 31, 2021 and 2020 respectively, to the FHLB and Federal Reserve Bank.
Portfolio Segment Risk Factors
The risk characteristics and collateral information of each portfolio segment are as follows:
Commercial and Industrial Loans - The C&I loan portfolio is comprised of general middle market and commercial banking clients across a diverse set of industries. In accordance with Synovus' lending policy, each loan undergoes a detailed underwriting process which incorporates uniform underwriting standards and oversight in proportion to the size and complexity of the lending relationship. These loans are secured by collateral such as business equipment, inventory, and real estate. Credit decisions on loans in the C&I portfolio are based on cash flow from the operations of the business as the primary source of repayment of the debt, with underlying real estate or other collateral being the secondary source of repayment. PPP loans, which are categorized as C&I loans and guaranteed by the SBA, were $399.6 million and $2.19 billion net of unearned fees at December 31, 2021 and 2020, respectively.
Commercial Real Estate Loans - CRE loans primarily consist of income-producing investment properties loans. Additionally, CRE loans include 1-4 family properties loans as well as land and development loans. Investment properties loans consist of construction and mortgage loans for income-producing properties and are primarily made to finance multi-family properties, hotels, office buildings, shopping centers, warehouses and other commercial development properties. 1-4 family properties loans include construction loans to homebuilders and commercial mortgage loans related to 1-4 family rental properties and are almost always secured by the underlying property being financed by such loans. These properties are primarily located in the markets served by Synovus. Land and development loans include commercial and residential development as well as land acquisition loans and are secured by land held for future development, typically in excess of one year. Properties securing these loans are substantially within markets served by Synovus, and loan terms generally include personal guarantees from the principals. Loans in this portfolio are underwritten based on the LTV of the collateral and the capacity of the guarantor(s).
Consumer Loans - The consumer loan portfolio consists of a wide variety of loan products offered through Synovus' banking network including first and second residential mortgages, HELOCs, and credit card loans, as well as home improvement loans, student, personal, and auto loans from third-party lending ("other consumer loans"). Together, consumer mortgages and HELOCs comprise the majority of Synovus' consumer loans and are secured by first and second liens on residential real estate primarily located in the markets served by Synovus. The primary source of repayment for all consumer loans is generally the personal income of the borrower(s).
Credit Quality Indicators
The credit quality of the loan portfolio is reviewed and updated no less frequently than annually 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. Synovus fully reserves for any loans rated as Loss.
In the following tables, consumer 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 Retail Credit Classification Policy. Additionally, in accordance with Interagency Supervisory Guidance, the risk grade classifications of consumer loans (consumer mortgages and HELOCs) secured by junior liens on 1-4 family residential properties also consider available information on the payment status of the associated senior liens with other financial institutions.
The following table summarizes each loan portfolio class by regulatory risk grade and origination year as of December 31, 2021 as required by CECL.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans | | |
(in thousands) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Amortized Cost Basis | | Converted to Term Loans | | Total |
Commercial, financial and agricultural | | | | | | | | | | | | | | | | | |
Pass | $ | 2,397,405 | | | $ | 1,332,549 | | | $ | 922,396 | | | $ | 607,918 | | | $ | 433,045 | | | $ | 903,995 | | | $ | 5,056,168 | | | $ | 42,809 | | | $ | 11,696,285 | |
Special Mention | 2,731 | | | 15,166 | | | 17,571 | | | 10,433 | | | 2,242 | | | 2,489 | | | 71,996 | | | — | | | 122,628 | |
Substandard(1) | 16,105 | | | 50,979 | | | 40,125 | | | 10,383 | | | 16,473 | | | 37,565 | | | 51,269 | | | 33 | | | 222,932 | |
Doubtful(2) | 469 | | | — | | | 1,601 | | | 8,512 | | | — | | | — | | | 48 | | | — | | | 10,630 | |
Total commercial, financial and agricultural | 2,416,710 | | | 1,398,694 | | | 981,693 | | | 637,246 | | | 451,760 | | | 944,049 | | | 5,179,481 | | | 42,842 | | | 12,052,475 | |
Owner-occupied | | | | | | | | | | | | | | | | | |
Pass | 1,776,086 | | | 1,276,797 | | | 1,117,825 | | | 858,721 | | | 708,942 | | | 1,150,386 | | | 437,724 | | | — | | | 7,326,481 | |
Special Mention | 702 | | | 19,950 | | | 4,724 | | | 10,202 | | | 18,109 | | | 36,481 | | | — | | | — | | | 90,168 | |
Substandard(1) | 7,312 | | | 1,294 | | | 8,386 | | | 43,276 | | | 6,169 | | | 25,329 | | | — | | | — | | | 91,766 | |
Doubtful(2) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | 271 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 271 | |
Total owner-occupied | 1,784,371 | | | 1,298,041 | | | 1,130,935 | | | 912,199 | | | 733,220 | | | 1,212,196 | | | 437,724 | | | — | | | 7,508,686 | |
Total commercial and industrial | 4,201,081 | | | 2,696,735 | | | 2,112,628 | | | 1,549,445 | | | 1,184,980 | | | 2,156,245 | | | 5,617,205 | | | 42,842 | | | 19,561,161 | |
Investment properties | | | | | | | | | | | | | | | | | |
Pass | 2,823,978 | | | 1,463,503 | | | 1,905,534 | | | 1,019,765 | | | 738,036 | | | 1,284,013 | | | 278,697 | | | — | | | 9,513,526 | |
Special Mention | 6,163 | | | — | | | 32,290 | | | 63,900 | | | 59,194 | | | 44,532 | | | 33,659 | | | — | | | 239,738 | |
Substandard(1) | 1,465 | | | 326 | | | 8,550 | | | 57,127 | | | 3,564 | | | 23,505 | | | 21,354 | | | — | | | 115,891 | |
Total investment properties | 2,831,606 | | | 1,463,829 | | | 1,946,374 | | | 1,140,792 | | | 800,794 | | | 1,352,050 | | | 333,710 | | | — | | | 9,869,155 | |
1-4 family properties | | | | | | | | | | | | | | | | | |
Pass | 295,082 | | | 82,976 | | | 51,939 | | | 43,025 | | | 49,057 | | | 57,025 | | | 55,588 | | | — | | | 634,692 | |
Special Mention | 192 | | | 207 | | | 641 | | | — | | | — | | | 239 | | | — | | | — | | | 1,279 | |
Substandard(1) | 1,999 | | | — | | | 566 | | | 4,222 | | | 489 | | | 2,177 | | | 45 | | | — | | | 9,498 | |
Total 1-4 family properties | 297,273 | | | 83,183 | | | 53,146 | | | 47,247 | | | 49,546 | | | 59,441 | | | 55,633 | | | — | | | 645,469 | |
Land and development | | | | | | | | | | | | | | | | | |
Pass | 141,614 | | | 42,201 | | | 77,868 | | | 34,058 | | | 37,167 | | | 44,989 | | | 44,730 | | | — | | | 422,627 | |
Special Mention | — | | | 800 | | | 1,900 | | | 31,458 | | | — | | | 1,179 | | | — | | | — | | | 35,337 | |
Substandard(1) | 824 | | | 1,149 | | | 46 | | | 3,021 | | | 807 | | | 3,055 | | | — | | | — | | | 8,902 | |
Total land and development | 142,438 | | | 44,150 | | | 79,814 | | | 68,537 | | | 37,974 | | | 49,223 | | | 44,730 | | | — | | | 466,866 | |
Total commercial real estate | 3,271,317 | | | 1,591,162 | | | 2,079,334 | | | 1,256,576 | | | 888,314 | | | 1,460,714 | | | 434,073 | | | — | | | 10,981,490 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans | | |
(in thousands) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Amortized Cost Basis | | Converted to Term Loans | | Total |
Consumer mortgages | | | | | | | | | | | | | | | | | |
Pass | $ | 1,293,106 | | | $ | 1,551,510 | | | $ | 570,344 | | | $ | 216,277 | | | $ | 392,422 | | | $ | 991,080 | | | $ | 296 | | | $ | — | | | $ | 5,015,035 | |
Substandard(1) | 1,031 | | | 3,680 | | | 5,943 | | | 12,387 | | | 5,717 | | | 25,025 | | | — | | | — | | | 53,783 | |
Loss(3) | — | | | — | | | 5 | | | — | | | — | | | 216 | | | — | | | — | | | 221 | |
Total consumer mortgages | 1,294,137 | | | 1,555,190 | | | 576,292 | | | 228,664 | | | 398,139 | | | 1,016,321 | | | 296 | | | — | | | 5,069,039 | |
Home equity lines | | | | | | | | | | | | | | | | | |
Pass | — | | | — | | | — | | | — | | | — | | | — | | | 1,199,635 | | | 67,139 | | | 1,266,774 | |
Substandard(1) | — | | | — | | | — | | | — | | | — | | | — | | | 9,058 | | | 5,359 | | | 14,417 | |
Doubtful(2) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss(3) | — | | | — | | | — | | | — | | | — | | | — | | | 658 | | | 140 | | | 798 | |
Total home equity lines | — | | | — | | | — | | | — | | | — | | | — | | | 1,209,351 | | | 72,638 | | | 1,281,989 | |
Credit cards | | | | | | | | | | | | | | | | | |
Pass | — | | | — | | | — | | | — | | | — | | | — | | | 298,287 | | | — | | | 298,287 | |
Substandard(1) | — | | | — | | | — | | | — | | | — | | | — | | | 521 | | | — | | | 521 | |
Loss(4) | — | | | — | | | — | | | — | | | — | | | — | | | 748 | | | — | | | 748 | |
Total credit cards | — | | | — | | | — | | | — | | | — | | | — | | | 299,556 | | | — | | | 299,556 | |
Other consumer loans | | | | | | | | | | | | | | | | | — | |
Pass | 654,818 | | | 709,077 | | | 127,131 | | | 50,007 | | | 86,175 | | | 97,780 | | | 385,308 | | | — | | | 2,110,296 | |
Substandard(1) | 668 | | | 1,550 | | | 2,064 | | | 1,308 | | | 1,892 | | | 750 | | | 175 | | | — | | | 8,407 | |
Loss | — | | | — | | | — | | | — | | | — | | | 20 | | | — | | | — | | | 20 | |
Total other consumer loans | 655,486 | | | 710,627 | | | 129,195 | | | 51,315 | | | 88,067 | | | 98,550 | | | 385,483 | | | — | | | 2,118,723 | |
Total consumer | 1,949,623 | | | 2,265,817 | | | 705,487 | | | 279,979 | | | 486,206 | | | 1,114,871 | | | 1,894,686 | | | 72,638 | | | 8,769,307 | |
Loans, net of deferred fees and costs | $ | 9,422,021 | | | $ | 6,553,714 | | | $ | 4,897,449 | | | $ | 3,086,000 | | | $ | 2,559,500 | | | $ | 4,731,830 | | | $ | 7,945,964 | | | $ | 115,480 | | | $ | 39,311,958 | |
| | | | | | | | | | | | | | | | | |
(1) The majority of loans within Substandard risk grade are accruing loans at December 31, 2021.
(2) Loans within Doubtful risk grade are on non-accrual status and generally have an ALL equal to 50% of the loan amount.
(3) Loans within Loss risk grade are on non-accrual status and have an ALL 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 ALL equal to the full loan amount and are generally charged off upon reaching 181 days past due in accordance with the FFIEC Retail Credit Classification Policy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans | | |
(in thousands) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Amortized Cost Basis | | Converted to Term Loans | | Total |
Commercial, financial and agricultural | | | | | | | | | | | | | | | | | |
Pass | $ | 3,819,048 | | | $ | 1,333,460 | | | $ | 847,283 | | | $ | 582,612 | | | $ | 551,413 | | | $ | 633,871 | | | $ | 4,102,751 | | | $ | 49,762 | | | $ | 11,920,200 | |
Special Mention | 63,307 | | | 40,618 | | | 12,723 | | | 22,070 | | | 1,665 | | | 5,545 | | | 60,741 | | | 489 | | | 207,158 | |
Substandard(1) | 28,698 | | | 36,618 | | | 24,867 | | | 36,072 | | | 12,808 | | | 35,172 | | | 84,498 | | | 514 | | | 259,247 | |
Doubtful(2) | — | | | 3,721 | | | 19,778 | | | — | | | — | | | — | | | 48 | | | — | | | 23,547 | |
Total commercial, financial and agricultural | 3,911,053 | | | 1,414,417 | | | 904,651 | | | 640,754 | | | 565,886 | | | 674,588 | | | 4,248,038 | | | 50,765 | | | 12,410,152 | |
Owner-occupied | | | | | | | | | | | | | | | | | |
Pass | 1,321,680 | | | 1,275,435 | | | 1,131,183 | | | 982,056 | | | 555,932 | | | 1,297,070 | | | 349,566 | | | — | | | 6,912,922 | |
Special Mention | 6,170 | | | 9,995 | | | 10,682 | | | 14,138 | | | 1,582 | | | 13,768 | | | — | | | — | | | 56,335 | |
Substandard(1) | 2,570 | | | 22,793 | | | 42,615 | | | 26,033 | | | 7,316 | | | 29,794 | | | — | | | — | | | 131,121 | |
Doubtful(2) | — | | | — | | | 9,638 | | | — | | | — | | | — | | | — | | | — | | | 9,638 | |
Total owner-occupied | 1,330,420 | | | 1,308,223 | | | 1,194,118 | | | 1,022,227 | | | 564,830 | | | 1,340,632 | | | 349,566 | | | — | | | 7,110,016 | |
Total commercial and industrial | 5,241,473 | | | 2,722,640 | | | 2,098,769 | | | 1,662,981 | | | 1,130,716 | | | 2,015,220 | | | 4,597,604 | | | 50,765 | | | 19,520,168 | |
Investment properties | | | | | | | | | | | | | | | | | |
Pass | 1,055,440 | | | 2,126,667 | | | 1,999,345 | | | 1,091,880 | | | 483,780 | | | 1,301,088 | | | 229,044 | | | — | | | 8,287,244 | |
Special Mention | 1,482 | | | 66,160 | | | 176,794 | | | 136,004 | | | 138,362 | | | 129,401 | | | 55,440 | | | — | | | 703,643 | |
Substandard(1) | 1,007 | | | 4,770 | | | 24,476 | | | 19,820 | | | 21,875 | | | 40,509 | | | 35 | | | — | | | 112,492 | |
Total investment properties | 1,057,929 | | | 2,197,597 | | | 2,200,615 | | | 1,247,704 | | | 644,017 | | | 1,470,998 | | | 284,519 | | | — | | | 9,103,379 | |
1-4 family properties | | | | | | | | | | | | | | | | | |
Pass | 197,320 | | | 95,145 | | | 70,267 | | | 88,454 | | | 38,729 | | | 97,374 | | | 27,657 | | | — | | | 614,946 | |
Special Mention | 402 | | | — | | | 508 | | | 109 | | | 786 | | | 118 | | | — | | | — | | | 1,923 | |
Substandard(1) | 1,527 | | | 653 | | | 4,312 | | | 1,141 | | | 554 | | | 2,299 | | | 1,340 | | | — | | | 11,826 | |
Total 1-4 family properties | 199,249 | | | 95,798 | | | 75,087 | | | 89,704 | | | 40,069 | | | 99,791 | | | 28,997 | | | — | | | 628,695 | |
Land and development | | | | | | | | | | | | | | | | | |
Pass | 84,985 | | | 173,302 | | | 83,734 | | | 92,911 | | | 12,249 | | | 76,380 | | | 53,250 | | | — | | | 576,811 | |
Special Mention | 857 | | | 1,995 | | | 2,866 | | | 282 | | | — | | | 1,332 | | | 636 | | | — | | | 7,968 | |
Substandard(1) | 1,229 | | | 425 | | | 4,664 | | | 915 | | | 136 | | | 1,485 | | | — | | | — | | | 8,854 | |
Total land and development | 87,071 | | | 175,722 | | | 91,264 | | | 94,108 | | | 12,385 | | | 79,197 | | | 53,886 | | | — | | | 593,633 | |
Total commercial real estate | 1,344,249 | | | 2,469,117 | | | 2,366,966 | | | 1,431,516 | | | 696,471 | | | 1,649,986 | | | 367,402 | | | — | | | 10,325,707 | |
| | | | | | | | | | | | | | | | | |
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| December 31, 2020 |
| Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans | | |
(in thousands) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Amortized Cost Basis | | Converted to Term Loans | | Total |
Consumer mortgages | | | | | | | | | | | | | | | | | |
Pass | $ | 1,871,512 | | | $ | 874,769 | | | $ | 425,711 | | | $ | 678,255 | | | $ | 685,810 | | | $ | 965,382 | | | $ | 1,040 | | | $ | — | | | $ | 5,502,479 | |
Substandard(1) | 33 | | | 961 | | | 748 | | | 889 | | | 866 | | | 7,224 | | | — | | | — | | | 10,721 | |
Loss(3) | — | | | — | | | — | | | — | | | — | | | 291 | | | — | | | — | | | 291 | |
Total consumer mortgages | 1,871,545 | | | 875,730 | | | 426,459 | | | 679,144 | | | 686,676 | | | 972,897 | | | 1,040 | | | — | | | 5,513,491 | |
Home equity lines | | | | | | | | | | | | | | | | | |
Pass | — | | | — | | | — | | | — | | | — | | | — | | | 1,429,755 | | | 90,832 | | | 1,520,587 | |
Substandard(1) | — | | | — | | | — | | | — | | | — | | | — | | | 9,698 | | | 5,996 | | | 15,694 | |
Doubtful(2) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 19 | | | 19 | |
Loss(3) | — | | | — | | | — | | | — | | | — | | | — | | | 1,283 | | | 143 | | | 1,426 | |
Total home equity lines | — | | | — | | | — | | | — | | | — | | | — | | | 1,440,736 | | | 96,990 | | | 1,537,726 | |
Credit cards | | | | | | | | | | | | | | | | | |
Pass | — | | | — | | | — | | | — | | | — | | | — | | | 279,142 | | | — | | | 279,142 | |
Substandard(1) | — | | | — | | | — | | | — | | | — | | | — | | | 595 | | | — | | | 595 | |
Loss(4) | — | | | — | | | — | | | — | | | — | | | — | | | 1,281 | | | — | | | 1,281 | |
Total credit cards | — | | | — | | | — | | | — | | | — | | | — | | | 281,018 | | | — | | | 281,018 | |
Other consumer loans | | | | | | | | | | | | | | | | | — | |
Pass | 252,160 | | | 190,820 | | | 89,187 | | | 100,459 | | | 80,365 | | | 61,040 | | | 297,637 | | | — | | | 1,071,668 | |
Substandard(1) | 19 | | | 762 | | | 262 | | | 1,195 | | | 121 | | | 585 | | | 227 | | | — | | | 3,171 | |
Loss | — | | | — | | | — | | | — | | | — | | | 35 | | | — | | | — | | | 35 | |
Total other consumer loans | 252,179 | | | 191,582 | | | 89,449 | | | 101,654 | | | 80,486 | | | 61,660 | | | 297,864 | | | — | | | 1,074,874 | |
Total consumer | 2,123,724 | | | 1,067,312 | | | 515,908 | | | 780,798 | | | 767,162 | | | 1,034,557 | | | 2,020,658 | | | 96,990 | | | 8,407,109 | |
Loan, net of deferred fees and costs | $ | 8,709,446 | | | $ | 6,259,069 | | | $ | 4,981,643 | | | $ | 3,875,295 | | | $ | 2,594,349 | | | $ | 4,699,763 | | | $ | 6,985,664 | | | $ | 147,755 | | | $ | 38,252,984 | |
| | | | | | | | | | | | | | | | | |
(1) The majority of loans within Substandard risk grade are accruing loans at December 31, 2020.
(2) Loans within Doubtful risk grade are on non-accrual status and generally have an ALL equal to 50% of the loan amount.
(3) Loans within Loss risk grade are on non-accrual status and have an ALL 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 ALL equal to the full loan amount and are generally charged off upon reaching 181 days past due in accordance with the FFIEC Retail Credit Classification Policy.
Collateral-Dependent Loans
We classify a loan as collateral-dependent when our borrower is experiencing financial difficulty, and we expect repayment to be provided substantially through the operation or sale of collateral. Our commercial loans have collateral that is comprised of real estate and business assets. Our consumer loans have collateral that is substantially comprised of residential real estate.
There were no significant changes in the extent to which collateral secures our collateral-dependent loans during the years ended December 31, 2021 and 2020.
Rollforward of Allowance for Loan Losses
The following tables detail the changes in the ALL by loan segment for the years ended December 31, 2021, 2020, and 2019. On January 1, 2020, Synovus adopted ASC 326, which replaced the existing incurred loss methodology with an expected credit loss methodology (referred to as CECL). Under the incurred loss methodology, reserves for credit losses were recognized only when the losses were probable or had been incurred; under CECL, companies are required to recognize the full amount of expected credit losses for the lifetime of the financial assets, based on historical experience, current conditions and reasonable and supportable forecasts. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" of this Report for more information on Synovus' adoption of CECL.
For the year ended December 31, 2021, Synovus had no significant transfers to loans held for sale. For the year ended December 31, 2020, Synovus reversed a net amount of $18.3 million in previously established reserves for credit losses associated with net transfers to held for sale of $1.43 billion in performing loans, primarily related to third-party single-service consumer loans and non-relationship consumer mortgages. For the year ended December 31, 2019, Synovus had no significant transfers to loans held for sale.
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| | As of and For The Year Ended December 31, 2021 |
(in thousands) | | Commercial & Industrial | | Commercial Real Estate | | Consumer | | Total |
Allowance for loan losses: | | | | | | | | |
Beginning balance | | $ | 229,555 | | | $ | 130,742 | | | $ | 245,439 | | | $ | 605,736 | |
Charge-offs | | (59,457) | | | (15,392) | | | (30,383) | | | (105,232) | |
Recoveries | | 9,734 | | | 7,444 | | | 10,266 | | | 27,444 | |
Provision for (reversal of) loan losses | | 8,532 | | | (25,034) | | | (83,849) | | | (100,351) | |
Ending balance | | $ | 188,364 | | | $ | 97,760 | | | $ | 141,473 | | | $ | 427,597 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of and For The Year Ended December 31, 2020 |
(in thousands) | | Commercial & Industrial | | Commercial Real Estate | | Consumer | | Total |
Allowance for loan losses: | | | | | | | | |
Beginning balance, prior to adoption of ASC 326 | | $ | 145,782 | | | $ | 67,430 | | | $ | 68,190 | | | $ | 281,402 | |
Impact from adoption of ASC 326 | | (2,310) | | | (651) | | | 85,955 | | | 82,994 | |
Beginning balance, after adoption of ASC 326 | | $ | 143,472 | | | $ | 66,779 | | | $ | 154,145 | | | $ | 364,396 | |
Charge-offs | | (76,260) | | | (13,213) | | | (29,789) | | | (119,262) | |
Recoveries | | 13,544 | | | 2,857 | | | 8,149 | | | 24,550 | |
Provision for (reversal of) loan losses | | 148,799 | | | 74,319 | | | 112,934 | | | 336,052 | |
Ending balance | | $ | 229,555 | | | $ | 130,742 | | | $ | 245,439 | | | $ | 605,736 | |
| | | | | | | | |
| | As of and For The Year Ended December 31, 2019 |
(in thousands) | | Commercial & Industrial | | Commercial Real Estate | | Consumer | | Total |
Allowance for loan losses: | | | | | | | | |
Beginning balance | | $ | 133,123 | | | $ | 68,796 | | | $ | 48,636 | | | $ | 250,555 | |
Charge-offs | | (49,572) | | | (5,540) | | | (24,023) | | | (79,135) | |
Recoveries | | 7,827 | | | 8,618 | | | 5,078 | | | 21,523 | |
Provision for (reversal of) loan losses | | 53,665 | | | (4,444) | | | 38,499 | | | 87,720 | |
Transfer of unfunded commitment reserve | | 739 | | | — | | | — | | | 739 | |
Ending balance | | $ | 145,782 | | | $ | 67,430 | | | $ | 68,190 | | | $ | 281,402 | |
| | | | | | | | |
The ALL of $427.6 million and the reserve for unfunded commitments of $41.9 million, which is recorded in other liabilities, comprise the total ACL of $469.5 million at December 31, 2021. The ACL decreased $184.0 million compared to the December 31, 2020 ACL of $653.5 million, which consisted of an ALL of $605.7 million and the reserve for unfunded commitments of $47.8 million. The ACL to loans coverage ratio of 1.19% at December 31, 2021 was 52 bps lower compared to December 31, 2020.
The reduction in the overall ACL is due to the notable improvement in the economic environment compared to December 31, 2020 as evidenced by the decrease in the unemployment rate from 6.7% at the end of 2020 to 3.9% at December 31, 2021. Likewise, our economic and credit outlook have progressed substantially compared to 2020. The factors reducing the ACL were partially offset by purchases of $1.62 billion of third-party lending loans as well as net organic loan growth in 2021, requiring additional reserves of $38.6 million.
The ACL is estimated using a two-year reasonable and supportable forecast period. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, the Company reverts on a straight-line basis back to the historical rates over a one-year period. Synovus utilizes multiple economic forecast scenarios sourced from a reputable third-party provider and probability-weighted internally. The scenarios include a baseline forecast, an upside scenario reflecting an accelerated recovery, a downside scenario that reflects adverse economic conditions, and an additional adverse scenario that assumes consistent slow growth that is less optimistic than the baseline. At December 31, 2021, economic scenario weights incorporated a 43% downside bias. The baseline outlook used in the December 31, 2021 estimate showed stable economic conditions with the unemployment rate at 3.7% by the end of 2022 compared to a baseline forecast from December 31, 2020 that still represented recessionary conditions.
TDRs
Information about Synovus' TDRs is presented in the following tables. Synovus began entering into loan modifications with borrowers in response to the COVID-19 pandemic, some of which have not been classified as TDRs, and therefore are not included in the discussion below. The following tables represent, by concession type, the post-modification balance for loans modified or renewed during the years ended December 31, 2021, 2020, and 2019 that were reported as accruing or non-accruing TDRs.
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TDRs by Concession Type | |
| Year Ended December 31, 2021 | |
(in thousands, except contract data) | Number of Contracts | | Below Market Interest Rate | | Other Concessions(1) | | Total | |
Commercial, financial, and agricultural | 152 | | | $ | 12,746 | | | $ | 8,096 | | | $ | 20,842 | | |
Owner-occupied | 24 | | | 5,908 | | | 868 | | | 6,776 | | |
Total commercial and industrial | 176 | | | 18,654 | | | 8,964 | | | 27,618 | | |
Investment properties | 9 | | | 3,130 | | | — | | | 3,130 | | |
1-4 family properties | 13 | | | 1,131 | | | 123 | | | 1,254 | | |
Land and development | 8 | | | 1,948 | | | 60 | | | 2,008 | | |
Total commercial real estate | 30 | | | 6,209 | | | 183 | | | 6,392 | | |
Consumer mortgages | 18 | | | 2,512 | | | 1,006 | | | 3,518 | | |
Home equity lines | 55 | | | 4,991 | | | 258 | | | 5,249 | | |
Other consumer loans | 103 | | | 435 | | | 5,720 | | | 6,155 | | |
Total consumer | 176 | | | 7,938 | | | 6,984 | | | 14,922 | | |
Loans, net of deferred fees and costs | 382 | | | $ | 32,801 | | | $ | 16,131 | | | $ | 48,932 | | (2) |
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| Year Ended December 31, 2020 | |
(in thousands, except contract data) | Number of Contracts | | Below Market Interest Rate | | Other Concessions(1) | | Total | |
Commercial, financial, and agricultural | 152 | | | $ | 10,939 | | | $ | 11,912 | | | $ | 22,851 | | |
Owner-occupied | 22 | | | 4,536 | | | 1,530 | | | 6,066 | | |
Total commercial and industrial | 174 | | | 15,475 | | | 13,442 | | | 28,917 | | |
Investment properties | 9 | | | 29,679 | | | 1,420 | | | 31,099 | | |
1-4 family properties | 22 | | | 1,769 | | | 1,105 | | | 2,874 | | |
Land and development | 4 | | | 606 | | | — | | | 606 | | |
Total commercial real estate | 35 | | | 32,054 | | | 2,525 | | | 34,579 | | |
Consumer mortgages | 23 | | | 1,866 | | | 2,789 | | | 4,655 | | |
Home equity lines | 63 | | | 1,970 | | | 2,530 | | | 4,500 | | |
Other consumer loans | 57 | | | 1,185 | | | 2,779 | | | 3,964 | | |
Total consumer | 143 | | | 5,021 | | | 8,098 | | | 13,119 | | |
Loans, net of deferred fees and costs | 352 | | | $ | 52,550 | | | $ | 24,065 | | | $ | 76,615 | | (3) |
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TDRs by Concession Type (continued) | |
| Year Ended December 31, 2019 | |
(in thousands, except contract data) | Number of Contracts | | Below Market Interest Rate | | Other Concessions(1) | | Total | |
Commercial, financial, and agricultural | 127 | | | $ | 9,042 | | | $ | 9,873 | | | $ | 18,915 | | |
Owner-occupied | 22 | | | 9,017 | | | 861 | | | 9,878 | | |
Total commercial and industrial | 149 | | | 18,059 | | | 10,734 | | | 28,793 | | |
Investment properties | 8 | | | 1,548 | | | — | | | 1,548 | | |
1-4 family properties | 18 | | | 2,182 | | | 643 | | | 2,825 | | |
Land and development | 8 | | | 1,187 | | | 30 | | | 1,217 | | |
Total commercial real estate | 34 | | | 4,917 | | | 673 | | | 5,590 | | |
Consumer mortgages | 18 | | | 1,587 | | | 1,361 | | | 2,948 | | |
Home equity lines | 70 | | | 3,024 | | | 2,522 | | | 5,546 | | |
Other consumer loans | 109 | | | 1,712 | | | 5,270 | | | 6,982 | | |
Total consumer | 197 | | | 6,323 | | | 9,153 | | | 15,476 | | |
Loans, net of deferred fees and costs | 380 | | | $ | 29,299 | | | $ | 20,560 | | | $ | 49,859 | | (4) |
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(1) Other concessions generally include term extensions, interest only payments for a period of time, or principal forgiveness, but there was no principal forgiveness for the years ended December 31, 2021, 2020, and 2019.
(2) No charge-offs were recorded during the year ended December 31, 2021 upon restructuring of these loans.
(3) No charge-offs were recorded during the year ended December 31, 2020 upon restructuring of these loans.
(4) No charge-offs were recorded during the year ended December 31, 2019 upon restructuring of these loans.
For the years ended December 31, 2021, 2020 and 2019, there were eight defaults with a recorded investment of $978 thousand, seven defaults with a recorded investment of $21.7 million, and four defaults with a recorded investment of $326 thousand, respectively, on accruing TDRs restructured during the previous twelve months (defaults are defined as the earlier of the TDR being placed on non-accrual status or reaching 90 days past due with respect to principal and/or interest payments). As of December 31, 2021 and 2020, there were no commitments to lend a material amount of additional funds to any clients whose loans were classified as TDRs.
Note 4 - Premises, Equipment and Software
Premises, equipment and software at December 31, 2021 and 2020 consist of the following:
| | | | | | | | | | | | | | |
(in thousands) | | 2021 | | 2020 |
Land | | $ | 104,768 | | | $ | 113,828 | |
Buildings and improvements | | 361,593 | | | 407,735 | |
Leasehold improvements | | 55,098 | | | 53,174 | |
Furniture, equipment and software | | 441,091 | | | 481,560 | |
Construction in progress | | 18,918 | | | 13,052 | |
Total premises, equipment and software | | 981,468 | | | 1,069,349 | |
Less: Accumulated depreciation and amortization | | (574,227) | | | (605,390) | |
Net premises, equipment and software | | $ | 407,241 | | | $ | 463,959 | |
| | | | |
Net premises, equipment, and software included $2.2 million and $3.4 million related to net finance leases at December 31, 2021 and 2020, respectively. Depreciation and amortization expense for the years ended December 31, 2021, 2020, and 2019 totaled $50.5 million, $51.6 million, and $49.2 million, respectively.
During the years ended December 31, 2021 and 2020, Synovus transferred premises with a net book value of $33.4 million, including $17.6 million of real estate related to our headquarters in Columbus, and $7.0 million, respectively, to other properties held for sale, a component of other assets.
Note 5 - Goodwill and Other Intangible Assets
Goodwill allocated to each reporting unit at December 31, 2021 and December 31, 2020 is presented as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Community Banking Reporting Unit | | Wholesale Banking Reporting Unit | | Consumer Mortgage Reporting Unit | | Wealth Management Reporting Unit | | Total |
Balance as of December 31, 2019 | $ | 256,323 | | | $ | 171,636 | | | $ | 44,877 | | | $ | 24,431 | | | $ | 497,267 | |
Goodwill impairment | — | | | — | | | (44,877) | | | — | | | (44,877) | |
Balance as of December 31, 2020 | $ | 256,323 | | | $ | 171,636 | | | $ | — | | | $ | 24,431 | | | $ | 452,390 | |
Change in goodwill | — | | | — | | | — | | | — | | | — | |
Balance as of December 31, 2021 | $ | 256,323 | | | $ | 171,636 | | | $ | — | | | $ | 24,431 | | | $ | 452,390 | |
| | | | | | | | | |
Goodwill is evaluated for impairment on an annual basis or whenever an event occurs or circumstances change to indicate that it is more likely than not that an impairment loss has been incurred (i.e., a triggering event). During the fourth quarter of 2021, Synovus completed its annual goodwill impairment evaluation applying ASC 350-20-35-3A Goodwill Subsequent Measurement - Qualitative Assessment Approach and concluded that goodwill was not impaired. During 2020, Synovus recorded a $44.9 million goodwill impairment charge representing all of the goodwill allocated to the Consumer Mortgage reporting unit resulting from a combination of factors, including the extended duration of lower market valuations, high volumes in refinance activity that reduced mortgage yields, and the clarity around the FOMC's longer term policy actions designed to keep interest rates low.
The following table shows the gross carrying amount and accumulated amortization of other intangible assets as of December 31, 2021 and 2020, which primarily consist of core deposit intangible assets. The CDI is being amortized over its estimated useful life of approximately ten years utilizing an accelerated method. Aggregate other intangible assets amortization expense for the years ended December 31, 2021, 2020, and 2019 was $9.5 million, $10.6 million, and $11.6 million, respectively, and is included in amortization of intangibles expense within non-interest expense.
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(in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value |
December 31, 2021 | | | | | |
CDI | $ | 57,400 | | | $ | (28,178) | | | $ | 29,222 | |
Other | 12,500 | | | (6,126) | | | 6,374 | |
Total other intangible assets | $ | 69,900 | | | $ | (34,304) | | | $ | 35,596 | |
December 31, 2020 | | | | | |
CDI | 57,400 | | | (19,829) | | | $ | 37,571 | |
Other | 12,500 | | | (4,959) | | | 7,541 | |
Total other intangible assets | $ | 69,900 | | | $ | (24,788) | | | $ | 45,112 | |
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The estimated amortization expense of other intangible assets for the next five years is as follows:
| | | | | |
(in thousands) | Amortization Expense |
2022 | $ | 8,472 | |
2023 | 7,429 | |
2024 | 6,366 | |
2025 | 5,266 | |
2026 | 4,195 | |
| |
Note 6 - Other Assets
Significant balances included in other assets at December 31, 2021 and 2020 are presented below.
| | | | | | | | | | | |
(in thousands) | 2021 | | 2020 |
Investments in tax credits, CRA partnerships, and other investments | $ | 426,137 | | | $ | 262,855 | |
ROU assets | 411,472 | | | 380,380 | |
Derivative asset positions | 191,708 | | | 401,295 | |
Deferred tax asset, net | 169,051 | | | 130,848 | |
Federal Reserve Bank and FHLB Stock | 159,941 | | | 157,520 | |
Accrued interest receivable | 145,659 | | | 177,865 | |
Accounts receivable | 81,325 | | | 88,286 | |
Mutual funds and mutual funds held in rabbi trusts | 43,657 | | | 37,650 | |
Prepaid expense | 42,874 | | | 45,088 | |
MPS receivable(1) | 15,320 | | | 15,575 | |
Other investments | 12,185 | | | 1,021 | |
Other real estate | 11,818 | | | 1,819 | |
Trading account assets, at fair value | 8,391 | | | 10,880 | |
Miscellaneous other assets | 70,660 | | | 49,517 | |
Total other assets | $ | 1,790,198 | | | $ | 1,760,599 | |
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(1) See "Part II - Item 8. Financial Statements and Supplementary Data - Note 14 - Commitments and Contingencies" in this Report for more information on this receivable which is classified as a NPA.
Note 7 - Deposits
A summary of interest-bearing deposits at December 31, 2021 and 2020 is presented below.
| | | | | | | | | | | | | | |
(in thousands) | | 2021 | | 2020 |
Interest-bearing demand deposits(1) | | $ | 9,321,611 | | | $ | 8,838,710 | |
Money market accounts(1) | | 16,364,338 | | | 15,277,829 | |
Savings accounts | | 1,420,647 | | | 1,168,672 | |
Time deposits(1) | | 3,093,027 | | | 4,358,100 | |
Brokered deposits | | 2,835,000 | | | 3,570,406 | |
Total interest-bearing deposits | | $ | 33,034,623 | | | $ | 33,213,717 | |
| | | | |
(1) Excluding brokered deposits
The aggregate amount of time deposits of $250,000 or more was $1.33 billion at December 31, 2021 and $1.80 billion at December 31, 2020.
The following table presents contractual maturities of all time deposits, including brokered time deposits, at December 31, 2021.
| | | | | |
(in thousands) | |
Maturing within one year | $ | 3,025,020 | |
Between 1 - 2 years | 789,274 | |
2 - 3 years | 171,042 | |
3 - 4 years | 79,903 | |
4 - 5 years | 41,967 | |
Thereafter | 10,269 | |
Total | $ | 4,117,475 | |
| |
Note 8 - Long-term Debt
Long-term debt at December 31, 2021 and 2020 is presented in the following table:
| | | | | | | | | | | |
(dollars in thousands) | 2021 | | 2020 |
Parent Company: | | | |
3.125% senior notes, due November 1, 2022, $300.0 million par value with semi-annual interest payments and principal to be paid at maturity | $ | 299,479 | | | $ | 298,853 | |
5.90% Fixed-to-Fixed Rate Subordinated Notes issued February 7, 2019, due February 7, 2029, subject to redemption prior to February 7, 2029: $300.0 million par value with semi-annual interest payments at 5.90% for the first five years and semi-annual payments thereafter at a fixed rate of 3.379% above the 5-Year Mid-Swap Rate as of the reset date | 297,855 | | | 297,553 | |
LIBOR + 1.80% junior subordinated debentures, due June 15, 2035, $10.0 million par value with quarterly interest payments and principal to be paid at maturity (rate of 2.00% at December 31, 2021 and 2.02% at December 31, 2020) | 10,000 | | | 10,000 | |
Total long-term debt — Parent Company | $ | 607,334 | | | $ | 606,406 | |
Synovus Bank: | | | |
2.289% Fixed-to-Floating Rate Senior Bank Notes issued February 12, 2020, due February 10, 2023, subject to redemption on February 10, 2022: $400.0 million par value with semi-annual interest payments at 2.289% for the first two years and quarterly payments thereafter at an adjustable rate equal to the then-current SOFR + 94.5 bps per annum(1) | $ | 399,269 | | | $ | 398,594 | |
4.00% Fixed-to-Fixed Rate Subordinated Bank Notes issued October 29, 2020, due October 29, 2030, $200.0 million par value with semi-annual interest payments at 4.00% for the first five years and semi-annual payments thereafter at a fixed rate of 3.625% above the 5-Year U.S. Treasury Rate | 197,626 | | | 197,349 | |
FRB PPP Lending Facility | — | | | 145 | |
Total long-term debt — Synovus Bank | 596,895 | | | 596,088 | |
Total long-term debt | $ | 1,204,229 | | | $ | 1,202,494 | |
| | | |
(1) Subsequent to December 31, 2021, Synovus Bank called these Notes and settled them on February 10, 2022 with a net payment of $405.3 million that included principal, interest, and written off debt issuance costs. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 19 - Subsequent Event" in this Report for more information.
The provisions of the indentures governing Synovus’ long-term debt contain certain restrictions within specified limits on mergers, sales of all or substantially all of Synovus' assets and limitations on sales and issuances of voting stock of subsidiaries and Synovus’ ability to pay dividends on its capital stock if there is an event of default under the applicable indenture. As of December 31, 2021 and 2020, Synovus and its subsidiaries were in compliance with the covenants in these agreements.
Contractual annual principal payments on long-term debt for the next five years and thereafter are shown in the following table. These maturities are based upon the par value of the long-term debt.
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Parent Company | | Synovus Bank | | Total |
2022 | | $ | 300,000 | |
| $ | — | | | $ | 300,000 | |
2023 | | — | | | 400,000 | | (1) | | 400,000 | |
2024 | | — | | | — | | | — | |
2025 | | — | | | — | | | — | |
2026 | | — | | | — | | | — | |
Thereafter | | 310,000 | | | 200,000 | | | 510,000 | |
Total | | $ | 610,000 | | | $ | 600,000 | | | $ | 1,210,000 | |
| | | | | | |
(1) Subsequent to December 31, 2021, Synovus Bank called these Notes and settled them on February 10, 2022 with a net payment of $405.3 million that included principal, interest, and written off debt issuance costs. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 19 - Subsequent Event" in this Report for more information.
Note 9 - Shareholders' Equity and Other Comprehensive Income
The following table shows the changes in shares of preferred and common stock issued and common stock held as treasury shares for the years ended December 31, 2021, 2020, and 2019.
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(shares in thousands) | Series D Preferred Stock Issued | | Series E Preferred Stock Issued | | Total Preferred Stock Issued | | Common Stock Issued | | Treasury Stock Held | | Common Stock Outstanding |
Balance at December 31, 2018 | 8,000 | | | — | | | 8,000 | | | 143,300 | | | 27,434 | | | 115,866 | |
FCB acquisition: | | | | | | | | | | | |
Issuance of common stock for acquisition | — | | | — | | | — | | | 22,043 | | | — | | | 22,043 | |
Common stock reissued | — | | | — | | | — | | | — | | | (27,434) | | | 27,434 | |
Warrants exercised and common stock reissued | — | | | — | | | — | | | — | | | (260) | | | 260 | |
Issuance of preferred stock | — | | | 14,000 | | | 14,000 | | | — | | | — | | | — | |
Issuance of common stock for earnout payment | — | | | — | | | — | | | 344 | | | — | | | 344 | |
Restricted share unit activity | — | | | — | | | — | | | 302 | | | — | | | 302 | |
Stock options exercised | — | | | — | | | — | | | 812 | | | — | | | 812 | |
Repurchase of common stock | — | | | — | | | — | | | — | | | 19,903 | | | (19,903) | |
Balance at December 31, 2019 | 8,000 | | | 14,000 | | | 22,000 | | | 166,801 | | | 19,643 | | | 147,158 | |
Issuance of common stock for earnout payment | — | | | — | | | — | | | 379 | | | — | | | 379 | |
Restricted share unit activity | — | | | — | | | — | | | 389 | | | — | | | 389 | |
Stock options exercised | — | | | — | | | — | | | 564 | | | — | | | 564 | |
Repurchase of common stock | — | | | — | | | — | | | — | | | 450 | | | (450) | |
Balance at December 31, 2020 | 8,000 | | | 14,000 | | | 22,000 | | | 168,133 | | | 20,093 | | | 148,040 | |
Warrants exercised and common stock reissued | — | | | — | | | — | | | — | | | (3) | | | 3 | |
Common stock reissued for earnout payment | — | | | — | | | — | | | — | | | (125) | | | 125 | |
Restricted share unit activity | — | | | — | | | — | | | 355 | | | — | | | 355 | |
Stock options exercised | — | | | — | | | — | | | 896 | | | — | | | 896 | |
Repurchase of common stock | — | | | — | | | — | | | — | | | 4,409 | | | (4,409) | |
Balance at December 31, 2021 | 8,000 | | | 14,000 | | | 22,000 | | | 169,384 | | | 24,374 | | | 145,010 | |
| | | | | | | | | | | |
Preferred Stock
The following table presents a summary of Preferred Stock as of December 31, 2021, 2020, and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance Date | | Public Offering Amount | | Net Proceeds | | Earliest Redemption Date | | Dividend Rate(1) | | Liquidation Preference |
Series D | June 21, 2018 | | $200.0 | million | | $195.1 | million | | June 21, 2023 | | 6.300 | % | (2) | $25 per share |
Series E | July 1, 2019 | | $350.0 | million | | $342.0 | million | | July 1, 2024 | | 5.875 | % | (3) | $25 per share |
| | | | | | | | | | | |
(1) Dividends on all series of Preferred Stock are non-cumulative and, if declared, will accrue and be payable in arrears, quarterly.
(2) Dividends, if declared, will be paid quarterly at a rate per annum equal to 6.300% for each dividend period from the original issue date to, but excluding, June 21, 2023. From and including June 21, 2023, the dividend rate will change to a floating rate equal to the three-month LIBOR plus a spread of 3.352% per annum.
(3) Dividends, if declared, will be paid quarterly at a rate per annum equal to 5.875% for each dividend period from the original issue date to, but excluding, July 1, 2024. From and including July 1, 2024, the dividend rate will change and reset every five years on July 1 at a rate equal to the five-year U.S. Treasury Rate plus 4.127% per annum.
All series of Preferred Stock are redeemable at Synovus' option in whole or in part, from time to time, on the earliest redemption date or any subsequent reset date, or in whole but not in part, at any time within 90 days following a regulatory capital treatment event, in each case, at a redemption price equal to $25 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends. All series of Preferred Stock have no preemptive or conversion rights. Except in limited circumstances, all series of Preferred Stock do not have any voting rights.
Common Stock
Repurchases of Common Stock
During 2021, Synovus repurchased $199.9 million, or 4.4 million shares, of common stock through open market transactions under the share repurchase program announced on January 26, 2021.
During 2020, Synovus repurchased $16.2 million, or 450 thousand shares, of common stock through open market transactions under the share repurchase program announced on January 24, 2020.
During 2019, Synovus repurchased $725.0 million, or 19.9 million shares, of common stock through open market transactions under the $725.0 million repurchase program, with $400.0 million authorized during the fourth quarter of 2018 for execution in 2019 and $325.0 million authorized in 2019.
Accumulated Other Comprehensive Income (Loss)
The following table illustrates activity within the balances in AOCI by component, and is shown for the years ended December 31, 2021, 2020, and 2019.
| | | | | | | | | | | | | | | | | | | | | | | |
Changes in Accumulated Other Comprehensive Income (Loss) by Component (Net of Income Taxes) |
(in thousands) | Net Unrealized Gains (Losses) on Investment Securities Available for Sale(1) | | Net Unrealized Gains (Losses) on Cash Flow Hedges(1) | | Post-Retirement Unfunded Health Benefit | | Total |
Balance at December 31, 2018 | $ | (83,179) | | | $ | (12,137) | | | $ | 896 | | | $ | (94,420) | |
Other comprehensive income (loss) before reclassifications | 161,170 | | | (6,350) | | | (378) | | | 154,442 | |
Amounts reclassified from accumulated other comprehensive income (loss) | 5,675 | | | — | | | (56) | | | 5,619 | |
Net current period other comprehensive income (loss) | 166,845 | | | (6,350) | | | (434) | | | 160,061 | |
Balance at December 31, 2019 | $ | 83,666 | | | $ | (18,487) | | | $ | 462 | | | $ | 65,641 | |
Other comprehensive income (loss) before reclassifications | 80,491 | | | 73,502 | | | — | | | 153,993 | |
Amounts reclassified from accumulated other comprehensive income (loss) | (58,488) | | | (2,049) | | | (462) | | | (60,999) | |
Net current period other comprehensive income (loss) | 22,003 | | | 71,453 | | | (462) | | | 92,994 | |
Balance at December 31, 2020 | $ | 105,669 | | | $ | 52,966 | | | $ | — | | | $ | 158,635 | |
Other comprehensive income (loss) before reclassifications | (174,246) | | | (57,705) | | | — | | | (231,951) | |
Amounts reclassified from accumulated other comprehensive income (loss) | 597 | | | (9,602) | | | — | | | (9,005) | |
Net current period other comprehensive income (loss) | (173,649) | | | (67,307) | | | — | | | (240,956) | |
Balance at December 31, 2021 | $ | (67,980) | | | $ | (14,341) | | | $ | — | | | $ | (82,321) | |
| | | | | | | |
(1) For all periods presented, the ending balance in net unrealized gains (losses) on investment securities available for sale and cash flow hedges includes unrealized losses of $13.3 million and $12.1 million, respectively, related to residual tax effects remaining in OCI due to previously established deferred tax asset valuation allowances in 2010 and 2011. In accordance with ASC 740-20-45-11(b), under the portfolio approach, these unrealized losses are realized at the time the entire portfolio is sold or disposed.
Note 10 - Regulatory Capital
Synovus and Synovus Bank are each subject to regulatory capital requirements administered by the federal banking agencies under Basel III. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Specific capital levels that involve quantitative measures of both on- and off-balance sheet items as calculated under regulatory capital guidelines must be met. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Additionally, regulatory capital rules include a capital conservation buffer of 2.5% that is added on top of each of the minimum risk-based capital ratios in order to avoid restrictions on capital distributions and discretionary bonuses. Management currently believes, based on internal capital analyses and earnings projections, that Synovus' and Synovus Bank’s capital positions are each adequate to meet regulatory minimum capital requirements inclusive of the capital conservation buffer.
Synovus Bank is also required to maintain certain capital levels, and not be subject to any written agreement, order, capital directive, or prompt corrective action directive requiring it to meet and maintain a specific capital level for any capital measure, in order to be considered a well-capitalized institution as defined by federal prompt corrective action banking regulations.
The following table summarizes regulatory capital information at December 31, 2021 and 2020 for Synovus and Synovus Bank.
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| Actual Capital | | Minimum Requirement For Capital Adequacy(1) | | To Be Well-Capitalized Under Prompt Corrective Action Provisions(2) |
(dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Synovus Financial Corp. | | | | | | | | | | | |
CET1 capital | $ | 4,388,618 | | | $ | 4,034,865 | | | $ | 2,079,435 | | | $ | 1,879,551 | | | N/A | | N/A |
Tier 1 risk-based capital | 4,925,763 | | | 4,572,010 | | | 2,772,581 | | | 2,506,068 | | | N/A | | N/A |
Total risk-based capital | 5,827,196 | | | 5,604,230 | | | 3,696,774 | | | 3,341,425 | | | N/A | | N/A |
CET1 capital ratio | 9.50 | % | | 9.66 | % | | 4.50 | % | | 4.50 | % | | N/A | | N/A |
Tier 1 risk-based capital ratio | 10.66 | | | 10.95 | | | 6.00 | | | 6.00 | | | N/A | | N/A |
Total risk-based capital ratio | 12.61 | | | 13.42 | | | 8.00 | | | 8.00 | | | N/A | | N/A |
Leverage ratio | 8.72 | | | 8.50 | | | 4.00 | | | 4.00 | | | N/A | | N/A |
Synovus Bank | | | | | | | | | | | |
CET1 capital | $ | 4,998,698 | | | $ | 4,641,711 | | | $ | 2,076,515 | | | $ | 1,880,757 | | | $ | 2,999,410 | | | $ | 2,716,650 | |
Tier 1 risk-based capital | 4,998,698 | | | 4,641,711 | | | 2,768,686 | | | 2,507,677 | | | 3,691,581 | | | 3,343,569 | |
Total risk-based capital | 5,587,757 | | | 5,361,611 | | | 3,691,581 | | | 3,343,569 | | | 4,614,477 | | | 4,176,461 | |
CET1 capital ratio | 10.83 | % | | 11.11 | % | | 4.50 | % | | 4.50 | % | | 6.50 | % | | 6.50 | % |
Tier 1 risk-based capital ratio | 10.83 | | | 11.11 | | | 6.00 | | | 6.00 | | | 8.00 | | | 8.00 | |
Total risk-based capital ratio | 12.11 | | | 12.83 | | | 8.00 | | | 8.00 | | | 10.00 | | | 10.00 | |
Leverage ratio | 8.86 | | | 8.73 | | | 4.00 | | | 4.00 | | | 5.00 | | | 5.00 | |
| | | | | | | | | | | |
(1) The additional capital conservation buffer in effect is 2.5%.
(2) The prompt corrective action provisions are applicable at the bank level only.
Note 11 - Net Income Per Common Share
The following table displays a reconciliation of the information used in calculating basic and diluted net income per common share for the years ended December 31, 2021, 2020, and 2019. Diluted net income per common share incorporates the potential impact of contingently issuable shares, including awards which require future service as a condition of delivery of the underlying common stock.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in thousands, except per share data) | 2021 | | 2020 | | 2019 |
Net income | $ | 760,467 | | | $ | 373,695 | | | $ | 563,780 | |
Less: Preferred stock dividends | 33,163 | | | 33,163 | | | 22,881 | |
Net income available to common shareholders | $ | 727,304 | | | $ | 340,532 | | | $ | 540,899 | |
Weighted average common shares outstanding | 147,041 | | | 147,415 | | | 154,331 | |
Effect of dilutive outstanding equity-based awards, warrants, and earnout payments | 1,454 | | | 795 | | | 1,727 | |
Weighted average diluted common shares | 148,495 | | | 148,210 | | | 156,058 | |
Net income per common share, basic | $ | 4.95 | | | $ | 2.31 | | | $ | 3.50 | |
Net income per common share, diluted | $ | 4.90 | | | $ | 2.30 | | | $ | 3.47 | |
| | | | | |
For the years ended December 31, 2021, 2020, and 2019, there were 21 thousand, 602 thousand, and 40 thousand, respectively, potentially dilutive shares related to stock options to purchase shares of common stock that were outstanding but were not included in the computation of diluted net income per common share because the effect would have been anti-dilutive.
Note 12 - Fair Value Accounting
Fair value accounting guidance defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability (an "exit price") in the principal or most advantageous market available to the entity in an orderly transaction between market participants, on the measurement date. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" of this Report for a description of how fair value measurements are determined.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents all financial instruments measured at fair value on a recurring basis as of December 31, 2021 and 2020.
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| December 31, 2021 | | | December 31, 2020 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total Assets and Liabilities at Fair Value | | | 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 | $ | — | | | $ | 197 | | | $ | — | | | $ | 197 | | | | $ | — | | | $ | 10,185 | | | $ | — | | | $ | 10,185 | |
Collateralized mortgage obligations issued by U.S. Government sponsored enterprises | — | | | 671 | | | — | | | 671 | | | | — | | | 158 | | | — | | | 158 | |
Other mortgage-backed securities | — | | | — | | | — | | | — | | | | — | | | 178 | | | — | | | 178 | |
State and municipal securities | — | | | 560 | | | — | | | 560 | | | | — | | | 176 | | | — | | | 176 | |
Asset-backed securities | — | | | 6,963 | | | — | | | 6,963 | | | | — | | | 183 | | | — | | | 183 | |
Total trading securities | $ | — | | | $ | 8,391 | | | $ | — | | | $ | 8,391 | | | | $ | — | | | $ | 10,880 | | | $ | — | | | $ | 10,880 | |
Investment securities available for sale: | | | | | | | | | | | | | | | | |
U.S. Treasury securities | $ | 117,838 | | | $ | — | | | $ | — | | | $ | 117,838 | | | | $ | 20,257 | | | $ | — | | | $ | — | | | $ | 20,257 | |
U.S. Government agency securities | — | | | 54,201 | | | — | | | 54,201 | | | | — | | | 82,320 | | | — | | | 82,320 | |
Mortgage-backed securities issued by U.S. Government agencies | — | | | 779,633 | | | — | | | 779,633 | | | | — | | | 1,218,017 | | | — | | | 1,218,017 | |
Mortgage-backed securities issued by U.S. Government sponsored enterprises | — | | | 8,012,301 | | | — | | | 8,012,301 | | | | — | | | 5,000,046 | | | — | | | 5,000,046 | |
Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | — | | | 939,623 | | | — | | | 939,623 | | | | — | | | 1,250,377 | | | — | | | 1,250,377 | |
Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | — | | | 481,744 | | | — | | | 481,744 | | | | — | | | 370,921 | | | — | | | 370,921 | |
Asset-backed securities | — | | | 514,188 | | | — | | | 514,188 | | | | — | | | — | | | — | | | — | |
Corporate debt securities and other debt securities | — | | | 18,801 | | | — | | | 18,801 | | | | — | | | 18,479 | | | 2,021 | | | 20,500 | |
Total investment securities available for sale | $ | 117,838 | | | $ | 10,800,491 | | | $ | — | | | $ | 10,918,329 | | | | $ | 20,257 | | | $ | 7,940,160 | | | $ | 2,021 | | | $ | 7,962,438 | |
Mortgage loans held for sale | — | | | 108,198 | | | — | | | 108,198 | | | | — | | | 216,647 | | | — | | | 216,647 | |
Other investments | — | | | — | | | 12,185 | | | 12,185 | | | | — | | | — | | | 1,021 | | | 1,021 | |
Mutual funds and mutual funds held in rabbi trusts | 43,657 | | | — | | | — | | | 43,657 | | | | 37,650 | | | — | | | — | | | 37,650 | |
GGL/SBA loans servicing asset | — | | | — | | | 3,233 | | | 3,233 | | | | — | | | — | | | 3,258 | | | 3,258 | |
Derivative assets | — | | | 191,708 | | | — | | | 191,708 | | | | — | | | 401,295 | | | — | | | 401,295 | |
Liabilities | | | | | | | | | | | | | | | | |
Trading liability for short positions | $ | — | | | $ | 200 | | | $ | — | | | $ | 200 | | | | $ | — | | | $ | 7,717 | | | $ | — | | | $ | 7,717 | |
Mutual fund held in rabbi trusts | 27,205 | | | — | | | — | | | 27,205 | | | | 20,752 | | | — | | | — | | | 20,752 | |
Earnout liability | — | | | — | | | — | | | — | | | | — | | | — | | | 5,677 | | | 5,677 | |
Derivative liabilities | — | | | 95,067 | | | 3,535 | | | 98,602 | | | | — | | | 155,119 | | | 2,048 | | | 157,167 | |
| | | | | | | | | | | | | | | | |
Fair Value Option
Synovus has elected the fair value option for mortgage loans held for sale primarily to ease the operational burden required to maintain hedge accounting for these loans. Synovus is still able to achieve effective economic hedges on mortgage loans held for sale without the time and expense needed to manage a hedge accounting program.
The following table summarizes the difference between the fair value and the UPB of mortgage loans held for sale and the changes in fair value of these loans. An immaterial portion of these changes in fair value was attributable to instrument-specific credit risk.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in thousands) | 2021 | | 2020 | | 2019 |
Changes in fair value included in net income: | | | | | |
Mortgage loans held for sale | $ | (3,942) | | | $ | 3,400 | | | $ | 1,675 | |
Mortgage loans held for sale: | | | | | |
Fair value | 108,198 | | | 216,647 | | | 115,173 | |
Unpaid principal balance | 105,785 | | | 210,292 | | | 112,218 | |
Fair value less aggregate unpaid principal balance | $ | 2,413 | | | $ | 6,355 | | | $ | 2,955 | |
| | | | | |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
During 2021 and 2020, Synovus did not have any transfers in or out of Level 3 in the fair value hierarchy.
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| | 2021 |
(in thousands) | | Investment Securities Available for Sale | | Other Investments | | GGL/SBA Loans Servicing Asset | | Earnout Liability | | Visa Derivative Liability |
Beginning balance | | $ | 2,021 | | | $ | 1,021 | | | $ | 3,258 | | | $ | (5,677) | | | $ | (2,048) | |
Total gains (losses) realized/unrealized: | | | | | | | | | | |
Included in earnings | | — | | | 1,164 | | | (1,339) | | | (507) | | | (2,656) | |
Sales | | (2,021) | | | — | | | — | | | — | | | — | |
Additions | | — | | | 10,000 | |
| — | | | — | | | — | |
Settlements | | — | | | — | | | 1,314 | | | 6,184 | | | 1,169 | |
Ending balance | | $ | — | | | $ | 12,185 | | | $ | 3,233 | | | $ | — | | | $ | (3,535) | |
Total net gains (losses) for the year included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at December 31, 2021 | | $ | — | | | $ | 1,164 | | | $ | — | | | | | $ | (2,656) | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 |
(in thousands) | Investment Securities Available for Sale | | Other Investments | | GGL/SBA Loans Servicing Asset | | Earnout Liability | | Visa Derivative Liability |
Beginning balance | $ | 2,105 | | | $ | 3,887 | | | $ | 3,040 | | | $ | (11,016) | | | $ | (2,339) | |
Total gains (losses) realized/unrealized: | | | | | | | | | |
Included in earnings | — | | | (2,866) | | | (1,000) | | | (4,908) | | | (890) | |
Unrealized gains (losses) included in other comprehensive income | (84) | | | — | | | — | | | — | | | — | |
Additions | — | | | — | | | 1,218 | | | — | | | — | |
Settlements | — | | | — | | | — | | | 10,247 | | | 1,181 | |
Ending balance | $ | 2,021 | | | $ | 1,021 | | | $ | 3,258 | | | $ | (5,677) | | | $ | (2,048) | |
Total net gains (losses) for the year included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at December 31, 2020 | $ | — | | | $ | (2,866) | | | $ | — | | | $ | (4,908) | | | $ | (890) | |
| | | | | | | | | |
The table below provides 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 and are measured at fair value on a recurring basis. 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.
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| | | | | December 31, 2021 | | December 31, 2020 |
(dollars in thousands) | Valuation Technique | | Significant Unobservable Input | | Level 3 Fair Value | | Rate/Range | | Level 3 Fair Value | | Rate/Range |
Assets measured at fair value on a recurring basis | | | | | | | | | | | |
| | | | | | | | | | | |
Investment Securities Available for Sale: | | | | | | | | | | | |
Corporate debt and other debt securities trust preferred security | Discounted cash flow analysis | | Discount rate Forecasted average Prime reset rate | | $— | | N/A | | $2,021 | | 4.96% 4.06% |
Other investments | 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 | | $12,185 | | N/A | | $1,021 | | N/A |
GGL/SBA loans servicing asset | Discounted cash flow analysis | | Discount rate Prepayment speeds | | $3,233 | | 8.55% 18.50% | | $3,258 | | 10.79% 18.81% |
Earnout liability | Option pricing methods and Monte Carlo simulation | | Financial projections of Global One through June 30, 2021 | | $— | | N/A | | $5,677 | | N/A |
Visa derivative liability | Discounted cash flow analysis | | Estimated timing of resolution of Covered Litigation and future cumulative deposits to the litigation escrow for settlement of the Covered Litigation | | $3,535 | | 0-1.8 years (3Q 2023) | | $2,048 | | 0-1.8 years (3Q 2022) |
| | | | | | | | | | | |
Assets Measured at Fair Value on a Non-recurring Basis
Certain assets are required to be measured at fair value on a non-recurring basis subsequent to their initial recognition. These assets and liabilities are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. 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.
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| December 31, 2021 | | | December 31, 2020 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total |
Loans(1) | $ | — | | | $ | — | | | $ | 19,482 | | | $ | 19,482 | | | | $ | — | | | $ | — | | | $ | 44,802 | | | $ | 44,802 | |
Other real estate | — | | | — | | | 270 | | | 270 | | | | — | | | — | | | 860 | | | 860 | |
MPS receivable | — | | | — | | | — | | | — | | | | — | | | — | | | 15,575 | | | 15,575 | |
Other assets held for sale | — | | | — | | | 1,256 | | | 1,256 | | | | — | | | — | | | 2,354 | | | 2,354 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | |
(in thousands) | 2021 | | 2020 | | Location in Consolidated Statements of Income |
Loans(1) | $ | 27,613 | | | $ | 21,927 | | | Provision for credit losses |
Other real estate | 120 | | | 200 | | | Other operating expense |
MPS receivable | — | | | 2,663 | | | Other operating expense |
Other assets held for sale | 462 | | | 2,292 | | | Other operating expense |
| | | | | |
(1) Collateral-dependent loans that are written down to fair value of collateral.
The table below provides 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 and are measured at fair value on a non-recurring basis.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2021 | | December 31, 2020 |
| Valuation Technique | | Significant Unobservable Input | | Range (Weighted Average)(1) | | Range (Weighted Average)(1) |
Assets measured at fair value on a non-recurring basis | | | | | | | |
| | | | | | | |
Loans | Third-party appraised value of collateral less estimated selling costs | | Discount to appraised value Estimated selling costs | | 0%-71% (48%) 0%-10% (7%) | | 0%-39% (25%) 0%-7% (7%) |
Loans held for sale | Analysis of anticipated market prices for similar assets less estimated selling costs | | Market price analysis for similar assets Estimated selling costs | | N/A | | N/A |
Other real estate | Third-party appraised value of real estate less estimated selling costs | | Discount to appraised value Estimated selling costs | | 0%-48% (24%) 0%-10% (7%) | | 0%-23% (12%) 0%-10% (7%) |
MPS receivable(2) | Third-party appraised value of business less estimated selling costs | | Discount to appraised value Estimated selling costs | | N/A | | N/A |
Other assets held for sale | Third-party appraised value less estimated selling costs or BOV | | Discount to appraised value Estimated selling costs | | 0%-51% (20%) 0%-10% (7%) | | 0%-66% (45%) 0%-10% (7%) |
| | | | | | | |
(1) The weighted average is the measure of central tendencies; it is not the value that management is using for the asset or liability.
(2) See "Part II - Item 8. Financial Statements and Supplementary Data - Note 14 - Commitments and Contingencies" of this Report for more information on this receivable which was classified as a NPA at December 31, 2021 and 2020.
Fair Value of Financial Instruments
The following table presents the carrying and estimated fair values of financial instruments at December 31, 2021 and 2020. The fair values represent management’s best estimates based on a range of methodologies and assumptions. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" of this Report for a description of how fair value measurements are determined.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
(in thousands) | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | | | |
Total cash, cash equivalents, and restricted cash | $ | 3,009,853 | | | $ | 3,009,853 | | | $ | 3,009,853 | | | $ | — | | | $ | — | |
Trading securities | 8,391 | | | 8,391 | | | — | | | 8,391 | | | — | |
Investment securities available for sale | 10,918,329 | | | 10,918,329 | | | 117,838 | | | 10,800,491 | | | — | |
Loans held for sale | 750,642 | | | 749,980 | | | — | | | 108,198 | | | 641,782 | |
Other investments | 12,185 | | | 12,185 | | | — | | | — | | | 12,185 | |
Mutual funds and mutual funds held in rabbi trusts | 43,657 | | | 43,657 | | | 43,657 | | | — | | | — | |
Loans, net of deferred fees and costs | 38,884,361 | | | 39,118,275 | | | — | | | — | | | 39,118,275 | |
GGL/SBA loans servicing asset | 3,233 | | | 3,233 | | | — | | | — | | | 3,233 | |
FRB and FHLB stock | 159,941 | | | 159,941 | | | — | | | 159,941 | | | — | |
Derivative assets | 191,708 | | | 191,708 | | | — | | | 191,708 | | | — | |
Financial Liabilities | | | | | | | | | |
Non-interest-bearing deposits | $ | 16,392,653 | | | $ | 16,392,653 | | | $ | — | | | $ | 16,392,653 | | | $ | — | |
Non-time interest-bearing deposits | 28,917,148 | | | 28,917,148 | | | — | | | 28,917,148 | | | — | |
Time deposits | 4,117,475 | | | 4,125,673 | | | — | | | 4,125,673 | | | — | |
Total deposits | $ | 49,427,276 | | | $ | 49,435,474 | | | $ | — | | | $ | 49,435,474 | | | $ | — | |
Securities sold under repurchase agreements | 264,133 | | | 264,133 | | | 264,133 | | | — | | | — | |
Trading liability for short positions | 200 | | | 200 | | | — | | | 200 | | | — | |
Long-term debt | 1,204,229 | | | 1,243,147 | | | — | | | 1,243,147 | | | — | |
Mutual fund held in rabbi trusts | 27,205 | | | 27,205 | | | 27,205 | | | — | | | — | |
Derivative liabilities | 98,602 | | | 98,602 | | | — | | | 95,067 | | | 3,535 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
(in thousands) | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | | | |
Total cash, cash equivalents, and restricted cash | $ | 4,252,917 | | | $ | 4,252,917 | | | $ | 4,252,917 | | | $ | — | | | $ | — | |
Trading securities | 10,880 | | | 10,880 | | | — | | | 10,880 | | | — | |
Investment securities available for sale | 7,962,438 | | | 7,962,438 | | | 20,257 | | | 7,940,160 | | | 2,021 | |
Loans held for sale | 760,123 | | | 760,939 | | | — | | | 216,647 | | | 544,292 | |
Other investments | 1,021 | | | 1,021 | | | — | | | — | | | 1,021 | |
Mutual funds and mutual funds held in rabbi trusts | 37,650 | | | 37,650 | | | 37,650 | | | — | | | — | |
Loans, net of deferred fees and costs | 37,647,248 | | | 37,605,881 | | | — | | | — | | | 37,605,881 | |
GGL/SBA loans servicing asset | 3,258 | | | 3,258 | | | — | | | — | | | 3,258 | |
FRB and FHLB stock | 157,520 | | | 157,520 | | | — | | | 157,520 | | | — | |
Derivative assets | 401,295 | | | 401,295 | | | — | | | 401,295 | | | — | |
Financial Liabilities | | | | | | | | | |
Non-interest-bearing deposits | $ | 13,477,854 | | | $ | 13,477,854 | | | $ | — | | | $ | 13,477,854 | | | $ | — | |
Non-time interest-bearing deposits | 27,265,521 | | | 27,265,521 | | | — | | | 27,265,521 | | | — | |
Time deposits | 5,948,196 | | | 5,970,146 | | | — | | | 5,970,146 | | | — | |
Total deposits | $ | 46,691,571 | | | $ | 46,713,521 | | | $ | — | | | $ | 46,713,521 | | | $ | — | |
Securities sold under repurchase agreements | 227,922 | | | 227,922 | | | 227,922 | | | — | | | — | |
Trading liability for short positions | 7,717 | | | 7,717 | | | — | | | 7,717 | | | — | |
Long-term debt | 1,202,494 | | | 1,266,825 | | | — | | | 1,266,825 | | | — | |
Earnout liability | 5,677 | | | 5,677 | | | — | | | — | | | 5,677 | |
Mutual fund held in rabbi trusts | 20,752 | | | 20,752 | | | 20,752 | | | — | | | — | |
Derivative liabilities | 157,167 | | | 157,167 | | | — | | | 155,119 | | | 2,048 | |
| | | | | | | | | |
Note 13 - Derivative Instruments
Synovus utilizes derivative instruments to manage its exposure to various types of interest rate risk, exposures related to liquidity and credit risk, and to facilitate client transactions. The primary types of derivative instruments utilized by Synovus consist of interest rate swaps, interest rate lock commitments made to prospective mortgage loan clients, commitments to sell fixed-rate mortgage loans, and foreign currency exchange forwards. Interest rate lock commitments represent derivative instruments since it is intended that such loans will be sold. Synovus is party to master netting arrangements with its dealer counterparties; however, Synovus does not offset assets and liabilities under these arrangements for financial statement presentation purposes. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" of this Report for additional information regarding accounting policies for derivatives.
Hedging Derivatives
Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. Synovus has entered into interest rate swap contracts to manage overall cash flow changes related to interest rate risk exposure on index-based variable rate commercial loans. The contracts effectively modify Synovus' exposure to interest rate risk by utilizing receive fixed/pay index-based variable rate interest rate swaps.
For cash flow hedges, if the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of accumulated other comprehensive income (loss), net of the tax impact, and subsequently reclassified into earnings when the hedged transaction affects earnings with the impacts recorded in the same income statement line item used to present the earnings effect of the hedged item. When a cash flow hedge relationship is discontinued but the hedged cash flows, or forecasted transactions, are still expected to occur, gains or losses that were accumulated in OCI are amortized into earnings over the same periods which the hedged transactions are still expected to affect earnings. If, however, it is probable the forecasted transactions will no longer occur, the remaining accumulated amounts in OCI for the impacted cash flow hedges are immediately recognized in earnings.
Synovus recorded net unrealized gains of $1.2 million, or $930 thousand, after tax, in OCI during the year ended December 31, 2021 and $9.8 million, or $7.3 million, after-tax, in OCI, during the year ended December 31, 2020, related to terminated cash flow hedges, which are being recognized into earnings in conjunction with the effective terms of the original swaps
through the second quarter of 2026. Synovus recognized pre-tax income of $12.9 million and $2.8 million, respectively, during the years ended December 31, 2021 and 2020 related to the amortization of terminated cash flow hedges.
As of December 31, 2021, Synovus expects to reclassify into earnings approximately $27 million in pre-tax income due to the receipt or payment of interest payments on all cash flow hedges within the next twelve months. Included in this amount is approximately $4 million in pre-tax income related to the amortization of terminated cash flow hedges. As of December 31, 2021, the maximum length of time over which Synovus is hedging its exposure to the variability in future cash flows is through the third quarter of 2026.
For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.
Client Related Derivative Positions
Synovus enters into interest rate swap agreements to facilitate the risk management strategies of certain commercial banking clients. Synovus mitigates this risk largely by entering into equal and offsetting interest rate swap agreements with highly rated counterparties. The interest rate swap agreements are free-standing derivatives and are recorded at fair value on Synovus' consolidated balance sheets. The credit risk to these clients is evaluated and included in the calculation of fair value. Fair value changes including credit-related adjustments are recorded as a component of capital markets income.
Counterparty Credit Risk and Collateral
Entering into derivative contracts potentially exposes Synovus to the risk of counterparties’ failure to fulfill their legal obligations, including, but not limited to, potential amounts due or payable under each derivative contract. Notional principal amounts are often used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. Synovus assesses the credit risk of its dealer counterparties by regularly monitoring publicly available credit rating information, evaluating other market indicators, and periodically reviewing detailed financials. Dealer collateral requirements are determined via risk-based policies and procedures and in accordance with existing agreements. Synovus seeks to minimize dealer credit risk by dealing with highly rated counterparties and by obtaining collateral for exposures above certain predetermined limits. Management closely monitors credit conditions within the client swap portfolio, which management deems to be of higher risk than dealer counterparties. Collateral is secured at origination and credit related fair value adjustments are recorded against the asset value of the derivative as deemed necessary based upon an analysis, which includes consideration of the current asset value of the swap, client risk rating, collateral value, and client standing with regards to its swap contractual obligations and other related matters. Such asset values fluctuate based upon changes in interest rates regardless of changes in notional amounts and changes in client specific risk.
Mortgage Derivatives
Synovus originates first lien residential mortgage loans for sale into the secondary market. Mortgage loans are sold either individually or in a bulk sale by Synovus on a whole loan servicing-released basis to third-party servicing aggregators for potential conversion into mortgage-backed securities which can be traded in the secondary market or retained on their respective balance sheet.
Synovus enters into interest rate lock commitments for residential mortgage loans which commits it to lend funds to a potential borrower at a specific interest rate and within a specified period of time. Interest rate lock commitments that relate to the origination of mortgage loans that, if originated, will be held for sale, are considered derivative financial instruments under applicable accounting guidance. Outstanding interest rate lock commitments expose Synovus to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan and the eventual commitment for sale into the secondary market.
Forward commitments to sell primarily fixed-rate mortgage loans are entered into to reduce the exposure to market risk arising from potential changes in interest rates, which could affect the fair value of mortgage loans held for sale and outstanding interest rate lock commitments, which guarantee a certain interest rate if the loan is ultimately funded or granted by Synovus as a mortgage loan held for sale. The commitments to sell mortgage loans are at fixed prices and are scheduled to settle at specified dates that generally do not exceed 90 days.
Visa Derivative
In conjunction with the sale of Class B shares of common stock issued by Visa to Synovus as a Visa USA member, Synovus entered into a derivative contract with the purchaser, which provides for settlements between the parties based upon a change in the ratio for conversion of Visa Class B shares to Visa Class A shares. The conversion ratio changes when Visa deposits funds to a litigation escrow established by Visa to pay settlements for certain litigation, for which Visa is indemnified by Visa USA members. The litigation escrow is funded by proceeds from Visa’s conversion of Class B shares.
The fair value of the 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. During the years ended December 31, 2021 and 2020, Synovus recorded fair value adjustments of $2.7 million and $890 thousand, respectively, in other non-interest expense. Management believes that the estimate of Synovus' exposure to the Visa indemnification including fees associated with the Visa derivative is adequate based on current information, including Visa's recent announcements and disclosures. However, future developments in the litigation could require changes to Synovus' estimate.
Collateral Requirements
Certain derivative transactions have collateral requirements, both at the inception of the trade, and as the value of each derivative position changes. As of December 31, 2021 and 2020, collateral totaling $64.5 million and $155.4 million, respectively, was pledged to the derivative counterparties to comply with collateral requirements in the normal course of business. For derivatives cleared through central clearing houses, the variation margin payments made are legally characterized as settlements of the derivatives. As a result, these variation margin payments are netted against the fair value of the respective derivative contracts on the consolidated balance sheets and related disclosures. At December 31, 2021 and 2020, Synovus had a variation margin of $94.6 million and $162.7 million, respectively, reducing the derivative liability.
The following table reflects the notional amount and fair value of derivative instruments included on the consolidated balance sheets.
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| December 31, 2021 | | December 31, 2020 |
| | | Fair Value | | | | Fair Value |
(in thousands) | Notional Amount | | Derivative Assets(1) | | Derivative Liabilities(2) | | Notional Amount | | Derivative Assets(1) | | Derivative Liabilities(2) |
Derivatives in cash flow hedging relationships: | | | | | | | | | | | |
Interest rate contracts | $ | 3,600,000 | | | $ | 22,004 | | | $ | 20,395 | | | $ | 3,000,000 | | | $ | 80,802 | | | $ | — | |
Total derivatives designated as hedging instruments | | | $ | 22,004 | | | $ | 20,395 | | | | | $ | 80,802 | | | $ | — | |
| | | | | | | | | | | |
Derivatives not designated: as hedging instruments | | | | | | | | | | | |
Interest rate contracts(3) | $ | 9,653,600 | | | $ | 167,560 | | | $ | 74,514 | | | $ | 8,784,141 | | | $ | 314,234 | | | $ | 153,204 | |
Mortgage derivatives - interest rate lock commitments | 99,006 | | | 2,105 | | | — | | | 306,138 | | | 6,259 | | | — | |
Mortgage derivatives - forward commitments to sell fixed-rate mortgage loans | 105,500 | | | — | | | 122 | | | 230,500 | | | — | | | 1,611 | |
Other contracts(4) | 293,059 | | | — | | | 36 | | | 234,884 | | | — | | | 304 | |
Foreign exchange contracts(5) | 22,387 | | | 39 | | | — | | | 24,125 | | | | | |
Visa derivative | — | | | — | | | 3,535 | | | — | | | — | | | 2,048 | |
Total derivatives not designated as hedging instruments | | | $ | 169,704 | | | $ | 78,207 | | | | | $ | 320,493 | | | $ | 157,167 | |
| | | | | | | | | | | |
(1) Derivative assets are recorded in other assets on the consolidated balance sheets.
(2) Derivative liabilities are recorded in other liabilities on the consolidated balance sheets.
(3) Includes interest rate contracts for client swaps and offsetting positions, net of variation margin payments.
(4) Includes risk participation agreements sold. Additionally, the notional amount of risk participation agreements purchased was $81.2 million and $2.6 million at December 31, 2021 and 2020, respectively.
(5) The fair value of foreign exchange contracts was negligible at December 31, 2020 due to the very short duration of these contracts.
Synovus also provides foreign currency exchange services, primarily forward contracts, with counterparties to allow commercial clients to mitigate exchange rate risk. Synovus covers its risk by entering into an offsetting foreign currency exchange forward contract.
The following table presents the effect of hedging derivative instruments on the consolidated statements of income and the total amounts for the respective line item affected for the years ended December 31, 2021, 2020, and 2019.
| | | | | | | | | | | | | | | | | |
(in thousands) | 2021 | | 2020 | | 2019 |
Total amounts presented on the consolidated statements of income in interest income on loans | $ | 31,522 | | | $ | 22,215 | | | $ | — | |
| | | | | |
Gain/loss on cash flow hedging relationships:(1) | | | | | |
Interest rate swaps: | | | | | |
Realized gains (losses) reclassified from AOCI, pre-tax, to interest income on loans | 12,862 | | | 2,765 | | | — | |
Pre-tax income recognized on cash flow hedges | $ | 12,862 | | | $ | 2,765 | | | $ | — | |
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(1) See "Part II - Item 8. Financial Statements and Supplementary Data - Note 9 - Shareholders' Equity and Other Comprehensive Income" in this Report for additional information.
The pre-tax effect of changes in fair value from derivative instruments not designated as hedging instruments on the consolidated statements of income for the years ended December 31, 2021, 2020 and 2019 is presented below.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Gain (Loss) Recognized in Consolidated Statements of Income |
| | | For The Years Ended December 31, |
(in thousands) | Location in Consolidated Statements of Income | | 2021 | | 2020 | | 2019 |
Derivatives not designated as hedging instruments: | | | | | | | |
Interest rate contracts(1) | Capital markets income | | $ | 100 | | | $ | (777) | | | $ | (338) | |
Other contracts(2) | Capital markets income | | 269 | | | (213) | | | (91) | |
Foreign exchange contracts | Capital markets income | | 39 | | | — | | | — | |
Mortgage derivatives - interest rate lock commitments | Mortgage banking income | | (4,154) | | | 4,969 | | | 346 | |
Mortgage derivatives - forward commitments to sell fixed-rate mortgage loans | Mortgage banking income | | 1,489 | | | (1,443) | | | 651 | |
Visa derivative | Other non-interest expense | | 2,656 | | | (890) | | | (3,611) | |
Total derivatives not designated as hedging instruments | | | $ | 399 | | | $ | 1,646 | | | $ | (3,043) | |
| | | | | | | |
(1) Gain (loss) represents net fair value adjustments (including credit related adjustments) for client swaps and offsetting positions. Additionally, losses related to termination of client swaps of $2.5 million were recorded in other non-interest expense during 2020.
(2) Includes risk participation agreements sold.
Note 14 - Commitments and Contingencies
In the normal course of business, Synovus enters into commitments to extend credit such as loan commitments and letters of credit to meet the financing needs of its clients. Synovus uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Synovus also has commitments to fund certain tax credits, CRA partnerships, and other investments.
The contractual amount of these financial instruments represents Synovus' maximum credit risk should the counterparty draw upon the commitment, and should the counterparty subsequently fail to perform according to the terms of the contract. Since many of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements. Additionally, certain commitments (primarily consumer) can generally be canceled by providing notice to the borrower.
The ACL associated with unfunded commitments and letters of credit is recorded within other liabilities on the consolidated balance sheets. At December 31, 2021, the ACL for unfunded commitments was $41.9 million, compared to a reserve of $47.8 million at December 31, 2020. Additionally, an immaterial amount of unearned fees relating to letters of credit are recorded within other liabilities on the consolidated balance sheets.
Synovus invests in certain LIHTC partnerships which are engaged in the development and operation of affordable multi-family housing pursuant to Section 42 of the Code. Additionally, Synovus invests in certain solar energy tax credit partnerships pursuant to Section 48 of the Code and certain new market tax credit partnerships pursuant to section 45D of the Code. Synovus typically acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnerships and as such, is not considered the primary beneficiary of the partnership. For certain of its LIHTC investments, Synovus provides financing during the construction and development of the properties and is at risk for the funded amount of its equity investment plus the outstanding amount of any construction loans in excess of the fair value of the collateral for the loan, but has no obligation to fund the operations or working capital of the partnerships and is not exposed to losses beyond Synovus’ investment. Synovus receives tax credits related to these investments which are subject to recapture by taxing authorities based on compliance provisions required to be met at the project level.
Synovus also invests in CRA partnerships, including SBIC programs, and other investments. The SBIC is a program initiated by the SBA in 1958 to assist in the funding of small business loans.
| | | | | | | | | | | |
| December 31, |
(in thousands) | 2021 | | 2020 |
Letters of credit(1) | $ | 183,463 | | | $ | 190,562 | |
Commitments to fund commercial and industrial loans | 9,069,588 | | | 8,200,608 | |
Commitments to fund commercial real estate, construction, and land development loans | 3,593,171 | | | 3,290,041 | |
Commitments under home equity lines of credit | 1,805,869 | | | 1,602,831 | |
Unused credit card lines | 999,787 | | | 1,012,313 | |
Other loan commitments | 604,353 | | | 472,233 | |
Total letters of credit and unfunded lending commitments | $ | 16,256,231 | | | $ | 14,768,588 | |
| | | |
Tax credits, CRA partnerships, and other investments: | | | |
Carrying amount included in other assets | $ | 426,137 | | | $ | 262,855 | |
Amount of future funding commitments | 250,733 | | | 133,946 | |
Permanent and short-term construction loans and letter of credit commitments(2) | 204,391 | | | 82,786 | |
Funded portion of permanent and short-term loans and letters of credit(3) | 104,315 | | | 9,528 | |
| | | |
(1) Represent the contractual amount net of risk participations purchased of approximately $26 million and $30 million at December 31, 2021 and December 31, 2020, respectively.
(2) Represent the contractual amount net of risk participations of $3.0 million and $1.8 million at December 31, 2021 and December 31, 2020, respectively
(3) Represent the contractual amount net of risk participations of $3.0 million and $234 thousand at December 31, 2021 December 31, 2020, respectively.
Merchant Services
In accordance with credit and debit card association rules, Synovus provides merchant processing services for clients. In addition, Synovus sponsors various third-party MPS businesses that process credit and debit card transactions on behalf of merchants. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder's favor. If the merchant defaults on its obligations, the cardholder, through its issuing bank, generally has until six months after the date of the transaction to present a chargeback to the MPS, which is primarily liable for any losses on covered transactions. However, if a sponsored MPS fails to meet its obligations, then Synovus, as the sponsor, could be held liable for the disputed amount. Synovus seeks to mitigate this risk through its contractual arrangements with the MPS and the merchants by withholding future settlements, retaining cash reserve accounts and/or obtaining other security. For the years ended December 31, 2021 and 2020, Synovus and the sponsored entities processed and settled $105.14 billion and $78.19 billion of transactions, respectively.
Synovus covered chargebacks related to a particular sponsored MPS during 2019 and 2018 where the MPS’s cash reserve account was unavailable to support the chargebacks. As of December 31, 2021, the remaining amount, net of reserves, included in other assets and classified in NPAs, is $15.3 million, compared to $15.6 million at December 31, 2020. While Synovus has contractual protections to mitigate against loss, repayment of the amounts owed to Synovus will depend in large part upon the continued financial viability and/or valuation of the MPS.
Legal Proceedings
Synovus and its subsidiaries are subject to various legal proceedings, claims and disputes that arise in the ordinary course of its business. Additionally, in the ordinary course of business, Synovus and its subsidiaries are subject to regulatory and governmental examinations, information gathering requests, inquiries and investigations. Synovus, like many other financial institutions, has been the target of legal actions and other proceedings asserting claims for damages and related relief for losses. These actions include mortgage loan and other loan put-back claims, claims and counterclaims asserted by individual borrowers related to their loans, allegations of violations of state and federal laws and regulations relating to banking practices, including putative class action matters. In addition to actual damages, if Synovus does not prevail in such asserted legal actions, credit-related litigation could result in additional write-downs or charge-offs of assets, which could adversely affect Synovus' results of operations during the period in which the write-down or charge-off were to occur.
Synovus carefully examines and considers each legal matter, and, in those situations where Synovus determines that a particular legal matter presents loss contingencies that are both probable and reasonably estimable, Synovus establishes an appropriate reserve. An event is considered to be probable if the future event is likely to occur. While the final outcome of any legal proceeding is inherently uncertain, based on the information currently available, advice of counsel and available insurance coverage, management believes that the amounts accrued with respect to legal matters as of December 31, 2021 are adequate. The actual costs of resolving legal claims may be higher or lower than the amounts accrued.
In addition, where Synovus determines that there is a reasonable possibility of a loss in respect of legal matters, Synovus
considers whether it is able to estimate the total reasonably possible loss or range of loss. An event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely.” An event is “remote” if “the chance of the future event or events occurring is more than slight but less than reasonably possible." In many situations, Synovus may be unable to estimate reasonably possible losses due to the preliminary nature of the legal matters, as well as a variety of other factors and uncertainties. For those legal matters where Synovus is able to estimate a range of reasonably possible losses, management currently estimates the aggregate range from our outstanding litigation is from zero to $5 million in excess of the amounts accrued, if any, related to those matters. This estimated aggregate range is based upon information currently available to Synovus, and the actual losses could prove to be lower or higher. As there are further developments in these legal matters, Synovus will reassess these matters, and the estimated range of reasonably possible losses may change as a result of this assessment. Based on Synovus' current knowledge and advice of counsel, management presently does not believe that the liabilities arising from these legal matters will have a material adverse effect on Synovus' consolidated financial condition, results of operations or cash flows. However, it is possible that the ultimate resolution of these legal matters could have a material adverse effect on Synovus' results of operations or financial condition for any particular period.
Synovus intends to vigorously pursue all available defenses to these legal matters, but will also consider other alternatives, including settlement, in situations where there is an opportunity to resolve such legal matters on terms that Synovus considers to be favorable, including in light of the continued expense and distraction of defending such legal matters. Synovus maintains insurance coverage, which may be available to cover legal fees, or potential losses that might be incurred in connection with such legal matters. The above-noted estimated range of reasonably possible losses does not take into consideration insurance coverage which may or may not be available for the respective legal matters.
Note 15 - Share-based Compensation and Other Employment Benefit Plans
General Description of Share-based Plans
Synovus has a long-term incentive plan under which the Compensation and Human Capital Committee of the Board of Directors has the authority to grant share-based awards to Synovus employees. The 2021 Omnibus Plan authorized 5.8 million common share equivalents available for grants. The Plan permits grants of share-based compensation including stock options, restricted share units, market restricted share units, and performance share units. The grants generally include vesting periods of three years. The restricted share units and the market restricted share units contain a service-based vesting period of three years with most awards vesting pro-rata over three years. Restricted share units are primarily equity-based but can be cash settled as well. When cash settled awards are granted, they are classified as a liability and revalued quarterly. As further discussed below, market restricted share units and performance share units are granted at a defined target level and are compared annually to required market and performance metrics to determine actual units vested and for performance share units, compensation expense. Synovus has historically issued new shares to satisfy share option exercises and share unit conversions. Dividend equivalents are paid on outstanding restricted share units, market restricted share units, and performance share units in the form of additional restricted share units that vest over the same vesting period or the vesting period left on the original restricted share unit grant. Any restricted share units that are forfeited and options that expire unexercised will again become available for issuance under the 2021 Omnibus Plan. At December 31, 2021, Synovus had a total of 5.8 million common share equivalents of its authorized but unissued common stock reserved for future grants under the 2021 Omnibus Plan.
Share-based Compensation Expense
Total share-based compensation expense recognized for 2021, 2020, and 2019 is presented in the following table by its classification within total non-interest expense.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in thousands) | 2021 | | 2020 | | 2019 |
Salaries and other personnel expense | $ | 26,957 | | | $ | 17,827 | | | $ | 19,618 | |
Merger-related expense | — | | | — | | | 4,219 | |
Other operating expense | 838 | | | 814 | | | 650 | |
Total share-based compensation expense included in non-interest expense | $ | 27,795 | | | $ | 18,641 | | | $ | 24,487 | |
| | | | | |
The total income tax benefit recognized on the consolidated statements of income related to share-based compensation expense was $7.0 million, $4.8 million, and $6.3 million for 2021, 2020, and 2019, respectively. No share-based compensation costs have been capitalized for the years ended December 31, 2021, 2020, and 2019. As of December 31, 2021, total unrecognized compensation cost related to the unvested portion of share-based compensation arrangements involving shares of Synovus stock was $30.3 million. This cost is expected to be recognized over a weighted average remaining period of 1.87 years.
Stock Options
There were no stock option grants in 2021, 2020, or 2019; however, Synovus assumed 3.2 million outstanding employee and director stock options in the FCB Merger on January 1, 2019. The estimated fair value of the converted stock options was determined using a Hull-White model in a binomial lattice option pricing framework with the following weighted average assumptions:
| | | | | |
| 2019 |
Stock price (Synovus' closing stock price on December 31, 2018) | $ | 31.99 | |
Weighted average fair value of converted stock options | 11.50 | |
Risk-free interest rate | 2.51 | % |
Expected stock price volatility | 26.4 | % |
Dividend yield | 3.13 | % |
Term to expiration | 5.1 years |
| |
A summary of stock option activity and changes during the years ended December 31, 2021, 2020, and 2019 is presented below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock Options | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
(in thousands, except per share data) | Quantity | | Weighted-Average Exercise Price | | Quantity | | Weighted-Average Exercise Price | | Quantity | | Weighted-Average Exercise Price |
Outstanding at beginning of year | 2,401 | | | $ | 22.47 | | | 3,037 | | | $ | 22.74 | | | 640 | | | $ | 16.93 | |
Assumed in acquisition | — | | | — | | | — | | | — | | | 3,230 | | | 23.22 | |
Options exercised | (923) | | | 22.07 | | | (572) | | | 22.67 | | | (820) | | | 19.91 | |
Options forfeited/expired/canceled | — | | | — | | | (64) | | | 33.50 | | | (13) | | | 34.23 | |
Options outstanding at end of year | 1,478 | | | $ | 22.71 | | | 2,401 | | | $ | 22.47 | | | 3,037 | | | $ | 22.74 | |
Options exercisable at end of year | 1,478 | | | $ | 22.71 | | | 2,401 | | | $ | 22.47 | | | 2,399 | | | $ | 19.52 | |
| | | | | | | | | | | |
The aggregate intrinsic value for both outstanding and exercisable stock options at December 31, 2021 was $37.2 million with a weighted average remaining contractual life of 2.51 years. The intrinsic value of stock options exercised during the years ended December 31, 2021, 2020, and 2019 was $21.3 million, $5.3 million, and $13.6 million, respectively.
Restricted Share Units, Market Restricted Share Units, and Performance Share Units
Compensation expense is measured based on the grant date fair value of restricted share units, market restricted share units, and performance share units. The fair value of restricted share units and performance share units that do not contain market conditions is equal to the market price of common stock on the grant date. The fair value of market restricted share units granted was estimated on the date of grant using a Monte Carlo simulation model with the following weighted average assumptions:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Risk-free interest rate | | 2.87 | % | | 1.42 | % | | 2.40 | % |
Expected stock price volatility | | 56.1 | | | 25.4 | | | 24.4 | |
Simulation period | | 2.9 years | | 3.0 years | | 3.0 years |
| | | | | | |
The stock price expected volatility was based on Synovus' historical volatility for grants in 2021, 2020 and 2019. The Monte Carlo model estimates fair value based on 100,000 simulations of future share price using a theoretical model of stock price behavior.
Synovus granted performance share units, which included a market condition with respect to 50% of the award, to senior management during the years ended December 31, 2021 and 2020. The performance share units have a three-year service-based vesting component, a 50% weighted performance condition based on adjusted ROATCE, and a 50% weighted market condition based on Synovus' relative TSR. The number of performance share units that will ultimately vest ranges from 0% to 150% of a defined target based on Synovus' relative TSR and three-year weighted average adjusted ROATCE.
During the year ended December 31, 2019, Synovus granted market restricted share units and performance share units to senior management. The market restricted share units have a three-year service-based vesting component as well as a total shareholder return multiplier and the performance share units vest upon meeting certain service and performance conditions. The number of market restricted share units that will ultimately vest ranges from 75% to 125% of a defined target based on Synovus' TSR. Adjusted ROAA and adjusted ROATCE performance is evaluated each year over a three-year performance period, with share distribution determined at the end of the three years. The number of performance share units that will ultimately vest ranges from 0% to 150% of defined targets based on Synovus' three-year weighted average adjusted ROAA and adjusted ROATCE.
A summary of restricted share units and market/performance share units outstanding and changes during the years ended December 31, 2021, 2020, and 2019 is presented below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Restricted Share Units | | Market/Performance Share Units |
(in thousands, except per share data) | | Quantity | | Weighted-Average Grant Date Fair Value | | Quantity | | Weighted-Average Grant Date Fair Value |
Outstanding at December 31, 2018 | | 526 | | | $ | 41.18 | | | 392 | | | $ | 39.62 | |
Granted | | 573 | | | 36.27 | | | 305 | | | 37.22 | |
Assumed in acquisition | | 136 | | | 31.99 | | | — | | | — | |
Vested | | (304) | | | 37.04 | | | (152) | | | 30.87 | |
Forfeited | | (114) | | | 37.04 | | | (50) | | | 39.45 | |
Outstanding at December 31, 2019 | | 817 | | | 38.32 | | | 495 | | | 40.85 | |
Granted | | 822 | | | 32.42 | | | 204 | | | 37.74 | |
Vested | | (384) | | | 38.04 | | | (214) | | | 41.31 | |
Forfeited | | (34) | | | 35.97 | | | (46) | | | 39.03 | |
Outstanding at December 31, 2020 | | 1,221 | | | 34.50 | | | 439 | | | 39.37 | |
Granted | | 599 | | | 42.31 | | | 141 | | | 42.94 | |
Vested | | (482) | | | 37.05 | | | (58) | | | 42.43 | |
Forfeited | | (93) | | | 31.41 | | | — | | | — | |
Outstanding at December 31, 2021 | | 1,245 | | | $ | 37.00 | | | 522 | | | $ | 37.59 | |
| | | | | | | | |
The total fair value of restricted share units vested during 2021, 2020, and 2019 was $19.8 million, $13.4 million, and $11.2 million, respectively. The total fair value of market/performance share units vested during 2021, 2020, and 2019 was $2.4 million, $7.9 million, and $5.7 million, respectively.
Other Employment Benefit Plans
For the years ended December 31, 2021, 2020, and 2019, Synovus provided a 100% matching contribution on the first 5% of eligible employee 401(k) contributions for a total annual contribution of $21.5 million, $21.3 million, and $18.8 million, respectively.
For the years ended December 31, 2021, 2020, and 2019, Synovus sponsored a stock purchase plan for directors and employees whereby Synovus made contributions equal to 15% of employee and director voluntary contributions, subject to certain maximum contribution limitations. The funds are used to purchase outstanding shares of Synovus common stock. Synovus recorded as expense $1.1 million, $1.1 million, and $1.1 million for contributions to these plans in 2021, 2020, and 2019, respectively.
Note 16 - Income Taxes
The components of income tax expense (benefit) included on the consolidated statements of income for the years ended December 31, 2021, 2020, and 2019 are presented below:
| | | | | | | | | | | | | | | | | |
(in thousands) | 2021 | | 2020 | | 2019 |
Current | | | | | |
Federal | $ | 153,911 | | | $ | 187,741 | | | $ | 112,517 | |
State | 29,982 | | | 9,421 | | | 2,085 | |
Total current income tax expense | 183,893 | | | 197,162 | | | 114,602 | |
Deferred | | | | | |
Federal | 28,873 | | | (90,777) | | | 46,182 | |
State | 16,127 | | | 4,585 | | | 40,451 | |
Total deferred income tax expense (benefit) | 45,000 | | | (86,192) | | | 86,633 | |
Total income tax expense | $ | 228,893 | | | $ | 110,970 | | | $ | 201,235 | |
| | | | | |
Income tax expense as shown on the consolidated statements of income differed from the federal statutory rate for the years ended December 31, 2021, 2020, and 2019. A reconciliation of the differences is presented below:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(dollars in thousands) | 2021 | | 2020 | | 2019 |
Income tax expense at statutory federal income tax rate | $ | 207,765 | | | $ | 101,779 | | | $ | 160,653 | |
Increase (decrease) resulting from: | | | | | |
State income tax expense, net of federal income tax benefit | 38,452 | | | 11,168 | | | 33,764 | |
Income not subject to tax | (10,455) | | | (9,207) | | | (6,564) | |
Low income housing tax credits and other tax benefits, net of amortization | (4,858) | | | (2,611) | | | (1,583) | |
FDIC premiums | 4,111 | | | 4,744 | | | 5,802 | |
General business tax credits | (3,727) | | | (657) | | | (678) | |
Excess tax benefit from share-based compensation | (3,084) | | | 311 | | | (1,337) | |
Executive compensation | 1,096 | | | 1,501 | | | 6,385 | |
Goodwill impairment | — | | | 9,424 | | | — | |
Other, net | (407) | | | (5,482) | | | 4,793 | |
Total income tax expense | $ | 228,893 | | | $ | 110,970 | | | $ | 201,235 | |
Effective tax rate | 23.1 | % | | 22.9 | % | | 26.3 | % |
| | | | | |
The components of the Company's deferred tax assets and liabilities at December 31, 2021 and 2020 are presented below:
| | | | | | | | | | | |
(in thousands) | 2021 | | 2020 |
Deferred tax assets | | | |
Allowance for loan losses | $ | 112,180 | | | $ | 165,691 | |
Lease liability | 102,412 | | | 98,340 | |
Employee benefits and deferred compensation | 35,782 | | | 27,917 | |
Net operating loss carryforwards | 23,897 | | | 29,684 | |
Net unrealized losses on investment securities available for sale and cash flow hedges | 19,261 | | | — | |
Deferred revenue | 18,487 | | | 24,751 | |
Tax credit carryforwards | 15,870 | | | 8,605 | |
Fair value of investment securities and loans | 6,439 | | | 10,093 | |
Non-performing loan interest | 2,621 | | | 12,472 | |
Other | 7,100 | | | 9,819 | |
Total gross deferred tax assets | 344,049 | | | 387,372 | |
Less valuation allowance | (19,003) | | | (19,191) | |
Total deferred tax assets | 325,046 | | | 368,181 | |
Deferred tax liabilities | | | |
Right-of-use asset | (98,773) | | | (98,681) | |
Excess tax over financial statement depreciation | (27,355) | | | (40,452) | |
Purchase accounting intangibles | (14,820) | | | (14,458) | |
Other properties held for sale | (5,345) | | | (3,025) | |
Prepaid expense | (4,631) | | | (5,955) | |
Net unrealized gains on investment securities available for sale and cash flow hedges | — | | | (64,344) | |
Other | (5,071) | | | (10,418) | |
Total gross deferred tax liabilities | (155,995) | | | (237,333) | |
Net deferred tax assets | $ | 169,051 | | | $ | 130,848 | |
| | | |
Synovus believes the realization of net deferred tax assets (after valuation allowance) at December 31, 2021 is more likely than not based on its history of cumulative profitability as well as expectations of future taxable income, including reversals of taxable temporary differences, in the jurisdictions in which it operates.
Synovus expects that a portion of its $23.9 million of federal and state NOLs, which have carryforward periods ending in tax years 2023 through 2034, will not be realized before their carryforward period lapses and the Company has accordingly established a valuation allowance in the amount of $19.0 million at December 31, 2021 and $19.2 million at December 31, 2020. State tax credit deferred tax assets at December 31, 2021 total $15.9 million and have expiration dates through the tax year 2031.
State NOLs and tax credit carryforwards as of December 31, 2021 are summarized in the following table.
| | | | | | | | | | | | | | | | | | | | | | | |
Tax Carryforwards | As of December 31, 2021 |
(in thousands) | Expiration Dates | | Deferred Tax Asset, Before Valuation Allowance | | Valuation Allowance | | Net Deferred Tax Asset Balance |
Net operating losses - federal | 2027-2033 | | $ | 19,592 | | | $ | (15,851) | | | $ | 3,741 | |
Net operating losses - states | 2023-2034 | | 4,305 | | | (3,152) | | | 1,153 | |
Other credits - states | 2022-2031 | | 15,870 | | | — | | | 15,870 | |
| | | | | | | |
Synovus is subject to income taxation in the United States and various state and local taxing jurisdictions. Generally, Synovus is no longer subject to income tax examinations by the IRS for years before 2018 and by state and local income tax authorities for years before 2015. Although Synovus is unable to determine the ultimate outcome of current and future examinations, Synovus believes that the resolution of these examinations will not have a material effect on the consolidated financial statements.
A reconciliation of the beginning and ending amount of unrecognized income tax benefits is as follows (unrecognized state income tax benefits are not adjusted for the federal income tax impact).
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in thousands) | 2021 | | 2020 | | 2019 |
Balance at January 1, | $ | 20,250 | | | $ | 20,994 | | | $ | 18,586 | |
Additions based on income tax positions related to current year | 3,754 | | | 461 | | | 550 | |
Additions for income tax positions of prior years(1) | 1,379 | | | 147 | | | — | |
Additions from acquisition | — | | | — | | | 3,464 | |
Reductions for income tax positions of prior years | (200) | | | (327) | | | (1,589) | |
Statute of limitation expirations | (79) | | | (820) | | | (17) | |
Settlements | — | | | (205) | | | — | |
Balance at December 31, | $ | 25,104 | | | $ | 20,250 | | | $ | 20,994 | |
| | | | | |
(1) Includes deferred tax benefits that could reduce future tax liabilities.
Accrued interest and penalties related to unrecognized income tax benefits are recognized as a component of income tax expense, and totaled $3.3 million, $2.7 million, and $3.3 million as of December 31, 2021, 2020 and 2019, respectively. Unrecognized income tax benefits as of December 31, 2021, 2020 and 2019 that, if recognized, would affect the effective income tax rate totaled $23.5 million, $19.1 million and $20.4 million (net of the federal benefit on state income tax issues), respectively. It is reasonably possible that significant changes in the balance of unrecognized tax benefits may occur within the next 12 months. At this time, Synovus expects that $2.3 million of uncertain income tax positions will be either settled or resolved during the next twelve months.
Note 17 - Segment Reporting
Synovus' business segments are based on the products and services provided or the clients served and reflect the manner in which financial information is evaluated by the chief operating decision maker. Prior to the fourth quarter of 2019, Synovus identified its overall banking operations as its only reportable segment. During the fourth quarter of 2019, Synovus announced changes in its organizational structure and segmented its business into three major reportable business segments: Community Banking, Wholesale Banking, and Financial Management Services with functional activities such as treasury, technology, operations, marketing, finance, enterprise risk, legal, human resources, corporate communications, executive management, among others, included in Treasury and Corporate Other.
Business segment results are determined based upon Synovus' management reporting system, which assigns balance sheet and income statement items to each of the business segments. Certain assets, liabilities, revenue, and expense not allocated or attributable to a particular business segment are included in Treasury and Corporate Other. Synovus' third-party lending consumer loans and loans held for sale, as well as PPP loans, are included in Treasury and Corporate Other. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to GAAP. As a result, reported segment results are not necessarily comparable with similar information reported by other financial institutions.
The Community Banking business segment serves clients using a relationship-based approach through its branch, ATM, commercial, and private wealth network in addition to mobile, Internet, and telephone banking. This segment primarily provides individual, small business, and corporate clients with an array of comprehensive banking products and services including commercial, home equity, and other consumer loans, credit and debit cards, and deposit accounts.
The Wholesale Banking business segment serves primarily larger corporate clients by providing commercial lending and deposit services through specialty teams including middle market, CRE, senior housing, national accounts, premium finance, structured lending, healthcare, asset-based lending, and community investment capital.
The Financial Management Services business segment serves its clients by providing mortgage and trust services and also specializing in professional portfolio management for fixed-income securities, investment banking, the execution of securities transactions as a broker/dealer, asset management, financial planning, and family office services, as well as the provision of individual investment advice on equity and other securities.
Synovus uses a centralized FTP methodology to attribute appropriate net interest income to the business segments. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing matched duration funding of assets and liabilities. The result is to centralize the financial impact, management, and reporting of interest rate risk in the Treasury and Corporate Other function where it can be centrally monitored and managed. Treasury and Corporate Other includes certain assets and/or liabilities managed within that function. Additionally, Treasury and Corporate Other also charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each business segment. The process for determining FTP is based on a number of factors and assumptions, including prevailing market interest rates, the expected lives of various assets and liabilities, and the Company's broader funding profile.
The following tables present certain financial information for each reportable business segment for the years ended December 31, 2021, 2020, and 2019 and as of December 31, 2021 and 2020. The fourth quarter of 2019 was the first financial period in which the new segment reporting became effective; thus, to provide comparable prior year information, Synovus has included proforma business segment financial information for the full year 2019 utilizing various allocation methodologies based on balance sheet and income statement items assigned to each business segment. The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable business segment may be periodically revised.
During the year ended December 31, 2021, Treasury and Corporate Other's net interest income benefited from the recognition of $79.2 million of PPP fees, an increase of $33.2 million from $46.0 million for the year ended December 31, 2020. During the year ended December 31, 2020, Synovus strategically repositioned the investment securities portfolio, which resulted in net gains of $78.9 million in the Treasury and Corporate Other segment. Additionally, during the year ended December 31, 2020, Synovus recognized a $44.9 million non-cash goodwill impairment charge representing all of the goodwill allocated to the Consumer Mortgage reporting unit (which is included in the FMS reportable segment) resulting from a combination of factors, including the extended duration of lower market valuations, high volumes in refinance activity that reduced mortgage yields, and the clarity around longer term policy actions designed to keep interest rates low.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
(in thousands) | Community Banking | | Wholesale Banking | | Financial Management Services | | Treasury and Corporate Other | | Synovus Consolidated |
Net interest income | $ | 808,700 | | | $ | 557,943 | | | $ | 79,173 | | | $ | 87,131 | | | $ | 1,532,947 | |
Non-interest revenue | 128,026 | | | 34,590 | | | 211,002 | | | 76,448 | | | 450,066 | |
Non-interest expense | 290,817 | | | 90,074 | | | 184,257 | | | 534,756 | | | 1,099,904 | |
Pre-provision net revenue | $ | 645,909 | | | $ | 502,459 | | | $ | 105,918 | | | $ | (371,177) | | | $ | 883,109 | |
| | | | | | | | | |
| Year Ended December 31, 2020 |
(in thousands) | Community Banking | | Wholesale Banking | | Financial Management Services | | Treasury and Corporate Other | | Synovus Consolidated |
Net interest income | $ | 854,021 | | | $ | 548,152 | | | $ | 79,362 | | | $ | 31,213 | | | $ | 1,512,748 | |
Non-interest revenue | 111,256 | | | 26,379 | | | 224,620 | | | 144,258 | | | 506,513 | |
Non-interest expense | 297,071 | | | 85,250 | | | 232,222 | | | 565,031 | | | 1,179,574 | |
Pre-provision net revenue | $ | 668,206 | | | $ | 489,281 | | | $ | 71,760 | | | $ | (389,560) | | | $ | 839,687 | |
| | | | | | | | | |
| Year Ended December 31, 2019 (Proforma) |
(in thousands) | Community Banking | | Wholesale Banking | | Financial Management Services | | Treasury and Corporate Other | | Synovus Consolidated |
Net interest income | $ | 825,219 | | | $ | 518,033 | | | $ | 112,431 | | | $ | 140,120 | | | $ | 1,595,803 | |
Non-interest revenue | 136,657 | | | 28,948 | | | 154,166 | | | 36,129 | | | 355,900 | |
Non-interest expense | 302,327 | | | 71,393 | | | 152,115 | | | 573,133 | | | 1,098,968 | |
Pre-provision net revenue | $ | 659,549 | | | $ | 475,588 | | | $ | 114,482 | | | $ | (396,884) | | | $ | 852,735 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
(dollars in thousands) | Community Banking | | Wholesale Banking | | | Financial Management Services | | Treasury and Corporate Other | | Synovus Consolidated |
Loans, net of deferred fees and costs | $ | 10,791,343 | | | $ | 21,496,050 | | | | $ | 4,994,494 | | | $ | 2,030,071 | | | $ | 39,311,958 | |
Deposits | $ | 32,226,477 | | | $ | 12,370,554 | | | | $ | 826,639 | | | $ | 4,003,606 | | | $ | 49,427,276 | |
Full-time equivalent employees | 2,139 | | | 284 | | | | 794 | | 1,670 | | | 4,887 | |
| | | | | | | | | | |
| December 31, 2020 |
(dollars in thousands) | Community Banking | | Wholesale Banking | | | Financial Management Services | | Treasury and Corporate Other | | Synovus Consolidated |
Loans, net of deferred fees and costs | $ | 11,171,055 | | | $ | 18,810,729 | | | | $ | 5,370,748 | | | $ | 2,900,452 | | | $ | 38,252,984 | |
Deposits | $ | 29,141,242 | | | $ | 11,958,105 | | | | $ | 739,200 | | | $ | 4,853,024 | | | $ | 46,691,571 | |
Full-time equivalent employees | 2,296 | | | 285 | | | | 835 | | | 1,718 | | | 5,134 | |
| | | | | | | | | | |
Note 18 - Condensed Financial Information of Synovus Financial Corp. (Parent Company only)
| | | | | | | | | | | |
Condensed Balance Sheets | |
| December 31, |
(in thousands) | 2021 | | 2020 |
Assets | | | |
Cash due from bank subsidiary | $ | 389,071 | | | $ | 439,352 | |
Funds due from other depository institutions | 9,277 | | | 9,277 | |
Total cash, cash equivalents, and restricted cash | 398,348 | | | 448,629 | |
Investment in consolidated bank subsidiary, at equity | 5,381,311 | | | 5,239,849 | |
Investment in consolidated nonbank subsidiaries, at equity | 69,712 | | | 46,271 | |
Note receivable from bank subsidiary | 100,000 | | | 100,000 | |
Other assets | 25,538 | | | 16,975 | |
Total assets | $ | 5,974,909 | | | $ | 5,851,724 | |
Liabilities and Shareholders' Equity | | | |
Liabilities: | | | |
Long-term debt | $ | 607,334 | | | $ | 606,406 | |
Other liabilities | 70,775 | | | 83,984 | |
Total liabilities | 678,109 | | | 690,390 | |
Shareholders’ equity: | | | |
Preferred stock | 537,145 | | | 537,145 | |
Common stock | 169,384 | | | 168,133 | |
Additional paid-in capital | 3,894,109 | | | 3,851,208 | |
Treasury stock | (931,497) | | | (731,806) | |
Accumulated other comprehensive income (loss), net | (82,321) | | | 158,635 | |
Retained earnings | 1,709,980 | | | 1,178,019 | |
Total shareholders’ equity | 5,296,800 | | | 5,161,334 | |
Total liabilities and shareholders’ equity | $ | 5,974,909 | | | $ | 5,851,724 | |
| | | |
| | | | | | | | | | | | | | | | | |
Condensed Statements of Income | |
| Years Ended December 31, |
(in thousands) | 2021 | | 2020 | | 2019 |
Income | | | | | |
Cash dividends received from subsidiaries | $ | 420,000 | | | $ | 547,500 | | | $ | 400,000 | |
Interest income | 777 | | | 3,341 | | | 5,920 | |
Other income (loss) | 1,070 | | | 4,966 | | | 11,590 | |
Total income | 421,847 | | | 555,807 | | | 417,510 | |
Expense | | | | | |
Interest expense | 27,616 | | | 42,911 | | | 41,328 | |
Other expense | 10,300 | | | 10,584 | | | 13,528 | |
Total expense | 37,916 | | | 53,495 | | | 54,856 | |
Income before income taxes and equity in undistributed income of subsidiaries | 383,931 | | | 502,312 | | | 362,654 | |
Allocated income tax benefit | (7,834) | | | (12,202) | | | (9,753) | |
Income before equity in undistributed income of subsidiaries | 391,765 | | | 514,514 | | | 372,407 | |
Equity in undistributed income (loss) of subsidiaries | 368,702 | | | (140,819) | | | 191,373 | |
Net income | 760,467 | | | 373,695 | | | 563,780 | |
Dividends on preferred stock | 33,163 | | | 33,163 | | | 22,881 | |
Net income available to common shareholders | $ | 727,304 | | | $ | 340,532 | | | $ | 540,899 | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Statements of Comprehensive Income |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
(in thousands) | Before-tax Amount | | Income Tax | | Net of Tax Amount | | Before-tax Amount | | Income Tax | | Net of Tax Amount | | Before-tax Amount | | Income Tax | | Net of Tax Amount |
Net income | $ | 989,360 | | | $ | (228,893) | | | $ | 760,467 | | | $ | 484,665 | | | $ | (110,970) | | | $ | 373,695 | | | $ | 765,015 | | | $ | (201,235) | | | $ | 563,780 | |
Reclassification adjustment for realized (gains) losses included in net income on investment securities available for sale | — | | | — | | | — | | | — | | | — | | | — | | | (22) | | | 6 | | | (16) | |
Other comprehensive gain (loss) of bank subsidiary | (324,561) | | | 83,605 | | | (240,956) | | | 125,505 | | | (32,511) | | | 92,994 | | | 216,032 | | | (55,955) | | | 160,077 | |
Other comprehensive income (loss) | $ | (324,561) | | | $ | 83,605 | | | $ | (240,956) | | | $ | 125,505 | | | $ | (32,511) | | | $ | 92,994 | | | $ | 216,010 | | | $ | (55,949) | | | $ | 160,061 | |
Comprehensive income | | | | | $ | 519,511 | | | | | | | $ | 466,689 | | | | | | | $ | 723,841 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Condensed Statements of Cash Flows | |
| Years Ended December 31, |
(in thousands) | 2021 | | 2020 | | 2019 |
Operating Activities | | | | | |
Net income | $ | 760,467 | | | $ | 373,695 | | | $ | 563,780 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Equity in undistributed (income) loss of subsidiaries | (368,702) | | | 140,819 | | | (191,373) | |
Deferred income tax expense (benefit) | (7,296) | | | 3,962 | | | 1,775 | |
Net increase (decrease) in other liabilities | (2,082) | | | 11,243 | | | 43,617 | |
Net decrease in other assets | 5,280 | | | 17,441 | | | 3,367 | |
Other, net | 928 | | | (5,132) | | | 1,037 | |
Net cash provided by operating activities | 388,595 | | | 542,028 | | | 422,203 | |
Investing Activities | | | | | |
Proceeds from sales of investment securities available for sale | — | | | — | | | 97,389 | |
Advance of long-term note receivable due from bank subsidiary | — | | | — | | | (100,000) | |
Return of investment non-bank subsidiary | — | | | — | | | 790 | |
Proceeds from sales of equity securities | — | | | 23,141 | | | — | |
Increase in other investments | (10,000) | | | — | | | — | |
Net cash received in business combination, net of cash paid | — | | | — | | | 4,813 | |
Net cash provided by investing activities | (10,000) | | | 23,141 | | | 2,992 | |
Financing Activities | | | | | |
Dividends paid to common and preferred shareholders | (227,840) | | | (223,130) | | | (185,664) | |
Repurchase of common stock | (199,932) | | | (16,246) | | | (725,398) | |
Redemption of long-term debt | — | | | (250,000) | | | — | |
Proceeds from issuance of long-term debt, net | — | | | — | | | 297,174 | |
Proceeds from issuance of preferred stock, net | — | | | — | | | 342,005 | |
Other | (1,104) | | | (1,552) | | | (1,947) | |
Net cash used in financing activities | (428,876) | | | (490,928) | | | (273,830) | |
Increase (decrease) in cash, cash equivalents, and restricted cash | (50,281) | | | 74,241 | | | 151,365 | |
Cash, cash equivalents, and restricted cash at beginning of year | 448,629 | | | 374,388 | | | 223,023 | |
Cash, cash equivalents, and restricted cash at end of year | $ | 398,348 | | | $ | 448,629 | | | $ | 374,388 | |
| | | | | |
See accompanying notes to the audited consolidated financial statements.
For the years ended December 31, 2021, 2020, and 2019, the Parent Company paid income taxes of $203.2 million, $119.1 million, and $101.6 million, respectively. For the years ended December 31, 2021, 2020, and 2019, the Parent Company paid interest of $27.3 million, $42.0 million, and $33.1 million, respectively.
Note 19 - Subsequent Event
Subsequent to December 31, 2021, Synovus Bank provided irrevocable notice to its holders of its intent to redeem the 2.289% Fixed-to-Floating Senior Bank Notes of $400 million par value that were subject to redemption. The Notes were redeemed on February 10, 2022 with a net payment of $405.3 million that included $400.0 million in principal, $4.6 million in interest, and $675 thousand of written off debt issuance costs.