ITEM 1. BUSINESS
Synovus Financial Corp. is a financial services company and a registered bank holding company headquartered in Columbus, Georgia. We provide commercial and retail banking in addition to a full suite of specialized products and services including private banking, treasury management, wealth management, mortgage services, premium finance and international banking to our customers through our wholly-owned subsidiary bank, Synovus Bank, and other offices in Alabama, Florida, Georgia, Alabama, South Carolina Florida and Tennessee.
We were incorporated under the laws of the State of Georgia in 1972. Our principal executive offices are located at 1111 Bay Avenue, Suite 500, Columbus, Georgia 31901 and our telephone number at that address is (706) 649-2311.641-6500. Our common stock is traded on the New York Stock ExchangeNYSE under the symbol “SNV.” At December 31, 2018,2020, we had total consolidated assets of $32.67$54.39 billion and total consolidated deposits of $26.72$46.69 billion.
Additional information relating to our business and our subsidiaries, including a detailed description of our operating results and financial condition for 2018, 20172020, 2019 and 2016,2018, is contained in "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Report.
Synovus conducts its banking operations through Synovus Bank. Synovus Bank is a Georgia state-chartered bank and operates throughout Alabama, Florida, Georgia, South Carolina and Tennessee. Synovus Bank offers commercial banking services and retail banking services. Our commercial banking services include treasury management, asset management, capital markets services, institutional trust services and commercial, financial and real estate loans. Our retail banking services include accepting customary types of demand and savings deposits accounts; mortgage, installment and other consumer loans; investment and brokerage services; safe deposit services; automated banking services; automated fund transfers; Internet-based banking services; and bank credit and debit card services, including Visa and MasterCard services. At December 31, 2018,2020, Synovus Bank operated 249289 branches and 335389 ATMs across our footprint.
In addition to our banking operations, we also provide various other financial services to our customers through the following direct and indirect wholly-owned non-bank subsidiaries:
Synovus' strategic focus includes expanding and diversifying our franchise in terms of revenues, profitability and asset size while maintaining a community banking, relationship-based approach to banking. This strategy has encompassed both organic growth as well as acquisitions of complementary banks and financial services businesses.
We are extensively regulated under federal and state law. The following is a brief summary that does not purport to be a complete description of all regulations that affect us or all aspects of those regulations. This discussion is qualified in its entirety by reference to the particular statutory and regulatory provisions described below and is not intended to be an exhaustive description of the statutes or regulations applicable to the Company’s and Synovus Bank’s business. In addition, proposals to change the laws and regulations governing the banking industry are frequently raised at both the state and federal levels. The likelihood and timing of any changes in these laws and regulations, and the impact such changes may have on us and Synovus Bank, are difficult to predict. In addition, bank regulatory agencies may issue enforcement actions, policy statements, interpretive letters and similar written guidance applicable to us or to Synovus Bank. Changes in applicable laws, regulations or regulatory guidance, or their interpretation by regulatory agencies or courts may have a material adverse effect on our and Synovus Bank’s business, operations, and earnings.
Synovus Bank, Synovus Trust, and in some cases, we and our nonbank affiliates, must undergo regular on-site examinations by the appropriate regulatory agency, which will examine for adherence to a range of legal and regulatory compliance responsibilities. A bank regulator conducting an examination has complete access to the books and records of the examined institution. The results of the examination are confidential. Supervision and regulation of banks, their holding companies and affiliates is intended primarily for the protection of depositors and customers, the DIF of the FDIC, and the U.S. banking and financial system rather than holders of our capital stock.capital.
We are registered as a bank holding company with the Federal Reserve under the BHC Act and have elected to be treated as a financial holding company. As such, we are subject to comprehensive supervision and regulation by the Federal Reserve and are subject to its regulatory reporting requirements. Federal law subjects bank holding companies, such as the Company, to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations. In addition, the GA DBF regulates bank holding companies that own Georgia-chartered banks, such as us, under the bank holding company laws of the State of Georgia. Various federal and state bodies regulate and supervise our non-bank subsidiariesactivities including our brokerage, investment advisory, insurance agency and processing operations. These include, but are not limited to, the SEC, the Financial Industry Regulatory Authority, federal and state banking regulators and various state regulators of insurance and brokerage activities.
Violations of laws and regulations, or other unsafe and unsound practices, may result in regulatory agencies imposing fines or penalties, cease and desist orders, or taking other enforcement actions. Under certain circumstances, these agencies may enforce these remedies directly against officers, directors, employees and other parties participating in the affairs of a bank or bank holding company. Like all bank holding companies, we are regulated extensively under federal and state law. Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, state banking regulators, the Federal Reserve Board, and separately the FDIC as the insurer of bank deposits, have the authority to compel or restrict certain actions on our part if they determine that we have insufficient capital or other resources, or are otherwise operating in a manner that may be deemed to be inconsistent with safe and sound banking practices. Under this authority, our bank regulators can require us or our subsidiaries to enter into informal or formal supervisory agreements, including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders, pursuant to which we would be required to take identified corrective actions to address cited concerns and to refrain from taking certain actions.
Federal law restricts the amount of voting stock of a bank holding company or a bank that a person may acquire without the prior approval of banking regulators. Under the federal Change in Bank Control Act and the regulations thereunder, a person or group must give advance notice to the Federal Reserve before acquiring control of any bank holding company, such as the Company, and the Federal Reserveor before acquiring control of any state member bank, such as Synovus Bank. Upon receipt of such notice, the Federal Reserve
may approve or disapprove the acquisition. The Change in Bank Control Act creates a rebuttable presumption of control if a memberperson or group acquires a certain percentage or more of a bank holding company’s or bank’s voting stock, or if one or more other control factors are present. As a result, a person or entity generally must provide prior notice to the Federal Reserve before acquiring the power to vote 10% or more of our outstanding common stock. The overall effect of such laws is to make it more difficult to acquire a bank holding company and a bank by tender offer or similar means than it might be to acquire control of another type of corporation. Consequently, shareholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other companies. Investors should be aware of these requirements when acquiring shares of our stock.
We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company Accounting Oversight Board,PCAOB, and the NYSE. In particular, we are required to include management and independent registered public accounting firm reports on internal controls as part of our Annual Report on Form 10-K in order to comply with Section 404 of the Sarbanes-Oxley Act. We have evaluated our controls, including compliance with the SEC rules on internal controls, and have and expect to continue to spend significant amounts of time and money on compliance with these rules. Our failure to comply with these internal control rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, and the values of our securities. The assessments of our financial reporting controls as of December 31, 20182020 are included in this report under “Item 9A. Controls and Procedures.”
The Dodd-Frank Act required the banking agencies and the SEC to establish joint rules or guidelines for financial institutions with more than $1 billion in assets, such as us and Synovus Bank, which prohibit incentive compensation arrangements that the agencies determine to encourage inappropriate risks by the institution. The federal banking agencies issued proposed rules in 2011 and previously issued guidance on sound incentive compensation policies. In 2016, the federal banking agencies also proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31, 2018,2020, these rules have not been implemented by the banking agencies.implemented. We and Synovus Bank have undertaken efforts to ensure that our incentive compensation plans do not encourage inappropriate risks, consistent with three key principles-thatprinciples - that incentive compensation arrangements should appropriately balance risk and financial rewards, be compatible with effective controls and risk management, and be supported by strong corporate governance.
We and our subsidiaries are subject to oversight by the SEC, the FINRA, the PCAOB, the NYSE and various state securities and insurance regulators. We and our subsidiaries have from time to time received requests for information from regulatory authorities in various states, including state attorneys general, securities regulators and other regulatory authorities, concerning our business practices. Such requests are considered incidental to the normal conduct of business.
We and Synovus Bank are required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets. The required capital ratios are minimums, and the Federal Reserve may determine that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to operate in a safe and sound manner. Risks such as concentration of credit risks and the risk arising from non-traditional activities, as well as the institution’s exposure to a decline in the economic value of its capital due to changes in interest rates, and an institution’s ability to manage those risks, are important factors that are to be taken into account by the federal banking agencies in assessing an institution’s overall capital adequacy. The following is a brief description of the relevant provisions of these capital rules and their potential impact on our capital levels.
The leverage capital ratio, which serves as a minimum capital standard, is the ratio of Tier 1 capital to quarterly average total consolidated assets net of goodwill, certain other intangible assets, and certain required deduction items. The required minimum leverage ratio for all banks and bank holding companies is 4%.
To be well-capitalized, Synovus Bank must maintain at least the following capital ratios:
The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to reflect the higher capital requirements imposed under the current capital rules applicable to banks. For purposes of the Federal Reserve’s Regulation Y, including determining whether a bank holding company meets the requirements to be a financial holding company, bank holding companies, such as the Company, must maintain a Tier 1 risk-based capital ratio of 6.0% or greater and a total risk-based capital ratio of 10.0% or greater to be well-capitalized. If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank holding companies as that applicable to Synovus Bank, the Company’s capital ratios as of December 31, 20182020 would exceed such revised well-capitalized standard. Also, the Federal Reserve may require bank holding companies, including the Company, to maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.
continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer.buffer in 2021. As of December 31, 2018,2020, the consolidated capital ratios of Synovus and Synovus Bank were as follows:
We are a legal entity separate and distinct from Synovus Bank and our other subsidiaries. Our primary source of cash, other than securities offerings, is dividends from Synovus Bank. Under the laws of the State of Georgia, we, as a business corporation, may declare and pay dividends in cash or property unless the payment or declaration would be contrary to restrictions contained in our Articles of Incorporation, or unless, after payment of the dividend, we would not be able to pay our debts when they become due in the usual course of our business or our total assets would be less than the sum of our total liabilities. In addition, we are also subject to federal regulatory capital requirements that effectively limit the amount of cash dividends that we may pay.
The primary sources of funds for our payment of dividends to our shareholders are cash on hand and dividends from Synovus Bank and our non-bank subsidiaries. Various federal and state statutory provisions and regulations limit the amount of dividends that Synovus Bank and our non-bank subsidiaries may pay. Synovus Bank is a Georgia bank. Under the regulations of the GA DBF, a Georgia bank must have approval of the GA DBF to pay cash dividends if, at the time of such payment:
In addition, we and Synovus Bank are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The Federal Reserve has indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsound and unsafe banking practice. The Federal Reserve has indicated that depository institutions and their holding companies should generally pay dividends only out of current operating earnings.
Under a Federal Reserve policy adopted in 2009, the board of directors of a bank holding company must consider different factors to ensure that its dividend level is prudent relative to maintaining a strong financial position, and is not based on overly optimistic earnings scenarios, such as potential events that could affect its ability to pay, while still maintaining a strong financial
position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should consult with the Federal Reserve and eliminate, defer or significantly reduce the bank holding company’s dividends if:
In addition, as discussed in more detail below, Synovus Bank and any other of our subsidiaries that offer consumer financial products and services are subject to regulation and potential supervision by the CFPB. The CFPB also may examine our other direct or indirect subsidiaries that offer consumer financial products or services. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB, and state attorneys general are permitted to enforce certain federal consumer financial protection rules adopted by the CFPB.law.
Broadly, regulations applicable to Synovus Bank include limitations on loans to a single borrower and to its directors, officers and employees; restrictions on the opening and closing of branch offices; the maintenance of required capital and liquidity ratios; the granting of credit under equal and fair conditions; the disclosure of the costs and terms of such credit; requirements to maintain reserves against deposits and loans; limitations on the types of investment that may be made by Synovus Bank; and requirements governing risk management practices. Synovus Bank is permitted under federal law to branch on a de novo basis across state lines where the laws of that state would permit a bank chartered by that state to open a de novo branch.
Synovus Bank is subject to restrictions on extensions of credit and certain other transactions between Synovus Bank and the Company or any nonbank affiliate. Generally, these covered transactions with either the Company or any affiliate are limited to 10% of Synovus Bank’s capital and surplus, and all such transactions between Synovus Bank and the Company and all of its nonbank affiliates combined are limited to 20% of Synovus Bank’s capital and surplus. Loans and other extensions of credit from Synovus Bank to the Company or any affiliate generally are required to be secured by eligible collateral in specified amounts. In
addition, any transaction between Synovus Bank and the Company or any affiliate are required to be on an arm’s length basis. Federal banking laws also place similar restrictions on certain extensions of credit by insured banks, such as Synovus Bank, to their directors, executive officers and principal shareholders.
Federal Reserve rules require depository institutions, such as Synovus Bank, to maintain reserves against their transaction accounts, primarily NOW and regular checking accounts. For 2019, the first $16.3 million of covered balances are exempt from these reserve requirements, aggregate balances between $16.3 million and $124.2 million are subject to a 3%Effective March 26, 2020, reserve requirement and aggregate balances above $124.2 million are subjectratios were reduced to a reserve requirement of $3,237,000 plus 10% of the amount over $124.2 million.zero percent. These reserve requirements are subject to annual adjustment by the Federal Reserve.
Synovus Bank’s deposits are insured by the FDIC’s DIF up to the limits under applicable law, which currently are set at $250,000 per depositor, per insured bank, for each account ownership category. Synovus Bank is subject to FDIC assessments for its deposit insurance. The FDIC calculates quarterly deposit insurance assessments based on an institution’s average total consolidated assets less its average tangible equity, and applies one of four risk categories determined by reference to its capital levels, supervisory ratings, and certain other factors. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits. On September 30, 2018, the FDIC announced that the designated reserve ratio of the DIF reached 1.36%, exceeding the required 1.35%, two years ahead of the deadline imposed by the Dodd-Frank Act, and therefore the FDIC has eliminated a surcharge on larger banks, such as Synovus Bank. In addition, in 2018 Synovus Bank was subject to quarterly assessments by the FDIC to pay interest on Financing Corporation bonds. For 2018, Synovus Bank's FDIC insurance expense totaled $22.3 million including its Financing Corporation assessments and the DIF surcharge that was in place until September 30, 2018.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order
The Federal Deposit Insurance Act requires the federal bank regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions relating to: (1) internal controls; (2) information systems and audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate risk exposure; and (6) asset quality. The federal banking agencies have adopted regulations and Interagency Guidelines Establishing Standards for Safety and Soundness to implement these required standards. These guidelines set forth the safety and soundness standards used to identify and address problems at insured depository institutions before capital becomes impaired. Under the regulations, if a regulator determines that a bank fails to meet any standards prescribed by the guidelines, the regulator may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans.
The OFAC is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and acts of Congress. OFAC publishes, and routinely updates, lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, including the Specially Designated Nationals and Blocked Persons List. If we find a name on any transaction, account or wire transfer that is on an OFAC list, we must undertake certain specified activities, which could include blocking or freezing the account or transaction requested, and we must notify the appropriate authorities.
During 2006, the federal bank regulatory agencies released guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) and advised financial institutions of the risks posed by CRE lending concentrations. The Guidance requires that appropriate processes be in place to identify, monitor and control risks associated with real estate lending concentrations. Higher allowances for loan losses and capital levels may also be required. The Guidance is triggered when CRE loan concentrations exceed either:
The Guidance also applies when a bank has a sharp increase in CRE loans or has significant concentrations of CRE secured by a particular property type. We have always had exposures to loans secured by CRE due to the nature of our markets and the loan needs of both retail and commercial customers. We believe our long termlong-term experience in CRE lending, underwriting policies, internal controls, and other policies currently in place, as well as our loan and credit monitoring and administration procedures, are generally appropriate to managing our concentrations as required under the Guidance.
Interchange fees, or "swipe" fees, are fees that merchants pay to credit card companies and card-issuing banks such as Synovus Bank for processing electronic payment transactions on their behalf. The maximum permissible interchange fee that a non-exempt issuer such as Synovus Bank may receive for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction, subject to an upward adjustment of 1 cent if an issuer certifies that it has implemented policies and procedures reasonably designed to achieve the fraud-prevention standards set forth by the Federal Reserve. In addition, card issuers and networks are prohibited from entering into arrangements requiring that debit card transactions be processed on a single network or only two affiliated networks, and allows merchants to determine transaction routing.
In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for them on the condition that (1) the customer obtain or provide some additional credit, property, or services from or to the bank or bank holding company or their subsidiaries or (2) the customer not obtain some other credit, property, or services from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of the credit extended. A bank may, however, offer combined-balance products and may otherwise offer more favorable terms if a customer obtains two or more traditional bank products. The law also expressly permits banks to engage in other forms of tying and authorizes the Federal Reserve Board to grant additional exceptions by regulation or order. Also, certain foreign transactions are exempt from the general rule.
Activities of Synovus Bank are subject to a variety of statutes and regulations designed to protect consumers. These laws and regulations include, among numerous other things, provisions that:
The CFPB adopted a rule that implements the ability-to-repay and qualified mortgage provisions of the Dodd-Frank Act (the “ATR/QM rule”), which requires lenders to consider, among other things, income, employment status, assets, payment amounts, and credit history before approving a mortgage, and provides a compliance “safe harbor” for lenders that issue certain “qualified mortgages.” The ATR/QM rule defines a “qualified mortgage” to have certain specified characteristics, and generally prohibitprohibits loans with negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years from being qualified mortgages. The rule also establishes general underwriting criteria for qualified mortgages, including that monthly payments be calculated based on the highest payment that will apply in the first five years of the loan and that the borrower have a total debt-to-income ratio that is less than or equal to 43%. While “qualified mortgages” will generally be afforded safe harbor status, a rebuttable presumption of compliance with the ability-to-repay requirements will attach to “qualified mortgages” that are “higher priced mortgages” (which are generally subprime loans). In addition, the securitizer of asset-backed securities must retain not less than 5% of the credit risk of the assets collateralizing the asset-backed securities, unless subject to an exemption for asset-backed securities that are collateralized exclusively by residential mortgages that qualify as “qualified residential mortgages.”
The CFPB has also issued rules to implement requirements of the Dodd-Frank Act pertaining to mortgage loan origination (including with respect to loan originator compensation and loan originator qualifications) as well as integrated mortgage disclosure rules. In addition, the CFPB has issued rules that require servicers to comply with newcertain standards and practices with regard to: error correction; information disclosure; force-placement of insurance; information management policies and procedures; requiring
information about mortgage loss mitigation options be provided to delinquent borrowers; providing delinquent borrowers access to servicer personnel with continuity of contact about the borrower’s mortgage loan account; and evaluating borrowers’ applications for available loss mitigation options. These rules also address initial rate adjustment notices for adjustable-rate mortgages, (ARMs), periodic statements for residential mortgage loans, and prompt crediting of mortgage payments and response to requests for payoff amounts.
Synovus Bank is also subject to, among other things, the provisions of the Equal Credit Opportunity Act (the “ECOA”) and the Fair Housing Act, (the “FHA”), both of which prohibit discrimination based on race or color, religion, national origin, sex, and familial status in any aspect of a consumer or commercial credit or residential real estate transaction. The Department of Justice, (the “DOJ”), and the federal
bank regulatory agencies have issued an Interagency Policy Statement on Discrimination in Lending that provides guidance to financial institutions in determining whether discrimination exists, how the agencies will respond to lending discrimination, and what steps lenders might take to prevent discriminatory lending practices. The DOJ has increased its efforts to prosecute what it regards as violations of the ECOA and FHA.
We include our website addresses throughout this filing only as textual references. The information contained on our website is not incorporated in this document by reference.
ITEM 1A. RISK FACTORS
This section highlights the material risks that we currently face. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition or results of operations or the trading price of our securities.
Strategic Risk
Competition in the financial services industry may adversely affect our future earnings and growth.
We operate in a highly competitive environment and our profitability and our future growth depends on our ability to compete successfully. We face pricing competition for loans and deposits and, in order for us to compete for borrowers and depositors, we may be required to offer loans and deposits on terms less favorable to us, including lower rates on our loans and higher rates on our deposits. We also compete for customers based on such factors as convenience, product lines,offerings, technology, accessibility of service and service capabilities. Certain of our competitors are larger and have more resources than we do, enabling them to be more aggressive than us in competing for loans and deposits and investing in new products, technology and services. In addition, the ability of non-bank competitors to provide services previously limited to commercial banks has intensified the competition we face. These non-bank competitors are not subject to the same extensive regulations that govern us and, therefore, may be able to operate with greater flexibility and lower cost structures. Non-bank competitors can also operate in areas or offer certain products that are considered speculative or risky, such as cryptocurrencies, that may be attractive to our customers. This significant competition in making loans and attracting and retaining deposits as well as in providing other financial services may impact our future earnings and growth.
Furthermore, the financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Technology has lowered barriers to entry and made it possible for non-banks and smaller banks to offer products and services traditionally provided by larger banks. Additionally, dueCompetitors adopting new technologies could require us to theirmake significant expenditures to modify or make additions to our current products and services. There has also been increasing consolidation among regional banks similar in size or larger than us resulting in even larger banks. The resulting larger banks, as well many competitorsother banks that are larger than us, may be able to achieve economies of scale due to their size and, as a result, may be able to operate more efficiently than us and also offer a broader range of products and services than we do, as well as better pricing for those products and services.
We may not realize the expected benefits from our efficiency and growth initiatives, including our Synovus Forward initiative, which could negatively impact our future profitability.
In the current competitive banking environment, operating costs must reduce or grow much slower than overall revenue growth. In addition, we must continue to implement strategies to grow our loan portfolio and increase non-interest income in order to realize continued earnings growth and to remain competitive with the other banks in the markets we serve. We are continuously implementing strategic efficiency and growth initiatives for expense reduction, increased efficiencies and long-term growth.growth, including our current Synovus Forward efficiency and growth initiative. While we have realized cost-savings and growth as a result of these initiatives in the past, there is no guarantee that these initiatives will be successful in controlling expenses, and growing revenues or achieving the expected level of future savings and revenue enhancements that we have announced. If we fail to meet these previously disclosed goals, it could result in a negative market reaction and negatively impact the future.trading price of our stock. Furthermore, cost-savings initiatives may result in an increase in short-term expenses, negatively impact operational effectiveness and impact employee morale. In addition, while expense control continues to be a major focus for us, management also expects to continue to make strategic investments in technology and talent that are expected to improve our customer experience and support future growth which will require an increase in our expenditures. There can be no assurance that we will ultimately realize the anticipated benefits of our expense reduction and growth strategies, which may impair our earnings growth.
We may fail to realize all of the anticipated benefits of the Merger,growth, or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating FCB.
Our ability to realize the anticipated benefits of the Mergerthat our expense reduction strategies will depend, to a large extent, on our ability to successfully integrate the acquired businesses. The integration and combination of the acquired businesses is a complex, costly and time-consuming process. As a result, we will be required to devote significant management attention and resources to integrating their business practices and operations with ours. The integration process may disrupt our business and the business of FCB and, if implemented ineffectively, could limit the full realization of the anticipated benefits of the acquisition. The failure to meet the challenges involved in integrating the acquired businesses and to realize the anticipated benefits of the Merger could cause an interruption of, or a loss of momentum in, our business activities or those of FCB and could adverselynot negatively impact our business, financial condition and results of operations. In addition, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, loss of customers and diversion of our management’s and employees’ attention. The challenges of combining the operations of the companies include, among others:organization.
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition;
difficulties in the integration of operations and systems;
difficulties in the assimilation of employees;
difficulties in managing the expanded operations of a larger and more complex company;
challenges in keeping existing customers and obtaining new customers;
challenges in attracting and retaining key personnel, including personnel that are considered key to the future success of FCB’s businesses;
challenges related to FCB's credit quality and credit risk; and
challenges in keeping key business relationships in place.
Many of these factors will be outside of our control and any one of them could result in increased costs and liabilities, decreases in the amount of expected income and diversion of management’s time and energy, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, even if the operations of FCB are integrated successfully with our business, the full benefits of the transaction may not be realized, including the synergies, cost savings, growth opportunities or earnings accretion that are expected. These benefits may not be achieved within the anticipated time frame, or at all, and additional unanticipated costs may be incurred in the integration of the businesses. Furthermore, FCB may have unknown or contingent liabilities that we would assume in the acquisition and that were not discovered during the course of our due diligence. These liabilities could include exposure to unexpected asset quality problems, compliance and regulatory violations, key employee and client retention problems and other problems that could result in significant costs to us.
All of these factors could cause dilution to our earnings per share, decrease or delay the expected accretive effect of the transaction, negatively impact the price of our common stock, or have a material adverse effect on our business, financial condition and results of operations.
The implementation of other new lines of business, or new products and services and new technologies may subject us to additional risk.
We continuously evaluate our service offerings and may implement newOver the past few years, we have launched or enhanced a number of lines of business, or offer new products and services, within existing linesand technologies, including, among others, those related to our treasury and payments solutions business and asset-based and structured lending capabilities. An important part of our business in the future.strategy is to continue these efforts to implement new
products, services and technologies designed to better serve our customers. There are substantial risks and uncertainties associated with these efforts. In developing and marketing new lines of business and/or new products and services, we undergo a new product process to assess the risks of the initiative, and invest significant time and resources to build internal controls, policies and procedures to mitigate those risks, including hiring experienced management to oversee the implementation of the initiative. Initial timetables for the introduction and development of new lines of business, and/or new products or services and/or new technologies may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business, and/or a new product or service.service and/or new technologies. Furthermore, any new line of business, and/or new product or service and/or new technology could require the establishment of new key and other controls and have a significant impact on our existing system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and/or new products or services could have a material adverse effect on our business and, in turn, our financial condition and results of operations.
We may pursue attractive bank and non-bank acquisition opportunities as they arise. However, even if we identify attractive acquisition opportunities, we may not be able to complete such acquisitions on favorable terms or realize the anticipated benefits from such acquisitions.
While we continue to focus on organic growth opportunities, and the integration of FCB, we anticipate continuing to evaluate bothmay pursue attractive bank andor non-bank acquisition and consolidation opportunities that arise in our core markets and beyond. The number of financial institutions headquartered in Georgia, Florida, the Southeastern United States, and across the country continues to decline through merger and other consolidation activity. We expectIn the event that attractive acquisition opportunities arise, we would likely face competition for such acquisitions from other banking and financial companies, many of which have significantly greater resources will compete with us to acquire financial services businesses.and may have more attractive valuations. This competition as the number of appropriate merger targets decreases, could either prevent us from being able to complete attractive acquisition opportunities or increase prices for potential acquisitions which could reduce our potential returns, and reduce the attractiveness of these opportunities to us. As a result, we may be unable to identify additional bank and non-bank acquisition opportunities that meet our acquisition criteria. Furthermore, even if we doare able to identify and complete acquisitions, the terms of such acquisition opportunities,acquisitions may not be favorable to us or we may be unablefail to complete such acquisitions on favorable terms, if at all, or realize the anticipated benefits from such acquisitions. Also all acquisitions are subject to various regulatory approvals and if we were unable (or there was a perception that we would be unable) to obtain such approvals for any reason, including due to any actual or perceived capital, liquidity, profitability or regulatory compliance issues, it would impair our ability to consummate acquisitions. In addition, any acquisition could be dilutive to our earnings and shareholders’ equity per share of our common stock.
Also, acquisitions are subject to various regulatory approvals, including the approval of the FRB and the GA DBF. If we fail to receive the appropriate regulatory approvals, we will not be able to consummate an acquisition that we believe is in our best interests. Among other things, our regulators consider our capital, liquidity, profitability, regulatory compliance, including with respect to AML obligations, consumer protection laws and CRA obligations and levels of goodwill and intangibles when considering acquisition and expansion proposals. We cannot be certain when or if, or on what terms and conditions, any required regulatory approvals would be granted, if at all.
Operational Risk
Failure to attract and retain key employees and the impact of executive management transitions may adversely impact our ability to successfully execute our growth and efficiency strategies.
Our financial success depends upon our ability to attract and retain highly motivated, well-qualified personnel that we rely on to execute our strategy and initiatives. We face significant competition in the recruitment of qualified employees from financial institutions and others. Moreover, as the banking industry transforms due to technological innovation, we must continually assess and manage how our talent needs change over time. In addition, our future growth and the continued diversification of our loan portfolio depends, in part, on our ability to attract and retain the right mix of well-qualified employees. If we are unable to attract and retain qualified employees, our enterprise riskability to execute our business strategies may suffer and we may be required to substantially increase our overall compensation or benefits to attract and retain such employees. Furthermore, we generally do not have employment agreements in place with our management framework is not effective at mitigatingteam and key team members and cannot guarantee that our management team and other key team members will remain with us. The unexpected loss of services of one or more of our key personnel, especially members of our senior management team, could have a material adverse impact on the business because we would lose their skills, knowledge of the market, years of industry experience and may have difficulty promptly finding qualified replacement personnel.
Furthermore, we have had recent leadership changes and transitions involving our executive management team and expect to have further changes and transitions in 2021, as previously announced. Any significant leadership changes involve inherent risk and lossany failure to us, weensure the effective transfer of knowledge and a smooth transition could suffer unexpected losseshinder our strategic planning, execution and our results of operations could be materially adversely affected.future performance.
Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing shareholder value. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including strategic, market, credit, liquidity, operational, regulatory compliance, litigation and reputational. However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. For example, the financial and credit crisis and resulting regulatory reform highlighted both the importance and some of the limitations of managing unanticipated risks. If our risk management framework proves ineffective, we could suffer unexpected losses and our business and results of operations could be materially adversely affected.
The financial services market is undergoing rapid technological changes, and if we are unable to stay current with those changes, we will not be able to effectively compete.
The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services.services, primarily related to increased digitization of banking services and capabilities. These trends were accelerated by the COVID-19 pandemic, increasing demand for mobile banking solutions. Our future success will depend, in part, on our ability to keep pace with these technological changes and to use technology to satisfy and grow customer demand for our products and services and to create additional efficiencies in our operations. We expect that we will
need to make substantial investments in our technology and information systems to compete effectively and to stay current with technological changes. Some of our competitors have substantially greater resources to invest in technological improvements and have invested more heavily than us, and will continue to be able to invest more heavilydo so, in developing and adopting new technologies, which may put us at a competitive disadvantage. Furthermore, companies may increasingly utilize artificial intelligenceSome of these competitors consist of financial technology providers, who are beginning to deliveroffer more traditional banking products and services, which could become more competitive and efficient than traditional products and services.may either acquire a bank charter or obtain a bank-like charter, such as the fintech charter provided by the OCC. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. As a result, our ability to effectively compete to retain or acquire new business may be impaired, and our business, financial condition or results of operations may be adversely affected.
We may not be able to successfully implement current or future information technology system enhancements and operational initiatives, which could adversely affect our business operations and profitability.
We continue to invest significant resources in information technology system enhancements and operational initiatives in order to provide functionality and security at an appropriate level, to improve our operating efficiency and to streamline our customer experience. We may not be able to successfully implement and integrate such system enhancements and initiatives, which could adversely impact the ability to comply with a number of legal and regulatory requirements, which could result in sanctions from regulatory authorities. In addition, these projects could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations. Failure to properly utilize system enhancements that are implemented in the future could result in impairment charges that adversely impact our financial condition and results of operations, could result in significant costs to remediate or replace the defective components and could impact our ability to compete. In addition, we may incur significant training, licensing, maintenance, consulting and amortization expenses during and after implementation, and any such costs may continue for an extended period of time. As such, we cannot guarantee that the anticipated long-term benefits of these system enhancements and operational initiatives will be realized.
We mayIf our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses and our results of operations could be able to attract and retain key employees, which maymaterially adversely impact our ability to successfully execute our growth strategies.affected.
Our financial success depends uponenterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing shareholder value. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including strategic, market, credit, liquidity, capital, operational, regulatory compliance, litigation and reputational. However, as with any risk management framework, there are inherent limitations to our ability to attract and retain highly motivated, well-qualified personnelrisk management strategies as there may exist, or develop in the future, risks that we rely on to execute onhave not appropriately anticipated or identified. For example, the financial and credit crisis and resulting regulatory reform highlighted both the importance and some of the limitations of managing unanticipated risks. If our strategyrisk management framework proves ineffective, we could suffer unexpected losses and initiatives, including our senior management team. We face significant competition in the recruitment of qualified employees from financial institutions and others. Moreover, as the banking industry transforms due to technological innovation, we must continually assess and manage how our talent needs change over time. In addition, our future growth and the continued diversification of our loan portfolio depends, in part, on our ability to attract and retain the right mix of well-qualified employees. If we are unable to attract and retain qualified employees, our ability to execute our business strategies may suffer and we mayresults of operations could be required to substantially increase our overall compensation or benefits to attract and retain such employees. Furthermore, we generally do not have employment agreements in place with our management team and key team members and cannot guarantee that our management team and other key team members will remain with us. The unexpected loss of services of one or more of our key personnel, especially members of our senior management team, could have a material adversematerially adversely affected.
impact on the business because we would lose their skills, knowledge of the market, years of industry experience and may have difficulty promptly finding qualified replacement personnel.
In 2016 federal agencies proposed regulations which might significantly change the regulation of incentive compensation programs at financial institutions. The proposal would create four tiers of institutions based on asset size. Institutions in the top two tiers (over $50 billion in assets) would be subject to rules much more detailed and proscriptive than are currently in effect. While our total assets are currently below $50 billion, they could exceed this amount in future periods. As of December 31, 2018, these rules have not been implemented nor withdrawn. These regulations may significantly restrict the amount, form, and context in which we pay incentive compensation and may put us at a competitive disadvantage compared to non-financial institutions in terms of attracting and retaining key employees.
We rely extensively on information technology systems to operate our business and an interruption or security breach may disrupt our business operations, result in reputational harm and have an adverse effect on our operations.
As a large financial institution, we rely extensively on our information technology systems to operate our business, including to process, record and monitor a large number of customer transactions on a continuous basis. As customer, public and regulatory expectations regarding operational and information security have increased, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns. Our business, financial, accounting, data processing systems or other operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control. For example, there could be sudden increases in customer transaction volume; electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes, and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; and, as described below, cyber-attacks.
We While we have policies, procedures and systems designed to prevent or limit the effect of possible failures, interruptions or breaches in security of information systems and business continuity programs designed to provide services in the case of an event resulting in material disruptions of our operating systems. We regularly seek to test the effectiveness of and enhance these policies, procedures and systems. However,such events, there is no guarantee that these safeguards or programs will address all of the threats that continue to evolve.
Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber-attacks or security breaches of the networks, systems, or devices that our customers use to access our products and services, could result in customer attrition, regulatory and other fines, penalties or intervention, reputational damage, reimbursement or other compensation costs and/or additional compliance costs, any of which could materially adversely affect our business, results of operations or financial condition.
We face significant cyber and data security risk that could result in the disclosure of confidential information, adversely affect our business or reputation and expose us to significant liabilities.
As a large financial institution, we are under continuous threat of loss due to the velocity and sophistication of cyber-attacks. This risk continues to increase and attack methods continue to evolve in sophistication, velocity, and frequency and can
occur from a variety of sources, such as foreign governments, hacktivists, or other well-financed entities, and may originate from less regulated and remote areas of the world. Furthermore, the recent transition to remote working for both Synovus and many of our customers due to the COVID-19 pandemic has heightened these risks. We continually review the security of our IT systems and make the necessary investments to improve the resiliency of our systems and their security from attack. Nonetheless, there remains the risk that we may be materially harmed by a cyber-attack or information security breach. Further, there is no guarantee that our response to any cyber-attack or system interruption, breach or failure will be effective to mitigate and remediate the issues resulting from such an event, including the costs, reputational harm and litigation challenges that we may face as a result.
Data privacy laws also continue to evolve, with states increasingly proposing or enacting legislation that relates to data privacy and data protection. We may be required to incur additional expenses to comply with these evolving regulations and could face penalties for violating any of these regulations.
Two of the most significant cyber-attack risks that we face are e-fraud and loss of sensitive customer data. Loss from e-fraud occurs when cybercriminals breach and extract funds directly from customer or our accounts. Any loss of sensitive customer data that results from attempts to breach our systems, such as account numbers and social security numbers, would present significant reputational, legal and/or regulatory costs to us. Our risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, our plans to continue to provide internet banking and mobile banking channels, and our plans to develop additional remote connectivity solutions to serve our customers. While we have not experienced any material losses relating to cyber-attacks or other information security breaches to date, we have been the subject of attempted hacking and cyber-attacks and there can be no assurance that we will not suffer such significant losses in the future.
The occurrence of any cyber-attack or information security breach could result in material adverse consequences to us including damage to our reputation, and the loss of customers.customers and violations of applicable data privacy laws. We also could face litigation or additionaland regulatory scrutiny.action. Litigation or regulatory actions in turn could lead to significant liability or other sanctions, including fines and penalties or reimbursement to
customers adversely affected by a security breach. Even if we do not suffer any material adverse consequences as a result of events affecting us directly, successful attacks or systems failures at other large financial institutions could lead to a general loss of customer confidence in financial institutions including us.
Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our performance.
Our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring, and retaining and providing growth opportunities for employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers, caring about our customers and team membersemployees and investing in our information technology and other systems. If our reputation is negatively affected by the actions of our employees or otherwise, including as a result of operational errors, clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems or a successful cyberattack against us or other unauthorized release or loss of customer information, our reputation, business and our operating results may be materially adversely affected. Damage to our reputation could also negatively impact our credit ratings and impede our access to the capital markets.
We rely on other companies to provide key components of our business infrastructure.
Third parties provide key components of our business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, Internet connections and network access. We have selected these third-party vendors carefully and have conducted the due diligence consistent with regulatory guidance and best practices. While we have ongoing programs to review third party vendors and assess risk, we do not control their actions. Any problems caused by these third parties, including those resulting from disruptions in communication services provided by a vendor, issues at a third-party vendor of a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks and security breaches at a vendor, failure of a vendor to provide services for any reason or poor performance of services, could adversely affect our ability to deliver products and services to our customers and otherwise conduct our business. Financial or operational difficulties of a third-party vendor could also hurt our operations if those difficulties interfere with the vendor's ability to serve us. Furthermore, our vendors could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints. Replacing these third-party vendors could also create significant delay and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to our business operations.
As an issuer of credit and debit cards we are exposed to losses in the event that holders of our cards experience fraud on their card accounts.
Our customers regularly use Synovus-issued credit and debit cards to pay for transactions with retailers and other businesses. There is the risk of data security breaches at these retailers and other businesses that could result in the misappropriation of our customers’ credit and debit card information. When our customers use Synovus-issued cards to make purchases from those businesses, card account information is provided to the business. If the business’s systems that process or store card account information are subject to a data security breach, holders of our cards who have made purchases from that business may experience fraud on their card accounts. While we expect that the transition to EMV-enabled credit and debit cards will reducereduced the likelihood of fraudulent transactions and the associated costs, we may nonetheless suffer losses associated with reimbursing our customers for fraudulent transactions on customers’ card accounts, as well as for other costs related to data security compromise events, such as replacing cards associated with compromised card accounts. In addition, we provide card transaction processing services to some merchant customers under agreements we have with payment networks such as Visa and MasterCard. Under these agreements, we may be responsible for certain losses and penalties if one of our merchant customers suffers a data security breach.
In the last several years, a number ofMany large retailers have suffered substantial data security breaches compromising millions of credit and debit card accounts. To date, our losses and costs related to these breaches have not been material, but other similar events in the future could be more significant to us.
Our independent sales organization relationships are complex and may expose us to losses.
We maintain relationships with a number of ISOs, which are organizations that are not Visa or MasterCard member banks, but which are associated with us as a member bank. These ISOs generally act as intermediaries for third party companies that want to develop the capacity to accept payment cards, and ISO activities include, among other things, acquiring and issuing functions, soliciting merchants and other customers, soliciting cardholders, underwriting and monitoring, arranging for terminal leases or purchases, account and transaction processing, and customer service. Our ISO relationships include (but are not limited to) our relationships with MPS where we process credit and debit card transactions on behalf of various merchants.
Because our ISO program entails a host of complex business relationships with third parties, we face risks related to our oversight and supervision of the program, as well as to the reputation and financial viability of the ISOs with which we do business. Our oversight and supervision responsibilities include, but are not limited to, monitoring of the ISO program and relationships, compliance, portfolio awareness, reputational monitoring, and risk monitoring. Any failure by us to appropriately oversee and supervise our ISO program could damage our reputation, result in regulatory or compliance issues, result in third party litigation, and cause financial losses to us. Further, our ISO program is highly dependent upon the activities and financial viability of our ISO counter-parties, and any negative developments at the ISOs - reputational, compliance-related, financial, or otherwise - may present financial losses and other risk to us.
The costs and effects of litigation, investigations or similar matters involving us or other financial institutions or counterparties, or adverse facts and developments related thereto, could materially affect our business, operating results and financial condition.
We may be involved from time to time in a variety of litigation, investigations, inquiries or similar matters arising out of our business, including those described in “Part I - Item 3. Legal Proceedings” and "Part II - Item 8. Financial Statements and Supplementary Data - Note 1516 - Commitments and Contingencies" of this Report. Furthermore, litigation against banks tend to increase during economic downturns and periods of credit deterioration which may occur or worsen as a result of the continued COVID-19 pandemic. The transition away from LIBOR also increases our litigation risk.
We manage thosethese risks through internal controls, personnel training, insurance, litigation management, our compliance and ethics processes, and other means. However, the commencement, outcome, and magnitude of litigation cannot be predicted or controlled with any certainty. We establish reserves for legal claims when payments associated with the claims become probable and the losses can be reasonably estimated. We may still incur legal costs for a matter even if we have not established a reserve. In addition, the actual cost of resolving a legal claim may be substantially higher than any amounts reserved for that matter. For those legal matters where the amounts associated with the claims are not probable and the costs cannot be reasonably estimated, Synovus estimates a range of reasonably possible losses. As of December 31, 2018,2020, Synovus' management currently estimates the aggregate range of reasonably possible losses resulting from our outstanding litigation, including, without limitation, the matters described in this Report, 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 us, and the actual losses could prove to be higher. As there are further developments in these legal matters, we will reassess these matters
and the estimated range of reasonably possible losses may change as a result of this assessment. In addition, in the future, we may need to record additional litigation reserves with respect to these matters. Further, regardless of how these matters proceed, it could significantly harm our reputation and divert our management's attention and other resources away from our business.
Our insurance may not cover all claims that may be asserted against it and indemnification rights to which we are entitled may not be honored, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation or investigation significantly exceed our insurance coverage, they could have a material adverse effect on our business, financial condition and results of operations. In addition, premiums for insurance covering the financial and banking sectors are rising. We may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms or at historic rates, if at all.
Credit and Liquidity Risk
Our allowance for loancredit losses may not cover actual losses, and we may be required to materially increase our allowance, which may adversely affect our capital, financial condition and results of operations.
We derive the most significant portion of our revenues from our lending activities. When we lend money, commit to lend money or enter into a letter of credit or other contract with a counterparty, we incur credit risk, which is the risk of losses if our borrowers do not repay their loans or our counterparties fail to perform according to the terms of their contracts. We estimate and maintain an allowance for loancredit losses, which is a reserve established through a provision for loan losses charged to expenses, representing management's best estimate of probablelife of loan credit losses that have been incurred within the existing portfolio of loans and related unfunded commitments, as described under "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" and “Part"Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Allowance for Loan Losses."Credit Losses" in this Report. The allowance, in the judgment of management, is established to reserve for estimated loancredit losses and risks inherent in the loan portfolio. The determination of the appropriate level of the allowance for loancredit losses inherently involves a high degree of subjectivity and requires us to make significant estimatesthe use of current credit risks using existingboth qualitative and quantitative information, including estimates, assumptions, and quantitative modeling techniques, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, changes in assumptions regarding a borrower's ability to pay, changes in collateral values, risk ratings, and other factors, both within and outside of our control, may cause the allowance for loancredit losses to become inadequate and require an increase in the provision for loan losses. In addition, the FASB has adopted new accounting standards for the recognition and measurement of credit losses for loans and certain other instruments. The new standards will be effective beginning January 1, 2020.
While we are still evaluating the impact of these new accounting standards,adopted CECL in 2020, we expect that the allowance for loancredit losses will be higher under the new standard will be more volatile in the future and potentially higher and as such,
could have an impact on our results of operations. For a discussion of changes in these accounting standards and regulatory capital implications, see “Part 1 - Item 1. Business - Supervision, Regulation, and Other Factors - Capital Requirements.”
Because the risk rating of the loans is dependent on certain subjective information and is subject to changes in the borrower's credit risk profile, evolving local market conditions and other factors, it can be difficult for us to predict the effects that those factors will have on the classifications assigned to the loan portfolio, and thus difficult to anticipate the velocity or volume of the migration of loans through the classification process and effect on the level of the allowance for loan losses. Accordingly, we monitor our credit quality and our reserve requirements and use that as a basis for capital planning and other purposes. See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity" and "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources" of this Report for further information.
Various regulatory agencies, as an integral part of their examination procedures, periodically review the allowance.allowance as well as the supporting methods and processes. Based on their judgments about information available to them at the time of their examination, such agencies may require us to recognize additions to the allowance or additional loan charge offs. An increase in the allowance for loancredit losses would result in a decrease in net income and capital, and could have a material adverse effect on our capital, financial condition and results of operations.
Changes in interest rates may have an adverse effect on our net interest income.
Net interest income, which is the difference between the interest income that we earn on interest-earning assets and the interest expense that we pay on interest-bearing liabilities, is a major component of our income and our primary source of revenue from our operations. A further narrowing of interest rate spreads could adversely affect our earnings and financial condition. We cannot control or predict with certainty changes in interest rates. Regional and local economic conditions, competitive pressures and the policies of regulatory authorities, including monetary policies of the FRB, affect interest income and interest expense.
If Furthermore, such low rates increase the risk of a negative interest rate environment in which interest rates weredrop below zero, either broadly or for some types of instruments. Such an occurrence would likely further reduce the interest we earn on loans and other earning assets, while also likely requiring us to increase itpay to maintain our deposits with the FRB. Our systems may not be able to adequately handle a negative interest rate environment and not all variable rate instruments are designed for such a circumstance.
Decreasing interest rates reduce our yield on our variable rate loans and on our new loans, which reduces our net interest income. In addition, lower interest rates may reduce our realized yields on investment securities which would reduce our net
interest income and cause downward pressure on net interest margin in future periods. A significant reduction in our net interest income could have a material adverse impact on our capital, financial condition and results of operations.
While we expect the low-interest rate environment to continue, increasing interest rates can have a negative impact on our business by reducing the amount of money our customers borrow or by adversely affecting their ability to repay outstanding loan balances that may increase due to adjustments in their variable rates. In addition, ifin a rising interest rates were to increase, in order to compete for deposits in our primary market areas,rate environment we may have to offer more attractive interest rates to depositors to compete for deposits, or pursue other sources of liquidity, such as wholesale funds. If interest rates were to decrease, our yield on our variable rate loans and on our new loans would decrease, reducing our net interest income. In addition, lower interest rates may reduce our realized yields on investment securities which would reduce our net interest income and cause downward pressure on net interest margin in future periods. A significant reduction in our net interest income could have a material adverse impact on our capital, financial condition and results of operations.
We have ongoing policies and procedures designed to manage the risks associated with changes in market interest rates and actively manage these risks through hedging and other risk mitigation strategies. However, if our assumptions are wrong or overall economic conditions are significantly different than anticipated, our risk mitigation techniques may be ineffective or costly.
Changes in the cost and availability of funding due to changes in the deposit market and credit market may adversely affect our capital resources, liquidity and financial results.
We may be unable to access historical and alternative sources of liquidity, including the capital markets, brokered deposits, and borrowings from the FHLB, which could adversely affect our overall liquidity. Liquidity represents the extent to which we have readily available sources of funding to meet the needs of our depositors, borrowers and creditors, to support asset growth, and to otherwise sustain our operations and the operations of our subsidiary bank. In managing our consolidated balance sheet, we depend on access to a variety of sources of funding to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, and to accommodate the transaction and cash management needs of our customers. SourcesIn addition to core deposits, sources of funding available to us, and upon which we rely as regular components of our liquidity and funding management strategy, include borrowings from the FHLB and brokered deposits. See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity" and "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources" of this Report for further information. We also have historically enjoyed a solid reputation in the capital markets and have been able to raise funds in the form of either short- or long-term borrowings or equity or debt issuances. If, due to market disruptions, perceptions about our credit ratings or other factors, we are unable to access the capital markets in the future, our capital resources and liquidity may be adversely affected.
In general, the amount, type and cost of our funding, including from other financial institutions, the capital markets and deposits, directly impacts our costs of operating our business and growing our assets and can therefore positively or negatively affect our financial results. A number of factors could make funding more difficult, more expensive or unavailable on any terms, including, but not limited to, a downgrade in our credit ratings, financial results, changes within our organization, specific events
that adversely impact our reputation, disruptions in the capital markets, specific events that adversely impact the financial services industry, counterparty availability, changes affecting our assets, the corporate and regulatory structure, interest rate fluctuations, general economic conditions and the legal, regulatory, accounting and tax environments governing our funding transactions. Also, we compete for funding with other banks and similar companies, many of which are substantially larger, and have more capital and other resources than we do. In addition, as some of these competitors consolidate with other financial institutions, these advantages may increase. Competition from these institutions may increase the cost of funds.
In addition to bank level liquidity management, we must manage liquidity at the Parent Company for various needs including potential capital infusions into subsidiaries, the servicing of debt, the payment of dividends on our common stock and preferred stock and share repurchases. The primary source of liquidity for us consists of dividends from Synovus Bank which are governed by certain rules and regulations of our supervising agencies. During 2016, Synovus Bank made upstream cash dividends to the Parent Company totaling $325.0 million. During 2017, Synovus Bank and non-bank subsidiaries made cash distributions to the Parent Company totaling $451.0 million including cash dividends of $283.2 million. During 2018, Synovus Bank and non-bank subsidiaries made upstream cash distributions to the Parent Company totaling $260.0 million including cash dividends of 250.0 million. Synovus' ability to receive dividends from Synovus Bank in future periods will depend on a number of factors, including, without limitation, Synovus Bank's future profits, asset quality, liquidity, and overall condition. In addition, GA DBF rules and related statutes contain additional restrictions on payments of dividends by Synovus Bank. In particular, the Georgia Financial Institutions Code contains restrictions on the ability of a Georgia bank to pay dividends other than from retained earnings and under other circumstances without the approval of the GA DBF. As a result of these restrictions, Synovus Bank may be required to seek approval from the GA DBF to pay dividends. See “Part I - Item 1A. Risk Factors - We may not be able to generate sufficient cash to service all of our debt and repay maturing debt obligations” and "Part 1 - Item 1. Business - Supervision, Regulation, and Other Factors - Dividends" of this Report for further information. Synovus expects that it will receive additional dividends from Synovus Bank in 2019. If Synovus does not receive additional dividends from Synovus Bank in 2019 at the levels anticipated,as needed, its liquidity could be adversely affected, and it may not be able to continue to execute its current capital plan to return capital to its shareholders. In addition to dividends from Synovus Bank, we have historically had access to a number of alternative sources of liquidity, including the capital markets, but there is no assurance that we will be able to obtain such liquidity on terms that are favorable to us, or at all. If our access to these traditional and alternative sources of liquidity is diminished or only available on unfavorable terms, then our overall liquidity and financial condition will be adversely affected.
Changes in our asset quality could adversely affect our results of operations and financial condition.
Asset quality measures the performance of a borrower in repaying a loan, with interest, on time. While we believe we have benefited from relatively stable asset quality, there are elements of our loan portfolio that inherently present greater credit risk. While we believe that we manage asset quality through prudent underwriting practices and collection operations, it is possible that our asset quality could deteriorate, depending upon economic conditions and other factors. Despite the economic disruption caused by the COVID-19 pandemic, our asset quality generally remains strong, but further economic disruption could negatively impact asset quality in future periods, particularly as to those borrowers in certain adversely and disproportionately impacted industries including restaurants, hotels, and commercial retail.
If Synovus Bank loses or is unable to grow its deposits, it may be subject to payingliquidity risk and higher funding costs.
The total amount that we pay for funding costs is dependent, in part, on Synovus Bank’s ability to grow and retain its deposits. If Synovus Bank is unable to sufficiently grow and retain its deposits at competitive rates to meet liquidity needs, it may be subject to paying higher funding costs to meet these liquidity needs.
Synovus Bank competes with banks and other financial services companies for deposits. If competitors raise the rates they pay on deposits, Synovus Bank’s funding costs may increase, either because Synovus Bank raises rates to avoid losing deposits or because Synovus Bank loses deposits and must rely on more expensive sources of funding. HigherThis could result in a failure to maintain adequate liquidity and higher funding costs, reducereducing our net interest margin and net interest income. Synovus Bank’sIn addition, our access to deposits may be affected by the liquidity needs of our depositors. In particular, a substantial majority of our liabilities in 2020 were checking accounts and other liquid deposits, which are payable on demand or upon several days' notice, while by comparison, a substantial majority of our assets were loans, which cannot be called or sold in the same time frame. Moreover, our customers could withdraw their deposits in favor of alternative investments, causing Synovus Bankinvestments. While we have historically been able to losereplace maturing deposits and advances as necessary, we may not be able to replace such funds in the future, especially if a lower cost sourcelarge number of funding. Checking and savings account balances and other formsour depositors seek to withdraw their accounts, regardless of customer deposits may decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return tradeoff.reason.
We could realize losses if we determine to sell non-performing assets and the proceeds we receive are lower than the carrying value of such assets.
Distressed asset sales have been a component of our strategy to further strengthen the balance sheet, improve asset quality, and enhance earnings. We could realize future losses if the proceeds we receive upon dispositions of non-performing assets are lower than the recorded carrying value of such assets, which could adversely affect our results of operations in future periods. Accordingly, we could realize an increased level of credit costs in any period during which we determine to dispose of an increased level of distressed assets. Further, although market conditions have improved significantly over the past decade, if market conditions experience another downturn,deteriorate, this could negatively impact our ability to dispose of distressed assets and may result in higher credit losses on sales of distressed assets.
We may not be able to generate sufficient cash to service all of our debt and repay maturing debt obligations.
As of December 31, 2018,2020, we and our consolidated subsidiaries had $1.66$1.2 billion of long-term debt outstanding. Our ability to make scheduled payments of principal and interest or to satisfy our obligations in respect of our debt, to refinance our debt or to fund capital expenditures will depend on our future financial and operating performance and our ability to maintain adequate liquidity. Prevailing economic conditions (including interest rates), and regulatory constraints, including, among other things, on distributions to us from our subsidiaries and required capital levels with respect to our subsidiary bank and financial subsidiaries, business and other factors, many of which are beyond our control, may also affect our ability to meet these needs. We may not be able to generate sufficient cash flows from operations, or obtain future borrowings in an amount sufficient to enable us to pay our debt, or to fund our other liquidity needs. We may need to refinance all or a portion of our debt on maturity, and we may not be able to refinance any of our debt when needed on commercially reasonable terms or at all. If our cash flow and capital resources are insufficient to fund our debt obligations, we may be forced to reduce or delay investments in our business, sell assets, seek to obtain additional equity or debt financing or restructure our debt on terms that may not be favorable to us.
We may be unable to pay dividends on our common stock and Series D Preferred Stockpreferred stock.
Holders of our common stock and Series D Preferred Stockpreferred stock are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments. Although we have historically paid a quarterly cash dividend to the holders of our common stock and Series D Preferred Stock,preferred stock, we are not legally required to do so. Further, the Federal Reserve could decide at any time that paying any dividends on our common stock or preferred stock could be an unsafe or unsound banking practice. The reduction or elimination of dividends paid on our common stock or preferred stock could adversely affect the market price of our common stock or preferred stock, as applicable. In addition, if we fail to pay dividends on our Series D Preferred Stockpreferred stock for six quarters, whether or not consecutive, the holders of the Series D Preferred Stocksuch preferred stock shall be entitled to certain rights to elect two directors to our Board of Directors.
For a discussion of current regulatory limits on our ability to pay dividends, see "Part 1 - Item 1. Business - Supervision, Regulation, and Other Factors - Payment of Dividends" and “Part I - Item 1A - Risk Factors - Compliance and Regulatory Risk - We may become subject to supervisory actions and enhanced regulation that could have a material adverse effect on our business, reputation, operating flexibility, financial condition and the value of our common stock and preferred stock” in this Report for further information.
Compliance and Regulatory Risk
The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our business, financial condition or results of operations.
The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, federal deposit insurance funds and the banking system as a whole, not for the protection of our stockholders and creditors. We and Synovus Bank are subject to regulation and supervision by the Federal Reserve, the GA DBF, and the CFPB. The laws and regulations applicable to us govern a variety of matters, including permissible types, amounts and terms of loans and investments we may make, the maximum interest rate that may be charged, the amount of reserves Synovus Bank must hold against deposits it takes, the types of deposits Synovus Bank may accept and the rates it may pay on such deposits, maintenance of adequate capital and liquidity, changes in the control of the company and Synovus Bank, restrictions on dividends and establishment of new offices by Synovus Bank. We must obtain approval from our regulators before engaging in certain activities, and there can be no assurance that any regulatory approvals we may require will be obtained, either in a timely manner or at all. Our regulators also have the ability to compel us to, or restrict us from, taking certain actions entirely, such as actions that our regulators deem to constitute an unsafe or unsound banking practice. Our failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of which could have a material adverse effect on our business, financial condition or results of operations.
We cannot predict whether new legislation will be enacted and, if enacted, the effect that it, or any regulations, would have on our business, financial condition, or results of operations. See “Part I - Item 1. Business - Supervision, Regulation and Other Factors” of this Report for further information. These changes may result in increased costs of doing business, decreased revenues and net income, may reduce our ability to effectively compete to attract and retain customers, or make it less attractive for us to continue providing certain products and services. Any future changes in federal and state law and regulations, as well as the interpretations and implementations of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above, impact the regulatory structure under which we operate, significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital and modify our business strategy, limit our ability
to pursue business opportunities in an efficient manner, or other ways that could have a material adverse effect on our business, financial condition or results of operations.
The current presidential administration has also introduced further uncertainty into future implementation and enforcement of the Dodd-Frank Act and other regulatory requirements applicable to the banking sector. In addition, various proposals for regulatory simplification or relief were approved by Congress and signed into law by the President of the United States in 2018. See “Part I - Item 1. Business - Supervision, Regulation and Other Factors” of this Report for further information. While these developments have contributed to increased market valuations of some companies in the banking and financial services industry, there is no assurance that any regulatory changes will be implemented, that benefits to our future financial performance will continue to be realized or that any such regulatory changes will not be reversed by future administrations.
The fiscal and monetary policies of the federal government and its agencies could have a material adverse effect on our earnings.
The Federal Reserve Board regulates the supply of money and credit in the U.S. Its policies determine in large part the cost of funds for lending and investing and the return earned on those loans and investments, both of which affect our net interest margin. They can also materially decrease the value of financial assets we hold. Federal Reserve policies may also adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans, or could adversely create asset bubbles which result from prolonged periods of accommodative policy. This, in turn, may result in volatile markets and rapidly declining collateral values. The monetary policies of the Federal Reserve and other governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Because of changing conditions in the national and international economies and in the money markets, as well as the result of actions by monetary and fiscal authorities, all of which are beyond our control, it is not possible to predict with certainty future changes in interest rates, deposit levels, loan demand, or the business and results of operations of Synovus and Synovus Bank, or whether changing economic conditions will have a positive or negative effect on operations and earnings. Also, potential new taxes or increased taxes on corporations generally, or on financial institutions specifically, could adversely affect our net income.
The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our business, financial condition or results of operations.
The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, federal deposit insurance funds and the banking system as a whole, not for the protection of our shareholders and creditors. We and Synovus Bank are subject to regulation and supervision by the Federal Reserve, the GA DBF, and the CFPB. The laws and regulations applicable to us govern a variety of matters, including permissible types, amounts and terms of loans and investments we may make, the maximum interest rate that may be charged, the amount of reserves Synovus Bank must hold against deposits it takes, the types of deposits Synovus Bank may accept and the rates it may pay on such deposits, maintenance of adequate capital and liquidity, changes in the control of the company and Synovus Bank, restrictions on dividends and establishment of new offices by Synovus Bank. We incur significant, recurring costs to comply with all applicable regulations and there is no guarantee that our compliance programs will ensure compliance with all applicable regulations. We must obtain approval from our regulators before engaging in certain activities, and there can be no assurance that any regulatory approvals we may require will be obtained, either in a timely manner or at all. In addition, new technologies could make regulatory compliance more challenging. Remaining compliant and receiving regulatory approvals is dependent on our ability to improve and develop our technological capabilities. Our regulators also have the ability to compel us to, or restrict us from, taking certain actions entirely, such as actions that our regulators deem to constitute an unsafe or unsound banking practice. Our failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of which could have a material adverse effect on our business, financial condition or results of operations.
We cannot predict whether new legislation will be enacted and, if enacted, the effect that it, or any regulations, would have on our business, financial condition, or results of operations. These changes may result in increased costs of doing business, decreased revenues and net income, may reduce our ability to effectively compete to attract and retain customers, or make it less attractive for us to continue providing certain products and services. In particular, we expect that the Biden administration and newly appointed Congress will seek to implement a reform agenda that is significantly different than that of the Trump administration. This reform agenda could include a heightened focus and scrutiny on Bank Secrecy Act/AML related compliance, the regulation of loan portfolios and credit concentrations to borrowers impacted by climate change, increased capital and liquidity and limitations on share repurchases and dividends, all of which could increase our costs and impact our business. Any future changes in federal and state law and regulations, as well as the interpretations and implementations of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above, impact the regulatory structure under which we operate, significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital and modify our business strategy, limit our ability to pursue business opportunities in an efficient manner, or other ways that could have a material adverse effect on our business, financial condition or results of operations.
We may become subject to supervisory actions and enhanced regulation that could have a material adverse effect on our business, reputation, operating flexibility, financial condition and the value of our common stock and preferred stock.
Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, state banking regulators, the Federal Reserve, and separately the FDIC as the insurer of bank deposits, each has the authority to compel or restrict certain actions on our part if any of them determine that we have insufficient capital or are otherwise operating in a manner that may be deemed to be inconsistent with safe and sound banking practices. In addition to examinations for safety and soundness, we and our subsidiaries also are subject to continuous examination by state and federal banking regulators, including the CFPB, for compliance with various laws and regulations, as well as consumer compliance initiatives. As a result of this regulatory oversight and examination process, our regulators may require us to enter into informal or formal supervisory agreements, including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders, pursuant to which we could be required to take identified corrective actions to address cited concerns, or to refrain from taking certain actions.
If we become subject to and are unable to comply with the terms of any future regulatory actions or directives, supervisory agreements, or orders, then we could become subject to additional, heightened supervisory actions and orders, possibly including consent orders, prompt corrective action restrictions and/or other regulatory actions, including prohibitions on the payment of dividends on our common stock and Series D Preferred Stock.our preferred stock. If our regulators were to take such additional supervisory actions, then we could, among other things, become subject to significant restrictions on our ability to develop any new business, as well as restrictions on our existing business, and we could be required to raise additional capital, discontinue our share repurchase program, dispose of certain assets and liabilities within a prescribed period of time, or all of the above. The terms of any such supervisory action could have a material negative effect on our business, reputation, operating flexibility, financial condition and the value of our common stock. See "Part 1 - Item 1. Business - Supervision, Regulation, and Other Factors" in this Report for further information.
We may be required to conserve capital or undertake additional strategic initiatives to improve our capital position due to changes in economic conditions or changes in regulatory capital rules.
We and Synovus Bank are required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets. The required capital ratios are minimums, and the Federal Reserve may determine that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to operate in a safe and sound manner. Moreover, federal bank regulators have issued a series of guidance and rulemakings applicable to large banks. While many of these do not currently apply to us due to our asset size, these issuances could impact industry capital standards and practices in many potentially unforeseeable ways. See “Part 1 - Item 1. Business - Supervision, Regulation, and
Other Factors-Capital Requirements” in this Report for further information onWhile we currently exceed all minimum regulatory capital requirements. At January 1, 2018,requirements, are considered well-capitalized under applicable rules, and believe that we maintain an appropriate capital plan, there is no guarantee that we will not need to increase our capital levels in the buffer was increased to 1.875%. In addition, we repurchased $175 million of capital stock under our previously announced share repurchase program. As a result and as of December 31, 2018, our CET1 ratio was 9.92% on a fully phased-in basis, which is in excess of the minimum common equity and additional conservation buffer stipulated by the Revised Rules. See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources" and "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" of this Report for applicable reconciliation to GAAP measure.future.
We continue to actively monitor economic conditions, evolving industry capital standards, and changes in regulatory standards and requirements, and engage in regular discussions with our regulators regarding capital at both Synovus and Synovus Bank. As part of our ongoing management of capital, we will continue to identify, consider, and pursue additional strategic initiatives to bolster our capital position as deemed necessary, including strategies that may be required to meet regulatory capital requirements, and will continue to evaluate ourrequirements. This includes the evaluation of share repurchase programprograms and increased dividends. The need to maintain more capital and greater liquidity than hasmay have previously been required historicallywarranted or intended could limit our business activities, including lending, and our ability to expand, either organically or through future acquisitions.acquisitions, and invest in technology and other growth strategies. It could also result in our taking steps to increase our capital that may be dilutive to shareholders or limit our ability to pay dividends or otherwise return capital to shareholders.
Market and Other General Risk
The COVID-19 pandemic has adversely impacted, and will likely continue to adversely impact, Synovus’ business, financial condition, liquidity, capital and results of operations.
The COVID-19 pandemic has created economic and financial disruptions that have adversely affected virtually all economic activity in the U.S., which in turn has adversely affected Synovus’ business, financial condition, liquidity, capital and results of operations. While we expect for the COVID-19 pandemic to continue to adversely impact our business in the near term, the extent and duration of the continued adverse effects of the COVID-19 pandemic is unknown and will depend on future developments, which are highly uncertain and outside our control. These developments include the scope, duration and severity of the pandemic (including the possibility of further surges of COVID-19), the timing and efficacy of the vaccination program in the U.S., further actions taken by governmental authorities, including future stimulus programs, in response to the
pandemic and changing behavior of our customers. It is also possible that the pandemic and its aftermath will lead to a prolonged economic slowdown or recession in the U.S. economy or the world economy in general.
In particular, the COVID-19 pandemic has contributed to (i) increased unemployment and decreased consumer confidence and business generally, leading to an increased risk of delinquencies, defaults and foreclosures; (ii) sudden and significant declines, and significant increases in volatility, in financial markets; (iii) ratings downgrades, credit deterioration and defaults in many industries, including hospitality and commercial real estate; (iv) significant draws on credit lines as customers seek to increase liquidity; (v) increased spending on our business continuity efforts, which may in turn require that we further cut costs and investments in other areas; and (vi) increased risk of client disputes, litigation and governmental and regulatory scrutiny as a result of the effects of the COVID-19 pandemic on market and economic conditions and actions governmental authorities take in response to those conditions. Certain industries where Synovus has credit exposure, including restaurants, hotels, and commercial retail, have been more adversely affected from the pandemic than other industries. These adverse impacts have resulted in these clients making higher than usual draws on outstanding lines of credit and, in some instances, being unable to pay their loans as they come due or decrease the value of their collateral. If these trends continue it could result in significant credit losses to Synovus.
Additionally, the economic disruption caused by COVID-19 has resulted in a number of Federal Reserve actions resulting in market interest rates declining significantly. These reductions in interests have adversely affected Synovus’ net interest income, net interest margins and profitability. Furthermore, such low rates increase the risk of a negative interest rate environment in which interest rates drop below zero, either broadly or for some types of instruments. Such an occurrence would likely further reduce the interest Synovus earns on loans and other earning assets, while also likely requiring Synovus to pay to maintain its deposits with the Federal Reserve Bank. Synovus may encounter various issues in the event of a negative interest rate environment, including, but not limited to, legal and operational risks in the implementation of negative rate indexes for certain instruments or products which are contractually bound to such rates. Synovus cannot predict the nature or timing of future changes in monetary policies in response to COVID-19 or the precise effects that they may have on Synovus’ activities and financial results.
Future government actions to mitigate the economic suffering caused by the pandemic, including the recent stimulus plan announced by the Biden administration, may not be successful or may result in increased pressure on the banking sector. Additionally, we are a certified and qualified SBA lender and provided approximately $2.9 billion in PPP loans in 2020, which constituted a significant amount of our loan growth in 2020. We are also participating in the newest round of PPP, totaling $1 billion in new requests as of February 24, 2021. These assistance efforts may adversely affect our revenue and results of operations and may make our results more difficult to forecast as the PPP forgiveness process has just begun and the timing and amount of forgiveness to which our borrowers will be entitled cannot be predicted. The PPP and other government programs in which we may participate are complex and our participation may lead to governmental and regulatory scrutiny, negative publicity and damage to our reputation. Further, Synovus has been named in lawsuits in connection with its participation in the PPP and may be named in additional lawsuits in the future.
The COVID-19 pandemic has resulted in significant changes to our operations, which changes may continue in the future.
Synovus has taken significant precautions to ensure the health and safety of our employees and customers, which included operating over 95% of our branches as drive-thru and appointment only branches and having approximately 90% of our non-retail team members working remotely in the early months of the pandemic. While Synovus re-opened branches for walk-in services during the third quarter of 2020 and began re-entry for non-branch personnel, Synovus continues to keep measures in place to help ensure employee and customer safety. While stay-at-home orders and other similar restrictions were largely eased or lifted in the third quarter in most of our markets, further resurgences of COVID-19 may result in such measures being re-imposed at a later time, which could disrupt our options. The pandemic may permanently alter consumer and customer behavior, including less dependence on in-person banking and increased dependence on electronic banking, all of which could reduce the efficiency of our branch network and require us to increase our investments in electronic banking products and services.
Approximately 37% of team members are also continuing to work remotely. Remote working may heighten cybersecurity, information security and operational risks and affect the productivity of our employees. Also, if a large proportion of Synovus’ key employees contract COVID-19 or are quarantined as a result of the virus, it could adversely impact Synovus’ operations and our business continuity plans may not prove successful in mitigating such impact.
Federal, state and local governments have mandated or encouraged financial services companies to make accommodations to borrowers and other customers affected by the COVID-19 pandemic. Legal and regulatory responses to concerns about the COVID-19 pandemic could result in additional regulation or restrictions affecting the conduct of our business in the future. In
addition to the potential affects from negative economic conditions noted above, Synovus instituted a program to help COVID-19 impacted customers. This program included offering payment deferment and other loan relief, as appropriate, for customers impacted by COVID-19. If these deferments and modifications are not effective in mitigating the effect of COVID-19 on Synovus’ customers, it may adversely affect its business and results of operations more substantially over a longer period of time.
Any future economic downturn could have a material adverse effect on our capital, financial condition, results of operations, and future growth.
Management continually monitors market conditions and economic factors throughout our footprint. If conditions were to worsen nationally, regionally or locally, then we could see a sharp increase in our total net charge-offs and also be required to significantly increase our allowance for loancredit losses. Furthermore, the demand for loans and our other products and services could decline. An increase in our non-performing assets and related increases in our provision for loan losses, coupled with a potential decrease in the demand for loans and our other products and services, could negatively affect our business and could have a material adverse effect on our capital, financial condition, results of operations and future growth. Our customers may also be adversely impacted by changes in regulatory, trade (including tariffs) and tax policies and laws, all of which could reduce demand for loans and adversely impact our borrowers’ ability to repay our loans. In addition, international economic uncertainty could also impact the U.S. financial markets by potentially suppressing stock prices, including ours, and adding to overall market volatility, which could adversely affect our business. The effects of any economic downturn could continue for many years after the downturn is considered to have ended.
Our concentrated operations in the Southeastern U.S. make us vulnerable to local economic conditions, local weather catastrophes, public health issues, and other external events, which could adversely affect our results of operations and financial condition.
Our operations are concentrated in the Southeastern U.S. in the states of Alabama, Florida, Georgia, South Carolina and Tennessee. As a result, local economic conditions significantly affect the demand for loans and other products we offer to our customers (including real estate, commercial and construction loans), the ability of borrowers to repay these loans and the value of the collateral securing these loans. Economic downturns in these regions could adversely affect our currently performing loans, leading to future delinquencies or defaults and increases in our provision for credit losses.
In addition, the occurrence of events such as hurricanes, tropical storms, tornados, winter storms, flooding and other large-scale weather catastrophes in and along the Gulf and the Atlantic coasts, as well as other parts of the Southeastern U.S., and further public health issues, such as pandemics or other widespread health emergencies, could adversely affect our financial condition or results of operations. Such areas could be adversely impacted by such events in those regions, the nature and severity of which are difficult to predict. Furthermore, climate change could increase the frequency and severity of these risks. These and other unpredictable external events could have an adverse effect on us in that such events could materially disrupt our operations or the ability or willingness of its customers to access the financial services offered by Synovus. These events could reduce our earnings and cause volatility in our financial results for any fiscal quarter or year and have a material adverse effect on our financial condition and/or results of operations.
Interest rates on our outstanding financial instruments might be subject to change based on regulatory developments related to LIBOR, which could adversely affect our revenue, expenses, and the value of thoseour financial instruments.
LIBOR and certain other “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform. These reforms may cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. On November 30, 2020, a joint announcement by the Board of Governors of the Federal Reserve, the FDIC, and the OCC was released and included a statement that the administrator of LIBOR has announced it will consult on its intention to cease the publication of the one week and two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publications on June 30, 2023. In the U.S., efforts to identify a set of alternative U.S. regulatory authorities have voiced similar support for phasing out LIBOR. It is unclear whether, at that time, LIBOR will cease to exist or if new methods of calculating LIBOR will be established. If LIBOR ceases to exist or if the methods of calculating LIBOR change from current methods for any reason,dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve and the Federal Reserve Bank of New York and SOFR as an alternative to LIBOR. SOFR is a broad measure of the cost of borrowing cash in the overnight U.S. treasury repurchase market. At this time, it is impossible to predict whether SOFR or another reference rate will become an accepted alternative to LIBOR.
The uncertainty regarding the future of LIBOR as well as the transition from LIBOR to another benchmark rate or rates is complex and could have a range of adverse effects on our business, financial condition and results of operations. In particular, any such transition could:
•adversely affect the interest rates paid or received on, and the revenue and expenses associated with, and the value of Synovus’ floating rate obligations, loans, deposits, derivatives and other financial instruments tied to LIBOR rates, as well asor other securities or financial arrangements given LIBOR’s role in determining market interest rates globally;
•prompt inquiries or other actions from regulators in respect of our preparation and readiness for the revenue and expenses associatedreplacement of LIBOR with those financial instruments, may be adversely affected. Any uncertaintyan alternative reference rate;
•result in disputes, litigation or other actions with counterparties regarding the continued useinterpretation and reliabilityenforceability of LIBOR as a benchmark interest rate could adversely affectcertain fallback language, or the trading market and valueabsence of our floating rate obligations, loans, deposits,such language, in LIBOR-based instruments, including securities, derivatives, and other financial instruments tied to LIBOR rates.loans;
A significant portion of our variable rate loans are tied to LIBOR. While many of these loans contain “fallback” provisions providing for alternative rate calculations in the event LIBOR is unavailable, not all of our loans contain these “fallback” provisions and existing “fallback” provisions may not adequately address the actual changes to LIBOR or successor rates. We may not be able to successfully amend these loans to provide for alternative rate calculations and such amendments could prove costly. Even with “fallback” provisions, changes to or the discontinuance of LIBOR could •result in customer uncertainty and disputes around how variable rates should be calculated. Allcalculated in light of this could resultthe foregoing, thereby damaging our reputation and resulting in damage to our reputation,a loss of customers and additional costs to us; and
•require the transition to or development of appropriate systems and analytics to effectively transition Synovus’ risk management processes from LIBOR-based products to those based on the applicable alternative pricing benchmark, such as SOFR.
The manner and impact of this transition, as well as the effect of these developments on Synovus’ funding costs, loan, and investment and trading securities portfolios, asset liability management and business are uncertain.
Changes in tax laws and interpretations and tax challenges may affect our earnings negatively.
The enactment of Federal Tax Reform has had, and is expected to continue to have, far reaching and significant effects on us, our customers and the U.S. economy. Further, U.S. tax authorities may at any time clarify and/or modify by legislation, administration or judicial changes or interpretations the income tax treatment of corporations. Such changes could adversely affect us, either directly or as a result of the effects on our customers.
In the course of our business, we are sometimes subject to challenges from taxing authorities, including the IRS, individual states and municipalities, regarding amounts due. These challenges may result in adjustments to the timing or amount of taxable income or deductions or allocation of income among tax jurisdictions, all of which could be material.may require a greater provisioning for taxes or otherwise affect earnings negatively.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty
or other relationships. Defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and losses of depositor, creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions. We could experience increases in deposits and assets as a result of other banks’ difficulties or failure, which would increase the capital we need to support our growth.
The recent Federal Tax Reform and future tax reform may impact our customers' future demand for credit and our future results.
While we expect Federal Tax Reform to have a positive impact on our business, that impact remains somewhat uncertain. Some customers may elect to use their additional cash flow from lower taxes to fund their existing levels of activity, decreasing borrowing needs. Furthermore, the elimination of the federal income tax deductibility of business interest expenses for a significant number of customers effectively increases the cost of borrowing and could make equity or hybrid funding relatively more attractive. Furthermore, our ability to deduct FDIC premiums is restricted under Federal Tax Reform, and if later we exceed $50 billion in asset size, we will not be able to deduct FDIC premiums at all, thereby effectively increasing our costs. Moreover, tax exempt borrowing may be less attractive in the future due to the decrease in tax rates generally. This could have long-term negative impact on business customer borrowing. The differing effects of Federal Tax Reform for taxable corporations as compared to pass through entities owned by individuals also creates the potential for differing economic strategies by our customers that are presently uncertain and may continue to be for some time.
We experienced an increase in our after-tax net income available in 2018 as a result of the decrease in our effective tax rate and expect Federal Tax Reform to continue to positively impact our after-tax net income in future years. However, some or all of this benefit could be lost to the extent that our competitors elect to lower interest rates and fees and we are forced to respond in order to remain competitive. Furthermore, we incurred a significant one-time, non-cash provisional charge resulting from the remeasurement of our deferred tax assets in the fourth quarter of 2017. The estimated impact of Federal Tax Reform is based on management's current knowledge and assumptions, but there is no assurance that the presently anticipated benefits of Federal Tax Reform on us will be realized or that we will not incur further charges with respect to the revaluation of our deferred tax assets.
Our current tax position, including the realization of our net deferred tax assets in the future, could be subject to potential legislative, administrative or judicial changes or interpretations, which could adversely affect our operating results.
The lower federal corporate income tax rate resulting from Federal Tax Reform caused us to revalue our deferred tax assets, resulting in a reduction of our deferred tax asset balance and a corresponding one-time, non-cash income tax charge of $47.2 million in the fourth quarter of 2017. We may be required to further remeasure our deferred tax assets in the future in response to future enactment of State Tax Reform, which could result in additional increases to income tax expense. Because Synovus had $141.1 million in net deferred tax assets as of December 31, 2018, $65.8 million of which is disallowed when calculating regulatory capital, a further reduction in our deferred tax asset balance and a corresponding increase in our income tax expense could have a material impact on our results of operations.
Further tax reform could materially impact our tax obligations and operating results in a number of other ways. In addition, in the absence of guidance on various uncertainties and ambiguities in the application of certain provisions of Federal Tax Reform, we will use what we believe are reasonable interpretations and assumptions in applying Federal Tax Reform, but it is possible that the IRS could issue subsequent guidance or take positions that differ from our prior interpretations and assumptions, which could have a material adverse effect on our results of operations and financial condition. In addition, local or state authorities may interpret tax laws, including Federal Tax Reform, and regulations differently than us or may reform their own tax laws and regulations, resulting in differences in the treatment of revenues, deductions or credits and/or differences in the timing of these items. The differences in treatment may result in payment of additional taxes, interest or penalties that could have a material adverse effect on our financial results. See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Income Tax Expense" and "Part II - Item 8. Financial Statements and Supplementary Data - Note 17 - Income Taxes" in this Report for further information.
Our stock price is subject to fluctuations, and the value of your investment may decline.
The trading price of our common stock is subject to wide fluctuations. The stock market in general, and the market for the stocks of commercial banks and other financial services companies in particular, has experienced significant price and volume fluctuations that sometimes have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance, and the value of your investment may decline.
Certain shares of our common stock are entitled to ten votes per share on each matter submitted to a vote at a meeting of shareholders.
Although we only have one class of common stock, certain shares of our common stock are entitled to ten votes per share on each matter submitted to a vote at a meeting of shareholders, including common stock that has been beneficially owned continuously by the same shareholder for a period of forty-eight consecutive months before the record date of any meeting of shareholders at which the share is eligible to be voted. Therefore, while a holder of common stock may have an economic interest in us that is identical to or even greater than another shareholder, that other shareholder may be entitled to ten times as many votes per share. As a result, some groups of shareholders will be able to approve strategic transactions or increases in authorized capital stock, among other matters submitted to the shareholders, even over the objections of shareholders, who hold equivalent or greater economic stakes in our company.
Our articles of incorporation, our Rights Plan and certain banking laws and regulations may have an anti-takeover effect.
Provisions of our articles of incorporation, our Rights Plan and certain banking laws and regulations, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders. The combination of these provisions may inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
NONE.
ITEM 2. PROPERTIES
We and our subsidiaries own or lease all of the real property and/or buildings in which we operate our business. We believe that our properties are suitable for the purposes of our operations.
As of December 31, 2018,2020, we and our subsidiaries owned 198186 facilities encompassing 1,864,8721,881,699 square feet and leased from third parties 95125 facilities encompassing 974,6001,188,159 square feet. The owned and leased facilities are primarily comprised of office space from which we conduct our business in our headquarters in Columbus, Georgia and throughout our footprint. The following table provides additional information with respect to our leased facilities:
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| Table 2 - Properties |
| Square Footage | Number of Locations | | Average Square Footage |
| Under 3,000 | 18 |
| | 1,489 |
|
| 3,000 – 9,999 | 59 |
| | 4,811 |
|
| 10,000 – 18,999 | 6 |
| | 13,709 |
|
| 19,000 – 30,000 | 6 |
| | 24,269 |
|
| Over 30,000 | 6 |
| | 72,682 |
|
| | | | |
See "Part II - Item 8. Financial Statements and Supplementary Data - Note 56 - Premises, Equipment and Equipment"Software" of this Report for further information.
ITEM 3. LEGAL PROCEEDINGS
Synovus and its subsidiaries are subject to various legal proceedings and claims that arise in the ordinary course of its business. Additionally, in the ordinary course of business, Synovus and its subsidiaries are subject to regulatory examinations, information gathering requests, tax matters, inquiries and investigations. Synovus, like many other financial institutions, has been the target of numerous legal actions and other proceedings asserting claims for damages and related relief for losses. These actions include claims and counterclaims asserted by individuals related to loans and allegations of violations of state and federal laws and regulations relating to banking practices, including putative class action matters, and also claims asserted by shareholders or purported shareholders against Synovus, members of Synovus' Board of Directors, and members of Synovus' management team. In addition to actual damages if Synovus does not prevail in asserted legal actions, credit-related litigation could result in additional write-downs or charge-offs of loans, which could adversely affect Synovus' results of operations during the period in which the write-down or charge-off were to occur.
In addition, on February 15, 2019, a shareholder derivative action, LeMay v. Synovus Financial Corp., Civil Action No. 19-A-01389-9, was filed in the Superior Court of Gwinnett County, Georgia against the Company and certain of its directors and officers alleging breach of fiduciary duties, unjust enrichment, gross mismanagement, corporate waste, disgorgement of compensation, injunctive relief, attorney’s fees and expenses, and punitive damages. Synovus believes that the allegations are without merit and intends to defend against this matter vigorously.
Based on our 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 for any particular period. For additional information, seeSee "Part II - Item 8. Financial Statements and Supplementary Data - Note 1516 - Commitments and Contingencies" of this Report, which Note is incorporated in this Item 3 by this reference.Report.
ITEM 4. MINE SAFETY DISCLOSURES
NOT APPLICABLE.
Part II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES
Shares of our common stock are traded on the NYSE under the symbol “SNV.”
As of February 26, 2019,24, 2021, there were 159,145,739148,644,483 shares of Synovus common stock issued and outstanding and 12,37610,751 shareholders of record of Synovus common stock, some of which are holders in nominee name for the benefit of a number of different shareholders.
Subject to the approval of the Board of Directors and applicable regulatory requirements, Synovus expects to continue its policy of paying regular cash dividends on a quarterly basis. A discussion of certain limitations on the ability of Synovus Bank to pay dividends to Synovus and the ability of Synovus to pay dividends on its common stock is set forth in "Part 1 - Item 1. Business - Supervision, Regulation, and Other Factors - Payment of Dividends" of this Report.
Stock Performance Graph
The following graph compares the yearly percentage change in cumulative shareholder return on Synovus stock with the cumulative total return of the Standard & Poor's 500 Index and the KBW Regional Bank Index for the last five fiscal years (assuming a $100 investment on December 31, 20132015 and reinvestment of all dividends).
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Table 3 - Stock Performance |
| | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 |
| Synovus | | $ | 100 |
| | $ | 108.60 |
| | $ | 131.65 |
| | $ | 169.46 |
| | $ | 200.47 |
| | $ | 136.83 |
|
| Standard & Poor's 500 Index | | 100 |
| | 111.39 |
| | 110.58 |
| | 121.13 |
| | 144.65 |
| | 135.63 |
|
| KBW Regional Bank Index | | 100 |
| | 100.20 |
| | 103.67 |
| | 140.65 |
| | 140.22 |
| | 113.06 |
|
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 2 - Stock Performance |
| | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
| Synovus | | $ | 100 | | | $ | 128.77 | | | $ | 152.30 | | | $ | 103.96 | | | $ | 131.64 | | | $ | 116.02 | |
| Standard & Poor's 500 Index | | 100 | | | 111.95 | | | 136.38 | | | 130.39 | | | 171.44 | | | 202.96 | |
| KBW Regional Bank Index | | 100 | | | 139.12 | | | 141.63 | | | 116.86 | | | 144.76 | | | 132.18 | |
| | | | | | | | | | | | |
Issuer Purchases of Equity Securities
On January 23, 2018, Synovus announced a $150 million sharedid not repurchase program to be executed during 2018, and on December 3, 2018, Synovus announced an additional $25 million share repurchase program to be executed during December 2018. The table below sets forth information regarding repurchasesany shares of our common stock during the fourth quarter of 2018, all of which were made under the share repurchase programs announced in January and December 2018.2020.
|
| | | | | | | | | | | | | | | |
| | Table 4 - Share Repurchases | | | | | | | | |
| | (in thousands, except per share data) | | Total Number of Shares Repurchased | | Average Price Paid per Share(1) | | Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs | | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| |
| | October 2018 | | 345 |
| | $ | 44.19 |
| | 345 |
| | $ | — |
|
| | November 2018 | | — |
| | — |
| | — |
| | — |
|
| | December 2018 | | 711 |
| | 35.16 |
| | 711 |
| | — |
|
| | Total | | 1,056 |
| | $ | 38.11 |
| | 1,056 |
| | — |
|
| | | | | | | | | | |
| |
(1)
| The average price paid per share is calculated on a trade date basis for all open market transactions and excludes commissions and other transaction expenses. |
The foregoing repurchases during the fourth quarter of 2018 were purchased through open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.
Following the December 31, 2018 completion and expiration of both the $150 million share repurchase program and the additional $25 million share repurchase program, the Board of Directors authorized a new share repurchase program of up to $400 million, of which $300-$325 million is currently expected to be repurchased during 2019. This new program was announced on January 15, 2019.
ITEM 6. SELECTED FINANCIAL DATA
Part II, Item 6 is no longer required as Synovus has adopted certain provisions within the amendments to Regulation S-K that eliminate Item 301.
|
| | | | | | | | | | | | | | | | | | | |
| Table 5 - Selected Financial Data | | | | | | | | | |
| | As Of and For The Years Ended December 31, |
| (in thousands, except per share data) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Income Statement | | | | | | | | | |
| Total revenues | $ | 1,428,506 |
| | $ | 1,368,636 |
| | $ | 1,172,374 |
| | $ | 1,095,238 |
| | $ | 1,081,388 |
|
| Net interest income | 1,148,413 |
| | 1,023,309 |
| | 899,180 |
| | 827,318 |
| | 819,284 |
|
| Provision for loan losses | 51,697 |
| | 67,185 |
| | 28,000 |
| | 19,010 |
| | 33,831 |
|
| Non-interest income | 280,093 |
| | 345,327 |
| | 273,194 |
| | 267,920 |
| | 262,104 |
|
| Non-interest expense | 829,455 |
| | 821,313 |
| | 755,923 |
| | 717,655 |
| | 744,998 |
|
| Net income | 428,476 |
| | 275,474 |
| | 246,784 |
| | 226,082 |
| | 195,249 |
|
| Preferred stock dividends and redemption charge | 17,998 |
| | 10,238 |
| | 10,238 |
| | 10,238 |
| | 10,238 |
|
| Net income available to common shareholders | 410,478 |
| | 265,236 |
| | 236,546 |
| | 215,844 |
| | 185,011 |
|
| Per share data | | | | | | | | | |
| Net income per common share, basic | 3.49 |
| | 2.19 |
| | 1.90 |
| | 1.63 |
| | 1.34 |
|
| Net income per common share, diluted | 3.47 |
| | 2.17 |
| | 1.89 |
| | 1.62 |
| | 1.33 |
|
| Cash dividends declared per common share | 1.00 |
| | 0.60 |
| | 0.48 |
| | 0.42 |
| | 0.31 |
|
| Book value per common share | 25.36 |
| | 23.85 |
| | 22.92 |
| | 22.19 |
| | 21.42 |
|
| Balance Sheet | | | | | | | | | |
| Investment securities available for sale | 3,991,632 |
| | 3,987,069 |
| | 3,718,195 |
| | 3,587,818 |
| | 3,041,406 |
|
| Loans, net of deferred fees and costs | 25,946,573 |
| | 24,787,464 |
| | 23,856,391 |
| | 22,429,565 |
| | 21,097,699 |
|
| Total assets | 32,669,192 |
| | 31,221,837 |
| | 30,104,002 |
| | 28,792,653 |
| | 27,050,237 |
|
| Deposits | 26,720,322 |
| | 26,147,900 |
| | 24,648,060 |
| | 23,242,661 |
| | 21,531,700 |
|
| Long-term debt | 1,657,157 |
| | 1,606,138 |
| | 2,160,881 |
| | 2,136,893 |
| | 1,949,324 |
|
| Total shareholders’ equity | 3,133,602 |
| | 2,961,566 |
| | 2,927,924 |
| | 3,000,196 |
| | 3,041,270 |
|
| Performance ratios and other data | | | | | | | | | |
| Return on average assets | 1.35 | % | | 0.89 | % | | 0.84 | % | | 0.80 | % | | 0.74 | % |
| Return on average equity | 14.29 |
| | 9.27 |
| | 8.40 |
| | 7.49 |
| | 6.45 |
|
| Net interest margin | 3.86 |
| | 3.55 |
| | 3.27 |
| | 3.19 |
| | 3.38 |
|
Dividend payout ratio(1) | 28.84 |
| | 27.60 |
| | 25.38 |
| | 25.93 |
| | 23.13 |
|
| Total shareholders' equity to total assets ratio | 9.59 |
| | 9.49 |
| | 9.73 |
| | 10.42 |
| | 11.24 |
|
Tangible common equity to tangible assets ratio(2) | 8.81 |
| | 8.88 |
| | 9.09 |
| | 9.90 |
| | 10.69 |
|
| Weighted average common shares outstanding, basic | 117,644 |
| | 121,162 |
| | 124,389 |
| | 132,423 |
| | 138,495 |
|
| Weighted average common shares outstanding, diluted | 118,378 |
| | 122,012 |
| | 125,078 |
| | 133,201 |
| | 139,154 |
|
| | | | | | | | | | |
| |
| Determined by dividing cash dividends declared per common share by diluted net income per share. |
| |
(2)
| See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures” of this Report for applicable reconciliation to GAAP measure.
|
| |
ITEM 7. | ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Executive Summary
The following financial review provides a discussion of Synovus' financial condition, changes in financial condition, and results of operations as well as a summary of Synovus' critical accounting policies. This section should be read in conjunction with the audited consolidated financial statements and accompanying notes included in "Part II - Item 8. Financial Statements and Supplementary Data" of this Report.
Economic Environment and Recent Events
The U.S. economy contracted in the first half of 2020, ending the longest expansionary period in U.S. history, due to the COVID-19 pandemic. During March 2020, in an effort to lessen the impact of COVID-19 on consumers and businesses, the Federal Reserve reduced the federal funds rate 1.5 percentage points to 0.00 to 0.25 percent and the U.S. government enacted the CARES Act, the largest economic stimulus package in the nation’s history. The U.S. economy began to recover somewhat during the third quarter of 2020. On December 27, 2020, the U.S government amended the CARES Act through the Consolidated Appropriations Act of 2021, to add additional stimulus relief to mitigate the continued impacts of the pandemic. While certain financial and economic metrics suggest improving economic conditions, uncertainty remains regarding the trajectory of the economic recovery, the impact of government stimulus, the success of the COVID-19 vaccine, as well as the effects of the change in presidential and congressional administrations.
Synovus responded to the pandemic, beginning in March 2020, supporting our customers, team members, and communities with such measures as remote work capabilities and branch service enhancements; COVID-19 related bonus payments and benefits for team members directly impacted by the virus; payment deferments on approximately $6 billion of our loan portfolio during the second quarter; and accelerated investments in several technology initiatives that provided more convenience and a better digital experience as customers adapted to this highly virtual environment. Synovus is participating in the PPP and funded close to 19,000 loans totaling nearly $2.9 billion during the second quarter. Synovus is also participating in the newest round of PPP, with over 8,000 loan applications submitted, totaling $1 billion in new requests as of February 24, 2021. Additionally, although the vast majority of our customers were no longer in a deferment program at the end of the year, we continued to work with our borrowers who have been impacted by the pandemic, largely concentrated in hospitality related segments including hotels and full-service restaurants. In our communities, we responded with financial contributions to more than a dozen organizations for pandemic relief efforts, matching contributions for COVID-19 donations to the American Red Cross, and meal donations for first responders and health care workers.
We announced Synovus Forward in January 2020, a plan to add $100 million pre-tax benefit by the end of 2021 through a combination of revenue and expense initiatives. Our expense initiatives included reductions in third-party spend of $25 million; branch rationalization with 13 branches consolidated during 2020, with $5 million in savings; and organizational staffing efficiencies, with a voluntary early retirement program and back-office staffing optimization, with $13 million in benefit in 2021. Our revenue initiatives included market-based repricing of our treasury and payment solutions offerings, with an anticipated benefit of $9 million in the first half of 2021; aggressive repricing of deposits; a commercial analytics program; and significant improvements in our digital capabilities. In January 2021, we announced an expected additional $75 million benefit to be achieved by year-end 2022, with benefits from both revenue and expense initiatives, with a heavier weight toward revenues.
In December, an executive transition plan was announced, and Kevin Blair was named to Synovus' Board of Directors, effective immediately. In April 2021, Chairman and CEO Kessel Stelling will transition into the role of Executive Chairman and Mr. Blair will succeed Mr. Stelling as CEO.
Overview of 20182020 Financial Results
Net income available to common shareholders for 20182020 was $410.5$340.5 million, or $3.47a decrease of 37% compared to $540.9 million for 2019. Net income per diluted common share an increasewas $2.30 in 2020 and $3.47 in 2019. Adjusted net income available to common shareholders(1) for 2020 was $356.7 million, or $2.41 per diluted common share, a decrease of 54.8%41% and 59.5%38%, respectively, compared to $265.2$608.5 million, or $2.17$3.90 per diluted common share, for 2017. Results2019. The year-over-year decline in adjusted net income per common share was impacted by deterioration in the economic environment caused by the COVID-19 pandemic and driven by a significant increase in provision for 2018 were generallycredit losses following the adoption of CECL on January 1, 2020, significant decline in line with our 2018 guidancethe federal funds rate, and on track to achieve our long-term targets for EPS growth, ROA, ROTCE,PAA including loan discount accretion and tangible efficiency ratiodeposit premium amortization that were announced in Januarypositively impacted 2019.
For 2018:
| |
▪ | EPS grew 59.5%; Adjusted EPS grew 43.8%(1) / (long-term target CAGR 10%+)
|
| |
▪ | ROA improved to 1.35%; Adjusted ROA improved to 1.41%(1) / (long-term target >1.45%)
|
| |
▪ | ROE improved to 14.55%; ROTCE improved to 14.94%(1); Adjusted ROTCE improved to 15.66%(1) /(long-term target >17%)
|
| |
▪ | Efficiency ratio improved to 57.99%; Adjusted tangible efficiency ratio improved to 56.33%(1) / (long-term target adjusted tangible efficiency ratio <50%)
|
Total revenues for 2018 were $1.43 billion, up 4.4%, compared to 2017. Adjusted total revenues(1),which exclude the Cabela's Transaction Fee and other items, were $1.44 billion, up 10.6%, compared to 2017.
Net interest income for 20182020 was $1.15$1.51 billion, up $125.1down $83.1 million, or 12.2%5%, from 2017. During 2018, $1.60 billion in 2019 due to declines of $87.3 million in PAA (primarily comprised of declines of $43.8 million of deposit premium amortization and $40.5 million of loan accretion) associated with the FCB acquisition and declines in market interest rates, which were somewhat offset by higher
average earning assets increased $966.3including the impact of PPP with recognition of $46.0 million or 3.3%, primarily as a result of an increase in net loans of $807.4 million, or 3.3%, and an increase of $224.0 million, or 5.8%, in investment securities balances. processing fees. The net interest margin was 3.86%3.18% for 2018, an increase2020, a decrease of 3152 basis points from 2017. The yield on earning assets increased 483.70% in 2019, due primarily to the decline in market interest rates in addition to 21 basis points to 4.51% driven by a 51 basis points increasefrom declines in loan yields and a 23 basis points increasePAA. Excluding the impact from PPP, we expect modest downward pressure in taxable investment securities yields. The increase in loan yields was primarily driven by federal funds rate increases. The increase in taxable investment securities yields was primarily due to higher reinvestment rates. Offsetting these favorable impacts tothe net interest margin was an increasein the first quarter of $56.7 million, or 40.7%, of interest-bearing liabilities and an increase2021, as further reductions in cost of funds of 19 basis points to 0.69% (the cost of funds includes non-interest-bearing demand deposits).are more than offset by continued fixed-rate asset repricing.
Non-interest incomerevenue for the year ended December 31, 20182020 was $280.1$506.5 million, down $65.2up $150.6 million, or 18.9%42%, compared to the year ended December 31, 2017. The decrease2019. Adjusted non-interest revenue(1), which excludes net investment securities gains (losses) and gain on sale and net changes in fair value of private equity investments, was $422.8 million, up $70.9 million, or 20%, compared to 2019, due primarily to strong growth in mortgage banking income with record production driven by the $75 million Cabela's Transaction Fee recordedinterest rate environment. We expect more normalized secondary mortgage banking revenue in 2017. Adjusted non-interest income(1), which excludes the Cabela's Transaction Fee and other items, was up $12.4 million, or 4.5%, compared to 2017. The growth in 2018 was driven primarily by an increase of $12.2 million, or 14.5%, in combined fiduciary and asset management fees, brokerage, and insurance revenues.2021.
Non-interest expense for the year ended December 31, 20182020 was $829.5 million,$1.18 billion, an increase of $8.1$80.6 million, or 1.0%7%, compared to the year ended December 31, 2017.2019. During 2020, Synovus recognized a $44.9 million non-cash goodwill impairment charge representing the goodwill allocated to the Consumer Mortgage reporting unit. Adjusted non-interest expense(1), which excludes goodwill impairment, restructuring charges, loss on early extinguishment of debt, earnout liability adjustments, merger-related expense and certain other items, for 20182020 increased $31.1$68.9 million, or 4.0%7%, compared to 2017,2019. The increase in adjusted expense was largely driven by mortgage production commissions, expense associated with Synovus' internal revenue growth and efficiency initiatives, PPP and COVID-19 related expenses, and investments in talent and technology. The efficiency ratio-FTE for 2020 was 58.32% compared to 56.22% in 2019, and the adjusted tangible efficiency ratio was 55.74% compared to 51.82% in 2019.
At December 31, 2020, total loans, net of deferred fees and costs of $38.25 billion, increased $1.09 billion, or 3%, from December 31, 2019 due to net C&I growth of $2.60 billion, primarily in PPP loans, and net CRE growth of $76.7 million, partially offset by a $1.54 billion net decline in consumer loans. The decline in consumer loans is primarily the result of the strategic disposition of $1.42billion in third-party single-service consumer and non-relationship consumer mortgage loans.
The ACL at December 31, 2020 totaled $653.5 million, an increase of $20.1$370.7 million or 4.6%, in salaries and other personnel expense, and an increase of $10.5 million, or 8.8%, in net occupancy and equipment expense.
Income tax expense was $118.9 million for the year endedcompared to December 31, 2018,2019, reflecting the building of the ACL required under CECL primarily as a decreaseresult of $85.8 million, or 41.9%, compared touncertainty and deterioration in the year ended December 31, 2017, representing an effective tax rate of 21.7% for 2018 and 42.6% for 2017. The lower effective tax rate for 2018 was primarilyeconomic environment due to a reduction in the federal corporate statutory tax rate from 35%COVID-19. The ACL to 21% and non-recurring income tax expense of $47.2 million recorded in 2017 for the remeasurement of deferred tax assets and liabilities resulting from Federal Tax Reform.
Credit quality remained strong in 2018 with the non-performing assetloans coverage ratio improving to 0.44%was 1.71%, a 9 basis points decline from a year ago. Loans 30 or more days past due were 0.22% and 0.21% at December 31, 2018 and 2017, respectively. Net charge-offs for 2018 were 20 basis points, down from 29 basis points during 2017. The allowance for loan losses at December 31, 2018 was $250.6 million, or 0.97% of total loans, compared to $249.3 million, or 1.01% of total1.81%, excluding PPP loans at December 31, 2017.2020. Current credit metrics remained relatively stable with NPA and NPL ratios of 0.50% and 0.39%, respectively, and total past dues of 0.12%. Net charge-offs for 2020 were 24 basis points compared to 16 basis points for 2019. We expect the net charge-off ratio in the first quarter of 2021 to be near the range we experienced in the last half of 2020.
Total loans ended the year at $25.95 billion, a $1.16 billion or 4.7% increase from a year ago. Loan growth was driven by a $757.6 million, or 6.3%, increase in C&I loans and a $771.2 million, or 13.2%, increase in consumer loans, with our lending
partnerships portfolio growing$429.8 millionand consumer mortgages increasing by $300.7 million.This growth was partially offset by a decline in CRE loans of $370.8 million, or 5.3%. Total average loans increased by $808.8 million, or 3.3%, to $25.19 billion from $24.38 billion in 2017.
Totalperiod-end deposits were $26.72$46.69 billion at December 31, 2018, an increase of $572.4 million,2020, up significantly by $8.29 billion, or 2.2%22%, compared to year-end 2017. Total average deposits increased $969.7 million, or 3.8%2019, due largely to client preferences for maintaining liquidity during 2020 as well as government stimulus programs which further supported deposit growth, partially offset by strategic declines in time deposits. We expect the elevated cash position to decline in coming quarters due to seasonal deposit outflows and as we manage our balance sheet and overall liquidity position, which will include further growth in our securities portfolio and continued declines in brokered deposits.
Our CET1 ratio of 9.66% at December 31, 2020 was above our stated operating range of 9-9.5%, which we believe is prudent while greater levels of uncertainty exist. Our 2021 outlook maintains the current common shareholder dividend of $0.33 per quarter and includes authorization for share repurchases of up to $26.34 billion$200 million. We will be opportunistic with repurchase activity throughout the year as we prioritize organic growth first and balance capital deployment with factors such as uncertainty in 2018 from $25.37 billion in 2017. Average core deposits(1) were up $777.0 million, or 3.3%, from 2017 and average non-interest-bearing demand deposits as a percentage of total average deposits were 29.1% for 2018 compared to 29.0% for 2017.
On June 21, 2018, Synovus completed a public offering of $200 million of Series D Preferred Stock. The offering generated net proceeds of $195.1 million, which were largely used to fund the redemption of all of the outstanding shares of Series C Preferred Stock on August 1, 2018 for an aggregate redemption price of $130.0 million. Concurrent with the redemption of the Series C Preferred Stock, Synovus recognized a one-time, non-cash redemption charge of $4.0 million.
During 2018, Synovus repurchased $175.0 million, or 3.7 million shares, of common stock through open market transactions under its authorized share repurchase programs. Additionally, Synovus increased the quarterly common stock dividend by 67% to $0.25 per share effective with the quarterly dividend payable in April 2018.economic outlook.
More detail on Synovus' financial results for 2020 and 2019 can be found in subsequent sections of this Report and detailed information on Synovus' financial results for 2018 can be found in subsequent sections of "Item 2."Part II Item 7. – Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report.Synovus' 2018 Form 10-K.
2019 Capital Actions
During the fourth quarter of 2018, the Board of Directors authorized a new share repurchase program of up to $400 million, of which $300-$325 million is currently expected to be repurchased during 2019. Additionally, the Board of Directors approved a 20% increase in the quarterly common stock dividend to $0.30 per share, effective with the quarterly dividend payable in April 2019. On February 7, 2019, Synovus completed a public offering of $300.0 million aggregate principal amount of 5.900% fixed-to-fixed rate subordinated notes due in 2029. Proceeds from these notes are expected to be used primarily to repurchase common stock under the 2019 authorization.
FCB Acquisition
Effective January 1, 2019, Synovus completed its acquisition of all of the outstanding stock of FCB, a bank holding company based in Weston, Florida. The fair value of the consideration transferred totaled approximately $1.60 billion. Effective January 1, 2019, Florida Community Bank, National Association, FCB's wholly-owned banking subsidiary, merged into Synovus Bank. At the closing date, FCB had total loans of $9.42 billion, total deposits of $10.89 billion and operated 51 full service banking centers through its wholly-owned banking subsidiary, Florida Community Bank. The addition of FCB is expected to elevate Synovus' growth profile through a deepened presence in high-growth Florida markets. Conversion of FCB operating systems and brand are expected to be completed during the second quarter of 2019.
20192021 Outlook
ForAn overview of our outlook for the full year 2019,2021, compared to 2018 results2020, which incorporates Synovus Forward initiatives and other strategic objectives, and is based on a combined basis for Synovusour current view of economic stability and FCB, we currently expect:growth in our footprint, includes:
Loan•Period-end loan growth of 5.5% to 7.5%
Deposit growth of 5.5% to 7.5%
Revenue Growth of 5.5% to 7.5%
Adjusted non-interest expense growth(excluding PPP) of 2% to 4%
•Adjusted total revenues(1) decline of 1% to 4%
•Adjusted non-interest expense(1) decline of 2% to 5%
•Effective income tax rate of 23% to 24%25% (2)
Net charge-off•Capital management targeting a 9.5% CET1 ratio
(1) See "Part II - Item 7. Management's Discussion and Analysis of 15Financial Condition and Results of Operations - Non-GAAP Financial Measures" of this Report for applicable reconciliation to 20 b.p.s
| |
(1)
| See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" of this Report for applicable reconciliation to GAAP measure. |
GAAP measure.
(2) Assuming no significant changes to the current tax environment
Consolidated Financial Highlights
A summary of Synovus’ financial performance for the years ended December 31, 20182020 and 20172019 is set forth in the table below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Table 3 - Consolidated Financial Highlights | | | |
| | Years Ended December 31, |
| (dollars in thousands, except per share data) | | 2020 | | 2019 | | Change | |
| Net interest income | | $ | 1,512,748 | | | $ | 1,595,803 | | | (5) | | % |
Provision for credit losses(1) | | 355,022 | | | 87,720 | | | 305 | | |
| Non-interest revenue | | 506,513 | | | 355,900 | | | 42 | | |
Adjusted non-interest revenue(2) | | 422,807 | | | 351,952 | | | 20 | | |
| Total FTE revenues | | 2,022,685 | | | 1,954,728 | | | 3 | | |
Adjusted total revenues(2) | | 1,938,979 | | | 1,950,780 | | | (1) | | |
| Non-interest expense | | 1,179,574 | | | 1,098,968 | | | 7 | | |
Adjusted non-interest expense(2) | | 1,091,442 | | | 1,022,498 | | | 7 | | |
| Income before income taxes | | 484,665 | | | 765,015 | | | (37) | | |
| Net income | | 373,695 | | | 563,780 | | | (34) | | |
| Net income available to common shareholders | | 340,532 | | | 540,899 | | | (37) | | |
| Net income per common share, basic | | 2.31 | | | 3.50 | | | (34) | | |
| Net income per common share, diluted | | 2.30 | | | 3.47 | | | (34) | | |
Adjusted net income per common share, diluted(2) | | 2.41 | | | 3.90 | | | (38) | | |
| Return on average common equity | | 7.51 | % | | 12.34 | % | | (483) | | bps |
Adjusted return on average common equity(2) | | 7.87 | | | 13.88 | | | (601) | | |
Adjusted return on average tangible common equity(2) | | 9.12 | | | 16.10 | | | (698) | | |
| Return on average assets | | 0.72 | | | 1.20 | | | (48) | | |
Adjusted return on average assets(2) | | 0.75 | | | 1.35 | | | (60) | | |
| Efficiency ratio-FTE | | 58.32 | | | 56.22 | | | 210 | | |
Adjusted tangible efficiency ratio(2) | | 55.74 | | | 51.82 | | | 392 | | |
| | | | | | | |
| | As Of and For The Years Ended December 31, |
| | 2020 | | 2019 | | Change | |
| Loans, net of deferred fees and costs | | $ | 38,252,984 | | | $ | 37,162,450 | | | 3 | | % |
| Total deposits | | 46,691,571 | | | 38,405,504 | | | 22 | | |
| Core transaction deposits (excludes CDs, brokered and public fund deposits) | | 32,754,609 | | | 24,167,582 | | | 36 | | |
| Net interest margin | | 3.18 | % | | 3.70 | % | | (52) | | bps |
Dividend payout ratio(3) | | 57.45 | | | 34.62 | | | 2,283 | | |
| Non-performing assets ratio | | 0.50 | | | 0.37 | | | 13 | | |
| Non-performing loans ratio | | 0.39 | | | 0.27 | | | 12 | | |
| Past due loans over 90 days | | 0.01 | | | 0.04 | | | (3) | | |
| Net charge-off ratio | | 0.24 | | | 0.16 | | | 8 | | |
| | | | | | | |
| CET1 capital | | $ | 4,034,865 | | | $ | 3,743,459 | | | 8 | | % |
| Tier 1 risk-based capital | | 4,572,010 | | | 4,280,604 | | | 7 | | |
| Total risk-based capital | | 5,604,230 | | | 5,123,381 | | | 9 | | |
| CET1 capital ratio | | 9.66 | % | | 8.95 | % | | 71 | | bps |
| Tier 1 risk-based capital ratio | | 10.95 | | | 10.23 | | | 72 | | |
| Total risk-based capital ratio | | 13.42 | | | 12.25 | | | 117 | | |
| Total shareholders’ equity to total assets ratio | | 9.49 | | | 10.25 | | | (76) | | |
Tangible common equity to tangible assets ratio(2) | | 7.66 | | | 8.08 | | | (42) | | |
| | | | | | | |
(1) Beginning January 1, 2020, provision calculation is based on current expected credit loss methodology. Prior to January 1, 2020, calculation was based on incurred loss methodology.
(2) See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" of this Report for applicable reconciliation to GAAP measures.
(3) Determined by dividing cash dividends declared per common share by diluted net income per share.
|
| | | | | | | | | | | | |
| Table 6 - Consolidated Financial Highlights | | | |
| | | Years Ended December 31, |
| (dollars in thousands, except per share data) | | 2018 | | 2017 | | Change | |
| Net interest income | | $ | 1,148,413 |
| | $ | 1,023,309 |
| | 12.2 |
| % |
| Provision for loan losses | | 51,697 |
| | 67,185 |
| | (23.1 | ) | |
| Non-interest income | | 280,093 |
| | 345,327 |
| | (18.9 | ) | |
Adjusted non-interest income(1) | | 286,132 |
| | 273,709 |
| | 4.5 |
| |
| Total revenues | | 1,428,506 |
| | 1,368,636 |
| | 4.4 |
| |
Adjusted total revenues(1) | | 1,435,098 |
| | 1,298,142 |
| | 10.6 |
| |
| Non-interest expense | | 829,455 |
| | 821,313 |
| | 1.0 |
| |
Adjusted non-interest expense(1) | | 808,320 |
| | 777,260 |
| | 4.0 |
| |
| Income before income taxes | | 547,354 |
| | 480,138 |
| | 14.0 |
| |
| Net income | | 428,476 |
| | 275,474 |
| | 55.5 |
| |
| Net income available to common shareholders | | 410,478 |
| | 265,236 |
| | 54.8 |
| |
| Net income per common share, basic | | 3.49 |
| | 2.19 |
| | 59.4 |
| |
| Net income per common share, diluted | | 3.47 |
| | 2.17 |
| | 59.5 |
| |
Adjusted net income per common share, diluted(1) | | 3.64 |
| | 2.53 |
| | 43.8 |
| |
| Return on average common equity | | 14.55 | % | | 9.32 | % | | 523 |
| bps |
Adjusted return on average common equity(1) | | 15.29 |
| | 10.86 |
| | 443 |
| |
Adjusted return on average tangible common equity(1) | | 15.66 |
| | 11.14 |
| | 452 |
| |
| Return on average assets | | 1.35 |
| | 0.89 |
| | 46 |
| |
Adjusted return on average assets(1) | | 1.41 |
| | 1.04 |
| | 37 |
| |
| Efficiency ratio | | 57.99 |
| | 59.95 |
| | (196 | ) | |
Adjusted tangible efficiency ratio(1) | | 56.33 |
| | 59.87 |
| | (354 | ) | |
| | | | | | | | |
| | | As Of and For The Years Ended December 31, |
| | | 2018 | | 2017 | | Change | |
| Loans, net of deferred fees and costs | | $ | 25,946,573 |
| | $ | 24,787,464 |
| | 4.7 |
| % |
| Total deposits | | 26,720,322 |
| | 26,147,900 |
| | 2.2 |
| |
| Total average deposits | | 26,344,118 |
| | 25,374,388 |
| | 3.8 |
| |
Average core deposits(1) | | 24,526,998 |
| | 23,750,007 |
| | 3.3 |
| |
| Net interest margin | | 3.86 | % | | 3.55 | % | | 31 |
| bps |
| Non-performing assets ratio | | 0.44 |
| | 0.53 |
| | (9 | ) | |
| Non-performing loans ratio | | 0.41 |
| | 0.47 |
| | (6 | ) | |
| Past due loans over 90 days | | 0.01 |
| | 0.02 |
| | (1 | ) | |
| Net charge-off ratio | | 0.20 |
| | 0.29 |
| | (9 | ) | |
| | | | | | | | |
| CET1 capital (transitional) | | $ | 2,897,997 |
| | $ | 2,763,168 |
| | 4.9 |
| % |
| Tier 1 risk-based capital | | 3,090,416 |
| | 2,872,001 |
| | 7.6 |
| |
| Total risk-based capital | | 3,601,376 |
| | 3,383,081 |
| | 6.5 |
| |
| CET1 capital ratio (transitional) | | 9.95 | % | | 9.99 | % | | (4 | ) | bps |
| Tier 1 risk-based capital ratio | | 10.61 |
| | 10.38 |
| | 23 |
| |
| Total risk-based capital ratio | | 12.37 |
| | 12.23 |
| | 14 |
| |
| Total shareholders’ equity to total assets ratio | | 9.59 |
| | 9.49 |
| | 10 |
| |
Tangible common equity to tangible assets ratio(1) | | 8.81 |
| | 8.88 |
| | (7 | ) | |
| | | | | | | | |
| |
| See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" of this Report for applicable reconciliation to GAAP measures. |
Critical Accounting Policies
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. Synovus has identified certain of its accounting policies as “critical accounting policies,” consisting of those related to the accounting for the allowance for loancredit losses, fair value measurements,goodwill, and income taxes. In determining which accounting policies are critical in nature, Synovus has identified the policies that require significant judgment or involve complex estimates. It is management's practice to discuss critical accounting policies with the Board of Directors' Audit Committee on a periodic basis, including the development, selection, implementation, and disclosure of the critical accounting policies. The application of these policies has a significant impact on Synovus’ consolidated financial statements. Synovus’ financial results could differ significantly if different judgments or estimates are applied in the application of these policies.
Allowance for LoanCredit Losses
TheIn accordance with CECL, the ACL, which includes both the allowance for loan losses is a significant accounting estimate thatand the allowance for credit losses on unfunded loan commitments, represents management's best estimate of probableexpected losses inherentover the life of loans adjusted for prepayments, and over the life of loan commitments expected to fund. Synovus' loans and unfunded loan commitments are grouped based upon the nature of the loan type and the forecasted PD, adjusted for relevant forecasted macroeconomic factors comprising multiple weighted scenarios representing different plausible outcomes, and LGD, to determine the allowance for the majority of our portfolio. Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments and curtailments when appropriate. To the extent the lives of the loans in the fundedportfolio 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. Loans that do not share risk characteristics are individually evaluated on a loan portfolio. by loan basis with specific reserves, if any, recorded as appropriate.
The economic and business climate in any given industry or market is difficult to gauge and can change rapidly, and the effects of those changes can vary by borrower. SignificantThe ACL is a significant accounting estimate as significant judgments and estimates are necessary in determining the determination of the allowance for loan losses.reserve. Significant judgments include, among others, loan risk ratings and classifications,economic forecasts, the determination and measurement of impairedindividually evaluated loans, the timing of loan charge-offs, the probability of loan defaults, the net loss exposure in the event of loan defaults, the loss emergence period, qualitative loss factors, as well as other qualitative considerations. In determining the allowance for loan losses,ACL, management makes numerous assumptions, estimates, and assessments, which are inherently subjective. The use of different estimates or assumptions could have a significant impact on the provision for loancredit losses, allowance for loan losses,ACL, non-performing loans, loan charge-offs, financial condition, and results of operations. A detailed discussion of the methodology used in determining the ALLACL as well as information regarding recently issued accounting standards related to the ALLallowance are included in "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" of this Report.
Fair Value Measurements
Synovus evaluates assets, liabilities, and other financial instruments that are either required or elected to be recorded, reported, or disclosed at fair value, and determines the fair value of these instruments as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Synovus updates the fair value measurements of each instrument on a periodic basis, but no less than quarterly.
Synovus selects the most appropriate technique for determining the fair value of the asset or liability. The degree of management judgment involved in determining fair value is dependent upon the availability of quoted prices or observable market data. There is minimal subjectivity involved in measuring the fair value of financial instruments based on quoted market prices; however, when quoted prices and observable market data are not available, Synovus uses a valuation technique requiring significant judgment to estimate the appropriate fair value. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" and "Part II - Item 8. Financial Statements and Supplementary Data - Note 135 - Fair Value Accounting"Loans and Allowance for Loan Losses" of this Report for further discussion of fair value measurements and Synovus' use ofReport.
Goodwill
Goodwill represents the various fair value methodologies and the types of assets and liabilities in which fair value accounting is applied.
Synovus accounts for acquired assets and liabilities at their respective fair values using the acquisition method of accounting. Determination ofexcess purchase price over the fair value often involves estimates basedof 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. During 2020, due to triggering events brought on third party valuations or internal valuations based onby COVID-19, Synovus performed quantitative assessments as of March 31, 2020, June 30, 2020, September 30, 2020, and November 30, 2020. The quantitative assessment of goodwill impairment included determining the estimated fair value of each reporting unit, utilizing a combination of discounted cash flow analyses or other valuation techniques, which are inherently subjective. Additionally,and market-based approaches, and comparing that fair value to each reporting unit’s carrying amount. If the amortizationcarrying amount of identified intangible assetsa reporting unit exceeds its fair value, an impairment loss is based uponrecognized in an amount equal to that excess.
Based on the estimated economic benefitsassessment performed at September 30, 2020, Synovus recognized a $44.9 million goodwill impairment charge representing all goodwill allocated to be received, which is also subjective. Typically, acquisitions result in the recognitionConsumer Mortgage reporting unit. During the fourth quarter of 2020, Synovus performed an additional quantitative assessment of goodwill which is subject to ongoing periodic impairment testsfor each reporting unit with a remaining goodwill balance, Community Banking, Wholesale Banking and Wealth Management, using the test date of November 30, 2020. Based on the results of the quantitative assessment, the fair value of each of these reporting unit. Synovus applies ASC 350-20-35-3A, units exceeded its respective carrying value. Additional qualitative analysis through year-end demonstrated that goodwill is not impaired as of December 31, 2020.
Goodwill Subsequent Measurement - Qualitative Assessment, for its determination of impairment. assessments are highly sensitive to economic projections and the related assumptions and estimates used by management. Refer to "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant
Accounting Policies" and "Part II - Item 8. Financial Statements and Supplementary Data - Note 67 - Goodwill and Other Intangible Assets" in this Report for a description of the impairment testing process and key assumptions management utilizes to perform its qualitative assessment.additional information.
Income taxes
The calculation of Synovus’ income tax provision is complex and requires the use of estimates and judgments in its determination. As part of Synovus’ overall business strategy, management must consider tax laws and regulations that apply to the specific facts and circumstances under consideration. As such, the Company is often required to exercise significant judgment regarding the interpretation of these tax laws and regulations, in which Synovus' anticipated and actual liability could significantly vary based upon the taxing authority’s interpretation. Specifically, significant estimates in accounting for income taxes relate to the valuation allowance for deferred tax assets, estimates of the realizability of income tax credits, utilization of net operating losses,NOLs, the determination of taxable income, and the determination of uncertain tax positions and temporary differences between
book and tax bases. Adjustments to these items may occur due to modifications in tax rates, newly enacted laws, issuance of tax regulations,resolution of items with taxing authorities, alterations to interpretative statutory, judicial, and regulatory guidance that affects the Company’s tax positions, methods or electionselections changes, or other facts and circumstances. Management closely monitors tax developments and the potential timing of these changes in order to evaluate the effect they may have on the Company’s overall tax position and the estimates and judgments used in determining the income tax provision and records adjustments as necessary. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" and "Part II - Item 8. Financial Statements and Supplementary Data - Note 1718 - Income Taxes" in this Report for additional details.
DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Investment Securities Available for Sale
The investment securities portfolio consists principallyprimarily of high-quality liquid debt securities classified as available for sale. InvestmentThe on-going investment philosophy for the securities available for sale provide Synovus withportfolio focuses on maintaining a readily accessible source of liquidity while also supporting the income and a relatively stable sourceinterest rate risk management objectives of income. Thethe Company. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 4 - Investment Securities Available for Sale" in this Report for additional information.
During 2020, Synovus strategically repositioned the investment securities portfolio, also provides management with a tool towhich resulted in net gains of $78.9 million. The average balance the interest rate risk of its loan and deposit portfolios. See Table 8 for maturity and average yield information of the investment securities available for sale portfolio.
increased to $7.01 billion in 2020 from $6.76 billion in 2019, representing 14.6% and 15.6%, respectively, of average interest earning assets. The investment strategy focuses on the useportfolio earned a taxable-equivalent rate of the investment securities portfolio to generate interest income2.55% and to assist in the management of interest rate risk. Synovus increased the portfolio's duration slightly during 2018 while the average balance of the portfolio increased from the prior year. The weighted average duration of the investment securities portfolio was 4.1 years at December 31, 2018 compared to 3.8 years at December 31, 2017.
Synovus also utilizes a significant portion of its investment portfolio to secure certain deposits3.09% for 2020 and other liabilities requiring collateralization. At December 31, 2018, $1.56 billion of these investment securities were pledged to secure certain deposits and securities sold under repurchase agreements as required by law and contractual agreements. The investment securities are primarily mortgage-backed securities issued by U.S. government agencies and GSEs, both of which have a high degree of liquidity and limited credit risk. A mortgage-backed security depends on the underlying pool of mortgage loans to provide a cash flow pass-through of principal and interest. At December 31, 2018, all of the collateralized mortgage obligations and mortgage-backed pass-through securities held by Synovus were issued or backed by federal agencies or GSEs.
2019, respectively. As of December 31, 20182020 and 2017,2019, the estimated fair value of investment securities available for sale as a percentage of their amortized cost was 97.7%102.1% and 98.7%102.0%, respectively, with net unrealized gains of $160.6 million and $130.9 million, respectively. The investment securities available for sale portfolio had gross unrealized gainsa weighted average duration of $6.3 million and gross unrealized losses of $100.6 million, for a net unrealized loss of $94.3 million as of2.5 years at December 31, 2018. The investment securities available for sale portfolio had gross unrealized gains of $6.1 million and gross unrealized losses of $57.3 million, for a net unrealized loss of $51.2 million as of2020, compared to 3.5 years at December 31, 2017. Shareholders’ equity included net unrealized losses2019, with the reduction in portfolio duration primarily attributable to higher prepay expectations as a result of $83.2 million and $43.5 million on the available for sale portfolio as of December 31, 2018 and 2017, respectively.
The average balance of investment securities available for sale increased to $4.08 billion in 2018 from $3.85 billion in 2017. The portfolio earned a taxable-equivalent rate of 2.38% and 2.15% for 2018 and 2017, respectively. For the years ended December 31, 2018 and 2017, average investment securities available for sale represented 13.66% and 13.34%, respectively, of averagelower long-term interest earning assets.
The following table shows investment securities available for sale by type as of December 31, 2018 and 2017.
|
| | | | | | | | |
| | Table 7 - Investment Securities Available for Sale | December 31, |
| |
| | (in thousands) | 2018 | | 2017 |
| | U.S. Treasury securities | $ | 122,077 |
| | $ | 82,674 |
|
| | U.S. Government agency securities | 38,382 |
| | 10,862 |
|
| | Mortgage-backed securities issued by U.S. Government agencies | 97,205 |
| | 120,440 |
|
| | Mortgage-backed securities issued by U.S. Government sponsored enterprises | 2,398,650 |
| | 2,595,626 |
|
| | Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | 1,188,518 |
| | 1,111,999 |
|
| | Commercial mortgage-backed securities issued by U.S. Government sponsored agencies | 129,865 |
| | 44,897 |
|
| | State and municipal securities | — |
| | 180 |
|
| | Corporate debt and other securities | 16,935 |
| | 20,391 |
|
| | Investment securities available for sale | $ | 3,991,632 |
| | $ | 3,987,069 |
|
| | | | | |
rates.
The calculation of weighted average yields for investment securities available for sale displayed below is based on the amortized cost and effective yields of each security. Maturity information is presented based upon contractual maturity. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| | | | | | | | | | | | | | | | | | | |
| Table 8 - Maturities and Weighted Average Yields of Investment Securities Available for Sale as of December 31, 2018 |
| (dollars in thousands) | Within One Year | | 1 to 5 Years | | 5 to 10 Years | | More Than 10 Years | | Total |
| Fair Value | | | | | | | | | |
| U.S. Treasury securities | $ | 19,476 |
| | $ | 102,601 |
| | $ | — |
| | $ | — |
| | $ | 122,077 |
|
| U.S. Government agency securities | 1,922 |
| | 6,161 |
| | 30,299 |
| | — |
| | 38,382 |
|
| Mortgage-backed securities issued by U.S. Government agencies | — |
| | — |
| | 23,698 |
| | 73,507 |
| | 97,205 |
|
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | — |
| | 52,316 |
| | 404,554 |
| | 1,941,780 |
| | 2,398,650 |
|
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | — |
| | — |
| | 26,291 |
| | 1,162,227 |
| | 1,188,518 |
|
| Commercial mortgage-backed securities issued by U.S. Government sponsored agencies | — |
| | — |
| | 129,865 |
| | — |
| | 129,865 |
|
| Corporate debt and other securities | — |
| | — |
| | 15,150 |
| | 1,785 |
| | 16,935 |
|
| Total | $ | 21,398 |
| | $ | 161,078 |
| | $ | 629,857 |
| | $ | 3,179,299 |
| | $ | 3,991,632 |
|
| | | | | | | | | | |
| Weighted Average Yield | | | | | | | | | |
| U.S. Treasury securities | 1.97 | % | | 1.84 | % | | — | % | | — | % | | 1.86 | % |
| U.S. Government agency securities | 5.61 |
| | 5.54 |
| | 3.66 |
| | — |
| | 4.06 |
|
| Mortgage-backed securities issued by U.S. Government agencies | — |
| | — |
| | 2.14 |
| | 2.50 |
| | 2.41 |
|
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | — |
| | 2.03 |
| | 1.90 |
| | 2.59 |
| | 2.46 |
|
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | — |
| | — |
| | 1.72 |
| | 2.57 |
| | 2.55 |
|
| Commercial mortgage-backed securities issued by U.S. Government sponsored agencies | — |
| | — |
| | 2.86 |
| | — |
| | 2.86 |
|
| Corporate debt and other securities | — |
| | — |
| | 5.50 |
| | 6.50 |
| | 5.62 |
|
| Total | 2.30 | % | | 2.04 | % | | 2.26 | % | | 2.58 | % | | 2.51 | % |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 4 - Maturities and Weighted Average Yields of Investment Securities Available for Sale |
| December 31, 2020 |
| (dollars in thousands) | Within One Year | | 1 to 5
Years | | 5 to 10
Years | | More Than
10 Years | | Total |
| Fair Value | | | | | | | | | |
| U.S. Treasury securities | $ | 20,257 | | | $ | — | | | $ | — | | | $ | — | | | $ | 20,257 | |
| U.S. Government agency securities | 432 | | | 2,112 | | | 79,776 | | | — | | | 82,320 | |
| Mortgage-backed securities issued by U.S. Government agencies | — | | | 1,442 | | | 242 | | | 1,216,333 | | | 1,218,017 | |
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | — | | | 236 | | | 86,192 | | | 4,913,618 | | | 5,000,046 | |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | — | | | — | | | 235 | | | 1,250,142 | | | 1,250,377 | |
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | 4,181 | | | 109,813 | | | 142,952 | | | 113,975 | | | 370,921 | |
| Corporate debt securities and other debt securities | — | | | 9,337 | | | 9,142 | | | 2,021 | | | 20,500 | |
| Total | $ | 24,870 | | | $ | 122,940 | | | $ | 318,539 | | | $ | 7,496,089 | | | $ | 7,962,438 | |
| | | | | | | | | |
| Weighted Average Yield | | | | | | | | | |
| U.S. Treasury securities | 0.08 | % | | — | % | | — | % | | — | % | | 0.08 | % |
| U.S. Government agency securities | 5.87 | | | 3.95 | | | 2.47 | | | — | | | 2.53 | |
| Mortgage-backed securities issued by U.S. Government agencies | — | | | 2.62 | | | 7.77 | | | 2.10 | | | 2.10 | |
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | — | | | 5.19 | | | 2.30 | | | 2.08 | | | 2.08 | |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | — | | | — | | | 1.50 | | | 2.49 | | | 2.49 | |
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | 2.09 | | | 2.59 | | | 2.58 | | | 3.26 | | | 2.79 | |
| Corporate debt securities and other debt securities | — | | | 4.72 | | | 2.07 | | | 4.25 | | | 3.53 | |
| Total | 0.52 | % | | 2.79 | % | | 2.47 | % | | 2.17 | % | | 2.18 | % |
| | | | | | | | | |
Loans
The following table shows loans by portfolio class and as a percentage of total loans, net of deferred fees and costs, as of December 31, 20182020 and 20172019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 5 - Loans by Portfolio Class | | | |
| December 31, | | December 31, 2020 vs. December 31, 2019 Change |
| 2020 | | 2019 | |
| (dollars in thousands) | Total Loans | | %* | | Total Loans | | %* | |
| Commercial, financial, and agricultural | $ | 12,574,899 | | | 32.9 | % | | $ | 10,239,559 | | | 27.6 | % | | $ | 2,335,340 | | 23 | % |
| Owner-occupied | 6,798,780 | | | 17.8 | | | 6,529,811 | | | 17.6 | | | 268,969 | | 4 | |
| Total commercial and industrial | 19,373,679 | | | 50.7 | | | 16,769,370 | | | 45.2 | | | 2,604,309 | | 16 | |
| Investment properties | 9,346,530 | | | 24.3 | | | 9,004,327 | | | 24.2 | | | 342,203 | | 4 | |
| 1-4 family properties | 629,168 | | | 1.6 | | | 780,015 | | | 2.1 | | | (150,847) | | (19) | |
| Land and development | 594,736 | | | 1.6 | | | 709,442 | | | 1.9 | | | (114,706) | | (16) | |
| Total commercial real estate | 10,570,434 | | | 27.5 | | | 10,493,784 | | | 28.2 | | | 76,650 | | 1 | |
| Consumer mortgages | 5,507,700 | | | 14.4 | | | 5,546,368 | | | 14.9 | | | (38,668) | | (1) | |
| Home equity lines | 1,523,836 | | | 3.9 | | | 1,713,157 | | | 4.6 | | | (189,321) | | (11) | |
| Credit cards | 281,018 | | | 0.7 | | | 268,841 | | | 0.7 | | | 12,177 | | 5 | |
| Other consumer loans | 1,073,989 | | | 2.8 | | | 2,396,294 | | | 6.4 | | | (1,322,305) | | (55) | |
| Total consumer | 8,386,543 | | | 21.8 | | | 9,924,660 | | | 26.6 | | | (1,538,117) | | (15) | |
| Total loans | 38,330,656 | | | 100.0 | | | 37,187,814 | | | 100.0 | | | 1,142,842 | | 3 | |
| Deferred fees and costs, net | (77,672) | | | nm | | (25,364) | | | nm | | (52,308) | | 206 | |
| Total loans, net of deferred fees and costs | $ | 38,252,984 | | | 100.0 | % | | $ | 37,162,450 | | | 100.0 | % | | $ | 1,090,534 | | 3 | % |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| Table 9 - Loans by Portfolio Class |
| | | December 31, |
| | | 2018 | | 2017 |
| (dollars in thousands) | | Total Loans | | %* | | Total Loans | | %* |
| Commercial, financial, and agricultural | | $ | 7,449,698 |
| | 28.7 | % | | $ | 7,179,487 |
| | 29.0 | % |
| Owner-occupied | | 5,331,508 |
| | 20.5 |
| | 4,844,163 |
| | 19.5 |
|
| Total commercial and industrial | | 12,781,206 |
| | 49.2 |
| | 12,023,650 |
| | 48.5 |
|
| Investment properties | | 5,560,951 |
| | 21.4 |
| | 5,670,065 |
| | 22.9 |
|
| 1-4 family properties | | 679,870 |
| | 2.7 |
| | 781,619 |
| | 3.1 |
|
| Land and development | | 323,670 |
| | 1.2 |
| | 483,604 |
| | 2.0 |
|
| Total commercial real estate | | 6,564,491 |
| | 25.3 |
| | 6,935,288 |
| | 28.0 |
|
| Consumer mortgages | | 2,934,235 |
| | 11.3 |
| | 2,633,503 |
| | 10.6 |
|
| Home equity lines | | 1,515,796 |
| | 5.8 |
| | 1,514,227 |
| | 6.1 |
|
| Credit cards | | 258,245 |
| | 1.0 |
| | 232,676 |
| | 0.9 |
|
| Other consumer loans | | 1,916,743 |
| | 7.4 |
| | 1,473,451 |
| | 5.9 |
|
| Total consumer | | 6,625,019 |
| | 25.5 |
| | 5,853,857 |
| | 23.5 |
|
| Total loans | | 25,970,716 |
| | 100.0 |
| | 24,812,795 |
| | 100.0 |
|
| Deferred fees and costs, net | | (24,143 | ) | | nm |
| | (25,331 | ) | | nm |
|
| Total loans, net of deferred fees and costs | | $ | 25,946,573 |
| | 100.0 | % | | $ | 24,787,464 |
| | 100.0 | % |
| | | | | | | | | |
| |
* | * Loan balance in each category is before net deferred fees and costs and is expressed as a percentage of total loans, net of deferred fees and costs. |
Total loans, ended the year at $25.95net of deferred fees and costs.
At December 31, 2020, total loans, net of deferred fees and costs, of $38.25 billion, a $1.16increased $1.09 billion, or 4.7%3%, increase from a year ago. Loan growth was driven by a $757.6 million, or 6.3%, increase inDecember 31, 2019 due to net C&I growth of $2.60 billion, primarily in PPP loans, and a $771.2net CRE growth of $76.7 million, or 13.2%, increase in consumer loans, with our lending partnerships portfolio growing$429.8 millionand consumer mortgages increasing by $300.7 million, or 11.4%.This growth was partially offset by a $1.54 billion net decline in CREconsumer loans. The decline in consumer loans is primarily the result of $370.8 million, or 5.3%. Investment propertiesthe strategic disposition of $1.42billion in third-party single-service consumer loans declined by $109.1 million, or 1.9%, while 1-4 family properties and land and development loans declined by $101.7 million, or 13.0%, and $159.9 million, or 33.1%, respectively.
Commercial Loans
The commercial loan portfolio consists ofnon-relationship consumer mortgage loans. C&I loans remain the largest component of our loan portfolio, representing 50.7% of total loans, while CRE and CRE loans. Total commercialconsumer loans represent 27.5% and 21.8%, respectively. The outstanding balance of PPP loans at December 31, 20182020 was $2.19 billion, net of unearned fees of $48.9 million. Our portfolio composition is established through a comprehensive concentration management policy which sets limits for C&I, CRE, and consumer loan levels as well as sub-categories therein.
U.S. Small Business Administration Paycheck Protection Program (PPP)
Synovus is participating in the PPP, which is a loan program that originated from the CARES Act and was subsequently expanded by the Paycheck Protection Program and Health Care Enhancement Act (“PPPHCEA Act”) which was passed by Congress on April 23, 2020 and signed into law on April 24, 2020. PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. The loans are guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. Synovus began accepting applications from qualified customers on April 3, 2020 and provided nearly $2.9 billion in funding to close to 19,000 customers through the PPP during the second quarter of 2020. The average PPP loan was approximately $150 thousand, and the customers that received those loans employ over 335 thousand individuals. In November 2020, Synovus began receiving PPP loan forgiveness that totaled approximately $540 million, or approximately $516 million, net of unearned fees, for the fourth quarter of 2020. Deferred fees and costs, net at December 31, 2020 included $48.9 million of net fees associated with PPP loans.
On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act) was signed into law, and section 311 of the Economic Aid Act authorizes the SBA to guarantee PPP second draw loans. The PPP for first draw loans reopened during the week of January 11, 2021, and the SBA also started allowing certain eligible borrowers that previously received a PPP loan to apply for a second draw PPP with the same general loan terms as their first draw PPP loan with an extended maturity date of five years. A borrower is generally eligible for a second draw PPP Loan of up to $2 million if the borrower previously received a first draw PPP Loan and will or has used the full amount only for authorized uses, has no more than 300 employees, and can demonstrate at least a 25% reduction in gross receipts between any comparable
quarter in 2019 and 2020. Synovus began participating in the second draw of the PPP on January 19, 2021 with over 8,000 loan applications submitted, totaling $1 billion in new requests, as of February 24, 2021.
Commercial Loans
Total commercial loans (which are comprised of C&I and CRE loans) at December 31, 2020 were $19.35$29.94 billion, or 74.5%78.2%, of the total loan portfolio, and grew $386.8 million,compared to $27.26 billion, or 2.0%, from73.4% at December 31, 2017.2019.
At December 31, 2018 and 2017,2020 Synovus had 30 and 25six commercial loan relationships respectively, with total commitments of $50$100 million or more (including amounts funded). The average funded balance of these relationships at both December 31, 2018 and 2017 was approximately $35 million., with no single relationship exceeding $150 million in commitments.
Commercial and Industrial Loans
The C&I loan portfolio represents the largest category of Synovus' total loan portfolio.portfolio and is primarily comprised of general middle market and commercial banking clients across a diverse set of industries. The following table shows the composition of the C&I loan portfolio aggregated by NAICS code. 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.
|
| | | | | | | | | | | | | |
| Table 10 - Commercial and Industrial Loans by Industry |
| | December 31, 2018 | | December 31, 2017 |
| (dollars in thousands) | Amount | | %* | | Amount | | %* |
| Health care and social assistance | $ | 3,021,001 |
| | 23.6 | % | | $ | 2,783,113 |
| | 23.1 | % |
| Manufacturing | 1,073,590 |
| | 8.4 |
| | 943,694 |
| | 7.9 |
|
| Finance and insurance | 901,377 |
| | 7.1 |
| | 784,643 |
| | 6.5 |
|
| Retail trade | 888,850 |
| | 7.0 |
| | 870,410 |
| | 7.2 |
|
| Professional, scientific, and technical services | 829,830 |
| | 6.5 |
| | 799,066 |
| | 6.6 |
|
| Other services | 789,744 |
| | 6.2 |
| | 765,219 |
| | 6.4 |
|
| Real estate, rental and leasing | 758,011 |
| | 5.9 |
| | 783,758 |
| | 6.5 |
|
| Wholesale trade | 686,884 |
| | 5.4 |
| | 679,036 |
| | 5.7 |
|
| Accommodation and food services | 647,318 |
| | 5.1 |
| | 567,262 |
| | 4.7 |
|
| Construction | 605,730 |
| | 4.7 |
| | 520,281 |
| | 4.3 |
|
| Real estate other | 476,918 |
| | 3.7 |
| | 510,693 |
| | 4.2 |
|
| Transportation and warehousing | 476,827 |
| | 3.7 |
| | 427,608 |
| | 3.6 |
|
| Other industries | 465,994 |
| | 3.6 |
| | 441,815 |
| | 3.7 |
|
| Agriculture, forestry, fishing, and hunting | 342,691 |
| | 2.7 |
| | 353,628 |
| | 2.9 |
|
| Educational services | 284,840 |
| | 2.2 |
| | 259,367 |
| | 2.2 |
|
| Administration, support, waste management, and remediation | 281,130 |
| | 2.2 |
| | 283,333 |
| | 2.4 |
|
| Information | 250,471 |
| | 2.0 |
| | 250,724 |
| | 2.1 |
|
| Total C&I loans | $ | 12,781,206 |
| | 100.0 | % | | $ | 12,023,650 |
| | 100.0 | % |
| | | | | | | | |
| |
* | Loan balance in each category expressed as a percentage of total C&I loans. |
As of December 31, 2018, 92% 2020, 83.2% (93.8% excluding PPP loans)of Synovus' C&I loans are secured by real estate, business equipment, inventory, and other types of collateral. Totalcollateral compared to 92.6% as of December 31, 2019. C&I loans grew $2.60 billion, or 16%, from December 31, 2019, driven primarily by $2.19 billion in PPP loans net of unearned fees at December 31, 2018 were $12.782020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Table 6 - Commercial and Industrial Loans by Industry |
| December 31, 2020 | | December 31, 2019 |
| (dollars in thousands) | Amount | | %* | | Amount | | %* |
| Health care and social assistance | $ | 3,688,993 | | | 19.0 | % | | $ | 3,083,355 | | | 18.4 | % |
| Finance and insurance | 1,692,265 | | | 8.7 | | | 1,263,521 | | | 7.5 | |
| Retail trade | 1,307,669 | | | 6.7 | | | 1,202,958 | | | 7.2 | |
| Manufacturing | 1,281,518 | | | 6.6 | | | 1,208,688 | | | 7.2 | |
| Accommodation and food services | 1,211,644 | | | 6.3 | | | 921,515 | | | 5.5 | |
| Real estate and rental and leasing | 1,161,440 | | | 6.0 | | | 1,126,828 | | | 6.7 | |
| Wholesale trade | 1,155,925 | | | 6.0 | | | 1,138,145 | | | 6.8 | |
| Professional, scientific, and technical services | 1,140,458 | | | 5.9 | | | 883,433 | | | 5.3 | |
| Other services | 1,127,567 | | | 5.8 | | | 1,005,420 | | | 6.0 | |
| Construction | 1,043,778 | | | 5.4 | | | 702,892 | | | 4.2 | |
| Transportation and warehousing | 926,188 | | | 4.8 | | | 854,954 | | | 5.1 | |
| Arts, entertainment and recreation | 779,959 | | | 4.0 | | | 771,846 | | | 4.6 | |
| Real estate other | 687,966 | | | 3.6 | | | 615,441 | | | 3.7 | |
| Public administration | 435,870 | | | 2.2 | | | 342,329 | | | 2.0 | |
| Educational services | 396,500 | | | 2.0 | | | 409,639 | | | 2.4 | |
| Agriculture, forestry, fishing, and hunting | 384,076 | | | 2.0 | | | 369,185 | | | 2.2 | |
| Administration, support, waste management, and remediation | 379,609 | | | 2.0 | | | 302,711 | | | 1.8 | |
| Information | 292,493 | | | 1.5 | | | 314,740 | | | 1.9 | |
| Other industries | 279,761 | | | 1.5 | | | 251,770 | | | 1.5 | |
| Total C&I loans | $ | 19,373,679 | | | 100.0 | % | | $ | 16,769,370 | | | 100.0 | % |
| | | | | | | |
*Loan balance in each category expressed as a percentage of total C&I loans.
At December 31, 2020, $12.57 billion of C&I loans, or 49.2%32.9% of the total loan portfolio compared to $12.02(including PPP loans of $2.19 billion or 48.5%net of the total loan portfolio, at December 31, 2017, an increase of $757.6 million, or 6.3%unearned fees), from 2017. Global One, our life insurance premium finance lender acquired in 2016, contributed $219.1 million of the total growth in 2018. Additionally, the industries that primarily contributed to the growth during 2018 included health care and social assistance, manufacturing, and finance and insurance.At December 31, 2018, $7.45 billion, or 58.3%, of total C&I loans represented loans for the purpose of financing commercial, financial, and agricultural business activities compared to $7.18 billion, or 59.7%, of total C&I loans at December 31, 2017.activities. The primary source of repayment on these loans is revenue generated from products or services offered by the business or organization. The secondary source of repayment is the collateral, which consists primarily of equipment, inventory, accounts receivable, time deposits, cash surrender value of life insurance, and other business assets.
At December 31, 2018, $5.332020, $6.80 billion or 41.7%, of total C&I loans, or 17.8% of the total loan portfolio, represented loans originatedfor the purpose of financing owner-occupied properties compared to $4.84 billion, or 40.3%, of total C&I loans at December 31, 2017.properties. The financing of owner-occupied facilities is considered a C&I loan even though there is improved real estate as collateral. This treatment is a result of the credit decision process, which focuses on cash flow from operations of the business to repay the debt. The secondary source of repayment on these loans is the underlying real estate. These loans are predominately secured by owner-occupied and other real estate, and to a lesser extent, other types of collateral.
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. Total CRE loans of $10.57 billion increased $76.7 million from December 31, 2019, driven primarily by growth in income-producing investment properties loans mostly offset by declines in both 1-4 family properties and land and development loans. Total CRE loans were $6.56 billion, or 25.3% of the total loan portfolio, at December 31, 2018, a decrease of $370.8 million, or 5.3%, from December 31, 2017. The decline in CRE loans has largely been a result of our strategic, selective approach to these types of loans as we continue to closely monitor our markets and loan categories while maintaining discipline around pricing and structure.
Investment Properties Loans
Investment properties loans consist of construction and mortgage loans for income producingincome-producing properties and are primarily made to finance multi-family properties, hotels, office buildings, shopping centers, warehouses and other commercial development properties. Total investment properties loans as of December 31, 20182020 were $5.56$9.35 billion, or 84.7%88.4% of the total CRE loan portfolio, and 21.4%24.3% of the total loan portfolio, growing $342.2 million, or 4%, compared to $5.67$9.00 billion, or 81.8%85.8% of the total CRE loan portfolio, and 22.9%24.2% of the total loan portfolio at December 31, 2017. Total investment properties decreased $109.12019. Most sub-categories experienced growth other than shopping centers, which were down $178.3 million, or 1.9%10%, during 2018 primarily due to a decline in multi-family properties partially offset by an increase in other investment property.
from December 31, 2019.
The following table shows the principal categories of the investment properties loan portfolio at December 31, 20182020 and 2017.2019.
| | | Table 11 - Investment Properties Loan Portfolio | |
| Table 7 - Investment Properties Loan Portfolio | | Table 7 - Investment Properties Loan Portfolio |
| | December 31, | | December 31, |
| | 2018 | | 2017 | | 2020 | | 2019 |
| (dollars in thousands) | Amount | | % | | Amount | | % | (dollars in thousands) | Amount | | % | | Amount | | % |
| Office buildings | $ | 1,451,048 |
| | 26.1 | % | | $ | 1,499,834 |
| | 26.5 | % | Office buildings | $ | 2,261,253 | | | 24.2 | % | | $ | 2,255,308 | | | 25.0 | % |
| Multi-family | 1,208,033 |
| | 21.7 |
| | 1,492,159 |
| | 26.3 |
| Multi-family | 2,197,942 | | | 23.5 | | | 1,989,096 | | | 22.1 | |
| Shopping centers | 808,540 |
| | 14.5 |
| | 791,311 |
| | 14.0 |
| Shopping centers | 1,607,223 | | | 17.2 | | | 1,785,616 | | | 19.8 | |
| Hotels | 704,319 |
| | 12.7 |
| | 741,703 |
| | 13.1 |
| Hotels | 1,444,264 | | | 15.5 | | | 1,284,291 | | | 14.3 | |
| Warehouses | 627,353 |
| | 11.3 |
| | 581,410 |
| | 10.2 |
| Warehouses | 702,020 | | | 7.5 | | | 703,705 | | | 7.8 | |
| Other investment property | 761,658 |
| | 13.7 |
| | 563,648 |
| | 9.9 |
| Other investment property | 1,133,828 | | | 12.1 | | | 986,311 | | | 11.0 | |
| Total investment properties loans | $ | 5,560,951 |
| | 100.0 | % | | $ | 5,670,065 |
| | 100.0 | % | Total investment properties loans | $ | 9,346,530 | | | 100.0 | % | | $ | 9,004,327 | | | 100.0 | % |
| | | | | | | | | | | | | | | | |
* Loan balance in each category expressed as a percentage of total investment properties loans.
1-4 Family Properties Loans
1-4 family properties loans include construction loans to homebuildershome builders and commercial mortgage loans related to real estate investors,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. At December 31, 2018,2020, 1-4 family properties loans declined to $679.9totaled $629.2 million, or 10.4%6.0% of the total CRE loan portfolio, and 2.7% of the total loan portfolio, compared to $781.6decreased by $150.8 million, or 11.3% of the total CRE loan portfolio, and 3.1% of the total loan portfolio at 19%, fromDecember 31, 2017.2019.
Land and Development Loans
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). Land and development loans were $323.7of $594.7 million at December 31, 2018,2020 decreased $114.7 million, or 4.9% of the total CRE loan portfolio and 1.2% of the total loan portfolio compared to $483.616%, from $709.4 million at December 31, 2017, or 6.9% of the CRE loan portfolio and 2.0% of the total loan portfolio. Land and development loans declined $159.9 million from December 31, 2017 as Synovus continues to strategically reduce its exposure to these types of loans.2019.
Consumer Loans
The consumer loan portfolio consists of a wide variety of loan products offered through Synovus' banking network as well as third-party lending partnerships, including first and second residential mortgages, home equity lines,HELOCs, and credit card loans, as well as home improvement, loans, student andpersonal loans and other consumer loans.from third-party lending partnerships. The majority of Synovus' consumer loans are consumer mortgages and home equity linesHELOCs secured by first and second liens on residential real estate primarily located in the markets served by Synovus. Total consumer loans as of December 31, 2018 were $6.63 billion, or 25.5% of the total loan portfolio compared to $5.85 billion, or 23.5% of the total loan portfolio at December 31, 2017. Total consumer loans increased by $771.2 million, or 13.2%, from December 31, 2017. Consumer mortgages grew $300.7 million or 11.4% from 2017 to $2.93 billion primarily due to continued recruiting of mortgage loan originators in strategic markets throughout the footprint as well as enhanced origination efforts, which also create additional cross-selling opportunities for other products. Credit card loans totaled $258.2 million at December 31, 2018 compared to $232.7 million at December 31, 2017.
Other consumer loans increased $443.3 million, or 30.1%, to $1.92 billion at December 31, 2018, primarily due to consumer-based lending partnerships. As of December 31, 2018, these partnerships had combined balances of $1.57 billion, up from $1.14 billion at December 31, 2017.
Consumer loans are subject to uniform lending policies2020 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. Risk levels 1-6 (descending) are assigned to consumer loans based upon a risk score matrix. At least annually, the consumer loan portfolio is sent to a consumer credit reporting agency for a refresh of customers' credit scores so that management can evaluate ongoing consistency or negative migration in the quality of the portfolio, which impacts the allowance for loan losses. 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. As of the most recent FICO score refresh as of December 31, 2018,2019, weighted average FICO scores within the residential real estate portfolio based on committed balances were 772791 and 787 for HELOCSHELOCs and 786776 and 778 for Consumer Mortgages, as compared to 772 for HELOCS and 774 for respectively.
Consumer Mortgagesloans at December 31, 2017.
Higher-risk2020 of $8.39 billion decreased $1.54 billion,or 15%, compared to $9.92 billion at December 31, 2019 primarily due to the strategic disposition of certain third-party single-service consumer loans as definedand non-relationship consumer mortgage loans.
Consumer mortgages declined $38.7 million from December 31, 2019 due to the strategic sale of $180.2 million in non-relationship consumer mortgage loans, somewhat offset by record production primarily resulting from the FDIC arelow rate environment. HELOCs decreased $189.3 million, or 11%, from December 31, 2019 driven by paydowns and payoffs in the current low rate environment. Other consumer loans (excludingdecreased $1.32 billion, or 55%, from December 31, 2019, primarily due to the strategic disposition of certain third-party single-service consumer loans defined as nontraditional mortgage loans) where, as of the origination date or, if the loan has been refinanced, as of the refinance date, the probability of default within two years is greater than 20%, as determined using a defined historical stress period. These loans are not a part of Synovus' consumer lending strategy, and Synovus does not currently develop or offer specific sub-prime, alt-A, no documentation or stated income residential real estate loan products. Synovus estimates that, astotaling$1.24 billion. As of December 31, 2018, it2020, third-party lending partnerships had $78.3combined balances of $628.2 million, or 1.6%, of higher-risk consumer loans.the total loan portfolio, compared to $1.98 billion, or 5.3%, of the total loan portfolio, at December 31, 2019, due to strategic dispositions and restructuring of certain lending partnership arrangements with a shift of new originations to held for sale.
The following table shows the composition of the loan portfolio at December 31, 2020, 2019, 2018, 2017, 2016, 2015, and 2014.2016.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 8 - Composition of Loan Portfolio |
| December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (dollars in thousands) | Amount | | %* | | Amount | | %* | | Amount | | %* | | Amount | | %* | | Amount | | %* |
| Commercial | | | | | | | | | | | | | | | | | | | |
| Commercial, financial, and agricultural | $ | 12,574,899 | | | 32.9 | % | | $ | 10,239,559 | | | 27.6 | % | | $ | 7,449,698 | | | 28.7 | % | | $ | 7,179,487 | | | 29.0 | % | | $ | 6,909,036 | | | 29.0 | % |
| Owner-occupied | 6,798,780 | | | 17.8 | | | 6,529,811 | | | 17.6 | | | 5,331,508 | | | 20.5 | | | 4,844,163 | | | 19.5 | | | 4,634,770 | | | 19.4 | |
| Real estate — construction | 2,319,307 | | | 6.0 | | | 2,672,138 | | | 7.2 | | | 1,418,157 | | | 5.5 | | | 1,604,803 | | | 6.5 | | | 1,724,518 | | | 7.1 | |
| Real estate — mortgage | 8,251,127 | | | 21.5 | | | 7,821,646 | | | 21.0 | | | 5,146,334 | | | 19.8 | | | 5,330,485 | | | 21.5 | | | 5,649,594 | | | 23.7 | |
| Total commercial | 29,944,113 | | | 78.2 | % | | 27,263,154 | | | 73.4 | | | 19,345,697 | | | 74.5 | | | 18,958,938 | | | 76.5 | | | 18,917,918 | | | 79.2 | |
| Consumer | | | | | | | | | | | | | | | | | | | |
| Real estate — mortgage | 7,031,536 | | | 18.3 | | | 7,259,525 | | | 19.5 | | | 4,450,031 | | | 17.1 | | | 4,147,730 | | | 16.7 | | | 3,913,869 | | | 16.4 | |
| Consumer loans — credit cards | 281,018 | | | 0.7 | | | 268,841 | | | 0.7 | | | 258,245 | | | 1.0 | | | 232,676 | | | 0.9 | | | 232,413 | | | 1.0 | |
| Consumer loans — other | 1,073,989 | | | 2.8 | | | 2,396,294 | | | 6.4 | | | 1,916,743 | | | 7.4 | | | 1,473,451 | | | 5.9 | | | 818,182 | | | 3.4 | |
| Total consumer | 8,386,543 | | | 21.8 | | | 9,924,660 | | | 26.6 | | | 6,625,019 | | | 25.5 | | | 5,853,857 | | | 23.5 | | | 4,964,464 | | | 20.8 | |
| Total loans | 38,330,656 | | | | | 37,187,814 | | | | | 25,970,716 | | | | | 24,812,795 | | | | | 23,882,382 | | | |
| Deferred fees and costs, net | (77,672) | | | nm | | (25,364) | | | nm | | (24,143) | | | nm | | (25,331) | | | nm | | (25,991) | | | nm |
| Total loans, net of deferred fees and costs | $ | 38,252,984 | | | 100.0 | % | | $ | 37,162,450 | | | 100.0 | % | | $ | 25,946,573 | | | 100.0 | % | | $ | 24,787,464 | | | 100.0 | % | | $ | 23,856,391 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | |
* Loan balance in each category is before net deferred fees and costs and is expressed as a percentage of total loans, net of deferred fees and costs.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 12 - Composition of Loan Portfolio |
| | December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| (dollars in thousands) | Amount | | %* | | Amount | | %* | | Amount | | %* | | Amount | | %* | | Amount | | %* |
| Commercial | | | | | | | | | | | | | | | | | | | |
| Commercial, financial, and agricultural | $ | 7,449,698 |
| | 28.7 | % | | $ | 7,179,487 |
| | 29.0 | % | | $ | 6,909,036 |
| | 29.0 | % | | $ | 6,453,180 |
| | 28.8 | % | | $ | 6,182,312 |
| | 29.3 | % |
| Owner-occupied | 5,331,508 |
| | 20.5 |
| | 4,844,163 |
| | 19.5 |
| | 4,634,770 |
| | 19.4 |
| | 4,318,950 |
| | 19.2 |
| | 4,085,407 |
| | 19.4 |
|
| Real estate — construction | 1,418,157 |
| | 5.5 |
| | 1,604,803 |
| | 6.5 |
| | 1,724,518 |
| | 7.1 |
| | 2,181,174 |
| | 9.7 |
| | 1,714,942 |
| | 8.1 |
|
| Real estate — mortgage | 5,146,334 |
| | 19.8 |
| | 5,330,485 |
| | 21.5 |
| | 5,649,594 |
| | 23.7 |
| | 5,213,594 |
| | 23.2 |
| | 5,211,660 |
| | 24.7 |
|
| Total commercial | 19,345,697 |
| | 74.5 |
| | 18,958,938 |
| | 76.5 |
| | 18,917,918 |
| | 79.2 |
| | 18,166,898 |
| | 80.9 |
| | 17,194,321 |
| | 81.5 |
|
| Consumer | | | | | | | | | | | | | | | | | | | |
| Real estate — mortgage | 4,450,031 |
| | 17.1 |
| | 4,147,730 |
| | 16.7 |
| | 3,913,869 |
| | 16.4 |
| | 3,628,597 |
| | 16.1 |
| | 3,378,059 |
| | 15.9 |
|
| Consumer loans — credit cards | 258,245 |
| | 1.0 |
| | 232,676 |
| | 0.9 |
| | 232,413 |
| | 1.0 |
| | 240,851 |
| | 1.1 |
| | 253,649 |
| | 1.2 |
|
| Consumer loans — other | 1,916,743 |
| | 7.4 |
| | 1,473,451 |
| | 5.9 |
| | 818,182 |
| | 3.4 |
| | 423,318 |
| | 1.9 |
| | 302,460 |
| | 1.4 |
|
| Total consumer | 6,625,019 |
| | 25.5 |
| | 5,853,857 |
| | 23.5 |
| | 4,964,464 |
| | 20.8 |
| | 4,292,766 |
| | 19.1 |
| | 3,934,168 |
| | 18.5 |
|
| Total loans | 25,970,716 |
| | | | 24,812,795 |
| | | | 23,882,382 |
| | | | 22,459,664 |
| | | | 21,128,489 |
| | |
| Deferred fees and costs, net | (24,143 | ) | | nm |
| | (25,331 | ) | | nm |
| | (25,991 | ) | | nm |
| | (30,099 | ) | | nm | | (30,790 | ) | | nm |
| Total loans, net of deferred fees and costs | $ | 25,946,573 |
| | 100.0 | % | | $ | 24,787,464 |
| | 100.0 | % | | $ | 23,856,391 |
| | 100.0 | % | | $ | 22,429,565 |
| | 100.0 | % | | $ | 21,097,699 |
| | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
* | Loan balance in each category is before net deferred fees and costs and is expressed as a percentage of total loans, net of deferred fees and costs. |
Deposits
Deposits provide the most significant funding source for interest earning assets. Total deposits were $26.72 billion at December 31, 2018, an increase of $572.4 million, or 2.2%, compared to year-end 2017. Non-interest-bearing deposits totaled $7.65 billion at December 31, 2018, a decrease of $35.4 million, or 0.5%, from December 31, 2017.
The following table shows the composition of averageperiod-end deposits for 20182020 and 2017.2019. See Table 1612 - Average Balances, Interest, and Yields/Rates in this Report for additional information on average deposits including average rates paid in 2018, 2017,2020, 2019, and 2016.2018.
| | | | | | | | | | | | | | | | | | | | | | | |
| Table 9 - Composition of Period-end Deposits |
| 2020 | | 2019 |
| (dollars in thousands) | Amount | | %(1) | | Amount | | %(1) |
Non-interest-bearing demand deposits(2) | $ | 12,382,708 | | | 26.5 | % | | $ | 8,661,220 | | | 22.6 | % |
Interest-bearing demand deposits(2) | 5,674,416 | | | 12.2 | | | 4,769,505 | | | 12.4 | |
Money market accounts(2) | 13,541,236 | | | 29.0 | | | 9,827,357 | | | 25.6 | |
Savings deposits(2) | 1,156,249 | | | 2.5 | | | 909,500 | | | 2.4 | |
| Public funds | 6,760,628 | | | 14.5 | | | 4,622,318 | | | 12.0 | |
Time deposits(2) | 3,605,928 | | | 7.7 | | | 6,185,611 | | | 16.1 | |
| Brokered deposits | 3,570,406 | | | 7.6 | | | 3,429,993 | | | 8.9 | |
| Total deposits | $ | 46,691,571 | | | 100.0 | % | | $ | 38,405,504 | | | 100.0 | % |
Core deposits(3) | $ | 43,121,165 | | | 92.4 | % | | $ | 34,975,511 | | | 91.1 | % |
Core transaction deposits(4) | $ | 32,754,609 | | | 70.2 | % | | $ | 24,167,582 | | | 62.9 | % |
| | | | | | | |
| Time deposits greater than $100,000, including brokered and public funds | $ | 4,748,029 | | | 10.2 | % | | $ | 7,262,833 | | | 18.9 | % |
| Brokered time deposits | $ | 1,590,096 | | | 3.4 | % | | $ | 2,154,095 | | | 5.6 | % |
| Public funds time deposits | $ | 752,172 | | | 1.6 | % | | $ | 734,602 | | | 1.9 | % |
| | | | | | | |
|
| | | | | | | | | | | | | |
| Table 13 - Composition of Average Deposits |
| | 2018 | | 2017 |
| (dollars in thousands) | Amount | | %(1) | | Amount | | %(1) |
| Non-interest-bearing demand deposits | $ | 7,656,233 |
| | 29.1 | % | | $ | 7,351,015 |
| | 29.0 | % |
| Interest-bearing demand deposits | 4,855,603 |
| | 18.4 |
| | 4,867,029 |
| | 19.2 |
|
| Money market accounts, excluding brokered deposits | 7,836,622 |
| | 29.8 |
| | 7,474,200 |
| | 29.4 |
|
| Savings deposits | 820,501 |
| | 3.1 |
| | 830,317 |
| | 3.3 |
|
| Time deposits, excluding brokered deposits | 3,358,039 |
| | 12.7 |
| | 3,227,446 |
| | 12.7 |
|
| Brokered deposits | 1,817,120 |
| | 6.9 |
| | 1,624,381 |
| | 6.4 |
|
| Total average deposits | $ | 26,344,118 |
| | 100.0 | % | | $ | 25,374,388 |
| | 100.0 | % |
Average core deposits(2) | $ | 24,526,998 |
| | 93.1 | % | | $ | 23,750,007 |
| | 93.6 | % |
| | | | | | | | |
| |
(1)
| Deposits balance in each category expressed as percentage of total average deposits. |
| |
(2)
| See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures” of this Report for applicable reconciliation to GAAP measure. |
Total average(2) Excluding any public funds or brokered deposits.
(3) Core deposits increased $969.7 million, or 3.8%, to $26.34 billion in 2018 from $25.37 billion in 2017. Average coreexclude brokered deposits.
(4) Core transaction deposits which exclude total average brokeredconsist of non-interest-bearing demand deposits, were up $777.0 million, or 3.3%, from 2017, driven by growth in non-interest-bearinginterest-bearing demand deposits, money market accounts, and timesavings deposits excluding public funds and brokered deposits. Additionally, during the first quarter of 2018, Synovus obtained FDIC approval to report
Total period-end deposits related to our sweep money market product, offered by Synovus Securities, as a component of core deposits. Average balances for this product included in average core deposits in 2018 totaled $319.3 million. Average brokered deposits increased $192.7 million compared to 2017. See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures” of this Report for applicable reconciliation to GAAP measures.
Time deposits of $100,000 and greaterwere $46.69 billion at December 31, 2018 and 2017 were $3.752020, up significantly by $8.29 billion, and $3.36or 22%, compared to year-end 2019, due largely to client preferences for maintaining liquidity during 2020 as well as government stimulus programs which further supported deposit growth, partially offset by strategic declines in time deposits. Core transaction deposits increased $8.59 billion, respectively, and included brokered timeor 36%, compared to December 31, 2019, with significant growth in all categories. On an average basis, total deposits of $1.20$43.04 billion and $1.41were up $5.21 billion, respectively. See Table 14 foror 14%, compared to the maturity distribution of time deposits of $100,000 or more. These larger deposits represented 14.0% and 12.8% of total deposits at December 31, 2018 and 2017, respectively, and included brokered time deposits which represented 4.5% and 5.4% of total deposits at December 31, 2018 and 2017, respectively.prior year.
The following table shows maturities of time deposits of $100,000 or more at December 31, 2018.2020.
| | | | | | | | |
| Table 10 - Maturity Distribution of Time Deposits of $100,000 or More | | |
| (in thousands) | | December 31, 2020 |
| 3 months or less | | $ | 1,075,822 | |
| Over 3 months through 6 months | | 823,138 | |
| Over 6 months through 12 months | | 1,139,047 | |
| Over 12 months | | 1,710,022 | |
| Total outstanding | | $ | 4,748,029 | |
| | |
|
| | | | |
| Table 14 - Maturity Distribution of Time Deposits of $100,000 or More | | |
| (in thousands) | | December 31, 2018 |
| 3 months or less | | $ | 581,513 |
|
| Over 3 months through 6 months | | 645,907 |
|
| Over 6 months through 12 months | | 1,255,159 |
|
| Over 12 months | | 1,267,349 |
|
| Total outstanding | | $ | 3,749,928 |
|
| | | |
Net Interest Income
The following table summarizes the components of net interest income for the years ended December 31, 2018, 2017,2020, 2019, and 2016,2018, including the tax-equivalent adjustment that is required in making yields on tax-exempt loans and investment securities comparable to taxable loans and investment securities. The taxable-equivalent adjustment is based on a 21% federal income tax rate for 2018 and a 35% federal income tax rate for 2017 and 2016.the three years shown.
| | | Table 15 - Net Interest Income | | | |
| Table 11 - Net Interest Income | | Table 11 - Net Interest Income | | |
| | | Years Ended December 31, | | Years Ended December 31, |
| (in thousands) | | 2018 | | 2017 | | 2016 | (in thousands) | | 2020 | | 2019 | | 2018 |
| Interest income | | $ | 1,344,305 |
| | $ | 1,162,497 |
| | $ | 1,022,803 |
| Interest income | | $ | 1,804,495 | | | $ | 2,050,638 | | | $ | 1,344,305 | |
| Taxable-equivalent adjustment | | 553 |
| | 1,124 |
| | 1,285 |
| Taxable-equivalent adjustment | | 3,424 | | | 3,025 | | | 553 | |
| Interest income, taxable-equivalent | | 1,344,858 |
| | 1,163,621 |
| | 1,024,088 |
| Interest income, taxable-equivalent | | 1,807,919 | | | 2,053,663 | | | 1,344,858 | |
| Interest expense | | 195,892 |
| | 139,188 |
| | 123,623 |
| Interest expense | | 291,747 | | | 454,835 | | | 195,892 | |
| Net interest income, taxable-equivalent | | $ | 1,148,966 |
| | $ | 1,024,433 |
| | $ | 900,465 |
| Net interest income, taxable-equivalent | | $ | 1,516,172 | | | $ | 1,598,828 | | | $ | 1,148,966 | |
| | | | | | | | | | | | | |
Net interest income (interest income less interest expense) is the largest component of total revenues, representing earnings from the primary business of gathering funds from customer deposits and other sources, and investing those funds primarily in loans and investmentfixed-income securities. Synovus’ long-term objective is to manage those assets and liabilities to maximize net interest income while balancing interest rate, credit, liquidity, and capital risks.
Net interest income for 20182020 was $1.15$1.51 billion, up $125.1down $83.1 million, or 12.2%5%, from 2017. On$1.60 billion in 2019, and on a taxable-equivalent basis, net interest income increased $124.5decreased $82.7 million, or 12.2%5%, from 2017.2019. The decline in net interest income from 2019 was due to declines of $87.3 million in PAA (primarily comprised of declines of $43.8 million of deposit premium amortization and $40.5 million of loan accretion) associated with the FCB acquisition and declines in market interest rates, which were somewhat offset by higher average earning assets including the impact of PPP with recognition of $46.0 million in processing fees. During 2018,2020, average earning assets increased $966.3 million, or 3.3%, primarily as a result of increases in net loans and investment securities.
Net interest income for 2017 was $1.02 billion, up $124.1 million, or 13.8%, from 2016. On a taxable-equivalent basis, net interest income increased $124.0 million, or 13.8%, from 2016. During 2017, average earning assets increased $1.36$4.55 billion, or 4.9%11%, driven primarily as a result ofby an increase in net loans which included average PPP loans of $1.87 billion, an increase in interest-bearing funds held at the Federal Reserve Bank, an increase in loans held for sale, and an increase in investment securities.securities available for sale.
Net Interest Margin
Net interest margin is defined as taxable-equivalent net interest income divided by average totala measure of the spread between interest earning assets relative to the cost of funding and provides an indication ofcan be used to assess the efficiency of the earnings from balance sheet activities. The net interest margin is affected by changes in the spread between interest earning asset yields, andthe cost of interest-bearing liability costs, byliabilities, the percentage of interest earning assets funded by non-interest-bearing funding sources, and the mix of earning assets and interest-bearing liabilities.
The net interest margin was 3.86%3.18% for 2018, an increase2020, a decrease of 3152 basis points from 2017.3.70% in 2019, due primarily to the decline in market interest rates in addition to 21 basis points from declines in PAA. The yield on earning assets increased 48decreased 96 basis points to 4.51% and3.78% from 4.74% in 2019, while the effective cost of funds increased 19decreased 44 basis points from 1.04% in 2019 to 0.69% (the cost of funds includes non-interest-bearing demand deposits)0.60%.
The primary components of the yield on interest earning assets are loan yields, yields on investment securities, and the yield on balances held with the Federal Reserve Bank. The factors positively impacting earning assetLoan yields were a 51declined 94 basis points increaseand yields on investment securities declined 54 basis points, primarily driven by declines in market interest rates and a decline of 13 basis points in loan yields driven primarilyfrom declines in PAA. Additionally, yields were somewhat diluted by four 25 basis points federal funds rate increasesthe PPP loan portfolio which had a yield of 3.48%, inclusive of $46.0 million in 2018 as well as a 23 basis points increase in taxable investment securities yields primarily due to higher reinvestment rates.
The primary factors impactingprocessing fees recognized during the cost of funds during 2018 were a 36 basis points increase in the cost of money market deposit accounts and a 47 basis points increase in the cost of time deposits driven largely by competitive repricing commensurate with the federal funds rate increases. These increases were partially offset by a higher level of non-interest-bearing funding and a 9 basis point decrease in the cost of long-term debt due to Synovus issuing lower rate debt following redemption of long-term debt in November of 2017.
The net interest margin was 3.55% for 2017, an increase of 28 basis points from 2016. The yield on earning assets increased 31 basis points to 4.03% and the cost of funds increased 3 basis points to 0.50%. The increase in loan yields was primarily due to three 25 basis points federal funds rate increases during 2017. The increase in taxable investment securities yields was due to a modest increase in the effective duration of the investment portfolio and higher reinvestment rates.year. Earning asset yields were also positivelynegatively impacted by a reductionthe increase in averagecash balances of lower yielding funds held atwith the Federal Reserve Bank. Bank as compared to the prior year.
The primary factors impactingdecline in the effective cost of funds during 2017 were a 14 point2020 was primarily driven by declines in market interest rates and liability remixing. This was offset in part by 8 basis points increaseof less favorable PAA in 2020 as compared to the cost of time deposits and a 19 basis points increase in the cost of long-term debt. These increases were partially offset by a higher level of non-interest-bearing funding.
prior year.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 16 - Average Balances, Interest, and Yields/Rates |
| | 2018 | | 2017 | | 2016 |
| (dollars in thousands) | Average Balance | | Interest | | Yield/ Rate | | Average Balance | | Interest | | Yield/ Rate | | Average Balance | | Interest | | Yield/ Rate |
| Assets | | | | | | | | | | | | | | | | | |
| Interest earning assets: | | | | | | | | | | | | | | | | | |
Taxable loans, net(1)(2) | $ | 25,132,193 |
| | $ | 1,224,601 |
| | 4.87 | % | | $ | 24,318,345 |
| | $ | 1,062,261 |
| | 4.37 | % | | $ | 23,022,443 |
| | $ | 941,978 |
| | 4.09 | % |
Tax-exempt loans, net(1)(2)(3) | 61,128 |
| | 2,631 |
| | 4.30 |
| | 66,174 |
| | 3,157 |
| | 4.77 |
| | 74,929 |
| | 3,469 |
| | 4.63 |
|
| Less: Allowance for loan losses | 253,091 |
| | — |
| | — |
| | 251,667 |
| | — |
| | — |
| | 254,646 |
| | — |
| | — |
|
| Loans, net | 24,940,230 |
| | 1,227,232 |
| | 4.92 |
| | 24,132,852 |
| | 1,065,418 |
| | 4.41 |
| | 22,842,726 |
| | 945,447 |
| | 4.14 |
|
| Investment securities available for sale: | | | | |
|
| | | | | | | | | | | | |
| Taxable investment securities | 4,077,304 |
| | 96,926 |
| | 2.38 |
| | 3,852,571 |
| | 82,664 |
| | 2.15 |
| | 3,563,818 |
| | 67,335 |
| | 1.89 |
|
Tax-exempt investment securities(3) | 86 |
| | 6 |
| | 6.51 |
| | 869 |
| | 54 |
| | 6.21 |
| | 3,335 |
| | 203 |
| | 6.09 |
|
| Total investment securities | 4,077,390 |
| | 96,932 |
| | 2.38 |
| | 3,853,440 |
| | 82,718 |
| | 2.15 |
| | 3,567,153 |
| | 67,538 |
| | 1.89 |
|
| Trading account assets | 14,025 |
| | 360 |
| | 2.57 |
| | 6,330 |
| | 141 |
| | 2.22 |
| | 5,332 |
| | 91 |
| | 1.71 |
|
| Interest earning deposits with banks | 41,191 |
| | 884 |
| | 2.15 |
| | 45,365 |
| | 636 |
| | 1.40 |
| | 22,121 |
| | 42 |
| | 0.19 |
|
| Due from Federal Reserve Bank | 529,501 |
| | 10,156 |
| | 1.89 |
| | 575,126 |
| | 6,470 |
| | 1.12 |
| | 847,346 |
| | 4,356 |
| | 0.51 |
|
| Federal funds sold and securities purchased under resale agreements | 36,392 |
| | 366 |
| | 1.01 |
| | 50,315 |
| | 384 |
| | 0.76 |
| | 74,407 |
| | 184 |
| | 0.25 |
|
| FHLB and Federal Reserve Bank stock | 167,240 |
| | 6,978 |
| | 4.17 |
| | 170,703 |
| | 5,928 |
| | 3.47 |
| | 87,520 |
| | 3,784 |
| | 4.32 |
|
| Mortgage loans held for sale | 43,568 |
| | 1,950 |
| | 4.48 |
| | 49,082 |
| | 1,926 |
| | 3.92 |
| | 75,288 |
| | 2,646 |
| | 3.51 |
|
| Total interest earning assets | 29,849,537 |
| | 1,344,858 |
| | 4.51 |
| | 28,883,213 |
| | 1,163,621 |
| | 4.03 |
| | 27,521,893 |
| | 1,024,088 |
| | 3.72 |
|
| Cash and cash equivalents | 408,684 |
| | | | | | 392,720 |
| | | | | | 402,047 |
| | | | |
| Premises and equipment, net | 429,542 |
| | | | | | 419,619 |
| | | | | | 430,651 |
| | | | |
| Other real estate | 5,655 |
| | | | | | 17,789 |
| | | | | | 36,211 |
| | | | |
Other assets(4) | 975,429 |
| | | | | | 1,073,947 |
| | | | | | 1,090,148 |
| | | | |
| Total assets | $ | 31,668,847 |
| | | | | | $ | 30,787,288 |
| | | | | | $ | 29,480,950 |
| | | | |
| Liabilities and Equity | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | |
| Interest-bearing demand deposits | $ | 4,855,603 |
| | $ | 17,457 |
| | 0.36 | % | | $ | 4,867,029 |
| | $ | 11,919 |
| | 0.24 | % | | $ | 4,299,026 |
| | $ | 7,198 |
| | 0.17 | % |
| Money market accounts | 8,185,156 |
| | 57,771 |
| | 0.71 |
| | 8,043,327 |
| | 28,269 |
| | 0.35 |
| | 7,702,353 |
| | 23,482 |
| | 0.30 |
|
| Savings deposits | 820,501 |
| | 251 |
| | 0.03 |
| | 830,317 |
| | 457 |
| | 0.06 |
| | 794,096 |
| | 640 |
| | 0.08 |
|
| Time deposits | 4,826,625 |
| | 68,392 |
| | 1.42 |
| | 4,282,700 |
| | 40,680 |
| | 0.95 |
| | 4,067,378 |
| | 32,886 |
| | 0.81 |
|
| Federal funds purchased and securities sold under repurchase agreements | 208,727 |
| | 523 |
| | 0.25 |
| | 184,093 |
| | 198 |
| | 0.11 |
| | 216,593 |
| | 200 |
| | 0.09 |
|
| Other short-term borrowings | 163,206 |
| | 3,030 |
| | 1.83 |
| | 71,918 |
| | 752 |
| | 1.03 |
| | 61,680 |
| | 301 |
| | 0.48 |
|
| Long-term debt | 1,724,552 |
| | 48,468 |
| | 2.77 |
| | 1,965,069 |
| | 56,913 |
| | 2.86 |
| | 2,174,342 |
| | 58,916 |
| | 2.67 |
|
| Total interest-bearing liabilities | 20,784,370 |
| | 195,892 |
| | 0.94 |
| | 20,244,453 |
| | 139,188 |
| | 0.69 |
| | 19,315,468 |
| | 123,623 |
| | 0.64 |
|
| Non-interest-bearing demand deposits | 7,656,233 |
| | | | | | 7,351,015 |
| | | | | | 7,017,168 |
| | | | |
| Other liabilities | 230,043 |
| | | | | | 221,270 |
| | | | | | 208,808 |
| | | | |
| Equity | 2,998,201 |
| | | | | | 2,970,550 |
| | | | | | 2,939,506 |
| | | | |
| Total liabilities and equity | $ | 31,668,847 |
| | | | | | $ | 30,787,288 |
| | | | | | $ | 29,480,950 |
| | | | |
| Net interest income, taxable equivalent net interest margin | | | $ | 1,148,966 |
| | 3.86 | % | | | | $ | 1,024,433 |
| | 3.55 | % | | | | $ | 900,465 |
| | 3.27 | % |
| Less: taxable-equivalent adjustment | | | 553 |
| | | | | | 1,124 |
| | | | | | 1,285 |
| | |
| Net interest income | | | $ | 1,148,413 |
| | | | | | $ | 1,023,309 |
| | | | | | $ | 899,180 |
| | |
| | | | | | | | | | | | | | | | | | |
| |
| Average loans are shown net of deferred fees and costs. Non-performing loans are included. |
| |
(2)
| Interest income includes net loan fees as follows: 2018 — $32.4 million, 2017 — $32.4 million, and 2016 — $30.8million.
|
| |
(3)
| Reflects taxable-equivalent adjustments, using the statutory federal tax rate (21% in 2018 and 35% in 2017 and 2016), adjusting interest on tax-exempt loans and investment securities to a taxable-equivalent basis. |
| |
(4)
| Includes average net unrealized (losses)/gains on investment securities available for sale of $(133.6) million, $(34.4) million, and $30.1 million for the years ended December 31, 2018, 2017, and 2016, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 12 - Average Balances, Interest, and Yields/Rates |
| 2020 | | 2019 | | 2018 |
| (dollars in thousands) | Average Balance | | Interest | | Yield/
Rate | | Average Balance | | Interest | | Yield/
Rate | | Average Balance | | Interest | | Yield/
Rate |
| Assets | | | | | | | | | | | | | | | | | |
| Interest earning assets: | | | | | | | | | | | | | | | | | |
Taxable loans, net(1)(2) | $ | 38,597,852 | | | $ | 1,587,606 | | | 4.11 | % | | $ | 35,599,889 | | | $ | 1,806,060 | | | 5.07 | % | | $ | 25,128,248 | | | $ | 1,224,568 | | | 4.87 | % |
Tax-exempt loans, net(1)(2)(3) | 497,467 | | | 16,274 | | | 3.27 | | | 355,675 | | | 14,208 | | | 3.99 | | | 61,128 | | | 2,631 | | | 4.30 | |
| Less: Allowance for loan losses | 513,743 | | | — | | | — | | | 259,833 | | | — | | | — | | | 253,091 | | | — | | | — | |
| Loans, net | 38,581,576 | | | 1,603,880 | | | 4.16 | | | 35,695,731 | | | 1,820,268 | | | 5.10 | | | 24,936,285 | | | 1,227,199 | | | 4.92 | |
Investment securities available for sale(3) | 7,006,894 | | | 178,582 | | | 2.55 | | | 6,755,496 | | | 208,867 | | | 3.09 | | | 4,077,390 | | | 96,932 | | | 2.38 | |
| Trading account assets | 6,593 | | | 121 | | | 1.84 | | | 5,119 | | | 138 | | | 2.70 | | | 14,025 | | | 360 | | 2.57 | |
| Interest earning deposits with banks | 21,081 | | | 197 | | | 0.94 | | | 21,586 | | | 491 | | | 2.27 | | | 41,191 | | | 884 | | 2.15 | |
| Interest-bearing funds with Federal Reserve Bank | 1,442,609 | | | 2,839 | | | 0.19 | | | 472,814 | | | 10,384 | | | 2.17 | | | 529,501 | | | 10,156 | | | 1.89 | |
| Federal funds sold and securities purchased under resale agreements | 124,460 | | | 149 | | | 0.12 | | | 59,724 | | | 1,342 | | | 2.25 | | | 36,392 | | | 366 | | | 1.01 | |
| FHLB and Federal Reserve Bank stock | 223,606 | | | 7,073 | | | 3.16 | | | 245,196 | | | 8,918 | | | 3.64 | | | 167,240 | | | 6,978 | | | 4.17 | |
| Mortgage loans held for sale | 215,788 | | | 6,412 | | | 2.97 | | | 80,997 | | | 3,233 | | | 3.99 | | | 43,568 | | | 1,950 | | | 4.48 | |
| Other loans held for sale | 265,764 | | | 8,666 | | | 3.21 | | | 517 | | | 22 | | | 4.11 | | | 3,945 | | | 33 | | | 0.83 | |
| Total interest earning assets | 47,888,371 | | | 1,807,919 | | | 3.78 | | | 43,337,180 | | | 2,053,663 | | | 4.74 | | | 29,849,537 | | | 1,344,858 | | | 4.51 | |
| Cash and due from banks | 531,963 | | | | | | | 510,755 | | | | | | | 408,684 | | | | | |
| Premises and equipment | 481,371 | | | | | | | 487,202 | | | | | | | 429,542 | | | | | |
| Other real estate | 9,740 | | | | | | | 14,539 | | | | | | | 5,655 | | | | | |
| Cash surrender value of bank-owned life insurance | 1,003,560 | | | | | | | 767,142 | | | | | | | 546,864 | | | | | |
Other assets(4) | 2,223,033 | | | | | | | 1,675,112 | | | | | | | 428,565 | | | | | |
| Total assets | $ | 52,138,038 | | | | | | | $ | 46,791,930 | | | | | | | $ | 31,668,847 | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | |
| Interest-bearing demand deposits | $ | 7,510,429 | | | $ | 19,034 | | | 0.25 | % | | $ | 6,311,829 | | | $ | 42,254 | | | 0.67 | % | | $ | 4,855,603 | | | $ | 17,457 | | | 0.36 | % |
| Money market accounts | 14,690,298 | | | 72,312 | | | 0.49 | | | 11,198,199 | | | 145,048 | | | 1.30 | | | 8,185,156 | | | 57,771 | | | 0.71 | |
| Savings deposits | 1,056,777 | | | 247 | | | 0.02 | | | 905,338 | | | 487 | | | 0.05 | | | 820,501 | | | 251 | | | 0.03 | |
| Time deposits | 7,853,325 | | | 126,184 | | | 1.61 | | | 10,054,459 | | | 169,160 | | | 1.68 | | | 4,826,625 | | | 68,392 | | | 1.42 | |
| Federal funds purchased and securities sold under repurchase agreements | 192,967 | | | 274 | | | 0.14 | | | 236,601 | | | 522 | | | 0.22 | | | 208,727 | | | 523 | | | 0.25 | |
| Other short-term borrowings | 492,697 | | | 7,643 | | | 1.53 | | | 1,123,613 | | | 25,663 | | | 2.25 | | | 163,206 | | | 3,030 | | | 1.83 | |
| Long-term debt | 2,322,717 | | | 66,053 | | | 2.83 | | | 2,135,614 | | | 71,701 | | | 3.31 | | | 1,724,552 | | | 48,468 | | | 2.77 | |
| Total interest-bearing liabilities | 34,119,210 | | | 291,747 | | | 0.84 | | | 31,965,653 | | | 454,835 | | | 1.41 | | | 20,784,370 | | | 195,892 | | | 0.94 | |
| Non-interest-bearing demand deposits | 11,925,114 | | | | | | | 9,359,894 | | | | | | | 7,656,233 | | | | | |
| Other liabilities | 1,021,633 | | | | | | | 714,521 | | | | | | | 230,043 | | | | | |
| Shareholders' equity | 5,072,081 | | | | | | | 4,751,862 | | | | | | | 2,998,201 | | | | | |
| Total liabilities and shareholders' equity | $ | 52,138,038 | | | | | | | $ | 46,791,930 | | | | | | | $ | 31,668,847 | | | | | |
| Net interest income, taxable equivalent net interest margin | | | $ | 1,516,172 | | | 3.18 | % | | | | $ | 1,598,828 | | | 3.70 | % | | | | $ | 1,148,966 | | | 3.86 | % |
| Less: taxable-equivalent adjustment | | | 3,424 | | | | | | | 3,025 | | | | | | | 553 | | | |
| Net interest income | | | $ | 1,512,748 | | | | | | | $ | 1,595,803 | | | | | | | $ | 1,148,413 | | | |
| | | | | | | | | | | | | | | | | |
(1)Average loans are shown net of deferred fees and costs. NPLs are included.
(2)Interest income includes net loan fees as follows: 2020 — $76.1 million, 2019 — $35.6 million, and 2018 — $32.4million.
(3)Reflects taxable-equivalent adjustments, using the statutory federal tax rate of 21%, in adjusting interest on tax-exempt loans and investment securities to a taxable-equivalent basis.
(4)Includes average net unrealized gains/(losses) on investment securities available for sale of $197.5 million, $43.4 million, and $(133.6) million for the years ended December 31, 2020, 2019, and 2018, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Table 17 - Rate/Volume Analysis | 2018 Compared to 2017 Change Due to(1) | | 2017 Compared to 2016
Change Due to(1) |
| (in thousands) | Volume/Mix | | Yield/Rate | | Net Change | | Volume/Mix | | Yield/Rate | | Net Change |
| Interest earned on: | | | | | | | | | | | |
| Taxable loans, net | $ | 35,565 |
| | $ | 126,775 |
| | $ | 162,340 |
| | $ | 53,002 |
| | $ | 67,281 |
| | $ | 120,283 |
|
Tax-exempt loans, net(2) | (241 | ) | | (285 | ) | | (526 | ) | | (405 | ) | | 93 |
| | (312 | ) |
| Taxable investment securities | 4,832 |
| | 9,430 |
| | 14,262 |
| | 5,457 |
| | 9,872 |
| | 15,329 |
|
Tax-exempt investment securities(2) | (49 | ) | | 1 |
| | (48 | ) | | (150 | ) | | 1 |
| | (149 | ) |
| Trading account assets | 171 |
| | 48 |
| | 219 |
| | 17 |
| | 33 |
| | 50 |
|
| Interest earning deposits with banks | (58 | ) | | 306 |
| | 248 |
| | 44 |
| | 550 |
| | 594 |
|
| Due from Federal Reserve Bank | (511 | ) | | 4,197 |
| | 3,686 |
| | (1,388 | ) | | 3,502 |
| | 2,114 |
|
Federal funds sold and securities purchased under resale agreements | (106 | ) | | 88 |
| | (18 | ) | | (60 | ) | | 260 |
| | 200 |
|
| FHLB and Federal Reserve Bank stock | (120 | ) | | 1,170 |
| | 1,050 |
| | 3,594 |
| | (1,450 | ) | | 2,144 |
|
| Mortgage loans held for sale | (216 | ) | | 240 |
| | 24 |
| | (920 | ) | | 200 |
| | (720 | ) |
| Total interest income | 39,267 |
| | 141,970 |
| | 181,237 |
| | 59,191 |
| | 80,342 |
| | 139,533 |
|
| | | | | | | | | | | | |
| Interest paid on: | | | | | | | | | | | |
| Interest-bearing demand deposits | (27 | ) | | 5,565 |
| | 5,538 |
| | 966 |
| | 3,755 |
| | 4,721 |
|
| Money market accounts | 496 |
| | 29,006 |
| | 29,502 |
| | 1,023 |
| | 3,764 |
| | 4,787 |
|
| Savings deposits | (6 | ) | | (200 | ) | | (206 | ) | | 29 |
| | (212 | ) | | (183 | ) |
| Time deposits | 5,167 |
| | 22,545 |
| | 27,712 |
| | 1,744 |
| | 6,050 |
| | 7,794 |
|
Federal funds purchased and securities sold under repurchase agreements | 27 |
| | 298 |
| | 325 |
| | (29 | ) | | 27 |
| | (2 | ) |
| Other short-term borrowings | 940 |
| | 1,338 |
| | 2,278 |
| | 49 |
| | 402 |
| | 451 |
|
| Long-term debt | (6,975 | ) | | (1,470 | ) | | (8,445 | ) | | (5,671 | ) | | 3,668 |
| | (2,003 | ) |
| Total interest expense | (378 | ) | | 57,082 |
| | 56,704 |
| | (1,889 | ) | | 17,454 |
| | 15,565 |
|
| Net interest income | $ | 39,645 |
| | $ | 84,888 |
| | $ | 124,533 |
| | $ | 61,080 |
| | $ | 62,888 |
| | $ | 123,968 |
|
| | | | | | | | | | | | |
| |
(1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Table 13 - Rate/Volume Analysis | 2020 Compared to 2019 Change Due to(1) | | 2019 Compared to 2018
Change Due to(1) | | (in thousands) | Volume/Mix | | Yield/Rate | | Net Change | | Volume/Mix | | Yield/Rate | | Net Change | | Interest earned on: | | | | | | | | | | | | | Taxable loans, net | $ | 151,997 | | | $ | (370,451) | | | $ | (218,454) | | | $ | 509,969 | | | $ | 71,523 | | | $ | 581,492 | | Tax-exempt loans, net(2) | 5,658 | | | (3,592) | | | 2,066 | | | 12,666 | | | (1,089) | | | 11,577 | | Investment securities(2) | 7,768 | | | (38,053) | | | (30,285) | | | 63,739 | | | 48,196 | | | 111,935 | | | Trading account assets | 40 | | | (57) | | | (17) | | | (229) | | | 7 | | | (222) | | | Interest earning deposits with banks | (11) | | | (283) | | | (294) | | | (422) | | | 29 | | | (393) | | | Interest-bearing funds with Federal Reserve Bank | 21,045 | | | (28,590) | | | (7,545) | | | (1,071) | | | 1,299 | | | 228 | | Federal funds sold and securities purchased under resale agreements | 1,457 | | | (2,650) | | | (1,193) | | | 236 | | | 740 | | | 976 | | | FHLB and Federal Reserve Bank stock | (786) | | | (1,059) | | | (1,845) | | | 3,251 | | | (1,311) | | | 1,940 | | | Mortgage loans held for sale | 5,378 | | | (2,199) | | | 3,179 | | | 1,677 | | | (394) | | | 1,283 | | | Other loans held for sale | 10,902 | | | (2,258) | | | 8,644 | | | (28) | | | 17 | | | (11) | | | Total interest income | 203,448 | | | (449,192) | | | (245,744) | | | 589,788 | | | 119,017 | | | 708,805 | | | | | | | | | | | | | | | Interest paid on: | | | | | | | | | | | | | Interest-bearing demand deposits | 8,031 | | | (31,251) | | | (23,220) | | | 5,242 | | | 19,555 | | | 24,797 | | | Money market accounts | 45,397 | | | (118,133) | | | (72,736) | | | 21,393 | | | 65,884 | | | 87,277 | | | Savings deposits | 76 | | | (316) | | | (240) | | | 25 | | | 211 | | | 236 | | | Time deposits | (36,979) | | | (5,997) | | | (42,976) | | | 74,235 | | | 26,533 | | | 100,768 | | Federal funds purchased and securities sold under repurchase agreements | (96) | | | (152) | | | (248) | | | 70 | | | (71) | | | (1) | | | Other short-term borrowings | (14,196) | | | (3,824) | | | (18,020) | | | 17,575 | | | 5,058 | | | 22,633 | | | Long-term debt | 6,193 | | | (11,841) | | | (5,648) | | | 11,386 | | | 11,847 | | | 23,233 | | | Total interest expense | 8,426 | | | (171,514) | | | (163,088) | | | 129,926 | | | 129,017 | | | 258,943 | | | Net interest income | $ | 195,022 | | | $ | (277,678) | | | $ | (82,656) | | | $ | 459,862 | | | $ | (10,000) | | | $ | 449,862 | | | | | | | | | | | | | |
(1)Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received or paid. Volume change is calculated as change in volume times the previous rate, while rate change is change in rate times the previous volume. (2)Reflects taxable-equivalent adjustments, using the statutory federal income tax rate of 21%, in adjusting interest on tax-exempt loans and investment securities to a taxable-equivalent basis.
| Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received or paid. Volume change is calculated as change in volume times the previous rate, while rate change is change in rate times the previous volume. |
| |
(2)
| Reflects taxable-equivalent adjustments, using the statutory federal income tax rate (21% for 2018 and 35% for 2017 and 2016), in adjusting interest on tax-exempt loans and investment securities to a taxable-equivalent basis. |
Non-interest IncomeRevenue
Non-interest incomerevenue for the year ended December 31, 20182020 was $280.1$506.5 million, down $65.2up $150.6 million, or 18.9%42%, compared to the year ended December 31, 2017. The decrease2019. Adjusted non-interest revenue, which excludes net investment securities gains (losses) and gain on sale and net changes in fair value of private equity investments, was $422.8 million, up $70.9 million, or 20%, compared to 2019, due primarily to strong growth in mortgage banking income with record production driven by the $75 million Cabela's Transaction Fee recorded in 2017. Adjusted non-interest income, which excludes the Cabela's Transaction Fee and other items, was up $12.4 million, or 4.5%, compared to 2017.rate environment. See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" of this Report for applicable reconciliation to GAAP measure.
The following table shows the principal components of non-interest income.
|
| | | | | | | | | | | | |
| Table 18 - Non-interest Income |
| | | Years Ended December 31, |
| (in thousands) | | 2018 | | 2017 | | 2016 |
Service charges on deposit accounts(1) | | $ | 80,840 |
| | $ | 81,419 |
| | $ | 83,246 |
|
| Fiduciary and asset management fees | | 54,685 |
| | 50,485 |
| | 46,594 |
|
Card fees(1) | | 42,503 |
| | 39,376 |
| | 39,302 |
|
| Brokerage revenue | | 36,567 |
| | 29,705 |
| | 27,028 |
|
| Mortgage banking income | | 18,958 |
| | 22,798 |
| | 24,259 |
|
| Income from bank-owned life insurance | | 15,403 |
| | 13,460 |
| | 11,364 |
|
| Cabela's Transaction Fee | | — |
| | 75,000 |
| | — |
|
| Investment securities (losses) gains, net | | (1,296 | ) | | (289 | ) | | 6,011 |
|
| Other fee income | | 19,974 |
| | 20,168 |
| | 20,220 |
|
Other non-interest income(1) | | 12,459 |
| | 13,205 |
| | 15,170 |
|
| Total non-interest income | | $ | 280,093 |
| | $ | 345,327 |
| | $ | 273,194 |
|
| | | | | | | |
| |
(1)
| Beginning January 1, 2018, concurrent with the adoption of ASU 2014-09, certain non-interest income categories have been revised. All prior periods have been reclassified to conform to the current year's presentation. |
2018 vs. 2017 | | | | | | | | | | | | | | | | | | | | |
| Table 14 - Non-interest Revenue |
| | Years Ended December 31, |
| (in thousands) | | 2020 | | 2019 | | 2018 |
| Service charges on deposit accounts | | $ | 73,132 | | | $ | 88,190 | | | $ | 80,840 | |
| Fiduciary and asset management fees | | 63,251 | | | 58,388 | | | 54,685 | |
| Card fees | | 42,702 | | | 45,659 | | | 42,503 | |
| Brokerage revenue | | 44,781 | | | 41,608 | | | 35,366 | |
| Mortgage banking income | | 91,413 | | | 32,599 | | | 18,958 | |
| Capital markets income | | 27,336 | | | 30,529 | | | 5,803 | |
| Income from bank-owned life insurance | | 31,297 | | | 21,226 | | | 15,403 | |
| Investment securities gains (losses), net | | 78,931 | | | (7,659) | | | (1,296) | |
| Gain on sale and increase (decrease) in fair value of private equity investments | | 4,775 | | | 11,607 | | | (4,743) | |
| Other non-interest revenue | | 48,895 | | | 33,753 | | | 32,574 | |
| Total non-interest revenue | | $ | 506,513 | | | $ | 355,900 | | | $ | 280,093 | |
| | | | | | |
Service charges on deposit accounts were $80.8$73.1 million in 2018,2020, a decrease of $579 thousand$15.1 million, or 17%, compared to 2017.2019, due primarily to the impact of COVID-19, including fewer transactions and the impact of higher average balances. Service charges on deposit accounts consist of NSF fees, account analysis fees, and all other service charges. NSF fees of $36.0$26.2 million were down $621 thousand, partially offset by a $343 thousand increase on account$12.5 million, or 32%. Account analysis fees of $25.0$28.8 million were flat compared to 2017. The decline in NSF fees from 2017 was primarily due to lower Regulation E opt-in rates on new accounts.2019. All other service charges on deposit accounts, which consist primarily of monthly fees on retail demand deposit anddeposits, savings accounts, and small business accounts, were $19.8$18.1 million for 2018,2020, down $301 thousand$2.6 million, or 13%, compared to 2017, due primarily to lower net fees on check orders.2019.
Fiduciary and asset management fees are derived from providing estate administration, personal trust, corporate trust, corporate bond, investment management, and financial planning, and family office services. Fiduciary and asset management fees were $54.7$63.3 million, an increase of $4.2$4.9 million, or 8.3%8%, from 2017.2019. The increase was driven by growth in averagetotal assets under management that occurred during the year due to overall market conditions during the majority of 2018, increased productivity, as well as the addition of new talent.management. The total value of assets under management (including brokerage assets under management) at December 31, 2018,2020 was approximately $20.2 billion, up 0.3% and totaled approximately $14.0 billion19%, compared to approximately $17.0 billion at December 31, 2017.2019. Assets under management consist of all assets where Synovus has investment authority. Assets under advisement were approximately $2.8 billion and $3.1$5.3 billion at December 31, 20182020 and 2017, respectively.$3.0 billion at December 31, 2019, up 79% from 2019. Assets under advisement consist of non-managed assets as well as non-custody assets where Synovus earns a consulting fee. Many of the fiduciary and asset management fee charges are based on asset values, and changes in these values throughout the year directly impact fees earned.
Card fees increased $3.1decreased $3.0 million, or 7.9%6%, over 2017.2019. Card fees consist primarily of credit card interchange fees, debit card interchange fees, and merchant discounts. Card fees are reported net of certain associated expense items including customer loyalty program expenses and network expenses. The increasedecrease in 20182020 from 20172019 was driven by growth inprimarily due to lower transaction volume for both credit and debit card transactions.as a result of the impact from COVID-19.
Brokerage revenue was $36.6$44.8 million,, a $6.9$3.2 million, or 23.1%8%, increase over 2017. The increase in 2018 from 2017 was largely driven by growth in brokerage assets under management as well as an increase in brokerage transaction commissions.2019. Brokerage revenue consists primarily of brokerage commissions as well as advisory fees earned from the management of customer assets. BrokerageThe increase in 2020 over 2019 was largely driven by growth in brokerage assets under management, were approximately $2.7 billion at December 31, 2018, an increase of 10%increasing contributions from $2.5 billion at December 31, 2017.new hires, and higher transaction revenue from elevated market volatility.
Mortgage banking income, decreased $3.8consisting of net gains on loan origination/sales activities, was significantly higher increasing $58.8 million, or 16.8%180%, compared to 2017, reflecting softer2019, due to higher production and sales, including an increase in refinance volume, due primarily to a decline in a risinglong-term interest rate environment.rates. Total secondary market mortgage loan production was $2.22 billion in 2020, an increase of $1.33 billion, or 148%, compared to 2019.
Capital markets income primarily includes fee income from customer derivative transactions. Additionally, capital markets income includes fee income from capital raising investment banking transactions and foreign exchange as well as other
miscellaneous income from capital market transactions. Capital markets income decreased $3.2 million, or 10%, from 2019, primarily due to lower fees on customer derivative transactions with lower activity due to COVID-19.
Income from bank-owned life insurance increased $1.9 million, or 14.4%, compared to 2017, due to additional investments in bank-owned life insurance policies during 2017,BOLI, which includes increases in the cash surrender value of policies and proceeds from insurance benefits.benefits, increased $10.1 million, or 47%, compared to 2019, primarily driven by additional investments of $250.0 million in BOLI policies in 2020 and income on proceeds from insurance benefits, which totaled $3.8 million compared to $760 thousand in 2019.
Other fee income includesInvestment securities gains, net, of $78.9 million, reflected strategic repositioning of the portfolio during 2020. The transactions were primarily focused on agency mortgage-backed securities, but also included the disposition of Synovus' remaining $155.0 million in asset-backed securities.
Gain on sale and increase/(decrease) in the fair value of private equity investments for 2020 included realized gains from the sale of positions in two publicly traded equity investments, offset partially by write-downs on two smaller remaining investments.
The main components of other non-interest revenue are fees for letters of credit and unused lines of credit, safe deposit box fees, access fees for automated teller machineATM use, customer swap dealer fees, and other service charges.
The main components of other non-interestcharges and loan servicing fees, income arefrom insurance commissions, gains from sales of GGL/SBA loans, changes in fair value of private equity investments, and other miscellaneous items. Other non-interest incomerevenue was down $746 thousand, or 5.6%, from 2017 due primarily to unrealized losses from declines in fair value of private equity investments.
2017 vs. 2016
Service charges on deposit accounts were $81.4 million in 2017, a decrease of $1.8up $15.1 million, or 2.2%45%, for 2020 and included higher loan servicing fees of $3.4 million primarily from the previous year. NSF fees were $36.6restructuring of our third-party lending partnership arrangements, a sale-leaseback gain of $2.4 million associated with a decreasebank office property, a gain of $1.1$2.5 million or 2.8%, from 2016. The decline in NSF fees from prior year was primarily due to lower Regulation E opt-in rates on new accounts as well as lower incident levels given higher average deposit balances. Account analysis fees were $24.7the sale of non-relationship mortgage loans, and a favorable valuation adjustment of $3.0 million up $396 thousand, or 1.6%, compared to 2016. All other service charges on deposit accounts, which consist primarily of monthly fees on retail demand deposit and savings accounts, were $20.1 million, a decrease of $1.2 million, or 5.5%, compared to 2016. The decline in all other service charges was largely due to a one-time impact during 2017 from account level conversions required for Synovus Bank's transition to a single bank operating environment.
Fiduciary and asset management fees were $50.5 million, an increase of $3.9 million, or 8.4% from 2016. The increase was driven by growth in assets under management. Total assets under management (including brokerage assets under management), increased by 23% to approximately $14.0 billion in 2017 from 2016 due to the benefit of new talent additions as well as higher equity markets. Assets under advisement were approximately $3.1 billion at December 31, 2017, a 9% decline from 2016.
Brokerage revenue was $29.7 million, a $2.7 million, or 9.9%, increase from 2016. The increase in 2017 from 2016 was largely driven by growth in brokerage assets under management due primarily to new talent additions. Brokerage assets under management were approximately $2.5 billion at December 31, 2017, an increase of 31% from $1.9 billion at December 31, 2016.
Mortgage banking income decreased $1.5 million, or 6.0%, compared to 2016, reflecting a decline in refinancing volume.
Income from bank-owned life insurance increased $2.1 million, or 18.4%, compared to 2016, due to additional investments in bank-owned life insurance policies during 2017, increases in the cash surrender value of policies, and proceeds from insurance benefits.
On September 25, 2017, Synovus Bank completed the Cabela's Transaction and received the Cabela's Transaction Fee. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 2 - Acquisitions" in this Report for more information on the Cabela's Transaction.
Other non-interest income was down $2.0 million, or 13.0%, compared to 2016. The decrease was due primarily to declines in fair value of private equitysolar tax credit investments.
Non-interest Expense
Non-interest expense for the year ended December 31, 20182020 was $829.5 million,$1.18 billion, an increase of $8.1$80.6 million, or 1.0%7%, compared to the year ended December 31, 2017.2019. During 2020, Synovus recognized a $44.9 million non-cash goodwill impairment charge representing the goodwill allocated to the Consumer Mortgage reporting unit. Adjusted non-interest expense, which excludes goodwill impairment, restructuring charges, loss on early extinguishment of debt, earnout liability adjustments, merger-related expense and certain other items, for 20182020 increased $31.1$68.9 million, or 4.0%7%, compared to 2017,2019. The increase in adjusted expense was largely driven primarily by an increase of $20.1 million, or 4.6%,mortgage production commissions, consulting expense associated with Synovus Forward, PPP and COVID-19 related expenses, and investments in salariestalent and other personnel expense, and an increase of $10.5 million, or 8.8%, in net occupancy and equipment expense.technology. The efficiency ratioratio-FTE for 2020 was 57.99%58.32% compared to 56.22% in 2019, and the adjusted tangible efficiency ratio was 56.33%55.74% compared to 51.82% in 2018.2019. See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" of this Report for applicable reconciliation to GAAP measures.
The following table summarizes non-interest expense for the years ended December 31, 2018, 2017,2020, 2019, and 2016.2018.
|
| | | | | | | | | | | | |
| Table 19 - Non-interest Expense | | |
| | | Years Ended December 31, |
| (in thousands) | | 2018 | | 2017 | | 2016 |
| Salaries and other personnel expense | | $ | 453,420 |
| | $ | 433,321 |
| | $ | 402,026 |
|
| Net occupancy and equipment expense | | 130,482 |
| | 119,964 |
| | 109,347 |
|
| Third-party processing expense | | 58,625 |
| | 54,708 |
| | 46,320 |
|
| FDIC insurance and other regulatory fees | | 24,494 |
| | 27,011 |
| | 26,714 |
|
| Professional fees | | 26,737 |
| | 26,232 |
| | 26,698 |
|
| Advertising expense | | 20,881 |
| | 22,948 |
| | 20,264 |
|
| Foreclosed real estate expense, net | | 2,204 |
| | 12,540 |
| | 12,838 |
|
| Loss on early extinguishment of debt, net | | — |
| | 23,160 |
| | 4,735 |
|
| Earnout liability adjustments | | 11,652 |
| | 5,466 |
| | — |
|
| Merger-related expense | | 10,065 |
| | 110 |
| | 1,636 |
|
| Other operating expenses | | 90,895 |
| | 95,853 |
| | 105,345 |
|
| Total non-interest expense | | $ | 829,455 |
| | $ | 821,313 |
| | $ | 755,923 |
|
| | | | | | | |
2018 vs. 2017 | | | | | | | | | | | | | | | | | | | | |
| Table 15 - Non-interest Expense | | |
| | Years Ended December 31, |
| (in thousands) | | 2020 | | 2019 | | 2018 |
| Salaries and other personnel expense | | $ | 618,214 | | | $ | 570,036 | | | $ | 453,420 | |
| Net occupancy, equipment, and software expense | | 169,658 | | | 161,906 | | | 130,482 | |
| Third-party processing and other services | | 83,034 | | | 75,696 | | | 58,625 | |
| Professional fees | | 56,899 | | | 35,300 | | | 26,737 | |
| FDIC insurance and other regulatory fees | | 25,210 | | | 31,696 | | | 24,494 | |
| Advertising expense | | 14,387 | | | 21,371 | | | 20,881 | |
| Amortization of intangibles | | 10,560 | | | 11,603 | | | 1,167 | |
| Goodwill impairment | | 44,877 | | | — | | | — | |
| Restructuring charges | | 26,991 | | | 1,230 | | | (51) | |
| Loss on early extinguishment of debt | | 10,466 | | | 4,592 | | | — | |
| Earnout liability adjustments | | 4,908 | | | 10,457 | | | 11,652 | |
| Merger-related expense | | — | | | 56,580 | | | 10,065 | |
| Other operating expenses | | 114,370 | | | 118,501 | | | 91,983 | |
| Total non-interest expense | | $ | 1,179,574 | | | $ | 1,098,968 | | | $ | 829,455 | |
| | | | | | |
Salaries and other personnel expense increased $20.1$48.2 million, or 4.6%8%, compared to 2017,2019, due primarily to talent additions, higher mortgage production-based commissioncommissions of $26.3 million, higher bonus payments of $16.3 million, including PPP and incentive compensation expense,COVID-19 related
bonus payments, and annual merit increases, offset somewhat by decreasesgeneral investments in employee health insurance expense.talent. Synovus employees totaled 5,247, down 142, or 3%, from December 31, 2019.
Net occupancy, equipment, and equipmentsoftware expense increased $10.5$7.8 million, or 8.8%5%, compared to 2017,2019, driven primarily by higher costs associated with additional investments in technology as well as higher rent expense.technology including upgrades to our mobile and online banking portal, online account origination capabilities, and other digital touchpoints. Synovus Bank's branch network consisted of 249289 and 250298 branches at December 31, 20182020 and 2017,2019, respectively.
Third-party processing and other services expense includes all third-party core operating system and processing charges as well as third-party loan servicing charges. Third-party processing expense increased $3.9$7.3 million, or 7.2%10%, compared to 2017 driven by an increase of $4.3 million from servicing fees associated with2019 primarily due to loan growth from Synovus' two consumer-based lending partnerships.partnerships during the first half of 2020. During 2020, Synovus restructured certain of its third-party consumer-based lending partnership arrangements with a shift of new originations to held for sale and thereby reduced third-party loan servicing expense during the second half of 2020. Third-party processing expense also included $2.0 million in upfront processing fees associated with the PPP forgiveness process.
Professional fees increased $21.6 million, or 61%, compared to 2019, due primarily to increases in consulting fees related to Synovus' internal revenue growth and efficiency initiative announced in January 2020, Synovus Forward.
FDIC insurance and other regulatory fees declined $2.5decreased $6.5 million, or 20%, compared to 20172019 due primarily to eliminationstrategic balance sheet management actions, aimed at reducing FDIC expense.
Advertising expense decreased $7.0 million, or 33%, from 2019, driven by an intentional response to COVID-19 reflected by a lower level of traditional sponsorships and campaigns.
During the surcharge assessment for all large banksthird quarter of 2020, Synovus recognized a $44.9 million non-cash goodwill impairment charge representing 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 have reduced mortgage yields, and the clarity around longer term policy actions designed to keep interest rates low.
As part of its Synovus Forward initiative, Synovus recorded restructuring charges of $27.0 million, consisting largely of severance charges of $15.6 million, during the year ended December 31, 2020. Severance charges included $13.7 million in one-time termination benefits associated with a voluntary early retirement program offered to employees in the fourth quarterlatter part of 2018. The FDIC removed2020. During 2020, Synovus also recorded $10.5 million in lease termination charges and asset impairment charges related to branch closures and restructuring of corporate real estate. Synovus Bank operated 289 branches at December 31, 2020, compared to 298 branches at December 31, 2019, following the surcharge assessments whenclosing of 13 branches during 2020 and opening of 4 new branches.
During 2020, Synovus utilized excess liquidity and debt proceeds from debt issued by Synovus Bank in 2020 and terminated $1.13 billion in long-term FHLB obligations and redeemed $250.0 million in subordinated notes, incurring $10.5 million in losses on early extinguishment of debt. During 2019, Synovus repositioned certain assets and liabilities to improve portfolio performance and lower funding costs and incurred a $4.6 million loss on early extinguishment of debt from the deposit insurance fund reachedtermination of an assumed $150.0 million long-term FHLB obligation from the required level of 1.35% at September 30, 2018.
Foreclosed real estate expense for 2017 totaled $12.5 million and included balance sheet restructuring actions during the three months ended September 30, 2017 with $7.1 million recorded for discounts to fair value for completed or planned ORE accelerated dispositions.FCB acquisition.
Earnout liability fair value adjustments associated with the Global One acquisition increased due toare the result of higher than projected earnings and higher earnings estimates over the remaining contractual earnout period.period, reflecting the continued success of the Global One enterprise. The earnout period ends on June 30, 2021.
Merger-relatedIn connection with the FCB acquisition, Synovus incurred merger-related expense of $56.6 million and $10.1 million, in 2019 and 2018, relatesrespectively, which primarily related to employment compensation agreements, severance, and professional services. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 2 - Acquisitions" in this Report for more information on the acquisition of FCB, which closed on January 1, 2019.FCB.
Fluctuations in otherOther operating expenses in 2018 included a $2.3 million valuation adjustmentinclude travel, insurance, network and communication, other taxes, subscriptions and dues, other loan and ORE expense, postage and freight, training, business development, supplies, donations, fair value adjustments to the Visa derivative, and additional fixed asset impairment charges of $1.5 million, which were somewhat offset by additional net contingency recoveries of $2.3 million.other miscellaneous expenses. Other operating expenses in 2017 included restructuring charges of $7.0were down $4.1 million consisting primarily of severance charges for termination benefits incurred in conjunction with a voluntary early retirement program offered during the first quarter of 2017.
2017 vs. 2016
Salaries and other personnel expense increased $31.3 million, or 7.8%,2020 compared to 2016,2019 largely due primarily to talent additions, higher self-insurancedeclines in travel expense annual merit increases, a one-time $1 thousand bonus per eligible employee, and the addition of Global One.
Net occupancy and equipment expense increased $10.6$6.9 million or 9.7%, compared to 2016, as costs associated with growth in technology investments offset efficiencies gained in occupancy and related expenses.
Third-party processing expense increased $8.4 million, or 18.1%, compared to 2016 driven by an increase of $4.8 million from servicing fees associated with loan growth from Synovus' two consumer-based lending partnerships.
Advertising expense was up $2.7 million compared to 2016 as a result of continued increased brand awareness activities.
On November 9, 2017, Synovus redeemed all of the $300.0 million aggregate principal amount of its 7.875% senior notes due in 2019. 2017 results included a loss of $23.2 million related to early extinguishment of these notes.
Earnout liabilityCOVID-19. Additionally, expense associated with fair value adjustments associatedto the Visa derivative was lower with the Global One acquisition increased due$890 thousand in 2020, compared to higher earnings estimates over the contractual earnout period.
Fluctuations$3.6 million in other operating expenses in 2017 included restructuring charges of $7.0 million consisting primarily of severance charges for termination benefits incurred in conjunction with a voluntary early retirement program offered during the first quarter of 2017. Restructuring charges in 2016 totaled $8.3 million and primarily related to asset impairments from corporate real estate optimization activities and branch closures.2019. Other operating expenses in 2016for 2020 also included a $2.7 million valuation adjustment on a MPS receivable and a $2.5 million in litigation settlement expenses.charge from termination of customer swaps.
Income Taxes
Income tax expense was $118.9$111.0 million for the year ended December 31, 20182020 compared to $204.7$201.2 million and $141.7$118.9 million for the years ended December 31, 20172019 and 2016,2018, respectively. The effective income tax rate for the years ended December 31, 2020, 2019 and 2018 2017was 22.9%, 26.3% and 2016 was 21.7%, 42.6% and 36.5%, respectively. The federal statutory rate was 21% in each year. The decrease in the effective income tax rate for 2018 was primarily due to the reduction in the federal corporate income tax rate from 35%2019 to 21%.2020 was largely driven by the recognition of discrete benefits partly offset by the non-deductible impairment of goodwill. Additionally, 2017 includedthe effective tax rate in 2019 was higher largely due to non-deductible merger-related expenses associated with the FCB acquisition.
On March 27, 2020, the U.S. government enacted the CARES Act which includes various provisions impacting the calculation of income taxes. In the first quarter of 2020, Synovus recognized a discrete tax expensebenefit of $47.2$2.7 million forrelated to an NOL carryback claim as permitted by the remeasurementAct. The Company also estimates the payment of deferredapproximately $8.3 million of employer payroll taxes otherwise due in 2020 will be delayed, with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022. The Company continues evaluating the implication of the CARES Act on its operations and with the exception of these and certain state concessions, we do not expect the provisions of the CARES Act to have a significant impact on the Company’s current tax assets and liabilities resulting from Federal Tax Reform.provision.
Deferred tax assets represent amounts available to reduce income taxes payable in future years. At December 31, 2018,2020, net deferred tax assets were $141.1$130.8 million compared to $165.8$65.1 million at December 31, 2017.2019.
Synovus currently expects to realize the $141.1$130.8 million in net deferred tax assets well in advance of the statutory carryforward period. At December 31, 2018, $33.02020, $10.5 million, or 23.4%8%, of the net deferred tax asset relates to federal and state net operating lossesNOLs which have expiration dates beginning in 2023 through 2036.2034. State tax credits at December 31, 20182020 total $20.1$8.6 million and have expiration dates through the tax year 2028.2030. Additionally, $88.0$111.8 million of the net deferred tax assets have no expiration date as of December 31, 2018.2020. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1718 - Income Taxes" of this Report for additional discussion regarding deferred income taxes.
The Code contains provisions that limit the utilization of NOL carryovers if there has been an “ownership change” as defined in Section 382 of the Code. In general, this would occur if ownership of common stock held by one or more 5% shareholders increased by more than 50 percentage points over their lowest pre-change ownership within a three-year period. If Synovus experiences such an ownership change, the utilization of pre-change NOLs to reduce future state income tax obligations could be limited. To reduce the likelihood of such an ownership change, Synovus adopted a Rights Plan in 2010 that was ratified by Synovus shareholders in 2011 and has been subsequently amended and ratified by Synovus shareholders, with the current plan expiring in April 2019.
Synovus currently expects an effective income tax rate of approximately 23% to 24% for the year ending December 31, 2019. The effective income tax rate in future periods could be affected by items that are infrequent in nature such as new legislation.
Credit Quality
During 2018,Synovus continuously monitors the quality of its loan portfolio by industry, property type, geography, as well as credit quality continued to strengthen, with most keymetrics. At December 31, 2020, credit quality measures improving from 2017 levels.remained relatively stable with NPA and NPL ratios of 0.50% and 0.39%, respectively, and total past dues of 0.12%. While our entire loan portfolio is continuously assessed, enhanced monitoring continues for industries most affected by COVID-19. Elevated risk remains and is largely concentrated in hospitality-related segments including hotels and full-service restaurants.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 16 - Selected Credit Quality Metrics |
| December 31, |
| (dollars in thousands) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Non-performing loans | $ | 151,079 | | | $ | 101,636 | | | $ | 106,733 | | | $ | 115,561 | | | $ | 153,378 | |
| Impaired loans held for sale | 23,590 | | | — | | | 1,506 | | | 11,278 | | | — | |
| ORE and other assets | 17,394 | | | 35,810 | | | 6,220 | | | 3,758 | | | 22,308 | |
| Non-performing assets | $ | 192,063 | | | $ | 137,446 | | | $ | 114,459 | | | $ | 130,597 | | | $ | 175,686 | |
| Loans 90 days past due and still accruing | $ | 4,117 | | | $ | 15,943 | | | $ | 3,798 | | | $ | 4,414 | | | $ | 3,135 | |
| As a % of loans | 0.01 | % | | 0.04 | % | | 0.01 | % | | 0.02 | % | | 0.01 | % |
| Total past due loans and still accruing | $ | 47,349 | | | $ | 123,793 | | | $ | 56,927 | | | $ | 52,031 | | | $ | 65,106 | |
| As a % of loans | 0.12 | % | | 0.33 | % | | 0.22 | % | | 0.21 | % | | 0.27 | % |
Accruing TDRs(1) | $ | 134,972 | | | $ | 133,145 | | | $ | 115,588 | | | $ | 151,271 | | | $ | 195,776 | |
| Non-performing loans as a % of total loans | 0.39 | % | | 0.27 | % | | 0.41 | % | | 0.47 | % | | 0.64 | % |
| Non-performing assets as a % of total loans, impaired loans held for sale, ORE, and specific other assets | 0.50 | | | 0.37 | | | 0.44 | | | 0.53 | | | 0.74 | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Table 20 - Selected Credit Quality Metrics |
| | December 31, |
| (dollars in thousands) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Non-performing loans | $ | 106,733 |
| | $ | 115,561 |
| | $ | 153,378 |
| | $ | 168,370 |
| | $ | 197,757 |
|
| Impaired loans held for sale | 1,506 |
| | 11,278 |
| | — |
| | — |
| | 3,607 |
|
| Other real estate | 6,220 |
| | 3,758 |
| | 22,308 |
| | 47,030 |
| | 85,472 |
|
| Non-performing assets | $ | 114,459 |
| | $ | 130,597 |
| | $ | 175,686 |
| | $ | 215,400 |
| | $ | 286,836 |
|
| Loans 90 days past due and still accruing | $ | 3,798 |
| | $ | 4,414 |
| | $ | 3,135 |
| | $ | 2,621 |
| | $ | 4,637 |
|
| As a % of loans | 0.01 | % | | 0.02 | % | | 0.01 | % | | 0.01 | % | | 0.02 | % |
| Total past due loans and still accruing | $ | 56,927 |
| | $ | 52,031 |
| | $ | 65,106 |
| | $ | 47,912 |
| | $ | 51,251 |
|
| As a % of loans | 0.22 | % | | 0.21 | % | | 0.27 | % | | 0.21 | % | | 0.24 | % |
| Accruing TDRs | $ | 115,588 |
| | $ | 151,271 |
| | $ | 195,776 |
| | $ | 223,873 |
| | $ | 348,427 |
|
| Non-performing loans as a % of total loans | 0.41 | % | | 0.47 | % | | 0.64 | % | | 0.75 | % | | 0.94 | % |
| Non-performing assets as a % of total loans, other loans held for sale, and ORE | 0.44 |
| | 0.53 |
| | 0.74 |
| | 0.96 |
| | 1.35 |
|
| | | | | | | | | | |
Non-performing Assets
Total NPAs were $114.5 million at December 31, 2018, a $16.1 million, or 12.4%, decrease from $130.6$192.1 million at December 31, 2017.2020, a $54.6 million, or 40%, increase from $137.4 million at December 31, 2019. Total non-performing assetsNPAs as a percentage of total loans, other loans held for sale, ORE and specific other real estate declined 9assets increased 13 basis points to 0.44%0.50% at December 31, 20182020 compared to 0.53%0.37% at December 31, 2017.2019. The increase in NPAs compared to December 31, 2019 was mostly isolated to a few larger commercial relationships being designated as non-
performing. NPLs were $106.7$151.1 million at December 31, 2018, an $8.82020, a $49.4 million, or 7.6%49%, decreaseincrease from $115.6$101.6 million at December 31, 2017. The decline was driven by the continued resolution and disposition of problem assets as well as lower NPL inflows. 2018 NPL inflows of $101.9 million were down $21.0 million, or 17.1%, from 2017. Total non-performing loans as a percentage of total loans were 0.41% at December 31, 2018 compared to 0.47% at December 31, 2017.2019.
The following table shows the components of NPAs by portfolio class at December 31, 20182020 and 2017.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 17 - NPAs by Portfolio Class |
| December 31, |
| 2020 | | 2019 |
| (in thousands) | NPLs | | ORE and Other Assets | | Impaired Loans Held for Sale | | Total NPAs | | NPLs | | ORE and Other Assets | | Total NPAs |
| Commercial, financial, and agricultural | $ | 77,386 | | | $ | 44 | | | $ | — | | | $ | 77,430 | | | $ | 56,186 | | | $ | 5,962 | | | $ | 62,148 | |
| Owner-occupied | 20,019 | | | 739 | | | — | | | 20,758 | | | 9,780 | | | 1,934 | | | 11,714 | |
| Total commercial and industrial | 97,405 | | | 783 | | | — | | | 98,188 | | | 65,966 | | | 7,896 | | | 73,862 | |
| Investment properties | 24,631 | | | 251 | | | 23,590 | | | 48,472 | | | 2,024 | | | 2,069 | | | 4,093 | |
| 1-4 family properties | 3,619 | | | — | | | — | | | 3,619 | | | 2,253 | | | — | | | 2,253 |
| Land and development | 2,163 | | | 785 | | | | | 2,948 | | | 1,110 | | | 3,012 | | | 4,122 |
| Total commercial real estate | 30,413 | | | 1,036 | | | 23,590 | | | 55,039 | | | 5,387 | | | 5,081 | | | 10,468 |
| Consumer | 23,261 | | | — | | | — | | | 23,261 | | | 30,283 | | | 1,396 | | | 31,679 |
| Other assets | — | | | 15,575 | | | — | | | 15,575 | | | — | | | 21,437 | | | 21,437 |
| Total | $ | 151,079 | | | $ | 17,394 | | | $ | 23,590 | | | $ | 192,063 | | | $ | 101,636 | | | $ | 35,810 | | | $ | 137,446 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 21 - NPAs by Portfolio Class |
| | December 31, |
| | 2018 | | 2017 |
| (in thousands) | NPLs(1) | | Impaired Loans Held for Sale | | ORE | | Total NPAs(2) | | NPLs(1) | | Impaired Loans Held for Sale | | ORE | | Total NPAs(2) |
| Commercial, financial, and agricultural | $ | 69,295 |
| | $ | 132 |
| | $ | — |
| | $ | 69,427 |
| | $ | 70,130 |
| | $ | 3,691 |
| | $ | 908 |
| | $ | 74,729 |
|
| Owner-occupied | 8,971 |
| | — |
| | 1,681 |
| | 10,652 |
| | 6,654 |
| | 904 |
| | 284 |
| | 7,842 |
|
| Total commercial and industrial | 78,266 |
| | 132 |
| | 1,681 |
| | 80,079 |
| | 76,784 |
| | 4,595 |
| | 1,192 |
| | 82,571 |
|
| Investment properties | 2,381 |
| | — |
| | — |
| | 2,381 |
| | 3,804 |
| | 141 |
| | — |
| | 3,945 |
|
| 1-4 family properties | 2,381 |
| | 265 |
| | 35 |
| | 2,681 |
| | 2,849 |
| | 2,497 |
| | — |
| | 5,346 |
|
| Land and development | 2,953 |
| | — |
| | 122 |
| | 3,075 |
| | 5,797 |
| | 412 |
| | 1,435 |
| | 7,644 |
|
| Total commercial real estate | 7,715 |
| | 265 |
| | 157 |
| | 8,137 |
| | 12,450 |
| | 3,050 |
| | 1,435 |
| | 16,935 |
|
| Consumer | 20,752 |
| | 1,109 |
| | 4,382 |
| | 26,243 |
| | 26,327 |
| | 3,633 |
| | 1,131 |
| | 31,091 |
|
| Total | $ | 106,733 |
| | $ | 1,506 |
| | $ | 6,220 |
| | $ | 114,459 |
| | $ | 115,561 |
| | $ | 11,278 |
| | $ | 3,758 |
| | $ | 130,597 |
|
| | | | | | | | | | | | | | | | |
| |
(1)
| NPL ratio is 0.41% and 0.47% at December 31, 2018 and2017, respectively.
|
| |
(2)
| NPA ratio is 0.44% and 0.53% at December 31, 2018 and2017, respectively.
|
Asset Dispositions
During 2018, 2017 and 2016, Synovus completed sales of distressed assets (consisting primarily of NPLs and ORE) with total carrying values of $45.0 million, $64.7 million, and $54.8 million, respectively. Distressed asset sales continue to be a component of Synovus' strategy to further strengthen the balance sheet, improve asset quality, and enhance future earnings.
Troubled Debt Restructurings
At December 31, 2018, troubled debt restructurings2020, TDRs (accruing and non-accruing) were $141.8$174.0 million, a decreasean increase of $21.2$23.8 million, or 13.0%16%, compared to December 31, 2017. Non-accruing2019. Accruing TDRs of $26.2were $135.0 million at December 31, 20182020 compared to $133.1 million at December 31, 2019, an increase of $1.8 million. Non-accruing TDRs of $39.0 million at December 31, 2020 increased $14.5$22.0 million from December 31, 2017. Accruing2019. The primary driver of the increase in non-accruing TDRs were $115.6 million atcompared to December 31, 2018 compared2019 is a result of two large TDR relationships being downgraded to $151.3 million at December 31, 2017, a decrease of $35.7 million, or 23.6%, primarily due to more loans qualifying for removal of TDR designation upon subsequent renewal, refinance, or modification at market terms and pay-offs. At December 31, 2018, the allowance for loan losses allocated to these accruing TDRs declined to $6.1 million compared to $8.7 million at December 31, 2017 due to the decreased level of accruing TDRs. non-accruing.
Accruing TDRs are considered performing because they are performing in accordance with the restructured terms. At both December 31, 20182020 and 2017,2019, approximately 98% and 99%, respectively, of accruing TDRs were current.current. In addition, subsequent defaults on accruing TDRs (defaults 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 within twelve months of the TDR designation) have continued to remain at lower levels with seven defaults with a recorded investment of $21.7 million for the year ended December 31, 2020 compared to four defaults with a recorded investment of $326 thousand for the year ended December 31, 2019.
The table below shows accruing TDRs by risk grade at December 31, 20182020 and 2017.2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Table 18 - Accruing TDRs by Risk Grade |
| December 31, |
| 2020 | | 2019 |
| (dollars in thousands) | Amount | | % | | Amount | | % |
| Pass | $ | 72,463 | | | 53.7 | % | | $ | 70,574 | | | 53.0 | % |
| Special mention | 8,935 | | | 6.6 | | | 11,735 | | | 8.8 | |
| Substandard | 53,574 | | | 39.7 | | | 50,836 | | | 38.2 | |
| Total accruing TDRs | $ | 134,972 | | | 100.0 | % | | $ | 133,145 | | | 100.0 | % |
| | | | | | | |
|
| | | | | | | | | | | | | |
| Table 22 - Accruing TDRs by Risk Grade |
| | December 31, |
| | 2018 | | 2017 |
| (dollars in thousands) | Amount | | % | | Amount | | % |
| Pass | $ | 50,668 |
| | 43.9 | % | | $ | 57,136 |
| | 37.8 | % |
| Special mention | 14,480 |
| | 12.5 |
| | 15,879 |
| | 10.5 |
|
| Substandard | 50,440 |
| | 43.6 |
| | 78,256 |
| | 51.7 |
|
| Total accruing TDRs | $ | 115,588 |
| | 100.0 | % | | $ | 151,271 |
| | 100.0 | % |
| | | | | | | | |
The following table shows TDRs by portfolio class at December 31, 20182020 and 2017.2019.
| | | | | | | | | | | |
| Table 19 - TDRs by Portfolio Class | | | |
| December 31, |
| (in thousands) | 2020 | | 2019 |
| Commercial, financial and agricultural | $ | 46,792 | | | $ | 43,164 | |
| Owner-occupied | 44,185 | | | 49,221 | |
| Total commercial and industrial | 90,977 | | | 92,385 | |
| Investment properties | 38,212 | | | 9,753 | |
| 1-4 family properties | 4,184 | | | 4,755 | |
| Land and development | 4,852 | | | 10,418 | |
| Total commercial real estate | 47,248 | | | 24,926 | |
| Consumer mortgages | 19,757 | | | 19,017 | |
| Home equity lines | 8,386 | | | 7,038 | |
| Other consumer loans | 7,639 | | | 6,864 | |
| Total consumer | 35,782 | | | 32,919 | |
| Total TDRs | $ | 174,007 | | | $ | 150,230 | |
| | | |
|
| | | | | | | |
| Table 23 - TDRs by Portfolio Class | | | |
| | December 31, |
| (in thousands) | 2018 | | 2017 |
| Commercial, financial and agricultural | $ | 34,013 |
| | $ | 44,418 |
|
| Owner-occupied | 46,138 |
| | 35,554 |
|
| Total commercial and industrial | 80,151 |
| | 79,972 |
|
| Investment properties | 13,858 |
| | 21,398 |
|
| 1-4 family properties | 5,964 |
| | 15,056 |
|
| Land and development | 12,600 |
| | 15,728 |
|
| Total commercial real estate | 32,422 |
| | 52,182 |
|
| Consumer mortgages | 19,134 |
| | 19,818 |
|
| Home equity lines | 2,063 |
| | 5,407 |
|
| Other consumer loans | 8,060 |
| | 5,656 |
|
| Total consumer | 29,257 |
| | 30,881 |
|
| Total TDRs | $ | 141,830 |
| | $ | 163,035 |
|
| | | | |
Regulatory agencies have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of COVID-19. In the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), for example, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and their unwillingness to criticize institutions for working with borrowers in a safe and sound manner. Moreover, the Interagency Statement provided that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. On December 27, 2020, the Consolidated Appropriations Act, 2021, extended the applicable period of Section 4013 of the CARES Act. This allows banks to elect to not consider loan modifications related to COVID-19 that are made between March 1, 2020 and the earlier of January 1, 2022, or 60 days after the national emergency ends to borrowers that are current (i.e. less than 30 days past due as of December 31, 2019) as TDRs. The regulatory agencies further stated that performing loans granted payment deferrals due to COVID-19 are not considered past due or non-accrual. FASB confirmed the foregoing regulatory agencies' view, that such short-term modifications (e.g., six months) made on a good-faith basis in response to COVID-19 for borrowers who are current are not TDRs.
Beginning in late March 2020, Synovus provided relief programs consisting primarily of 90-day payment deferral relief to borrowers negatively impacted by COVID-19 and has primarily accounted for these loan modifications in accordance with ASC 310-40. During the third and fourth quarters of 2020, upon evaluation of facts and circumstances, the CARES Act was elected for certain loan modifications that met the criteria of Section 4013 of the CARES Act. The deferred payments along with interest accrued during the deferral period are generally due and payable on the maturity date of the existing loan. Based on the terms of the deferral relief program, which did not provide for forgiveness of interest, Synovus recognized interest income on loans during the deferral period. As of December 31, 2020, 0.3% of the total loan portfolio was in a P&I deferral status, down significantly from approximately 15% of the total loan portfolio that had been granted P&I deferral through our relief programs as of the filing of our first quarter 2020 10-Q. In addition to our P&I deferment program, under the CARES Act, we have also provided borrowers who have been impacted during the current crisis with other modifications such as interest only relief or amortization extensions on approximately 2% of total loans.
Past Due Loans
Past due loans have remained at low levels. As a percentage of total loans outstanding, loans 30 or more days past due and still accruing interest were 0.22%0.12% and 0.21%0.33% at December 31, 20182020 and 2017,2019, respectively.As a percentage of total loans outstanding, loans 90 days past due and still accruing interest were 0.01% and 0.02%0.04% at December 31, 20182020 and December 31, 2017,2019, respectively. These loans are in the process of collection, and management believes that sufficient collateral value securing these loans exists to cover contractual interest and principal payments.
Criticized and Classified Loans
Our loan ratings are aligned to federal banking regulators' definitions of pass and criticized categories, which include special mention, substandard, doubtful, and loss. Substandard accruing and non-accruing loans, doubtful, and loss loans are often collectively referred to as classified. Special mention, substandard, doubtful, and loss loans are often collectively referred to as criticized and classified loans. The following table presents a summary of criticized and classified loans. The increase in criticized and classified loans at December 31, 2020 compared to December 31, 2019 was primarily due to increases in special mention and substandard accruing loans in the hotel industry as a result of COVID-19.
| | | | | | | | | | | |
| Table 20 - Criticized and Classified Loans | December 31, |
| (dollars in thousands) | 2020 | | 2019 |
| Special mention loans | $ | 977,028 | | | $ | 225,218 | |
| Substandard loans | 553,720 | | | 385,862 | |
| Doubtful loans | 33,204 | | | 1,281 | |
| Loss loans | 3,032 | | | 3,270 | |
| Criticized and Classified loans | $ | 1,566,984 | | | $ | 615,631 | |
| As a % of total loans | 4.1 | % | | 1.7 | % |
| | | |
Potential Problem Loans
Management continuously monitors non-performing and past due loans to mitigate further deterioration regarding the condition of these loans. Potential problem loans are defined by management as certain performing loans with a well-defined weakness where there is information about possible credit problems of borrowers which causes management to have doubts as to the ability of such borrowers to comply with the present repayment terms of such loans. Potential problem commercial loans were $374.2 million and $222.3 million at December 31, 2020 and 2019, respectively, and consist of substandard accruing loans (included in criticized and classified loans) but exclude both loans 90 days past due and still accruing interest and substandard accruing troubled debt restructurings,TDRs, which are reported separately. Management’s decision to include performing loans in the category of potential problem loans indicates that management has recognized a higher degree of risk associated with these loans. In addition to accruing loans 90 days past due and accruing restructured loans, Synovus had $114.5 million of potential problem commercial loans at December 31, 2018 compared to $103.3 million at December 31, 2017. Management’s current expectation of probable losses from potential problem loans is included in the allowance for loan losses,ACL, and management cannot predict at this time whether these potential problem loans ultimately will become non-performing loansNPLs or result in losses.
For more information, see the loan portfolio class by risk grade tables and additional information in "Part II - Item 8. Financial Statements and Supplementary Data - Note 5 - Loans and Allowance for Loan Losses" in this Report.
Net Charge-offs
Total 20182020 net charge-offs of $50.4were $94.7 million, or 0.20%0.24%, of average loans, decreased $19.3compared to total net charge-offs of $57.6 million, or 27.6%, compared to 2017. Total 2017 net charge-offs at $69.7 million, or 0.29%0.16% of average loans increased $40.9 million compared to $28.7 million, or 0.12% of average loans, for 2016. Total 2017 net charge-offs were elevated primarily due to $34.2 million in net charge-offs recorded during the third quarter of 2017 in conjunction with certain balance sheet restructuring actions which also included the transfer of $77.8 million in loans (consisting primarily of non-performing loans) to held-for-sale.2019.
The following table shows net charge-offs (recoveries) by portfolio class for the years ended December 31, 2018, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | | | |
| Table 24 - Net Charge-offs (Recoveries) by Portfolio Class |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| (dollars in thousands) | Amount | | %(1) | | Amount | | %(1) | | Amount | | %(1) |
| Commercial, financial and agricultural | $ | 39,246 |
| | 0.54 | % | | $ | 25,427 |
| | 0.36 | % | | $ | 12,255 |
| | 0.18 | % |
| Owner-occupied | 2,364 |
| | 0.05 |
| | 17,132 |
| | 0.36 |
| | 3,713 |
| | 0.08 |
|
| Total commercial and industrial | 41,610 |
| | 0.34 |
| | 42,559 |
| | 0.36 |
| | 15,968 |
| | 0.14 |
|
| Investment properties | 1,301 |
| | 0.02 |
| | 658 |
| | 0.01 |
| | 5,711 |
| | 0.10 |
|
| 1-4 family properties | (1,785 | ) | | (0.24 | ) | | 2,678 |
| | 0.32 |
| | (1,842 | ) | | (0.19 | ) |
| Land and development | (5,296 | ) | | (1.32 | ) | | 831 |
| | 0.15 |
| | (879 | ) | | (0.13 | ) |
| Total commercial real estate | (5,780 | ) | | (0.09 | ) | | 4,167 |
| | 0.06 |
| | 2,990 |
| | 0.04 |
|
| Consumer mortgages | 390 |
| | 0.01 |
| | 8,385 |
| | 0.34 |
| | 1,425 |
| | 0.07 |
|
| Home equity lines | 1,795 |
| | 0.12 |
| | 4,328 |
| | 0.28 |
| | 1,462 |
| | 0.09 |
|
| Credit cards | 4,831 |
| | 2.02 |
| | 4,931 |
| | 2.17 |
| | 4,500 |
| | 1.92 |
|
| Other consumer loans | 7,564 |
| | 0.44 |
| | 5,305 |
| | 0.49 |
| | 2,393 |
| | 0.39 |
|
| Total consumer | 14,580 |
| | 0.24 |
| | 22,949 |
| | 0.43 |
| | 9,780 |
| | 0.21 |
|
| Total net charge-offs | $ | 50,410 |
| | 0.20 | % | | $ | 69,675 |
| | 0.29 | % | | $ | 28,738 |
| | 0.12 | % |
| | | | | | | | | | | | |
| |
(1)
| Net charge-off ratio as a percentage of average loans. |
Provision for LoanCredit Losses and Allowance for LoanCredit Losses (ACL)
Provision for credit losses (which includes the provisions for loan losses and unfunded commitments) of $355.0 million for the year ended December 31, 2020 reflected the building of the ACL required under CECL primarily as a result of uncertainty and deterioration in the economic environment due to the impact of COVID-19. The provision for loan losses was $87.7 million for the year ended December 31, 2019. The ACL at December 31, 2020 totaled $653.5 million consisting of an ALL of $605.7 million and a reserve for unfunded commitments of $47.8 million, resulting in an ACL to loans coverage ratio of 1.71% and an ACL to NPLs ratio of 433%. Excluding PPP loans, the ACL to loan coverage ratio was 1.81%. 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.
The ACL at December 31, 2020 utilized a two-year reasonable and supportable period and comprised a multi-scenario framework including a base economic outlook which incorporates the most recently enacted stimulus with modest economic growth and improvement in the unemployment rate throughout 2021 and 2022. The ALL at December 31, 2019 was $281.4 million, or 0.76% of total loans, applying the incurred loss impairment guidance.
See "Part II - Item 8. Financial Statements and Supplementary Data - Note 41 - Summary of Significant Accounting Policies" and "Part II - Item 8. Financial Statements and Supplementary Data - Note 5 - Loans and Allowance for Loan Losses" and "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" of in this Report for furthermore information.
Provision for loan losses for the years ended December 31, 2018, 2017, and 2016 was $51.7 million, $67.2 million, and $28.0 million, respectively. The provision for loan losses for the year ended December 31, 2017 was elevated primarily due to Synovus' completion of certain balance sheet restructuring actions in the third quarter of 2017 in conjunction with transferring $77.8 million in loans (consisting primarily of non-performing loans) to held-for-sale. This action resulted in provision expense of $27.7 million due to the actual or planned sale of such loans in an accelerated timeline.
The allowance for loan losses at December 31, 2018 was $250.6 million, or 0.97% of total loans, compared to $249.3 million, or 1.01% of total loans, at December 31, 2017.
A summary by loan category of loans charged off, recoveries of loans previously charged off, and additions to the allowance through provision for loan losses for the years ended December 31, 2020, 2019, 2018, 2017, and 2017, 2016 2015, and 2014 is presented in the following table:
| | | Table 25 - Allowance for Loan Losses – Summary of Activity by Loan Category | |
| Table 21 - Allowance for Loan Losses – Summary of Activity by Loan Category | | Table 21 - Allowance for Loan Losses – Summary of Activity by Loan Category |
| | Years Ended December 31, | | Years Ended December 31, |
| (dollars in thousands) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | (dollars in thousands) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Allowance for loan losses at beginning of year | $ | 249,268 |
| | $ | 251,758 |
| | $ | 252,496 |
| | $ | 261,317 |
| | $ | 307,560 |
| Allowance for loan losses at beginning of year | $ | 281,402 | | | $ | 250,555 | | | $ | 249,268 | | | $ | 251,758 | | | $ | 252,496 | |
| Allowance for loan losses of sold Memphis loans | — |
| | — |
| | — |
| | — |
| | (1,019 | ) | |
| Impact from adoption of ASU 2016-13 | | Impact from adoption of ASU 2016-13 | 82,994 | | | — | | | — | | | — | | | — | |
| Loans charged off | | | | | | | | | | Loans charged off | |
| Commercial: | | | | | | | | | | Commercial: | |
| Commercial, financial, and agricultural | 45,831 |
| | 31,154 |
| | 20,058 |
| | 16,589 |
| | 30,024 |
| Commercial, financial, and agricultural | 73,513 | | | 44,035 | | | 45,831 | | | 31,154 | | | 20,058 | |
| Owner-occupied | 2,944 |
| | 18,090 |
| | 4,981 |
| | 5,994 |
| | 8,917 |
| Owner-occupied | 2,747 | | | 5,538 | | | 2,944 | | | 18,090 | | | 4,981 | |
| Real estate — construction | 2,341 |
| | 5,294 |
| | 6,815 |
| | 9,019 |
| | 31,753 |
| Real estate — construction | 3,900 | | | 769 | | | 2,341 | | | 5,294 | | | 6,815 | |
| Real estate — mortgage | 2,067 |
| | 6,899 |
| | 11,401 |
| | 4,979 |
| | 17,963 |
| Real estate — mortgage | 9,313 | | | 4,770 | | | 2,067 | | | 6,899 | | | 11,401 | |
| Total commercial | 53,183 |
| | 61,437 |
| | 43,255 |
| | 36,581 |
| | 88,657 |
| Total commercial | 89,473 | | | 55,112 | | | 53,183 | | | 61,437 | | | 43,255 | |
| Consumer: | | | | | | | | | | Consumer: | | | | | | | | | |
| Real estate — mortgage | 6,165 |
| | 16,901 |
| | 6,071 |
| | 13,020 |
| | 15,636 |
| Real estate — mortgage | 7,795 | | | 3,885 | | | 6,165 | | | 16,901 | | | 6,071 | |
| Consumer loans — credit cards | 5,462 |
| | 5,755 |
| | 5,376 |
| | 5,382 |
| | 6,114 |
| Consumer loans — credit cards | 8,952 | | | 8,721 | | | 5,462 | | | 5,755 | | | 5,376 | |
| Consumer loans — other | 9,244 |
| | 6,326 |
| | 3,258 |
| | 2,356 |
| | 3,131 |
| Consumer loans — other | 13,042 | | | 11,417 | | | 9,244 | | | 6,326 | | | 3,258 | |
| Total consumer | 20,871 |
| | 28,982 |
| | 14,705 |
| | 20,758 |
| | 24,881 |
| Total consumer | 29,789 | | | 24,023 | | | 20,871 | | | 28,982 | | | 14,705 | |
| Total loans charged off | 74,054 |
| | 90,419 |
| | 57,960 |
| | 57,339 |
| | 113,538 |
| Total loans charged off | 119,262 | | | 79,135 | | | 74,054 | | | 90,419 | | | 57,960 | |
| Recoveries of loans previously charged off | | | | | | | | | | Recoveries of loans previously charged off | | | | | | | |
| Commercial: | | | | | | | | | | Commercial: | |
| Commercial, financial, and agricultural | 6,585 |
| | 5,727 |
| | 7,803 |
| | 8,125 |
| | 13,287 |
| Commercial, financial, and agricultural | 13,167 | | | 7,317 | | | 6,585 | | | 5,727 | | | 7,803 | |
| Owner-occupied | 580 |
| | 958 |
| | 1,268 |
| | 486 |
| | 1,341 |
| Owner-occupied | 377 | | | 510 | | | 580 | | | 958 | | | 1,268 | |
| Real estate — construction | 7,351 |
| | 4,173 |
| | 7,846 |
| | 8,202 |
| | 8,714 |
| Real estate — construction | 1,278 | | | 5,245 | | | 7,351 | | | 4,173 | | | 7,846 | |
| Real estate — mortgage | 2,837 |
| | 3,853 |
| | 7,380 |
| | 5,442 |
| | 3,073 |
| Real estate — mortgage | 1,579 | | | 3,373 | | | 2,837 | | | 3,853 | | | 7,380 | |
| Total commercial | 17,353 |
| | 14,711 |
| | 24,297 |
| | 22,255 |
| | 26,415 |
| Total commercial | 16,401 | | | 16,445 | | | 17,353 | | | 14,711 | | | 24,297 | |
| Consumer: | | | | | | | | | | Consumer: | | | | | | | | | |
| Real estate — mortgage | 3,980 |
| | 4,188 |
| | 3,184 |
| | 4,518 |
| | 5,832 |
| Real estate — mortgage | 3,896 | | | 2,273 | | | 3,980 | | | 4,188 | | | 3,184 | |
| Consumer loans — credit cards | 631 |
| | 824 |
| | 876 |
| | 1,391 |
| | 1,583 |
| Consumer loans — credit cards | 1,081 | | | 995 | | | 631 | | | 824 | | | 876 | |
| Consumer loans — other | 1,680 |
| | 1,021 |
| | 865 |
| | 1,344 |
| | 653 |
| Consumer loans — other | 3,172 | | | 1,810 | | | 1,680 | | | 1,021 | | | 865 | |
| Total consumer | 6,291 |
| | 6,033 |
| | 4,925 |
| | 7,253 |
| | 8,068 |
| Total consumer | 8,149 | | | 5,078 | | | 6,291 | | | 6,033 | | | 4,925 | |
| Recoveries of loans previously charged off | 23,644 |
| | 20,744 |
| | 29,222 |
| | 29,508 |
| | 34,483 |
| Recoveries of loans previously charged off | 24,550 | | | 21,523 | | | 23,644 | | | 20,744 | | | 29,222 | |
| Net loans charged off | 50,410 |
| | 69,675 |
| | 28,738 |
| | 27,831 |
| | 79,055 |
| Net loans charged off | 94,712 | | | 57,612 | | | 50,410 | | | 69,675 | | | 28,738 | |
| Provision for loan losses | 51,697 |
| | 67,185 |
| | 28,000 |
| | 19,010 |
| | 33,831 |
| Provision for loan losses | 336,052 | | | 87,720 | | | 51,697 | | | 67,185 | | | 28,000 | |
| Transfer of unfunded commitment reserve to allowance for loan losses | | Transfer of unfunded commitment reserve to allowance for loan losses | — | | | 739 | | | — | | | — | | | — | |
| Allowance for loan losses at end of year | $ | 250,555 |
| | $ | 249,268 |
| | $ | 251,758 |
| | $ | 252,496 |
| | $ | 261,317 |
| Allowance for loan losses at end of year | $ | 605,736 | | | $ | 281,402 | | | $ | 250,555 | | | $ | 249,268 | | | $ | 251,758 | |
| Ratios: | | | | | | | | | | Ratios: | |
| Allowance for loan losses to loans, net of deferred fees and costs | 0.97 | % | | 1.01 | % | | 1.06 | % | | 1.13 | % | | 1.24 | % | Allowance for loan losses to loans, net of deferred fees and costs | 1.58 | % | | 0.76 | % | | 0.97 | % | | 1.01 | % | | 1.06 | % |
| Net charge-offs as a percentage of average loans net of deferred fees and costs | 0.20 | % | | 0.29 | % | | 0.12 | % | | 0.13 | % | | 0.39 | % | Net charge-offs as a percentage of average loans net of deferred fees and costs | 0.24 | % | | 0.16 | % | | 0.20 | % | | 0.29 | % | | 0.12 | % |
| Allowance to non-performing loans excluding collateral-dependent impaired loans with no related allowance | 297.68 | % | | 238.44 | % | | 202.01 | % | | 189.47 | % | | 197.22 | % | |
| | | | | | | | | | | | | | | | | | | | |
The following table shows the allocation of the allowance for loan losses by loan category at December 31, 2020, 2019, 2018, 2017, 2016, 2015, and 2014.2016.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 22 - Allocation of Allowance for Loan Losses |
| December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (dollars in thousands) | Amount | | %(1) | | Amount | | %(1) | | Amount | | %(1) | | Amount | | %(1) | | Amount | | %(1) |
| Commercial | | | | | | | | | | | | | | | | | | | |
| Commercial, financial, and agricultural | $ | 166,538 | | | 32.9 | % | | $ | 102,612 | | | 27.6 | % | | $ | 92,608 | | | 28.7 | % | | $ | 87,781 | | | 29.0 | % | | $ | 88,208 | | | 29.0 | % |
| Owner-occupied | 63,017 | | | 17.8 | | | 43,170 | | | 17.6 | | | 40,515 | | | 20.5 | | | 39,022 | | | 19.5 | | | 37,570 | | | 19.4 | |
| Real estate - construction | 64,872 | | | 6.0 | | | 29,286 | | | 7.2 | | | 24,278 | | | 5.5 | | | 27,518 | | | 6.5 | | | 33,827 | | | 7.1 | |
| Real estate - mortgage | 65,870 | | | 21.5 | | | 38,144 | | | 21.0 | | | 44,518 | | | 19.8 | | | 47,479 | | | 21.5 | | | 47,989 | | | 23.7 | |
| Total commercial | 360,297 | | | 78.2 | | | 213,212 | | | 73.4 | | | 201,919 | | | 74.5 | | | 201,800 | | | 76.5 | | | 207,594 | | | 79.2 | |
| | | | | | | | | | | | | | | | | | | |
| Consumer | | | | | | | | | | | | | | | | | | | |
| Real estate - mortgage | 179,167 | | | 18.3 | | | 32,528 | | | 19.5 | | | 24,752 | | | 17.1 | | | 24,771 | | | 16.7 | | | 28,381 | | | 16.4 | |
| Consumer loans - credit cards | 32,391 | | | 0.7 | | | 16,246 | | | 0.7 | | | 12,613 | | | 1.0 | | | 10,378 | | | 0.9 | | | 8,936 | | | 1.0 | |
| Consumer loans - other | 33,881 | | | 2.8 | | | 19,416 | | | 6.4 | | | 11,271 | | | 7.4 | | | 12,319 | | | 5.9 | | | 6,847 | | | 3.4 | |
| Total consumer | 245,439 | | | 21.8 | | | 68,190 | | | 26.6 | | | 48,636 | | | 25.5 | | | 47,468 | | | 23.5 | | | 44,164 | | | 20.8 | |
| Total allowance for loan losses | $ | 605,736 | | | 100.0 | % | | $ | 281,402 | | | 100.0 | % | | $ | 250,555 | | | 100.0 | % | | $ | 249,268 | | | 100.0 | % | | $ | 251,758 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | |
(1) Loan balance in each category expressed as a percentage of total loans, net of deferred fees and costs. See Table 8 - Composition of Loan Portfolio in this Report for calculation.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 26 - Allocation of Allowance for Loan Losses |
| | December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| (dollars in thousands) | Amount | | %(1) | | Amount | | %(1) | | Amount | | %(1) | | Amount | | %(1) | | Amount | | %(1) |
| Commercial | | | | | | | | | | | | | | | | | | | |
| Commercial, financial, and agricultural | $ | 92,608 |
| | 28.7 | % | | $ | 87,781 |
| | 29.0 | % | | $ | 88,208 |
| | 29.0 | % | | $ | 83,859 |
| | 28.8 | % | | $ | 76,981 |
| | 29.3 | % |
| Owner-occupied | 40,515 |
| | 20.5 |
| | 39,022 |
| | 19.5 |
| | 37,570 |
| | 19.4 |
| | 39,130 |
| | 19.2 |
| | 41,129 |
| | 19.4 |
|
| Real estate — construction | 24,278 |
| | 5.5 |
| | 27,518 |
| | 6.5 |
| | 33,827 |
| | 7.1 |
| | 38,354 |
| | 9.7 |
| | 48,742 |
| | 8.1 |
|
| Real estate — mortgage | 44,518 |
| | 19.8 |
| | 47,479 |
| | 21.5 |
| | 47,989 |
| | 23.7 |
| | 48,779 |
| | 23.2 |
| | 52,729 |
| | 24.7 |
|
| Total commercial | 201,919 |
| | 74.5 |
| | 201,800 |
| | 76.5 |
| | 207,594 |
| | 79.2 |
| | 210,122 |
| | 80.9 |
| | 219,581 |
| | 81.5 |
|
| | | | | | | | | | | | | | | | | | | | |
| Consumer | | | | | | | | | | | | | | | | | | | |
| Real estate — mortgage | 24,752 |
| | 17.1 |
| | 24,771 |
| | 16.7 |
| | 28,381 |
| | 16.4 |
| | 29,579 |
| | 16.1 |
| | 29,887 |
| | 15.9 |
|
| Consumer loans — credit cards | 12,613 |
| | 1.0 |
| | 10,378 |
| | 0.9 |
| | 8,936 |
| | 1.0 |
| | 8,604 |
| | 1.1 |
| | 9,853 |
| | 1.2 |
|
| Consumer loans — other | 11,271 |
| | 7.4 |
| | 12,319 |
| | 5.9 |
| | 6,847 |
| | 3.4 |
| | 4,191 |
| | 1.9 |
| | 1,996 |
| | 1.4 |
|
| Total consumer | 48,636 |
| | 25.5 |
| | 47,468 |
| | 23.5 |
| | 44,164 |
| | 20.8 |
| | 42,374 |
| | 19.1 |
| | 41,736 |
| | 18.5 |
|
| Total allowance for loan losses | $ | 250,555 |
| | 100.0 | % | | $ | 249,268 |
| | 100.0 | % | | $ | 251,758 |
| | 100.0 | % | | $ | 252,496 |
| | 100.0 | % | | $ | 261,317 |
| | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
| Loan balance in each category expressed as a percentage of total loans, net of deferred fees and costs. See Table 12 - Composition of Loan Portfolio for calculation. |
Capital Resources
Synovus and Synovus Bank are required to comply with capital adequacy standards established by theirour primary federal regulator, the Federal Reserve. Synovus and Synovus Bank measure capital adequacy using the standardized approach to theunder Basel III Final Rule.III. At December 31, 2018,2020, Synovus and Synovus Bank's capital levels remained strong and exceeded well-capitalized requirements currently in effect. The following table presents certain ratios used to measure Synovus and Synovus Bank's capitalization.
| | | | | | | | | | | |
| Table 23 - Capital Ratios | | | |
| (dollars in thousands) | December 31, 2020 | | December 31, 2019 |
| CET1 capital | | | |
| Synovus Financial Corp. | $ | 4,034,865 | | | $ | 3,743,459 | |
| Synovus Bank | 4,641,711 | | | 4,640,501 | |
| Tier 1 risk-based capital | | | |
| Synovus Financial Corp. | 4,572,010 | | | 4,280,604 | |
| Synovus Bank | 4,641,711 | | | 4,640,501 | |
| Total risk-based capital | | | |
| Synovus Financial Corp. | 5,604,230 | | | 5,123,381 | |
| Synovus Bank | 5,361,611 | | | 4,923,279 | |
| CET1 capital ratio | | | |
| Synovus Financial Corp. | 9.66 | % | | 8.95 | % |
| Synovus Bank | 11.11 | | | 11.10 | |
| Tier 1 risk-based capital ratio | | | |
| Synovus Financial Corp. | 10.95 | | | 10.23 | |
| Synovus Bank | 11.11 | | | 11.10 | |
| Total risk-based capital to risk-weighted assets ratio | | | |
| Synovus Financial Corp. | 13.42 | | | 12.25 | |
| Synovus Bank | 12.83 | | | 11.78 | |
| Leverage ratio | | | |
| Synovus Financial Corp. | 8.50 | | | 9.16 | |
| Synovus Bank | 8.73 | | | 9.94 | |
Tangible common equity to tangible assets ratio(1) | | | |
| Synovus Financial Corp. | 7.66 | | | 8.08 | |
| | | |
|
| | | | | | | |
| Table 27 – Capital Ratios | | | |
| (dollars in thousands) | December 31, 2018 | | December 31, 2017 |
| CET1 capital (transitional) | | | |
| Synovus Financial Corp. | $ | 2,897,997 |
| | $ | 2,763,168 |
|
| Synovus Bank | 3,382,497 |
| | 3,155,163 |
|
| Tier 1 risk-based capital | | | |
| Synovus Financial Corp. | 3,090,416 |
| | 2,872,001 |
|
| Synovus Bank | 3,382,497 |
| | 3,155,163 |
|
| Total risk-based capital | | | |
| Synovus Financial Corp. | 3,601,376 |
| | 3,383,081 |
|
| Synovus Bank | 3,633,457 |
| | 3,406,243 |
|
| CET1 capital ratio (transitional) | | | |
| Synovus Financial Corp. | 9.95 | % | | 9.99 | % |
| Synovus Bank | 11.62 |
| | 11.43 |
|
| Tier 1 risk-based capital ratio | | | |
| Synovus Financial Corp. | 10.61 |
| | 10.38 |
|
| Synovus Bank | 11.62 |
| | 11.43 |
|
| Total risk-based capital to risk-weighted assets ratio | | | |
| Synovus Financial Corp. | 12.37 |
| | 12.23 |
|
| Synovus Bank | 12.49 |
| | 12.33 |
|
| Leverage ratio | | | |
| Synovus Financial Corp. | 9.60 |
| | 9.19 |
|
| Synovus Bank | 10.51 |
| | 10.12 |
|
Tangible common equity to tangible assets ratio(1) | | | |
| Synovus Financial Corp. | 8.81 |
| | 8.88 |
|
| | | | |
| |
(1)
| See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -Non-GAAP Financial Measures" of this Report for applicable reconciliation to GAAP measure. |
The Basel III capital rules became effective January 1, 2015, for Synovus and Synovus Bank, subject to a transition period for several aspects, including the capital conservation buffer. For additional information on regulatory capital requirements, see "Part II - Item 8. Financial Statements and Supplementary Data - Note 11 - Regulatory Capital" in this Report.
At December 31, 2018, Synovus' CET1 ratio was 9.95% under the Basel III transitional provisions, and the estimated fully phased-in CET1 ratio was 9.92%, both of which are well in excess of regulatory requirements including the capital conservation buffer. (1) See "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" inof this Report for applicable reconciliation to the most comparable GAAP measure.
At December 31, 2020, Synovus' CET1 ratio increased to 9.66%, well in excess of regulatory requirements including the capital conservation buffer of 2.5%. The December 31, 2020 CET1 ratio improved 71 basis points compared to December 31, 2019 driven by a combination of earnings and balance sheet activities. Synovus' total risk-based capital ratio increased by 117 basis points to 13.42% compared to December 31, 2019 including the impact of subordinated debt optimization during the fourth quarter of 2020 with the issuance of $200.0 million by Synovus Bank and redemption of $250.0 million by Synovus. For more information on regulatory capital requirements, see "Part II - Item 8. Financial Statements and Supplementary Data - Note 12 - Regulatory Capital" in this Report. Management currentlyreviews the Company's capital position on an on-going basis and believes, based on internal capital analyses and earnings projections, that Synovus' capital positionSynovus is adequatewell positioned to meet current and futurerelevant regulatory minimum capital requirements inclusive of the capital conservation buffer.standards.
In December 2018,On August 26, 2020, the federal banking regulators adopted asissued a final the transitional arrangements to permitrule (following an interim final rule issued on March 27, 2020) that allowed electing banking organizations that adopted CECL during 2020 to phase-inmitigate the day-one impactestimated effects of the adoption of ASU 2016-13, referred to as the current expected credit loss model,CECL on regulatory capital overfor two years, followed by a periodthree-year phase-in transition period. Synovus adopted CECL on January 1, 2020 and the December 31, 2020 regulatory capital ratios reflect Synovus' election of three years.the five-year transition provision. At December 31, 2020, $90.0 million, or a cumulative 22 basis points benefit to CET1, was deferred. For additional information on ASU 2016-13,CECL, see "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" in this Report.
On June 21, 2018, Synovus completedAs a public offering of $200 million of Series D Preferred Stock. The offering generated net proceeds of $195.1 million, which were largely used to fund the redemption of allresult of the outstanding shares of Series C Preferred Stock on August 1, 2018 for an aggregate redemption price of $130 million.
During both 2018 and 2017,greater economic uncertainty associated with the COVID-19 pandemic, Synovus repurchased $175.0suspended its share repurchase activity beyond the $16.2 million of common stock andrepurchased during 2016, the first quarter of 2020. During 2019,
Synovus repurchased $262.9$725.0 million of common stock.
During the fourth quarter of 2018, the Board of Directors authorized a new share repurchase program of up to $400 million, of which $300-$325 million is currently expected to be repurchased during 2019. Additionally, the Board of Directors approved a 20% increase in the quarterly common stock dividend to $0.30 per share, effective with the quarterly dividend payable in April 2019. Under the new share repurchase program, Synovus has repurchased $252.0 million, or 6.8 million shares, of common stock as of February 26, 2019.
Parent Company
The Parent Company’s net assets consist primarily of its investment in Synovus Bank. The ParentParent Company’s primary uses of cash are for the servicing of debt, payment of dividends to shareholders, and repurchases of common stock. The Parent Company also provides the necessary funds to strengthen the capital of its subsidiaries if needed. These uses of cash are primarily funded by dividends from Synovus Bank, borrowings from external sources, and equity offerings.
During 2020, Synovus Bank and non-bank subsidiaries paid upstream cash dividends to the Parent Company totaling $547.5 million. During 2019, Synovus Bank paid upstream cash dividends to the Parent Company totaling $400.0 million and during 2018, Synovus Bank and non-bank subsidiaries made upstream cash distributions to the Parent Company totaling $260.0 million including cash dividends of $250.0 million. During 2017, Synovus Bank and non-bank subsidiaries made upstream cash distributions to the Parent Company totaling $451.0 million including cash dividends of $283.2 million. During 2016, Synovus Bank paid upstream cash dividends of $325.0 million to the Parent Company.
Liquidity
Liquidity represents the extent to which Synovus has readily available sources of funding needed to meet the needs of depositors, borrowers and creditors, to support asset growth, and to otherwise sustain operations of Synovus and its subsidiaries, at a reasonable cost, on a timely basis, and without adverse consequences. ALCO monitors Synovus' economic, competitive, and regulatory environment and is responsible for measuring, monitoring, and reporting on liquidity and funding risk interest rate risk,as well as market risk.
In accordance with Synovus policies and market risk and has the authority to establish policies relative to these risks.regulatory guidance, ALCO operating under liquidity and funding policies approved by the Board of Directors, actively analyzesevaluates contractual and anticipated cash flows in order to properly manage Synovus’ liquidity position.
Contractual and anticipated cash flows are analyzed under normal and stressed conditions to determine forward lookingproperly manage the Company's liquidity needs and sources.profile. Synovus analyzes liquidity needs under various scenarios of market conditions and operating performance. This analysis includes stress testing and measures expected sources and uses of funds under each scenario. Emphasis is placedplaces an emphasis on maintaining numerous sources of current and potentialcontingent liquidity to allow Synovus to meet its obligations to depositors, borrowers, and creditors on a timely basis.
Liquidity is generated primarily through various sources, including, but not limited to, maturities and repayments of loans by customers, maturities and sales of investment securities, depositand growth and access to sources of funds other thanin core or wholesale deposits. Management continuously monitors and maintains appropriate levels of liquidity so as to provide adequate funding sources to manage customer deposit withdrawals, loan requests, and other funding maturities. Liquidity is also enhanced by the acquisition of new deposits. Each of the local markets monitors deposit flows and evaluates local market conditions in an effort to retain and grow deposits.demands.
Synovus Bank also generates liquidity through the issuance of brokered certificates of deposit and money market accounts. Synovus Bank accesses these funds from a broad geographic base to diversify its sources of funding and liquidity. On September 25, 2017, Synovus Bank completed the Cabela's Transaction and thereby retained WFB's $1.10 billion brokered time deposit portfolio with a weighted average remaining maturity of 2.53 years and a weighted average rate of 1.83 percent (the balance of these deposits at December 31, 2018 was $707.2 million). Synovus Bankalso has the capacity to access funding through its membership in the FHLB system.system and through the Federal Reserve discount window. During 2020, Synovus increased its FHLB availability by over $2.0 billion through expanding pledged collateral. At December 31, 2018,2020, based on currently pledged collateral, Synovus Bank had access to incrementalFHLB funding of $728.4 million,$6.48 billion, subject to FHLB credit policies, through utilization of FHLB advances.policies.
In addition to bank level liquidity management, Synovus must manage liquidity at the parent company level for various operating needs including the servicing of debt, the payment of dividends on our common stock and preferred stock, share repurchases, payment of general corporate expenses, and potential capital infusions into subsidiaries. The primary source of liquidity for Synovus consists of dividends from Synovus Bank, which is governed by certain rules and regulations of the GA DBF and the Federal Reserve Bank. Synovus' ability to receive dividends from Synovus Bank in future periods will depend on a number of factors, including, without limitation, Synovus Bank's future profits, asset quality, liquidity, and overall condition. In addition, both the GA DBF rules and relatedFederal Reserve Bank may require approval to pay dividends, based on certain regulatory statutes contain limitations on payments of dividends byand limitations.
During 2020, Synovus withoutBank issued $400.0 million in senior notes and $200.0 million in subordinated debt with proceeds from the approval of the GA DBF.
On June 21, 2018, Synovus completed a public offering of $200 million of Series D Preferred Stock. The offering generated net proceeds of $195.1 million, which were largelyofferings used to fund the redemption of all of the outstanding shares of Series C Preferred Stock on August 1, 2018 for an aggregate redemption price of $130 million. Concurrent with the redemption of the Series C Preferred Stock,extinguish long-term debt obligations. Synovus recognized a one-time, non-cash redemption charge of $4.0 million.
On November 1, 2017, Synovus issued $300.0terminated $1.13 billion in long-term FHLB obligations and redeemed $250.0 million aggregate principal amount of 3.125% senior notes maturing in 2022 in a public offering with aggregate proceeds of $296.9 million, net of discount and debt issuance costs. On November 9, 2017, Synovus redeemed all of the $300.0 million aggregate principal amount of its 7.875% senior notes due 2019 at a "make whole" premium. Additionally, during 2017, Synovus paid off the remaining balance of $278.6 million of its subordinated notes at their maturity dateand incurred $10.5 million in losses on early extinguishment of June 15, 2017.debt during the year ended December 31, 2020. For additional information on these offerings, see "Part II - Item 8. Financial Statements and Supplementary Data - Note 10 - Long-term Debt and Short-term Borrowings" in this Report.
Synovus presently believes that the sources of liquidity discussed above, including existing liquid funds on hand, are sufficient to meet its anticipated funding needs. However, if economic conditions were to significantly deteriorate, regulatory capital requirements for Synovus or Synovus Bank were to increase as the result of regulatory directives or otherwise, or Synovus believes it is prudent to enhance current liquidity levels, then Synovus may seek additional liquidity from external sources. See "Part I – Item 1A. Risk Factors - Credit and Liquidity - Changes in the cost and availability of funding due to changes in the deposit market and credit market may adversely affect our capital resources, liquidity and financial results" and "- Market and Other General Risk - The COVID-19 pandemic has adversely impacted, and will likely continue to adversely impact, Synovus’ business, financial condition, liquidity, capital and results. of operations." Furthermore, Synovus may, from time to time, take advantage of attractive market opportunities to refinance its existing debt, redeem its preferred stock, or strengthen its liquidity or capital position.
Contractual Cash Obligations
The following table summarizes, by remaining maturity, Synovus’ significant contractual cash obligations at December 31, 2018.2020. Excluded from the table below are certain liabilities with variable cash flows and/or no contractual maturity. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1516 - Commitments and Contingencies" of this Report for information on Synovus' commitments to extend credit including loan commitments and letters of credit along with commitments pursuantobligations related to low income housing tax credit partnerships.Synovus' sponsorship of MPS businesses. Additionally, see "Part II - Item 8. Financial Statements and Supplementary Data - Note 89 - Deposits" of this Report for information on contractual maturities of time deposits.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 24 - Contractual Cash Obligations |
| Payments Due After December 31, 2020 |
| (in thousands) | 1 Year or Less | | Over 1 - 3 Years | | 4 - 5 Years | | After 5 Years | | Total |
| Long-term debt obligations | $ | 44,433 | | | $ | 775,058 | | | $ | 51,803 | | | $ | 613,866 | | | $ | 1,485,160 | |
| Finance lease obligations | 839 | | | 645 | | | 250 | | | 93 | | | 1,827 | |
| Operating lease obligations | 30,806 | | | 58,694 | | | 54,257 | | | 414,201 | | | 557,958 | |
| Minimum lease obligations related to operating leases not yet commenced | 1,198 | | | 2,760 | | | 2,906 | | | 9,789 | | | 16,653 | |
Purchase commitments(1) | 67,152 | | | 39,687 | | | 15,127 | | | — | | | 121,966 | |
Commitments to fund low income housing, solar energy tax credit, and other CRA partnerships(2) | 90,898 | | | 41,201 | | | 447 | | | 1,400 | | | 133,946 | |
| Total contractual cash obligations | $ | 235,326 | | | $ | 918,045 | | | $ | 124,790 | | | $ | 1,039,349 | | | $ | 2,317,510 | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Table 28 - Contractual Cash Obligations |
| | Payments Due After December 31, 2018 |
| (in thousands) | 1 Year or Less | | Over 1 - 3 Years | | 4 - 5 Years | | After 5 Years | | Total |
| Long-term debt obligations | $ | 52,462 |
| | $ | 931,491 |
| | $ | 589,596 |
| | $ | 294,041 |
| | $ | 1,867,590 |
|
| Short-term borrowings | 655,525 |
| | — |
| | — |
| | — |
| | 655,525 |
|
| Capital lease obligations | 113 |
| | 229 |
| | 249 |
| | 1,022 |
| | 1,613 |
|
| Minimum operating lease obligations | 27,539 |
| | 54,972 |
| | 53,193 |
| | 83,316 |
| | 219,020 |
|
Purchase commitments(1) | 45,864 |
| | 35,491 |
| | 8,261 |
| | — |
| | 89,616 |
|
Commitments to fund low income housing tax credit partnerships(2) | 40,404 |
| | 5,545 |
| | 220 |
| | 954 |
| | 47,123 |
|
| Total contractual cash obligations | $ | 821,907 |
| | $ | 1,027,728 |
| | $ | 651,519 |
| | $ | 379,333 |
| | $ | 2,880,487 |
|
| | | | | | | | | | |
| |
(1)
| Legally binding purchase obligations of $1.0 million or more. |
| |
(2)
| Commitments to fund investments in low income housing tax credit partnerships have scheduled funding dates that are contingent on events that have not yet occurred, and may be subject to change. |
(1) Legally binding purchase obligations of $1.0 million or more. Short-term Borrowings(2) Commitments to fund investments in low income housing, solar energy tax credits, and other CRA partnerships have scheduled funding dates that are contingent on events that have not yet occurred, and may be subject to change.
The following table sets forth certain information regarding Synovus' short-term borrowings which include federal funds purchased, securities sold under repurchase agreements, and FHLB advances with original maturities of one year or less.
|
| | | | | | | | | | | | |
| Table 29 - Short-term Borrowings | | | | | | |
| (dollars in thousands) | | 2018 | | 2017 | | 2016 |
| Balance at December 31, | | $ | 887,692 |
| | $ | 261,190 |
| | $ | 159,699 |
|
| Weighted average interest rate at December 31, | | 1.93 | % | | 0.65 | % | | 0.08 | % |
| Maximum month end balance during the year | | $ | 887,692 |
| | $ | 390,044 |
| | $ | 414,245 |
|
| Average amount outstanding during the year | | 371,933 |
| | 256,011 |
| | 278,273 |
|
| Weighted average interest rate during the year | | 0.96 | % | | 0.37 | % | | 0.18 | % |
| | | | | | | |
Earning Assets and Sources of Funds
Average total assets for 20182020 increased $881.6 million,$5.35 billion, or 2.9%11%, to $31.67$52.14 billion as compared to average total assets of $46.79 billion for 2017.2019. Average earning assets increased $966.3 million,$4.55 billion, or 3.3%11%, in 20182020 as compared to the prior year. Average earning assetsyear and represented 94.3% and 93.8%91.8% of average total assets for 2018 and 2017, respectively.2020, as compared to 92.6% in 2019. The increase in average earning assets resulted primarily from a $807.4$2.89 billion, or 8% increase in average loans, net, which included average PPP loans of $1.87 billion, a $969.8 million increase in average net loans, andinterest-bearing funds held at the Federal Reserve Bank, a $224.0$265.2 million increase in loans held for sale, and a $251.4 million increase in investment securities available for sale.
Average interest-bearing liabilities for 2020 of $34.12 billion increased $2.15 billion, or 7%, from $31.97 billion in 2019. Average money market deposits and average investment securities.interest-bearing demand deposits increased $3.49 billion, or 31%, and $1.20 billion, or 19%, respectively, from 2019. These increases were partially offset by a $45.6 million decrease in average interest-bearing funds held at the Federal Reserve Bank. Average time deposits averageof $2.20 billion, or 22%, and a decrease in other short-term borrowings of $630.9 million, or 56%. Average non-interest-bearing demand deposits and average money market depositsalso increased by $543.9 million, $305.2 million and $141.8 million, respectively, and represented the primary funding source growth for the year.
Average total assets for 2017 increased $1.31$2.57 billion, or 4.4%27%, to $30.79$11.93 billion as compared to average total assets2019. Deposits overall were up significantly from 2019 due largely to client preferences for 2016. Average earning assets increased $1.36 billion, or 4.9%, in 2017maintaining liquidity as compared to the prior year. Average earning assets represented 93.8% and 93.4% of average total assets for 2017 and 2016, respectively. The increase in average earning assets resulted primarily from a $1.29 billion increase in average net loans, and a $286.3 million increase in average investment securities. These increases werewell as government stimulus programs which further supported deposit growth, partially offset by a $272.2 million decreasestrategic declines in average interest-bearing funds held at the Federal Reserve Bank. Average interest-bearing demand deposits, non-interest-bearing demand deposits, and average money market deposits increased by $568.0 million, $333.8 million and $341.0 million, respectively, and represented the primary funding source growth for the year.time deposits.
For more detailed information on the average balance sheets for the years ended December 31, 2018, 2017,2020, 2019, and 2016,2018, refer to Table 1612 - Average Balances, Interest, and Yields/Rates.
The table below shows the maturities of selected loan categoriestotal commercial loans as of December 31, 2018.2020. Also provided are the amounts due after one year, classified according to the sensitivity in interest rates. Actual repayments of loans may differ from the contractual maturities reflected therein because borrowers have the right to prepay obligations with and without prepayment penalties. Additionally, the refinancing of such loans or the potential delinquency of such loans could create differences between the contractual maturities and the actual repayment of such loans.
| | | | | | | | | | | | | | | | | | | | | | | |
| Table 25 - Loan Maturities and Interest Rate Sensitivity |
| December 31, 2020 |
| (in thousands) | One Year Or Less | | Over One Year Through Five Years | | Over Five Years | | Total |
| Selected loan categories: | | | | | | | |
| Commercial, financial, and agricultural | $ | 2,058,927 | | | $ | 7,636,616 | | | $ | 2,879,356 | | | $ | 12,574,899 | |
| Owner-occupied | 1,050,990 | | | 3,592,789 | | | 2,155,001 | | | 6,798,780 | |
| Real estate - construction | 734,998 | | | 1,449,611 | | | 134,697 | | | 2,319,306 | |
| Real estate - mortgage | 1,800,327 | | | 4,541,768 | | | 1,909,033 | | | 8,251,128 | |
| Total commercial | $ | 5,645,242 | | | $ | 17,220,784 | | | $ | 7,078,087 | | | $ | 29,944,113 | |
| | | | | | | |
| Loans due after one year: | | | | | | | |
| Having predetermined interest rates | | | | | | | $ | 10,638,350 | |
| Having floating or adjustable interest rates | | | | | | | 13,660,521 | |
| Total | | | | | | | $ | 24,298,871 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Table 30 - Loan Maturities and Interest Rate Sensitivity |
| | December 31, 2018 |
| (in thousands) | One Year Or Less | | Over One Year Through Five Years | | Over Five Years | | Total |
| Selected loan categories: | | | | | | | |
| Commercial, financial, and agricultural | $ | 2,033,431 |
| | $ | 4,026,794 |
| | $ | 1,389,473 |
| | $ | 7,449,698 |
|
| Owner-occupied | 1,019,081 |
| | 2,927,355 |
| | 1,385,072 |
| | 5,331,508 |
|
| Real estate - construction | 578,422 |
| | 793,892 |
| | 45,843 |
| | 1,418,157 |
|
| Total | $ | 3,630,934 |
| | $ | 7,748,041 |
| | $ | 2,820,388 |
| | $ | 14,199,363 |
|
| | | | | | | | |
| Loans due after one year: | | | | | | | |
| Having predetermined interest rates | | | | | | | $ | 4,570,603 |
|
| Having floating or adjustable interest rates | | | | | | | 5,997,826 |
|
| Total | | | | | | | $ | 10,568,429 |
|
| | | | | | | | |
Recently Issued Accounting Standards
See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" of this Report for further information.
Non-GAAP Financial Measures
The measures entitled adjusted non-interest income;revenue; adjusted non-interest expense; adjusted total revenues; adjusted tangible efficiency ratio; average core deposits; adjusted return on average assets; adjusted net income available to common shareholders; adjusted net income per common share, diluted; adjusted return on average common equity; return on average tangible common equity; adjusted return on average tangible common equity; and tangible common equity to tangible assets ratio; and CET1 ratio (fully phased-in) are not measures recognized under GAAP and therefore are considered non-GAAP financial measures. The most comparable GAAP measures to these measures are total non-interest income,revenue, total non-interest expense, total revenues, efficiency ratio, total average deposits,ratio-FTE, return on average assets, net income available to common shareholders, net income per common share, diluted, return on average common equity, and the ratio of total shareholders’ equity to total assets, and the CET1 ratio, respectively.
Management believes that these non-GAAP financial measures provide meaningful additional information about Synovus to assist management and investors in evaluating Synovus’ operating results, financial strength, the performance of its business, and the strength of its capital position. However, these non-GAAP financial measures have inherent limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of operating results or capital position as reported under GAAP. The non-GAAP financial measures should be considered as additional views of the way our financial measures are affected by significant items and other factors, and since they are not required to be uniformly applied, they may not be comparable to other similarly titled measures at other companies. Adjusted non-interest incomerevenue and adjusted total revenues are measures used by management to evaluate non-interest incomerevenue and total revenues exclusive of net investment securities gains/losses,gains (losses) as well as gain on sale and changes in fair value of private equity investments, net, and the Cabela's Transaction Fee.net. Adjusted non-interest expense and the adjusted tangible efficiency ratio are measures utilized by management to measure the success of expense management initiatives focused on reducing recurring controllable operating costs. Average core deposits is a measure used by management to evaluate organic growth of deposits and the quality of deposits as a funding source. Adjusted return on average assets, adjusted net income available to common shareholders, adjusted net income per common share, diluted, and adjusted return on average common equity are measurements used by management to evaluate operating results exclusive of items that management believes are not indicative of ongoing operations and impact period-to-period comparisons. The return on average tangible common equity is a measureand adjusted return on average tangible common equity are measures used by management to compare Synovus’ performance with other financial institutions because it calculates the return available to common shareholders without the impact of intangible assets and their related amortization, thereby allowing management to evaluate the performance of the business consistently. The adjusted return on average tangible common equity is a measure used by management in the same manner as the return on average tangible common equity except it is exclusive of items that are not indicative of ongoing operations and impact period-to-period comparisons. The tangible common equity to tangible assets ratio and the CET1 ratio (fully phased-in) areis used by management and bank regulators to assess the strength of our capital position. The computations of these measures are set forth in the tables below.
| | | | | | | | | | | |
| Table 26 - Reconciliation of Non-GAAP Financial Measures | | | |
| Years Ended December 31, |
| (dollars in thousands) | 2020 | | 2019 |
| Adjusted non-interest revenue | | | |
| Total non-interest revenue | $ | 506,513 | | | $ | 355,900 | |
| Subtract/add: Investment securities (gains) losses, net | (78,931) | | | 7,659 | |
| Subtract: Gain on sale and increase in fair value of private equity investments, net | (4,775) | | | (11,607) | |
| Adjusted non-interest revenue | $ | 422,807 | | | $ | 351,952 | |
| | | |
| Adjusted non-interest expense | | | |
| Total non-interest expense | $ | 1,179,574 | | | $ | 1,098,968 | |
| Subtract: Earnout liability adjustments | (4,908) | | | (10,457) | |
| Subtract: Goodwill impairment | (44,877) | | | — | |
| Subtract: Merger-related expense | — | | | (56,580) | |
| Subtract: Restructuring charges | (26,991) | | | (1,230) | |
| Subtract: Valuation adjustment to Visa derivative | (890) | | | (3,611) | |
| Subtract: Loss on early extinguishment of debt | (10,466) | | | (4,592) | |
| Adjusted non-interest expense | $ | 1,091,442 | | | $ | 1,022,498 | |
| | | |
| Adjusted total revenues and adjusted tangible efficiency ratio | | | |
| Adjusted non-interest expense | $ | 1,091,442 | | | $ | 1,022,498 | |
| Subtract: Amortization of intangibles | (10,560) | | | (11,603) | |
| Adjusted tangible non-interest expense | 1,080,882 | | | 1,010,895 | |
| | | |
| Net interest income | 1,512,748 | | | 1,595,803 | |
| Add: Tax equivalent adjustment | 3,424 | | | 3,025 | |
| Add: Total non-interest revenue | 506,513 | | | 355,900 | |
| Total FTE revenues | $ | 2,022,685 | | | $ | 1,954,728 | |
| Subtract/add: Investment securities (gains) losses, net | (78,931) | | | 7,659 | |
| Subtract: Gain on sale and increase in fair value of private equity investments, net | (4,775) | | | (11,607) | |
| Adjusted total revenues | $ | 1,938,979 | | | $ | 1,950,780 | |
| Efficiency ratio-FTE | 58.32 | % | | 56.22 | % |
| Adjusted tangible efficiency ratio | 55.74 | | | 51.82 | |
| | | |
|
| | | | | | | | | | | |
| Table 31 - Reconciliation of Non-GAAP Financial Measures | | | | | |
| | Years Ended December 31, |
| (dollars in thousands) | 2018 | | 2017 | | 2016 |
| Adjusted non-interest income | | | | | |
| Total non-interest income | $ | 280,093 |
| | $ | 345,327 |
| | $ | 273,194 |
|
| Subtract: Cabela's Transaction Fee | — |
| | (75,000 | ) | | — |
|
| Add/subtract: Investment securities losses (gains), net | 1,296 |
| | 289 |
| | (6,011 | ) |
| Add: Decrease in fair value of private equity investments, net | 4,743 |
| | 3,093 |
| | 1,026 |
|
| Adjusted non-interest income | $ | 286,132 |
| | $ | 273,709 |
| | $ | 268,209 |
|
| | | | | | |
| Adjusted non-interest expense | | | | |
|
|
| Total non-interest expense | $ | 829,455 |
| | $ | 821,313 |
| | $ | 755,923 |
|
| Subtract: Discounts to fair value for ORE accelerated dispositions | — |
| | (7,082 | ) | | — |
|
| Subtract: Asset impairment charges related to accelerated disposition of corporate real estate and other properties | — |
| | (1,168 | ) | | — |
|
| Subtract: Earnout liability adjustments | (11,652 | ) | | (3,759 | ) | | — |
|
| Subtract: Merger-related expense | (10,065 | ) | | (110 | ) | | (1,636 | ) |
| Add/subtract: Litigation settlement/contingency expense | 4,026 |
| | (701 | ) | | (2,511 | ) |
| Add/subtract: Restructuring charges, net | 51 |
| | (7,014 | ) | | (8,267 | ) |
| Subtract: Amortization of intangibles | (1,167 | ) | | (1,059 | ) | | (521 | ) |
| Subtract: Valuation adjustment to Visa derivative | (2,328 | ) | | — |
| | (5,795 | ) |
| Subtract: Loss on early extinguishment of debt, net | — |
| | (23,160 | ) | | (4,735 | ) |
| Adjusted non-interest expense | $ | 808,320 |
| | $ | 777,260 |
| | $ | 732,458 |
|
| | | | | | |
| Adjusted total revenues and adjusted tangible efficiency ratio | | | | | |
| Adjusted non-interest expense | $ | 808,320 |
| | $ | 777,260 |
| | $ | 732,458 |
|
| Net interest income | 1,148,413 |
| | 1,023,309 |
| | 899,180 |
|
| Add: Tax equivalent adjustment | 553 |
| | 1,124 |
| | 1,285 |
|
| Add: Total non-interest income | 280,093 |
| | 345,327 |
| | 273,194 |
|
| Add/subtract: Investment securities losses (gains), net | 1,296 |
| | 289 |
| | (6,011 | ) |
| Total FTE revenues | $ | 1,430,355 |
| | $ | 1,370,049 |
| | $ | 1,167,648 |
|
| Subtract: Cabela's Transaction Fee | — |
| | (75,000 | ) | | — |
|
| Add: Decrease in fair value of private equity investments, net | 4,743 |
| | 3,093 |
| | 1,026 |
|
| Adjusted total revenues | $ | 1,435,098 |
| | $ | 1,298,142 |
| | $ | 1,168,674 |
|
| Efficiency ratio | 57.99 | % | | 59.95 | % | | 64.74 | % |
| Adjusted tangible efficiency ratio | 56.33 |
| | 59.87 |
| | 62.67 |
|
| | | | | | |
| | | | | | |
| | December 31, | | |
| Average core deposits | 2018 | | 2017 | | |
| Average total deposits | $ | 26,344,118 |
| | $ | 25,374,388 |
| | |
| Subtract: Average brokered deposits | (1,817,120 | ) | | (1,624,381 | ) | | |
| Average core deposits | $ | 24,526,998 |
| | $ | 23,750,007 |
| |
|
|
| | | | | | |
| | | | | | | | | | | |
| Table 26 - Reconciliation of Non-GAAP Financial Measures, continued | | | |
| Years Ended December 31, |
| (in thousands, except per share data) | 2020 | | 2019 |
| Adjusted return on average assets | | | |
| Net income | $ | 373,695 | | | $ | 563,780 | |
| Add: Income tax expense, net related to State Tax Reform | — | | | 4,402 | |
| Add: Earnout liability adjustments | 4,908 | | | 10,457 | |
| Add: Goodwill impairment | 44,877 | | | — | |
| Add: Merger-related expense | — | | | 56,580 | |
| Add: Restructuring charges | 26,991 | | | 1,230 | |
| Add: Valuation adjustment to Visa derivative | 890 | | | 3,611 | |
| Add: Loss on early extinguishment of debt | 10,466 | | | 4,592 | |
| Subtract/add: Investment securities (gains) losses, net | (78,931) | | | 7,659 | |
| Subtract: Gain on sale and increase in fair value of private equity investments, net | (4,775) | | | (11,607) | |
| Add/subtract: Tax effect of adjustments | 11,748 | | | (9,343) | |
| Adjusted net income | $ | 389,869 | | | $ | 631,361 | |
| Total average assets | $ | 52,138,038 | | | $ | 46,791,930 | |
| Return on average assets | 0.72 | % | | 1.20 | % |
| Adjusted return on average assets | 0.75 | | | 1.35 | |
| | | |
| Adjusted net income available to common shareholders and adjusted net income per common share, diluted | | | |
| Net income available to common shareholders | $ | 340,532 | | | $ | 540,899 | |
| Add: Income tax expense, net related to State Tax Reform | — | | | 4,402 | |
| Add: Earnout liability adjustments | 4,908 | | | 10,457 | |
| Add: Goodwill impairment | 44,877 | | | — | |
| Add: Merger-related expense | — | | | 56,580 | |
| Add: Restructuring charges | 26,991 | | | 1,230 | |
| Add: Valuation adjustment to Visa derivative | 890 | | | 3,611 | |
| Add: Loss on early extinguishment of debt | 10,466 | | | 4,592 | |
| Subtract/add: Investment securities (gains) losses, net | (78,931) | | | 7,659 | |
| Subtract: Gain on sale and increase in fair value of private equity investments, net | (4,775) | | | (11,607) | |
| Add/subtract: Tax effect of adjustments | 11,748 | | | (9,343) | |
| Adjusted net income available to common shareholders | $ | 356,706 | | | $ | 608,480 | |
| Weighted average common shares outstanding, diluted | 148,210 | | | 156,058 | |
| Net income per common share, diluted | $ | 2.30 | | | $ | 3.47 | |
| Adjusted net income per common share, diluted | 2.41 | | | 3.90 | |
| | | |
|
| | | | | | | |
| Table 31 - Reconciliation of Non-GAAP Financial Measures, continued | | | |
| | Years Ended December 31, |
| (in thousands, except per share data) | 2018 | | 2017 |
| Adjusted return on average assets | | | |
| Net income | $ | 428,476 |
| | $ | 275,474 |
|
| Subtract: Cabela's Transaction Fee | — |
| | (75,000 | ) |
| Add: Provision expense on loans transferred to held-for-sale | — |
| | 27,710 |
|
| Add: Discounts to fair value for ORE accelerated dispositions | — |
| | 7,082 |
|
| Add: Asset impairment charges related to accelerated disposition of corporate real estate and other properties | — |
| | 1,168 |
|
| Subtract/add: Income tax (benefit) expense, net related to Federal Tax Reform, SAB 118, State Tax Reform, and adjusted portion of other discrete items | (9,148 | ) | | 42,334 |
|
| Add: Earnout liability adjustments | 11,652 |
| | 3,759 |
|
| Add: Merger-related expense | 10,065 |
| | 110 |
|
| Subtract/add: Litigation settlement/contingency expense | (4,026 | ) | | 701 |
|
| Subtract/add: Restructuring charges, net | (51 | ) | | 7,014 |
|
| Add: Amortization of intangibles | 1,167 |
| | 1,059 |
|
| Add: Valuation adjustment to Visa derivative | 2,328 |
| | — |
|
| Add: Loss on early extinguishment of debt, net | — |
| | 23,160 |
|
| Add: Investment securities losses, net | 1,296 |
| | 289 |
|
| Add: Decrease in fair value of private equity investments, net | 4,743 |
| | 3,093 |
|
| Subtract/add: Tax effect of adjustments | (1,283 | ) | | 1,337 |
|
| Adjusted net income | $ | 445,219 |
| | $ | 319,290 |
|
| Total average assets | $ | 31,668,847 |
| | $ | 30,787,288 |
|
| Return on average assets | 1.35 | % | | 0.89 | % |
| Adjusted return on average assets | 1.41 |
| | 1.04 |
|
| | | | |
| Adjusted net income available to common shareholders and adjusted net income per common share, diluted | | | |
| Net income available to common shareholders | $ | 410,478 |
| | $ | 265,236 |
|
| Subtract: Cabela's Transaction Fee | — |
| | (75,000 | ) |
| Add: Provision expense on loans transferred to held-for-sale | — |
| | 27,710 |
|
| Add: Discounts to fair value for ORE accelerated dispositions | — |
| | 7,082 |
|
| Add: Asset impairment charges related to accelerated disposition of corporate real estate and other properties | — |
| | 1,168 |
|
| Subtract/add: Income tax (benefit) expense, net related to Federal Tax Reform, SAB 118, State Tax Reform, and adjusted portion of other discrete items | (9,148 | ) | | 42,334 |
|
| Add: Earnout liability adjustments | 11,652 |
| | 3,759 |
|
| Add: Preferred stock redemption charge | 4,020 |
| | — |
|
| Add: Merger-related expense | 10,065 |
| | 110 |
|
| Subtract/add: Litigation settlement/contingency expense | (4,026 | ) | | 701 |
|
| Subtract/add: Restructuring charges, net | (51 | ) | | 7,014 |
|
| Add: Amortization of intangibles | 1,167 |
| | 1,059 |
|
| Add: Valuation adjustment to Visa derivative | 2,328 |
| | — |
|
| Add: Loss on early extinguishment of debt, net | — |
| | 23,160 |
|
| Add: Investment securities losses, net | 1,296 |
| | 289 |
|
| Add: Decrease in fair value of private equity investments, net | 4,743 |
| | 3,093 |
|
| Subtract/add: Tax effect of adjustments | (1,283 | ) | | 1,337 |
|
| Adjusted net income available to common shareholders | $ | 431,241 |
| | $ | 309,052 |
|
| Weighted average common shares outstanding, diluted | 118,378 |
| | 122,012 |
|
| Adjusted net income per common share, diluted | $ | 3.64 |
|
| $ | 2.53 |
|
| | | | |
| | | | | | | | | | | |
| Table 26 - Reconciliation of Non-GAAP Financial Measures, continued | | | |
| Years Ended December 31, |
| (dollars in thousands) | 2020 | | 2019 |
| Adjusted return on average common equity, return on average tangible common equity, and adjusted return on average tangible common equity | | | |
| Net income available to common shareholders | $ | 340,532 | | | $ | 540,899 | |
| Add: Income tax expense, net related to State Tax Reform | — | | | 4,402 | |
| Add: Earnout liability adjustments | 4,908 | | | 10,457 | |
| Add: Goodwill impairment | 44,877 | | | — | |
| Add: Merger-related expense | — | | | 56,580 | |
| Add: Restructuring charges | 26,991 | | | 1,230 | |
| Add: Valuation adjustment to Visa derivative | 890 | | | 3,611 | |
| Add: Loss on early extinguishment of debt | 10,466 | | | 4,592 | |
| Subtract/add: Investment securities (gains) losses, net | (78,931) | | | 7,659 | |
| Subtract: Gain on sale and increase in fair value of private equity investments, net | (4,775) | | | (11,607) | |
| Add/subtract: Tax effect of adjustments | 11,748 | | | (9,343) | |
| Adjusted net income available to common shareholders | $ | 356,706 | | | $ | 608,480 | |
| Add: Amortization of intangibles | 7,825 | | | 8,598 | |
| Adjusted net income available to common shareholders excluding amortization of intangibles | $ | 364,531 | | | $ | 617,078 | |
| | | |
| Net income available to common shareholders | $ | 340,532 | | | $ | 540,899 | |
| Add: Amortization of intangibles | 7,825 | | | 8,598 | |
| Net income available to common shareholders excluding amortization of intangibles | $ | 348,357 | | | $ | 549,497 | |
| | | |
| Total average shareholders' equity less preferred stock | $ | 4,534,935 | | | $ | 4,384,458 | |
| Subtract: Goodwill | (485,987) | | | (487,126) | |
| Subtract: Other intangible assets, net | (50,427) | | | (65,553) | |
| Total average tangible shareholders' equity less preferred stock | $ | 3,998,521 | | | $ | 3,831,779 | |
| Return on average common equity | 7.51 | % | | 12.34 | % |
| Adjusted return on average common equity | 7.87 | | | 13.88 | |
| Return on average tangible common equity | 8.71 | | | 14.34 | |
| Adjusted return on average tangible common equity | 9.12 | | | 16.10 | |
| | | |
| | | | | | | | | | | |
| December 31, |
| (dollars in thousands) | 2020 | | 2019 |
| Tangible common equity to tangible assets ratio | | | |
| Total assets | $ | 54,394,159 | | | $ | 48,203,282 | |
| Subtract: Goodwill | (452,390) | | | (497,267) | |
| Subtract: Other intangible assets, net | (45,112) | | | (55,671) | |
| Tangible assets | $ | 53,896,657 | | | $ | 47,650,344 | |
| | | |
| Total shareholders’ equity | $ | 5,161,334 | | | $ | 4,941,690 | |
| Subtract: Goodwill | (452,390) | | | (497,267) | |
| Subtract: Other intangible assets, net | (45,112) | | | (55,671) | |
| Subtract: Preferred Stock, no par value | (537,145) | | | (537,145) | |
| Tangible common equity | $ | 4,126,687 | | | $ | 3,851,607 | |
| Total shareholders’ equity to total assets ratio | 9.49 | % | | 10.25 | % |
| Tangible common equity to tangible assets ratio | 7.66 | | | 8.08 | |
|
| | | | | | | |
| Table 31 - Reconciliation of Non-GAAP Financial Measures, continued | | | |
| | Years Ended December 31, |
| (dollars in thousands) | 2018 | | 2017 |
| Adjusted return on average common equity, return on average tangible common equity, and adjusted return on average tangible common equity | | | |
| Net income available to common shareholders | $ | 410,478 |
| | $ | 265,236 |
|
| Subtract: Cabela's Transaction Fee | — |
| | (75,000 | ) |
| Add: Provision expense on loans transferred to held-for-sale | — |
| | 27,710 |
|
| Add: Discounts to fair value for ORE accelerated dispositions | — |
| | 7,082 |
|
| Add: Asset impairment charges related to accelerated disposition of corporate real estate and other properties | — |
| | 1,168 |
|
| Subtract/add: Income tax (benefit) expense, net related to Federal Tax Reform, SAB 118, State Tax Reform, and adjusted portion of other discrete items | (9,148 | ) | | 42,334 |
|
| Add: Preferred stock redemption charge | 4,020 |
| | — |
|
| Add: Earnout liability adjustments | 11,652 |
| | 3,759 |
|
| Add: Merger-related expense | 10,065 |
| | 110 |
|
| Subtract/add: Litigation settlement/contingency expense | (4,026 | ) | | 701 |
|
| Subtract/add: Restructuring charges, net | (51 | ) | | 7,014 |
|
| Add: Amortization of intangibles | 1,167 |
| | 1,059 |
|
| Add: Valuation adjustment to Visa derivative | 2,328 |
| | — |
|
| Add: Loss on early extinguishment of debt, net | — |
| | 23,160 |
|
| Add: Investment securities losses, net | 1,296 |
| | 289 |
|
| Add: Decrease in fair value of private equity investments, net | 4,743 |
| | 3,093 |
|
| Subtract/add: Tax effect of adjustments | (1,283 | ) | | 1,337 |
|
| Adjusted net income available to common shareholders | $ | 431,241 |
| | $ | 309,052 |
|
| | | | |
| Net income available to common shareholders | $ | 410,478 |
| | $ | 265,236 |
|
| Add: Amortization of intangibles | 893 |
| | 667 |
|
| Net income available to common shareholders excluding amortization of intangibles | $ | 411,371 |
| | $ | 265,903 |
|
| | | | |
| Total average shareholders' equity less preferred stock | $ | 2,821,311 |
| | $ | 2,844,570 |
|
| Subtract: Goodwill | (57,315 | ) | | (57,779 | ) |
| Subtract: Other intangible assets, net | (10,424 | ) | | (12,030 | ) |
| Total average tangible shareholders' equity less preferred stock | $ | 2,753,572 |
| | $ | 2,774,761 |
|
| Return on average common equity | 14.55 | % | | 9.32 | % |
| Adjusted return on average common equity | 15.29 |
| | 10.86 |
|
| Return on average tangible common equity | 14.94 |
| | 9.58 |
|
| Adjusted return on average tangible common equity | 15.66 |
| | 11.14 |
|
| | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Table 31 - Reconciliation of Non-GAAP Financial Measures, continued |
| | December 31, |
| (dollars in thousands) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Tangible common equity to tangible assets ratio | | | | | | | | | |
| Total assets | $ | 32,669,192 |
| | $ | 31,221,837 |
| | $ | 30,104,002 |
| | $ | 28,792,653 |
| | $ | 27,050,237 |
|
| Subtract: Goodwill | (57,315 | ) | | (57,315 | ) | | (59,678 | ) | | (24,431 | ) | | (24,431 | ) |
| Subtract: Other intangible assets, net | (9,875 | ) | | (11,254 | ) | | (13,223 | ) | | (471 | ) | | (1,265 | ) |
| Tangible assets | $ | 32,602,002 |
| | $ | 31,153,268 |
| | $ | 30,031,101 |
| | $ | 28,767,751 |
| | $ | 27,024,541 |
|
| | | | | | | | | | |
| Total shareholders’ equity | $ | 3,133,602 |
| | $ | 2,961,566 |
| | $ | 2,927,924 |
| | $ | 3,000,196 |
| | $ | 3,041,270 |
|
| Subtract: Goodwill | (57,315 | ) | | (57,315 | ) | | (59,678 | ) | | (24,431 | ) | | (24,431 | ) |
| Subtract: Other intangible assets, net | (9,875 | ) | | (11,254 | ) | | (13,223 | ) | | (471 | ) | | (1,265 | ) |
| Subtract: Preferred Stock, no par value | (195,140 | ) | | (125,980 | ) | | (125,980 | ) | | (125,980 | ) | | (125,980 | ) |
| Tangible common equity | $ | 2,871,272 |
| | $ | 2,767,017 |
| | $ | 2,729,043 |
| | $ | 2,849,314 |
| | $ | 2,889,594 |
|
| Total shareholders’ equity to total assets ratio | 9.59 | % | | 9.49 | % | | 9.73 | % | | 10.42 | % | | 11.24 | % |
| Tangible common equity to tangible assets ratio | 8.81 |
| | 8.88 |
| | 9.09 |
| | 9.90 |
| | 10.69 |
|
|
| | | |
| | December 31, |
| (dollars in thousands) | 2018 |
| CET1 ratio (fully phased-in) | |
| CET1 | $ | 2,897,997 |
|
| Subtract: Adjustment related to capital components | (2,721 | ) |
| CET1 (fully phased-in) | $ | 2,895,276 |
|
| Total risk-weighted assets | $ | 29,121,309 |
|
| Total risk-weighted assets (fully phased-in) | $ | 29,198,139 |
|
| CET1 ratio | 9.95 | % |
| CET1 ratio (fully phased-in) | 9.92 |
|
| | |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk and Interest Rate Sensitivity
Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates. This risk of loss can be reflected in either diminished current market values within the Balance Sheet or reduced current and potential net income. Synovus’ most significant market risk is interest rate risk. This risk arises primarily from Synovus’ core banking activities of extending loans and accepting deposits.
Managing interest rate risk is a primary goal of the asset liability management function. Synovus attempts to achieve consistency in net interest income while limiting volatility arising from changes in interest rates. Synovus seeks to accomplish this goal by balancing the maturity and repricing characteristics of assets and liabilities along with the selective use of derivative instruments. SynovusThe Company manages itsthis exposure to fluctuations in interest rates throughaccordance with policies that are established by ALCO and approved by the Risk Committee of the Board of Directors. ALCO meets periodically and has responsibility for developing asset liability management policies, reviewing the interest rate sensitivity of Synovus, and developing and implementing strategies to improve balance sheet structure and interest rate risk positioning.
Synovus measures the sensitivity of net interest income to changes in market interest rates through the utilizationuse of simulation modeling. On at least a quarterly basis,This effort involves assessing the following twenty-four month time period is simulated to determine a baselineCompany's forecasted net interest income forecastprofile under various scenarios and over varying time horizons. The results of these simulations aid in measuring the sensitivity of this forecastCompany's exposures and relative sensitivities, namely to changes in interest rates. These simulationsThe scenarios generally include all of Synovus’ earning assets and liabilities. Forecastednumerous assumptions, including those related to changes in the balance sheet, changes, primarily reflecting loaninterest rates, prepayment trends, and deposit growth forecasts, are includedthe repricing characteristics of non-contractual deposits. Such assumptions may change through time as a result of a host of factors, including changes in the periods modeled. Projected rates for loans and deposits are based on management’s outlook and local market conditions. Anticipated deposit mix changes in eachbalance sheet as well as the interest rate scenario are also includedenvironment. The simulation modeling process is performed in the periods modeled. Assumptions utilized in the model are updateda manner consistent with Synovus policies and procedures with results reviewed on an ongoingon-going basis and are reviewed and approved by ALCO and the Risk Committee of the Board of Directors.
The magnitude and velocity of rate changes among the various asset and liability groups exhibit different characteristics for each possible interest rate scenario; additionally, customer loan and deposit preferences can vary in response to changing interest rates. Simulation modeling enables Synovus to capture the expected effect of these differences. Synovus also models expected changes in the shape of interest rate yield curves for each rate scenario. Simulation also enables Synovus to capture the effect of expected prepayment level changes on selected assets and liabilities subject to prepayment.
With this framework, Synovus has modeled its baseline net interest income forecast assuming a relatively flat interest rate environment with the federal funds rate at the Federal Reserve's current targeted range of 2.25%0% to 2.50%0.25% and the current prime rate of 5.50%3.25%. Synovus has modeled the impact of a gradual increase in short-termmarket interest rates across the yield curve of 100 and 200 basis points and a gradual decreasedecline of 10025 basis points to determine the sensitivity of net interest income for the next twelve months. As illustrated in the table below, the net interest income sensitivity model indicatesderived from this simulation suggests that compared with a net interest income forecast assuming stable rates, net interest income is projected to increase by 2.0%3.5% and increase by 3.4%6.8% if interest rates increased by 100 and 200 basis points, respectively. Net interest income is projected to decline by 2.0%0.5% if interest rates decreased by 10025 basis points. These changes are within Synovus' policy limit of a maximum 5% negative change.
|
| | | | |
Table 32 - Twelve Month Net Interest Income Sensitivity(1) |
| Change in Short-term Interest Rates (in basis points) | | Estimated Change in Net Interest Income As of December 31, |
| 2018 | | 2017 |
| +200 | | 3.4% | | 3.6% |
| +100 | | 2.0% | | 1.9% |
| Flat | | —% | | —% |
| -100 | | -2.0% | | -4.7% |
| | | | | |
| |
(1)
| Does not include assets and liabilities of FCB which were acquired January 1, 2019. |
The measured interest rate sensitivity indicatesresults indicate that the Company has an asset sensitive position over the next year, which could serve to improve net interest income in a rising interest rate environment or reduce net interest income in a declining rate environment. The actual realized change in net interest income would depend on several factors, some of which could serve to diminish or eliminate the asset sensitivity in a rising rate environment. These factors include a higher than projected level of deposit customer migration to higher cost deposits, such as certificates of deposit, which would increase total interest expense and serve to reduce the realized level of asset sensitivity. Another factor which could impact the realized interest rate sensitivity in a rising rate environment is the repricing behavior of interest-bearing non-maturity deposits.
| | | | | | | | | | | | | | |
| Table 27 - Twelve Month Net Interest Income Sensitivity |
| Change in Interest Rates (in basis points) | | Estimated Change in Net Interest Income As of December 31, |
| 2020 | | 2019 |
| +200 | | 6.8% | | 2.8% |
| +100 | | 3.5% | | 2.0% |
| Flat | | —% | | —% |
| -25 | | (0.5)% | | N/A |
| | | | |
While all of the above estimates are reflective of the general interest rate sensitivity of Synovus, local market conditions, the realized growth and their impact on loan and deposit pricing would be expected toremixing of the balance sheet, as well as the broader macroeconomic environment could all have a significant impact on the realized level of net interest income. Actual realized balance sheet growthboth the sensitivity and mix would also impact the realized level of net interest income.
TheIn addition to assessing net interest income sensitivities, we also perform simulation modelanalyses to assess the sensitivity of our Economic Value of Equity (EVE) relative to changes in market interest rates. EVE is measured as the primary tool utilized to evaluate potential interest rate risks over a shorter term time horizon. Synovus also evaluates potential longer termdiscounted present value of assets and derivative cash flows minus the discounted present value of liability cash flows. Management uses EVE sensitivity as an additional means of measuring interest rate risk through modeling and evaluationincorporates this form of economic value of equity (EVE). This EVE modeling allows Synovus to capture longer-term repricing riskanalysis within its governance and options risk embedded in the balance sheet. Simulation modeling is utilized to measure the economic value of equity and its sensitivity to immediate changes in interest rates. These simulations value only the current balance sheet and do not incorporate growth assumptions used in the net interest income simulation. The EVE is the net fair value of assets, liabilities, and off-balance sheet financial instruments derived from the present value of future cash flows discounted at current market interest rates. From this baseline valuation, Synovus evaluates changes in the value of each of these items in various interest rate scenarios to determine the net impact on the economic value of equity. Key assumptions utilized in the model, namely loan and investment prepayments, deposit repricing betas, and non-maturity deposit durations have a significant impact on the results of the EVE simulations.limits framework.
As illustrated in the table below, the EVE model indicates that, compared with a valuation assuming stable rates, EVE is projected to increase by 1.3% and 0.7%, assuming an immediate and sustained increase in interest rates of 100 and 200 basis points, respectively. EVE is projected to decrease by 13.9% assuming an immediate and sustained decrease of 100 basis points. These changes are within Synovus' policy limit of a maximum negative change of 20%. These metrics reflect a relatively stable interest rate risk position compared to last year.
|
| | | | |
Table 33 - Economic Value of Equity Sensitivity(1) | | |
| Immediate Change in Interest Rates (in basis points) | | Estimated Change in EVE As of December 31, |
| | 2018 | | 2017 |
| +200 | | 0.7% | | -0.2% |
| +100 | | 1.3% | | 1.6% |
| -100 | | -13.9% | | -16.9% |
| | | | | |
| |
(1)
| Does not include assets and liabilities of FCB which were acquired January 1, 2019. |
Synovus is also subject to market risk in certain of its fee income business lines. Financial management services revenues, which include trust, brokerage, and asset management fees, can be affected by risk in the securities markets, primarily the equity securities market. A significant portion of the fees in this unit are determined based upon a percentage of asset values. Weaker securities markets and lower equity values have an adverse impact on the fees generated by these operations. Trading account assets, maintained to facilitate brokerage customer activity, are also subject to market risk. This risk is not considered significant, as trading activities are limited and subject to risk policy limits. Mortgage banking income is also subject to market risk. Mortgage loan originations are sensitive to levels of mortgage interest rates and therefore, mortgage banking income could be negatively impacted during a period of rising interest rates. The extension of commitments to customers to fund mortgage
loans also subjects Synovus to market risk. This risk is primarily created by the time period between making the commitment and closing and delivering the loan. Synovus seeks to minimize this exposure by utilizing various risk management tools, the primary of which are forward sales commitments and best efforts commitments.
Derivative Instruments for Interest Rate Risk Management
As part of its overall interest rate risk management activities, Synovus utilizes derivative instruments to manage its exposure to various types of interest rate risks. These derivative instruments generally consist of interest rate swaps, interest rate lock commitments made to prospective mortgage loan customers, and commitments to sell fixed-rate mortgage loans. Interest rate lock commitments represent derivative instruments when it is intended that such loans will be sold.
Synovus may also utilize interest rate swaps to managestructural interest rate risks primarily arising from its core banking activities. These interest rate swapby executing end-user derivative transactions generally involve the exchange of fixed and floating interest rate payment obligations without the exchange of underlying principal amounts. Swapsdesignated as hedges. Hedging relationships may be designated as either a cash flow hedgeshedge, which mitigates risk exposure to the variability of future cash flows or other forecasted transactions, or a fair value hedges. hedge, which mitigates risk exposure to adverse changes in the fair market value of a fixed rate asset or liability due to changes in market interest rates.
As of December 31, 20182020 and 2019, the Company had entered into $3.00 billion and $2.00 billion, respectively, notional of interest rate swaps designated as cash flow hedging instruments to hedge its exposure to contractually specified interest rate risk associated with floating rate loans.
LIBOR Transition
In July 2017, the Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR at the end of 2021. On November 30, 2020, a joint announcement by the Board of Governors of the Federal Reserve, the FDIC, and the OCC was released and included a statement that the administrator of LIBOR has announced it will consult on its intention to cease the publication of the one week and two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2017,2021, and the remaining USD LIBOR settings immediately following the LIBOR publications on June 30, 2023.
The ARRC has proposed the SOFR as its preferred rate as an alternative to LIBOR and has proposed a paced market transition plan to SOFR from LIBOR. Organizations are currently working on industry-wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. As noted within our Risk Factors of this Report, Synovus had no outstanding interestholds instruments that may be impacted by the discontinuance of LIBOR including floating rate swap contracts utilizedobligations, loans, deposits, derivatives and hedges, and other financial instruments but is not able to manage interest rate risk.
currently predict the associated financial impacts of the transition to an alternative reference rate. Synovus has established a cross-functional LIBOR transition working group that has 1) assessed the Company's current exposure to LIBOR indexed instruments and the data, systems and processes that will be impacted; 2) established a detailed implementation plan; and 3) developed a formal governance structure for the transition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
TheTo the Board of Directors and Shareholders
Synovus Financial Corp.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Synovus Financial Corp. and subsidiaries (the Company) as of December 31, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 20182020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018,2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2019March 1, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC 326, Financial Instruments – Credit Losses.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Assessment of the allowance for loan losses for loans held for investment evaluated on a collective basis
As discussed in Note 1 to the consolidated financial statements, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (ASC 326), as of January 1, 2020. As discussed in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for loan losses was $364.4 million as of January 1, 2020 and $605.7 million as of December 31, 2020, a substantial portion of which relates to loans held for investment evaluated on a collective basis (the collective allowance). The Company estimated the January 1, 2020 collective allowance and December 31, 2020 collective allowance (together, the 2020 collective allowance) on a collective (pool) basis for loans grouped with similar risk characteristics based upon the nature of the loan type and individual loan risk ratings. The Company estimated the 2020 collective allowance using a discounted cash flow model for each loan group over the contractual term of the loan, adjusted for expected prepayments and curtailments where appropriate. Such model applies the forecasted PD, which is the probability that a borrower will default, adjusted for relevant 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 to the estimated cash flows. To the extent the estimated lives of the loans in the portfolio extend beyond the reasonable and supportable forecast of two years, the Company reverts on a straight-line basis back to the historical loss rates over a one-year period. A portion of the 2020 collective allowance is comprised of qualitative adjustments to ensure modeled results remain consistent with the expected loss requirement. This includes factoring in enacted stimulus as well as the expected impact on future defaults.
We identified the assessment of the January 1, 2020 collective allowance and December 31, 2020 collective allowance as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment. Specifically, the assessment encompassed the evaluation of the 2020 collective allowance methodology, including the methods and models used to estimate the inputs to the discounted cash flow model including the forecasted PD and LGD, portfolio segmentation, the selection of the macroeconomic forecasts and the weighting of each, the selection of macroeconomic factors, the reasonable and supportable forecast period, reversion methodology, the historical observation period, and loan risk ratings for commercial loans. The assessment also included an evaluation of the qualitative factors and the significant assumptions that historical default observations are not reflective of charge-offs over the life of the portfolio. The assessment also included an evaluation of the conceptual soundness and performance monitoring of the forecasted PD and LGD models and macroeconomic forecasts. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the measurement of the 2020 collective allowance estimates, including controls over the:
•development of the 2020 collective allowance methodology
•development of the forecasted PD and LGD models
•identification and determination of the significant assumptions used in the forecasted PD and LGD models, portfolio segmentation, the selection of the macroeconomic forecasts and the weighting of each, the selection of the macroeconomic factors, the reasonable and supportable forecast period, reversion methodology, and the historical observation period
•development of loan risk ratings for commercial loans
•development of the qualitative factors and the significant assumptions that historical default observations are not reflective of charge-offs over the life of the portfolio
•conceptual soundness and performance monitoring of the forecasted PD and LGD models and macroeconomic forecasts
•analysis of 2020 collective allowance results, trends, and ratios.
We evaluated the Company’s process to develop the 2020 collective allowance estimates by testing certain sources of data, variables, and assumptions that the Company used, and considered the relevance and reliability of such data, variables, and assumptions. We also involved credit risk professionals with specialized skills and knowledge who assisted in:
•evaluating the Company’s 2020 collective allowance on loans methodology for compliance with U.S. generally accepted accounting principles
•evaluating assumptions made by the Company relative to the macroeconomic forecasts, including the appropriateness of their weightings and selection of macroeconomic factors, and forecasted PD and LGD used in the discounted cash flow models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices
•testing the historical observation period and reasonable and supportable forecast and reversion methodology to evaluate the length of each period by comparing to specific portfolio risk characteristics and trends
•determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices
•assessing the conceptual soundness and performance monitoring of the macroeconomic forecast, forecasted PD and LGD models by inspecting the model documentation to determine whether the models are suitable for their intended use
•testing individual internal commercial loan risk ratings for a selection of loans by evaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral
•evaluating the methodology used to develop the qualitative factors and the effect of the factors on the 2020 collective allowance compared with relevant credit risk factors and consistent with credit trends and the identified limitations in the underlying quantitative model.
We also assessed the sufficiency of the audit evidence obtained related to the January 1, 2020 collective allowance and December 31, 2020 collective allowance by evaluating the:
•cumulative results of the audit procedures
•qualitative aspects of the Company’s accounting practices
•potential bias in the accounting estimates.
Evaluation of goodwill impairment assessment
As discussed in Notes 1 and 7 to the consolidated financial statements, the goodwill balance as of December 31, 2020 was $452.4 million, of which $256.4 million related to the Community Banking reporting unit, $171.6 million related to the Wholesale Banking reporting unit, and $24.4 million related to the Wealth Management reporting unit. The Company 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. The Company performed quantitative assessments as of March 31, 2020, June 30, 2020, September 30, 2020, and November 30, 2020 which indicated the fair value of the Community Banking, Wholesale Banking and Wealth Management reporting units exceeded their carrying amounts. The quantitative assessment performed at September 30, 2020 indicated the fair value of the Consumer Mortgage reporting unit was less than its carrying amount resulting in a $44.9 million goodwill impairment charge representing all goodwill allocated to the reporting unit. The quantitative assessment of goodwill impairment included determining the estimated fair value of each reporting unit, utilizing a combination of discounted cash flow and market-based approaches, and comparing that fair value to each reporting unit’s carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The discounted cash flow method was weighted 60% and the market-based approach was weighted 40% for all assessments during 2020. The discounted cash flow method included internal forecasts, long-term profitability targets, growth rates and discount rates. The market approach was based on a comparison of certain financial metrics of the Company’s reporting units to guideline public company peers.
We identified the evaluation of the goodwill impairment assessment for the Community Banking, Wholesale Banking and Consumer Mortgage reporting units as a critical audit matter. The estimated fair values of the Community Banking, and Wholesale Banking reporting units for the March 31, 2020, June 30, 2020, September, 30 and November 30, 2020 assessments and the Consumer Mortgage reporting unit for the March 31, 2020 and June 30, 2020 assessments, approximated their carrying values indicating a higher risk that the goodwill may be impaired and, therefore, involved a higher degree of complex auditor judgment. Specifically, complex auditor judgment was required to assess the internal forecasts, long-term profitability targets, growth rates, and the discount rate assumptions within the discounted cash flow method; the guideline public company peer information within the market approach; and the weighting of the discounted cash flow and market approaches.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s assessment of goodwill impairment, including controls over the:
•development of the internal forecasts, long-term profitability targets, growth rates, and discount rates for the Community Banking, Wholesale Banking, and Consumer Mortgage reporting units
•development of the guideline public company peer information for the Community Banking, Wholesale Banking, and Consumer Mortgage reporting units
•development of the weighting between the discounted cash flow and market approaches.
We evaluated the reasonableness of the Company’s internal forecasts, long-term profitability targets, and growth rate assumptions by comparing the assumptions to historic projections and internal and external information. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
•developing a calculated range of the Community Banking, Wholesale Banking and Consumer Mortgage reporting units’ fair value using management’s reporting unit cash flow forecasts and an independently developed discount rate
•developing a calculated range of the Community Banking, Wholesale Banking and Consumer Mortgage reporting units’ fair value by independently evaluating and selecting peer multiples and observed control premiums utilizing publicly available data for comparable entities
•developing a calculated range of fair values by independently weighting the fair value results of the discounted cash flow and market approaches and comparing the results to the carrying value of the reporting units.
We have served as the Company’s auditor since 1975.
/s/ KPMG LLP
Atlanta, Georgia
February 28, 2019March 1, 2021
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Synovus Financial Corp.:
Opinion on Internal Control Over Financial Reporting
We have audited Synovus Financial Corp.’s (the Company) internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company and subsidiaries as of December 31, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018,2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2019March 1, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Atlanta, Georgia
February 28, 2019March 1, 2021
Synovus Financial Corp.
Consolidated Balance Sheets
|
| | | | | | | | |
| | | December 31, |
| (in thousands, except share and per share data) | | 2018 | | 2017 |
| ASSETS | | | | |
| Cash and due from banks | | $ | 468,426 |
| | $ | 397,848 |
|
| Interest-bearing funds with Federal Reserve Bank | | 641,476 |
| | 460,928 |
|
| Interest earning deposits with banks | | 19,841 |
| | 26,311 |
|
| Federal funds sold and securities purchased under resale agreements | | 13,821 |
| | 47,846 |
|
Total cash, cash equivalents, restricted cash, and restricted cash equivalents(1) | | 1,143,564 |
| | 932,933 |
|
| Mortgage loans held for sale, at fair value | | 37,129 |
| | 48,024 |
|
| Investment securities available for sale, at fair value | | 3,991,632 |
| | 3,987,069 |
|
| Loans, net of deferred fees and costs | | 25,946,573 |
| | 24,787,464 |
|
| Allowance for loan losses | | (250,555 | ) | | (249,268 | ) |
| Loans, net | | 25,696,018 |
| | 24,538,196 |
|
| Cash surrender value of bank-owned life insurance | | 554,134 |
| | 540,958 |
|
| Premises and equipment, net | | 434,307 |
| | 426,813 |
|
| Goodwill | | 57,315 |
| | 57,315 |
|
| Other intangible assets | | 9,875 |
| | 11,254 |
|
| Deferred tax asset, net | | 141,134 |
| | 165,788 |
|
| Other assets | | 604,084 |
| | 513,487 |
|
| Total assets | | $ | 32,669,192 |
| | $ | 31,221,837 |
|
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
| Liabilities | | | | |
| Deposits: | | | | |
| Non-interest-bearing deposits | | $ | 7,650,967 |
| | $ | 7,686,339 |
|
| Interest-bearing deposits | | 19,069,355 |
| | 18,461,561 |
|
| Total deposits | | 26,720,322 |
| | 26,147,900 |
|
| Federal funds purchased and securities sold under repurchase agreements | | 237,692 |
| | 161,190 |
|
| Other short-term borrowings | | 650,000 |
| | 100,000 |
|
| Long-term debt | | 1,657,157 |
| | 1,606,138 |
|
| Other liabilities | | 270,419 |
| | 245,043 |
|
| Total liabilities | | 29,535,590 |
| | 28,260,271 |
|
| Shareholders' Equity | | | | |
| Series C Preferred Stock - no par value; 5,200,000 outstanding at December 31, 2017 | | — |
| | 125,980 |
|
| Series D Preferred Stock - no par value; authorized 100,000,000 shares; 8,000,000 shares issued and outstanding at December 31, 2018 | | 195,140 |
| | — |
|
| Common stock - $1.00 par value; authorized 342,857,143 shares; 143,300,449 issued at December 31, 2018 and 142,677,449 issued at December 31, 2017; 115,865,510 outstanding at December 31, 2018 and 118,897,295 outstanding at December 31, 2017 | | 143,300 |
| | 142,678 |
|
| Additional paid-in capital | | 3,060,561 |
| | 3,043,129 |
|
| Treasury stock, at cost – 27,434,939 shares at December 31, 2018 and 23,780,154 shares at December 31, 2017 | | (1,014,746 | ) | | (839,674 | ) |
| Accumulated other comprehensive loss, net | | (94,420 | ) | | (54,754 | ) |
| Retained earnings | | 843,767 |
| | 544,207 |
|
| Total shareholders’ equity | | 3,133,602 |
| | 2,961,566 |
|
| Total liabilities and shareholders' equity | | $ | 32,669,192 |
| | $ | 31,221,837 |
|
| | | | | |
See accompanying notes to audited consolidated financial statements. | |
(1)
| See "Note 1 - Summary of Significant Accounting Policies" of this Report for information on Synovus' change in presentation of cash and cash equivalents. |
Synovus Financial Corp.
Consolidated Statements of Income |
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (in thousands, except per share data) | | 2018 | | 2017 | | 2016 |
| Interest income: | | | | | | |
| Loans, including fees | | $ | 1,226,648 |
| | $ | 1,064,276 |
| | $ | 944,233 |
|
| Investment securities available for sale | | 96,928 |
| | 82,699 |
| | 67,467 |
|
| Mortgage loans held for sale | | 1,950 |
| | 1,926 |
| | 2,646 |
|
| Federal Reserve Bank balances | | 10,156 |
| | 6,470 |
| | 4,356 |
|
| Other earning assets | | 8,623 |
| | 7,126 |
| | 4,101 |
|
| Total interest income | | 1,344,305 |
| | 1,162,497 |
| | 1,022,803 |
|
| Interest expense: | | | | | | |
| Deposits | | 143,871 |
| | 81,325 |
| | 64,206 |
|
| Federal funds purchased, securities sold under repurchase agreements, and other short-term borrowings | | 3,553 |
| | 950 |
| | 501 |
|
| Long-term debt | | 48,468 |
| | 56,913 |
| | 58,916 |
|
| Total interest expense | | 195,892 |
| | 139,188 |
| | 123,623 |
|
| Net interest income | | 1,148,413 |
| | 1,023,309 |
| | 899,180 |
|
| Provision for loan losses | | 51,697 |
| | 67,185 |
| | 28,000 |
|
| Net interest income after provision for loan losses | | 1,096,716 |
| | 956,124 |
| | 871,180 |
|
| Non-interest income: | | | | | | |
| Service charges on deposit accounts | | 80,840 |
| | 81,419 |
| | 83,246 |
|
| Fiduciary and asset management fees | | 54,685 |
| | 50,485 |
| | 46,594 |
|
| Card fees | | 42,503 |
| | 39,376 |
| | 39,302 |
|
| Brokerage revenue | | 36,567 |
| | 29,705 |
| | 27,028 |
|
| Mortgage banking income | | 18,958 |
| | 22,798 |
| | 24,259 |
|
| Income from bank-owned life insurance | | 15,403 |
| | 13,460 |
| | 11,364 |
|
| Cabela's Transaction Fee | | — |
| | 75,000 |
| | — |
|
| Investment securities (losses) gains, net | | (1,296 | ) | | (289 | ) | | 6,011 |
|
| Other fee income | | 19,974 |
| | 20,168 |
| | 20,220 |
|
| Other non-interest income | | 12,459 |
| | 13,205 |
| | 15,170 |
|
| Total non-interest income | | 280,093 |
| | 345,327 |
| | 273,194 |
|
| Non-interest expense: | | | | | | |
| Salaries and other personnel expense | | 453,420 |
| | 433,321 |
| | 402,026 |
|
| Net occupancy and equipment expense | | 130,482 |
| | 119,964 |
| | 109,347 |
|
| Third-party processing expense | | 58,625 |
| | 54,708 |
| | 46,320 |
|
| FDIC insurance and other regulatory fees | | 24,494 |
| | 27,011 |
| | 26,714 |
|
| Professional fees | | 26,737 |
| | 26,232 |
| | 26,698 |
|
| Advertising expense | | 20,881 |
| | 22,948 |
| | 20,264 |
|
| Foreclosed real estate expense, net | | 2,204 |
| | 12,540 |
| | 12,838 |
|
| Loss on early extinguishment of debt, net | | — |
| | 23,160 |
| | 4,735 |
|
| Earnout liability adjustments | | 11,652 |
| | 5,466 |
| | — |
|
| Merger-related expense | | 10,065 |
| | 110 |
| | 1,636 |
|
| Other operating expenses | | 90,895 |
| | 95,853 |
| | 105,345 |
|
| Total non-interest expense | | 829,455 |
| | 821,313 |
| | 755,923 |
|
| Income before income taxes | | 547,354 |
| | 480,138 |
| | 388,451 |
|
| Income tax expense | | 118,878 |
| | 204,664 |
| | 141,667 |
|
| Net income | | 428,476 |
| | 275,474 |
| | 246,784 |
|
| Less: Preferred stock dividends and redemption charge | | 17,998 |
| | 10,238 |
| | 10,238 |
|
| Net income available to common shareholders | | $ | 410,478 |
| | $ | 265,236 |
| | $ | 236,546 |
|
| Net income per common share, basic | | $ | 3.49 |
| | $ | 2.19 |
| | $ | 1.90 |
|
| Net income per common share, diluted | | 3.47 |
| | 2.17 |
| | 1.89 |
|
| Weighted average common shares outstanding, basic | | 117,644 |
| | 121,162 |
| | 124,389 |
|
| Weighted average common shares outstanding, diluted | | 118,378 |
| | 122,012 |
| | 125,078 |
|
| | | | | | | |
| | | | | | | | | | | | | | |
| | December 31, |
| (in thousands, except share and per share data) | | 2020 | | 2019 |
| ASSETS | | | | |
| Cash and due from banks | | $ | 531,625 | | | $ | 535,846 | |
| Interest-bearing funds with Federal Reserve Bank | | 3,586,565 | | | 553,390 | |
| Interest earning deposits with banks | | 20,944 | | | 20,635 | |
| Federal funds sold and securities purchased under resale agreements | | 113,783 | | | 77,047 | |
| Total cash, cash equivalents, and restricted cash | | 4,252,917 | | | 1,186,918 | |
| Investment securities available for sale, at fair value | | 7,962,438 | | | 6,778,670 | |
| Loans held for sale (includes $216,647 and $115,173, measured at fair value, respectively) | | 760,123 | | | 115,173 | |
| Loans, net of deferred fees and costs | | 38,252,984 | | | 37,162,450 | |
| Allowance for loan losses | | (605,736) | | | (281,402) | |
| Loans, net | | 37,647,248 | | | 36,881,048 | |
| Cash surrender value of bank-owned life insurance | | 1,049,373 | | | 775,665 | |
| Premises, equipment and software, net | | 463,959 | | | 493,940 | |
| Goodwill | | 452,390 | | | 497,267 | |
| Other intangible assets, net | | 45,112 | | | 55,671 | |
| Other assets | | 1,760,599 | | | 1,418,930 | |
| Total assets | | $ | 54,394,159 | | | $ | 48,203,282 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
| Liabilities | | | | |
| Deposits: | | | | |
| Non-interest-bearing deposits | | $ | 13,477,854 | | | $ | 9,439,485 | |
| Interest-bearing deposits | | 33,213,717 | | | 28,966,019 | |
| Total deposits | | 46,691,571 | | | 38,405,504 | |
| Securities sold under repurchase agreements | | 227,922 | | | 165,690 | |
| Other short-term borrowings | | 7,717 | | | 1,753,560 | |
| Long-term debt | | 1,202,494 | | | 2,153,897 | |
| Other liabilities | | 1,103,121 | | | 782,941 | |
| Total liabilities | | 49,232,825 | | | 43,261,592 | |
| Shareholders’ Equity | | | | |
| Preferred stock - no par value; authorized 100,000,000 shares; issued 22,000,000 | | 537,145 | | | 537,145 | |
| Common stock - $1.00 par value; authorized 342,857,143 shares; issued 168,132,522 and 166,800,623; outstanding 148,039,495 and 147,157,596 | | 168,133 | | | 166,801 | |
| Additional paid-in capital | | 3,851,208 | | | 3,819,336 | |
| Treasury stock, at cost; 20,093,027 and 19,643,027 shares | | (731,806) | | | (715,560) | |
| Accumulated other comprehensive income, net | | 158,635 | | | 65,641 | |
| Retained earnings | | 1,178,019 | | | 1,068,327 | |
| Total shareholders’ equity | | 5,161,334 | | | 4,941,690 | |
| Total liabilities and shareholders' equity | | $ | 54,394,159 | | | $ | 48,203,282 | |
| | | | |
See accompanying notes to the audited consolidated financial statements.
Synovus Financial Corp.
Consolidated Statements of Income
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in thousands, except per share data) | | 2020 | | 2019 | | 2018 |
| Interest income: | | | | | | |
| Loans, including fees | | $ | 1,600,462 | | | $ | 1,817,285 | | | $ | 1,226,648 | |
| Investment securities available for sale | | 178,575 | | | 208,826 | | | 96,928 | |
| Loans held for sale | | 15,078 | | | 3,254 | | | 1,983 | |
| Federal Reserve Bank balances | | 2,839 | | | 10,384 | | | 10,156 | |
| Other earning assets | | 7,541 | | | 10,889 | | | 8,590 | |
| Total interest income | | 1,804,495 | | | 2,050,638 | | | 1,344,305 | |
| Interest expense: | | | | | | |
| Deposits | | 217,777 | | | 356,949 | | | 143,871 | |
| Federal funds purchased, securities sold under repurchase agreements, and other short-term borrowings | | 7,917 | | | 26,185 | | | 3,553 | |
| Long-term debt | | 66,053 | | | 71,701 | | | 48,468 | |
| Total interest expense | | 291,747 | | | 454,835 | | | 195,892 | |
| Net interest income | | 1,512,748 | | | 1,595,803 | | | 1,148,413 | |
Provision for credit losses(1) | | 355,022 | | | 87,720 | | | 51,697 | |
| Net interest income after provision for credit losses | | 1,157,726 | | | 1,508,083 | | | 1,096,716 | |
| Non-interest revenue: | | | | | | |
| Service charges on deposit accounts | | 73,132 | | | 88,190 | | | 80,840 | |
| Fiduciary and asset management fees | | 63,251 | | | 58,388 | | | 54,685 | |
| Card fees | | 42,702 | | | 45,659 | | | 42,503 | |
| Brokerage revenue | | 44,781 | | | 41,608 | | | 35,366 | |
| Mortgage banking income | | 91,413 | | | 32,599 | | | 18,958 | |
| Capital markets income | | 27,336 | | | 30,529 | | | 5,803 | |
| Income from bank-owned life insurance | | 31,297 | | | 21,226 | | | 15,403 | |
| Investment securities gains (losses), net | | 78,931 | | | (7,659) | | | (1,296) | |
| Other non-interest revenue | | 53,670 | | | 45,360 | | | 27,831 | |
| Total non-interest revenue | | 506,513 | | | 355,900 | | | 280,093 | |
| Non-interest expense: | | | | | | |
| Salaries and other personnel expense | | 618,214 | | | 570,036 | | | 453,420 | |
| Net occupancy, equipment, and software expense | | 169,658 | | | 161,906 | | | 130,482 | |
| Third-party processing and other services | | 83,034 | | | 75,696 | | | 58,625 | |
| Professional fees | | 56,899 | | | 35,300 | | | 26,737 | |
| FDIC insurance and other regulatory fees | | 25,210 | | | 31,696 | | | 24,494 | |
| Advertising expense | | 14,387 | | | 21,371 | | | 20,881 | |
| Goodwill impairment | | 44,877 | | | 0 | | | 0 | |
| Restructuring charges | | 26,991 | | | 1,230 | | | (51) | |
| Merger-related expense | | 0 | | | 56,580 | | | 10,065 | |
| Other operating expenses | | 140,304 | | | 145,153 | | | 104,802 | |
| Total non-interest expense | | 1,179,574 | | | 1,098,968 | | | 829,455 | |
| Income before income taxes | | 484,665 | | | 765,015 | | | 547,354 | |
| Income tax expense | | 110,970 | | | 201,235 | | | 118,878 | |
| Net income | | 373,695 | | | 563,780 | | | 428,476 | |
| Less: Preferred stock dividends | | 33,163 | | | 22,881 | | | 17,998 | |
| Net income available to common shareholders | | $ | 340,532 | | | $ | 540,899 | | | $ | 410,478 | |
| Net income per common share, basic | | $ | 2.31 | | | $ | 3.50 | | | $ | 3.49 | |
| Net income per common share, diluted | | 2.30 | | | 3.47 | | | 3.47 | |
| Weighted average common shares outstanding, basic | | 147,415 | | | 154,331 | | | 117,644 | |
| Weighted average common shares outstanding, diluted | | 148,210 | | | 156,058 | | | 118,378 | |
| | | | | | |
(1) Beginning January 1, 2020, provision calculation is based on current expected credit loss methodology. Prior to January 1, 2020, calculation was based on incurred loss methodology.
See accompanying notes to the audited consolidated financial statements.
Synovus Financial Corp.
Consolidated Statements of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 | | December 31, 2016 |
| (in thousands) | Before-tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount | | Before-tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount | | Before-tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount |
| Net income | $ | 547,354 |
| | $ | (118,878 | ) | | $ | 428,476 |
| | $ | 480,138 |
| | $ | (204,664 | ) | | $ | 275,474 |
| | $ | 388,451 |
| | $ | (141,667 | ) | | $ | 246,784 |
|
| Net change related to cash flow hedges: | | | | | | | | | | | | | | | | | |
| Reclassification adjustment for losses realized in net income | — |
| | — |
| | — |
| | 130 |
| | (50 | ) | | 80 |
| | 467 |
| | (180 | ) | | 287 |
|
| Net unrealized (losses) gains on investment securities available for sale: | | | | | | | | | | | | | | | | | |
| Reclassification adjustment for net losses (gains) realized in net income | 1,296 |
| | (336 | ) | | 960 |
| | 289 |
| | (111 | ) | | 178 |
| | (6,011 | ) | | 2,314 |
| | (3,697 | ) |
| Net unrealized (losses) gains arising during the period | (44,565 | ) | | 11,542 |
| | (33,023 | ) | | 1,038 |
| | (362 | ) | | 676 |
| | (36,432 | ) | | 14,027 |
| | (22,405 | ) |
| Net unrealized (losses) gains | (43,269 | ) | | 11,206 |
| | (32,063 | ) | | 1,327 |
| | (473 | ) | | 854 |
| | (42,443 | ) | | 16,341 |
| | (26,102 | ) |
| Post-retirement unfunded health benefit: | | | | | | | | | | | | | | | | | |
| Reclassification adjustment for gains realized in net income | (132 | ) | | 34 |
| | (98 | ) | | (110 | ) | | 43 |
| | (67 | ) | | (144 | ) | | 56 |
| | (88 | ) |
| Actuarial (losses) gains arising during the period | (46 | ) | | 12 |
| | (34 | ) | | 61 |
| | (23 | ) | | 38 |
| | 102 |
| | (39 | ) | | 63 |
|
| Net decrease in unrealized gains, net | (178 | ) | | 46 |
| | (132 | ) | | (49 | ) | | 20 |
| | (29 | ) | | (42 | ) | | 17 |
| | (25 | ) |
| Other comprehensive (loss) income | $ | (43,447 | ) | | $ | 11,252 |
| | $ | (32,195 | ) | | $ | 1,408 |
| | $ | (503 | ) | | $ | 905 |
| | $ | (42,018 | ) | | $ | 16,178 |
| | $ | (25,840 | ) |
| Comprehensive income |
| |
|
| | $ | 396,281 |
| |
| |
|
| | $ | 276,379 |
| |
| |
|
| | $ | 220,944 |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (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 | $ | 484,665 | | | $ | (110,970) | | | $ | 373,695 | | | $ | 765,015 | | | $ | (201,235) | | | $ | 563,780 | | | $ | 547,354 | | | $ | (118,878) | | | $ | 428,476 | |
| Unrealized gains (losses) on investment securities available for sale: | | | | | | | | | | | | | | | | | |
| Net unrealized gains (losses) arising during the period | 108,626 | | | (28,135) | | | 80,491 | | | 217,501 | | | (56,331) | | | 161,170 | | | (44,565) | | | 11,542 | | | (33,023) | |
| Reclassification adjustment for realized (gains) losses included in net income | (78,931) | | | 20,443 | | | (58,488) | | | 7,659 | | | (1,984) | | | 5,675 | | | 1,296 | | | (336) | | | 960 | |
| Net change | 29,695 | | | (7,692) | | | 22,003 | | | 225,160 | | | (58,315) | | | 166,845 | | | (43,269) | | | 11,206 | | | (32,063) | |
| Unrealized gains (losses) on derivative instruments designated as cash flow hedges: | | | | | | | | | | | | | | | | | |
| Net unrealized gains (losses) arising during the period | 99,193 | | | (25,691) | | | 73,502 | | | (8,570) | | | 2,220 | | | (6,350) | | | 0 | | | 0 | | | 0 | |
| Reclassification adjustment for realized (gains) losses included in net income | (2,765) | | | 716 | | | (2,049) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net change | 96,428 | | | (24,975) | | | 71,453 | | | (8,570) | | | 2,220 | | | (6,350) | | | 0 | | | 0 | | | 0 | |
| Post-retirement unfunded health benefit: | | | | | | | | | | | | | | | | | |
| Actuarial gains (losses) arising during the period | 0 | | | 0 | | | 0 | | | (510) | | | 132 | | | (378) | | | (46) | | | 12 | | | (34) | |
| Reclassification adjustment for realized (gains) losses included in net income | (618) | | | 156 | | | (462) | | | (70) | | | 14 | | | (56) | | | (132) | | | 34 | | | (98) | |
| Net change | (618) | | | 156 | | | (462) | | | (580) | | | 146 | | | (434) | | | (178) | | | 46 | | | (132) | |
| Total other comprehensive income (loss) | $ | 125,505 | | | $ | (32,511) | | | $ | 92,994 | | | $ | 216,010 | | | $ | (55,949) | | | $ | 160,061 | | | $ | (43,447) | | | $ | 11,252 | | | $ | (32,195) | |
| Comprehensive income | | | | | $ | 466,689 | | | | | | | $ | 723,841 | | | | | | | $ | 396,281 | |
| | | | | | | | | | | | | | | | | |
See accompanying notes to the audited consolidated financial statements.
Synovus Financial Corp.
Consolidated Statements of Changes in Shareholders' Equity | | (in thousands, except per share data) | Series C Preferred Stock | | Series D Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | (in thousands, except per share data) | Preferred Stock | | Common
Stock | | Additional
Paid-in
Capital | | Treasury
Stock | | AOCI | | Retained Earnings | | Total |
| Balance at December 31, 2015 | $ | 125,980 |
| | $ | — |
| | $ | 140,592 |
| | $ | 2,989,981 |
| | $ | (401,511 | ) | | $ | (29,819 | ) | | $ | 174,973 |
| | $ | 3,000,196 |
| |
| Balance at December 31, 2017 | | Balance at December 31, 2017 | $ | 125,980 | | | $ | 142,678 | | | $ | 3,043,129 | | | $ | (839,674) | | | $ | (54,754) | | | $ | 544,207 | | | $ | 2,961,566 | |
| Cumulative-effect adjustment from adoption of ASU 2014-09, Revenue from Contracts with Customers, net of tax | | Cumulative-effect adjustment from adoption of ASU 2014-09, Revenue from Contracts with Customers, net of tax | — | | | — | | | — | | | — | | | — | | | (685) | | | (685) | |
| Reclassification from adoption of ASU 2018-02 | | Reclassification from adoption of ASU 2018-02 | — | | | — | | | — | | | — | | | (7,588) | | | 7,588 | | | 0 | |
| Cumulative effect adjustment from adoption of ASU 2016-01 | | Cumulative effect adjustment from adoption of ASU 2016-01 | — | | | — | | | — | | | — | | | 117 | | | (117) | | | 0 | |
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 246,784 |
| | 246,784 |
| Net income | — | | | — | | | — | | | — | | | — | | | 428,476 | | | 428,476 | |
| Other comprehensive loss, net of income taxes | — |
| | — |
| | — |
| | — |
| | — |
| | (25,840 | ) | | — |
| | (25,840 | ) | |
| Cash dividends declared on common stock - $0.48 per share | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (59,425 | ) | | (59,425 | ) | |
| Cash dividends paid on Series C Preferred Stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (10,238 | ) | | (10,238 | ) | |
| Repurchases of common stock | — |
| | — |
| | — |
| | — |
| | (263,084 | ) | | — |
| | — |
| | (263,084 | ) | |
| Issuance of common stock for acquisition | — |
| | — |
| | 821 |
| | 25,771 |
| | — |
| | — |
| | — |
| | 26,592 |
| |
| Restricted share unit vesting and taxes paid related to net share settlement | — |
| | — |
| | 316 |
| | (5,030 | ) | | — |
| | — |
| | (327 | ) | | (5,041 | ) | |
| Stock options exercised | — |
| | — |
| | 297 |
| | 4,858 |
| | — |
| | — |
| | — |
| | 5,155 |
| |
| Share-based compensation net tax deficiency | — |
| | — |
| | — |
| | (790 | ) | | — |
| | — |
| | — |
| | (790 | ) | |
| Share-based compensation expense | — |
| | — |
| | — |
| | 13,615 |
| | — |
| | — |
| | — |
| | 13,615 |
| |
| Balance at December 31, 2016 | $ | 125,980 |
| | $ | — |
| | $ | 142,026 |
| | $ | 3,028,405 |
| | $ | (664,595 | ) | | $ | (55,659 | ) | | $ | 351,767 |
| | $ | 2,927,924 |
| |
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 275,474 |
| | 275,474 |
| |
| Other comprehensive income, net of income taxes | — |
| | — |
| | — |
| | — |
| | — |
| | 905 |
| | — |
| | 905 |
| |
| Cash dividends declared on common stock - $0.60 per share | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (72,506 | ) | | (72,506 | ) | |
| Cash dividends paid on Series C Preferred Stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (10,238 | ) | | (10,238 | ) | |
| Repurchases of common stock | — |
| | — |
| | — |
| | — |
| | (175,079 | ) | | — |
| | — |
| | (175,079 | ) | |
| Issuance of common stock for earnout payment | — |
| | — |
| | 118 |
| | 5,342 |
| | — |
| | — |
| | — |
| | 5,460 |
| |
| Restricted share unit vesting and taxes paid related to net share settlement | — |
| | — |
| | 336 |
| | (8,039 | ) | | — |
| | — |
| | (290 | ) | | (7,993 | ) | |
| Stock options exercised | — |
| | — |
| | 198 |
| | 3,242 |
| | — |
| | — |
| | — |
| | 3,440 |
| |
| Share-based compensation expense | — |
| | — |
| | — |
| | 14,179 |
| | — |
| | — |
| | — |
| | 14,179 |
| |
| Balance at December 31, 2017 | $ | 125,980 |
| | $ | — |
| | $ | 142,678 |
| | $ | 3,043,129 |
| | $ | (839,674 | ) | | $ | (54,754 | ) | | $ | 544,207 |
| | $ | 2,961,566 |
| |
| Cumulative-effect adjustment from adoption of ASU 2014-09 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (685 | ) | | (685 | ) | |
| Reclassification from adoption of ASU 2018-02 | — |
| | — |
| | — |
| | — |
| | — |
| | (7,588 | ) | | 7,588 |
| | — |
| |
| Cumulative-effect adjustment from adoption of ASU 2016-01 | — |
| | — |
| | — |
| | — |
| | — |
| | 117 |
| | (117 | ) | | — |
| |
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 428,476 |
| | 428,476 |
| |
| Other comprehensive loss, net of income taxes | — |
| | — |
| | — |
| | — |
| | — |
| | (32,195 | ) | | — |
| | (32,195 | ) | |
| Other comprehensive (loss), net of income taxes | | Other comprehensive (loss), net of income taxes | — | | | — | | | — | | | — | | | (32,195) | | | — | | | (32,195) | |
| Cash dividends declared on common stock - $1.00 per share | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (117,355 | ) | | (117,355 | ) | Cash dividends declared on common stock - $1.00 per share | — | | | — | | | — | | | — | | | — | | | (117,355) | | | (117,355) | |
| Cash dividends paid on Series C Preferred Stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7,678 | ) | | (7,678 | ) | |
Cash dividends declared on preferred stock(1) | | Cash dividends declared on preferred stock(1) | — | | | — | | | — | | | — | | | — | | | (13,978) | | | (13,978) | |
| Redemption of Series C Preferred Stock | (125,980 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (4,020 | ) | | (130,000 | ) | Redemption of Series C Preferred Stock | (125,980) | | | — | | | — | | | — | | | — | | | (4,020) | | | (130,000) | |
| Issuance of Series D Preferred Stock, net of issuance costs | — |
| | 195,140 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 195,140 |
| Issuance of Series D Preferred Stock, net of issuance costs | 195,140 | | | — | | | — | | | — | | | — | | | — | | | 195,140 | |
| Cash dividends paid on Series D Preferred Stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6,300 | ) | | (6,300 | ) | |
| Repurchases of common stock | — |
| | — |
| | — |
| | — |
| | (175,072 | ) | | — |
| | — |
| | (175,072 | ) | |
| Repurchases of common stock including costs to repurchase | | Repurchases of common stock including costs to repurchase | — | | | — | | | — | | | (175,072) | | | — | | | — | | | (175,072) | |
| Issuance of common stock for earnout payment | — |
| | — |
| | 199 |
| | 7,228 |
| | — |
| | — |
| | — |
| | 7,427 |
| Issuance of common stock for earnout payment | — | | | 199 | | | 7,228 | | | — | | | — | | | — | | | 7,427 | |
| Restricted share unit vesting and taxes paid related to net share settlement | — |
| | — |
| | 297 |
| | (8,452 | ) | | — |
| | — |
| | (349 | ) | | (8,504 | ) | Restricted share unit vesting and taxes paid related to net share settlement | — | | | 297 | | | (8,452) | | | — | | | — | | | (349) | | | (8,504) | |
| Stock options exercised | — |
| | — |
| | 126 |
| | 2,013 |
| | — |
| | — |
| | — |
| | 2,139 |
| Stock options exercised | — | | | 126 | | | 2,013 | | | — | | | — | | | — | | | 2,139 | |
| Share-based compensation expense | — |
| | — |
| | — |
| | 16,643 |
| | — |
| | — |
| | — |
| | 16,643 |
| Share-based compensation expense | — | | | — | | | 16,643 | | | — | | | — | | | — | | | 16,643 | |
| Balance at December 31, 2018 | $ | — |
| | $ | 195,140 |
| | $ | 143,300 |
| | $ | 3,060,561 |
| | $ | (1,014,746 | ) | | $ | (94,420 | ) | | $ | 843,767 |
| | $ | 3,133,602 |
| Balance at December 31, 2018 | $ | 195,140 | | | $ | 143,300 | | | $ | 3,060,561 | | | $ | (1,014,746) | | | $ | (94,420) | | | $ | 843,767 | | | $ | 3,133,602 | |
| | | | | | | | | | | | | | | | | |
| Cumulative-effect of change in accounting principle for leases (ASU 2016-02), net of tax | | Cumulative-effect of change in accounting principle for leases (ASU 2016-02), net of tax | — | | | — | | | — | | | — | | | — | | | 4,270 | | | 4,270 | |
| Net income | | Net income | — | | | — | | | — | | | — | | | — | | | 563,780 | | | 563,780 | |
| Other comprehensive income, net of income taxes | | Other comprehensive income, net of income taxes | — | | | — | | | — | | | — | | | 160,061 | | | — | | | 160,061 | |
| FCB acquisition: | | FCB acquisition: | |
| Issuance of common stock, net of issuance costs | | Issuance of common stock, net of issuance costs | — | | | 22,043 | | | 682,103 | | | — | | | — | | | — | | | 704,146 | |
| Common stock reissued | | Common stock reissued | — | | | — | | | — | | | 1,014,746 | | | — | | | (137,176) | | | 877,570 | |
| Fair value of exchanged equity awards and warrants attributed to purchase price | | Fair value of exchanged equity awards and warrants attributed to purchase price | — | | | — | | | 43,972 | | | — | | | — | | | — | | | 43,972 | |
| Cash dividends declared on common stock - $1.20 per share | | Cash dividends declared on common stock - $1.20 per share | — | | | — | | | — | | | — | | | — | | | (183,091) | | | (183,091) | |
Cash dividends declared on preferred stock(1) | | Cash dividends declared on preferred stock(1) | — | | | — | | | — | | | — | | | — | | | (22,881) | | | (22,881) | |
| Issuance of Series E Preferred Stock, net of issuance costs | | Issuance of Series E Preferred Stock, net of issuance costs | 342,005 | | | — | | | — | | | — | | | — | | | — | | | 342,005 | |
| Repurchases of common stock including costs to repurchase | | Repurchases of common stock including costs to repurchase | — | | | — | | | — | | | (725,398) | | | — | | | — | | | (725,398) | |
| Issuance of common stock for earnout payment | | Issuance of common stock for earnout payment | — | | | 344 | | | 11,502 | | | — | | | — | | | — | | | 11,846 | |
| Restricted share unit vesting and taxes paid related to net share settlement | | Restricted share unit vesting and taxes paid related to net share settlement | — | | | 302 | | | (8,831) | | | — | | | — | | | (326) | | | (8,855) | |
| Stock options/warrants exercised, net | | Stock options/warrants exercised, net | — | | | 812 | | | 15,364 | | | — | | | — | | | — | | | 16,176 | |
| Warrants exercised with net settlement and common stock reissued | | Warrants exercised with net settlement and common stock reissued | — | | | — | | | (9,822) | | | 9,838 | | | — | | | (16) | | | 0 | |
| Share-based compensation expense | | Share-based compensation expense | — | | | — | | | 24,487 | | | — | | | — | | | — | | | 24,487 | |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | $ | 537,145 | | | $ | 166,801 | | | $ | 3,819,336 | | | $ | (715,560) | | | $ | 65,641 | | | $ | 1,068,327 | | | $ | 4,941,690 | |
Cumulative-effect of change in accounting principle for credit losses (ASU 2016-13), net of tax(2) | | Cumulative-effect of change in accounting principle for credit losses (ASU 2016-13), net of tax(2) | — | | | — | | | — | | | — | | | — | | | (35,721) | | | (35,721) | |
| Net income | | Net income | — | | | — | | | — | | | — | | | — | | | 373,695 | | | 373,695 | |
| Other comprehensive income, net of income taxes | | Other comprehensive income, net of income taxes | — | | | — | | | — | | | — | | | 92,994 | | | — | | | 92,994 | |
| Cash dividends declared on common stock - $1.32 per share | | Cash dividends declared on common stock - $1.32 per share | — | | | — | | | — | | | — | | | — | | | (194,658) | | | (194,658) | |
Cash dividends declared on preferred stock(1) | | Cash dividends declared on preferred stock(1) | — | | | — | | | — | | | — | | | — | | | (33,163) | | | (33,163) | |
| Repurchases of common stock including costs to repurchase | | Repurchases of common stock including costs to repurchase | — | | | — | | | — | | | (16,246) | | | — | | | — | | | (16,246) | |
| Issuance of common stock for earnout payment | | Issuance of common stock for earnout payment | — | | | 379 | | | 8,316 | | | — | | | — | | | — | | | 8,695 | |
| Restricted share unit vesting and taxes paid related to net share settlement | | Restricted share unit vesting and taxes paid related to net share settlement | — | | | 389 | | | (7,503) | | | — | | | — | | | (461) | | | (7,575) | |
| Stock options exercised, net | | Stock options exercised, net | — | | | 564 | | | 12,418 | | | — | | | — | | | — | | | 12,982 | |
| Share-based compensation expense | | Share-based compensation expense | — | | | — | | | 18,641 | | | — | | | — | | | — | | | 18,641 | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | 537,145 | | | $ | 168,133 | | | $ | 3,851,208 | | | $ | (731,806) | | | $ | 158,635 | | | $ | 1,178,019 | | | $ | 5,161,334 | |
(1) For the year ended December 31, 2020, dividends per share were $1.58 and $1.47 for Series D and Series E Preferred Stock, respectively. For the year ended December 31, 2019, dividends per share were $1.58 and $0.73 for Series D and Series E Preferred Stock, respectively. For the year ended December 31, 2018, dividends per share were $1.48 and $0.79 for Series C and D Preferred Stock. respectively.
(2) For additional information, see "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies.
See accompanying notes to the audited consolidated financial statements.
Synovus Financial Corp.
Consolidated Statements of Cash Flows |
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in thousands) | 2018 | | 2017 | | 2016 |
| Operating Activities | | | | | |
| Net income | $ | 428,476 |
| | $ | 275,474 |
| | $ | 246,784 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Provision for loan losses | 51,697 |
| | 67,185 |
| | 28,000 |
|
| Depreciation, amortization, and accretion, net | 55,172 |
| | 59,121 |
| | 58,228 |
|
| Deferred income tax expense | 36,215 |
| | 231,056 |
| | 128,837 |
|
| Originations of mortgage loans held for sale | (543,073 | ) | | (622,564 | ) | | (705,394 | ) |
| Proceeds from sales of mortgage loans held for sale | 565,672 |
| | 642,193 |
| | 724,712 |
|
| Gain on sales of mortgage loans held for sale, net | (12,291 | ) | | (13,450 | ) | | (13,780 | ) |
| Increase in other assets | (83,957 | ) | | (74,090 | ) | | (9,600 | ) |
| Increase (decrease) in other liabilities | 22,202 |
| | 28,651 |
| | (4,239 | ) |
| Investment securities losses (gains), net | 1,296 |
| | 289 |
| | (6,011 | ) |
| Loss on early extinguishment of debt, net | — |
| | 23,160 |
| | 4,735 |
|
| Share-based compensation expense | 16,643 |
| | 14,179 |
| | 13,615 |
|
| Net cash provided by operating activities | 538,052 |
| | 631,204 |
| | 465,887 |
|
| Investing Activities | | | | | |
| Net cash received in acquisition | — |
| | — |
| | 6,146 |
|
| Proceeds from maturities and principal collections of investment securities available for sale | 603,099 |
| | 632,875 |
| | 894,123 |
|
| Proceeds from sales of investment securities available for sale | 35,066 |
| | 812,293 |
| | 968,606 |
|
| Purchases of investment securities available for sale | (700,194 | ) | | (1,729,902 | ) | | (2,051,283 | ) |
| Proceeds from sales of loans | 22,915 |
| | 42,726 |
| | 15,046 |
|
| Proceeds from sales of other real estate and other assets | 12,854 |
| | 17,480 |
| | 43,834 |
|
| Net increase in loans including purchases of loans | (1,235,260 | ) | | (1,060,582 | ) | | (1,129,422 | ) |
| Net (purchases) redemptions of Federal Home Loan Bank stock | (25,500 | ) | | 7,438 |
| | (4,250 | ) |
| Net (purchases) redemptions of Federal Reserve Bank stock | (282 | ) | | 2,984 |
| | (97,293 | ) |
| Purchases of bank-owned life insurance policies, net of settlements | 2,412 |
| | (148,110 | ) | | (28,126 | ) |
| Net increase in premises and equipment | (53,159 | ) | | (51,106 | ) | | (34,317 | ) |
| Net cash used in investing activities | (1,338,049 | ) | | (1,473,904 | ) | | (1,416,936 | ) |
| Financing Activities | | | | | |
| Net increase in deposits | 571,897 |
| | 1,499,085 |
| | 1,404,558 |
|
| Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements | 76,502 |
| | 1,491 |
| | (17,326 | ) |
| Net increase (decrease) in other short-term borrowings | 550,000 |
| | 100,000 |
| | (50,000 | ) |
| Repayments and redemption of long-term debt | (2,230,052 | ) | | (2,350,422 | ) | | (2,213,688 | ) |
| Proceeds from issuance of long-term debt | 2,280,000 |
| | 1,771,866 |
| | 1,875,000 |
|
| Dividends paid to common shareholders | (106,224 | ) | | (54,670 | ) | | (59,425 | ) |
| Dividends paid to preferred shareholders | (13,978 | ) | | (10,238 | ) | | (10,238 | ) |
| Net proceeds from issuance of Series D Preferred Stock | 195,140 |
| | — |
| | — |
|
| Redemption of Series C Preferred Stock | (130,000 | ) | | — |
| | — |
|
| Stock options exercised | 2,139 |
| | 3,440 |
| | 5,155 |
|
| Earnout payment | (1,220 | ) | | (892 | ) | | — |
|
| Repurchase of common stock | (175,072 | ) | | (175,079 | ) | | (263,084 | ) |
| Taxes paid related to net share settlement of equity awards | (8,504 | ) | | (7,993 | ) | | (5,041 | ) |
| Net cash provided by financing activities | 1,010,628 |
| | 776,588 |
| | 665,911 |
|
| Increase (decrease) in cash and cash equivalents including restricted cash | 210,631 |
| | (66,112 | ) | | (285,138 | ) |
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of year(1) | 932,933 |
| | 999,045 |
| | 1,284,183 |
|
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of year(1) | $ | 1,143,564 |
| | $ | 932,933 |
| | $ | 999,045 |
|
| | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2020 | | 2019 | | 2018 |
| Operating Activities | | | | | |
| Net income | $ | 373,695 | | | $ | 563,780 | | | $ | 428,476 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Provision for credit losses | 355,022 | | | 87,720 | | | 51,697 | |
| Depreciation, amortization, and accretion, net | 106,107 | | | 8,079 | | | 55,172 | |
| Deferred income tax (benefit) expense | (86,192) | | | 86,633 | | | 36,215 | |
| Originations of loans held for sale | (3,466,170) | | | (872,105) | | | (543,073) | |
| Proceeds from sales of loans held for sale | 2,936,398 | | | 816,223 | | | 565,672 | |
| Gain on sales of loans held for sale, net | (67,115) | | | (21,448) | | | (12,291) | |
| Increase in other assets | (411,632) | | | (127,636) | | | (83,957) | |
| Increase in other liabilities | 281,866 | | | 43,066 | | | 22,202 | |
| Investment securities (gains) losses, net | (78,931) | | | 7,659 | | | 1,296 | |
| Share-based compensation expense | 18,641 | | | 24,487 | | | 16,643 | |
| Other | 55,343 | | | 4,592 | | | 0 | |
| Net cash provided by operating activities | 17,032 | | | 621,050 | | | 538,052 | |
| Investing Activities | | | | | |
| Net cash received in business combination, net of cash paid | 0 | | | 201,100 | | | 0 | |
| Proceeds from maturities and principal collections of investment securities available for sale | 2,291,536 | | | 1,102,651 | | | 603,099 | |
| Proceeds from sales of investment securities available for sale | 4,054,670 | | | 2,923,787 | | | 35,066 | |
| Purchases of investment securities available for sale | (7,441,163) | | | (4,300,021) | | | (700,194) | |
| Proceeds from sales of loans | 1,426,954 | | | 74,123 | | | 22,915 | |
| Purchases of loans | (126,152) | | | (667,954) | | | (265,934) | |
| Net increase in loans | (2,461,302) | | | (1,361,693) | | | (969,326) | |
| Net purchases of Federal Reserve Bank stock | (658) | | | (55,335) | | | (25,500) | |
| Net redemptions (purchases) of Federal Home Loan Bank stock | 129,710 | | | (45,856) | | | (282) | |
| Net (purchases) proceeds from settlement of bank-owned life insurance policies | (242,300) | | | 16,637 | | | 2,412 | |
| Net increase in premises, equipment and software | (30,102) | | | (61,208) | | | (53,159) | |
| Other | 45,834 | | | 19,907 | | | 12,854 | |
| Net cash used in investing activities | (2,352,973) | | | (2,153,862) | | | (1,338,049) | |
| Financing Activities | | | | | |
| Net increase in deposits | 8,284,519 | | | 797,612 | | | 571,897 | |
| Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements | 62,232 | | | (101,142) | | | 76,502 | |
| Net (decrease) increase in other short-term borrowings | (1,745,843) | | | 1,103,560 | | | 550,000 | |
| Repayments and redemption of long-term debt | (2,408,939) | | | (157,226) | | | (2,230,052) | |
| Proceeds from issuance of long-term debt, net | 1,445,492 | | | 497,045 | | | 2,280,000 | |
| Dividends paid to common shareholders | (189,967) | | | (167,923) | | | (106,224) | |
| Dividends paid to preferred shareholders | (33,163) | | | (17,741) | | | (13,978) | |
| Proceeds from issuance (redemption) of preferred stock, net | 0 | | | 342,005 | | | 65,140 | |
| Issuances, net of taxes paid, under equity compensation plans | 5,407 | | | 7,321 | | | (6,365) | |
| Repurchase of common stock | (16,246) | | | (725,398) | | | (175,072) | |
| Other | (1,552) | | | (1,947) | | | (1,220) | |
| Net cash provided by financing activities | 5,401,940 | | | 1,576,166 | | | 1,010,628 | |
| Increase in cash and cash equivalents including restricted cash | 3,065,999 | | | 43,354 | | | 210,631 | |
| Cash, cash equivalents, and restricted cash at beginning of year | 1,186,918 | | | 1,143,564 | | | 932,933 | |
| Cash, cash equivalents, and restricted cash at end of year | $ | 4,252,917 | | | $ | 1,186,918 | | | $ | 1,143,564 | |
| | | | | |
| Supplemental Disclosures: | | | | | |
| Income taxes paid | $ | 110,828 | | | $ | 101,781 | | | $ | 41,008 | |
| Interest paid | 319,282 | | | 464,712 | | | 180,241 | |
| Non-cash Activities: | | | | | |
| Common stock issued, treasury stock reissued, equity awards/warrants exchanged to acquire FCB | 0 | | | 1,625,688 | | | 0 | |
| Loans foreclosed and transferred to other real estate | 2,163 | | | 19,423 | | | 13,168 | |
| Loans transferred to loans held for sale at fair value | 49,821 | | | 72,707 | | | 12,568 | |
| Dividends declared on common stock during the year but paid after year-end | 48,834 | | | 44,143 | | | 28,966 | |
| Dividends declared on preferred stock during the year but paid after year-end | 5,141 | | | 5,141 | | | 0 | |
|
| | | | | | | | | | | |
| Supplemental Cash Flow Information | | | | | |
| Cash paid during the year for: | | | | | |
| Income taxes, net | $ | 41,008 |
| | $ | 18,040 |
| | $ | 9,340 |
|
| Interest | 180,241 |
| | 143,237 |
| | 123,560 |
|
| Non-cash Activities: | | | | | |
| Loans foreclosed and transferred to other real estate | 13,168 |
| | 7,154 |
| | 16,214 |
|
| Premises and equipment transferred to/(from) other assets, net | 896 |
| | 7,733 |
| | 25,231 |
|
| Topic 606 cumulative-effect adjustment to opening balance of retained earnings | (685 | ) | | — |
| | — |
|
| Subtopic 825-10 equity investment securities available for sale transferred to other assets at fair value | 3,162 |
| | — |
| | — |
|
| Loans transferred to (from) other loans held for sale at fair value, net | 12,568 |
| | 52,829 |
| | 14,621 |
|
| Dividends declared on common stock during the year but paid after year-end | 28,966 |
| | 17,835 |
| | — |
|
| Settlement of earnout payment with shares of common stock | 7,427 |
| | 5,460 |
| | — |
|
| Acquisition: | | | | | |
| Fair value of non-cash assets acquired | — |
| | — |
| | 408,054 |
|
| Fair value of liabilities assumed | — |
| | — |
| | 387,608 |
|
| Fair value of common stock issued | — |
| | — |
| | 26,592 |
|
| | | | | | |
| |
(1)
| See "Note 1 - Summary of Significant Accounting Policies" of this Report for information on Synovus' change in presentation of cash and cash equivalents. |
See accompanying notes to the audited consolidated financial statements.
Note 1 - Summary of Significant Accounting Policies
Business Operations
Synovus provides integrated financial services, including commercial and retail banking financialin addition to a full suite of specialized products and services including treasury management, insurance,mortgage services, premium finance and mortgage servicesinternational banking to its customers through its wholly-owned subsidiary bank, Synovus Bank, in offices located throughout Alabama, Florida, Georgia, Alabama, South Carolina Florida, and Tennessee.
In addition to our banking operations, we also provide various other financial services to our customers 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; and Synovus Mortgage, headquartered in Birmingham, Alabama, which offers mortgage 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 U.S. GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Prior periods' consolidated financial statements are reclassified whenever necessary to conform to the current periods' 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 variable interest entity (VIE)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. TheseThe 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 in 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 1516 - Commitments and Contingencies" of this Report for additional details regarding Synovus' involvement with VIEs.
Use of Estimates
In preparing the consolidated financial statements in accordance with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the respective consolidated balance sheets and the reported amounts of revenues and expenses for the periods presented. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses;ACL; estimates of fair value;value, including goodwill impairment assessment; income taxes; and contingent liabilities including legal matters and the Global One Earnout Payments, among others.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. Subsequently,Subsequent to the acquisition date, adjustments recorded during the measurement period are recognized in the current reporting period. Acquisition costs are expensed when incurred. Additional information regarding acquisitions is provided in "Part II - Item 8. Financial Statements and Supplementary Data - Note 2 - Acquisitions". of this Report.
Cash, and 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. At December 31, 2018, no cash balances were required to be on deposit with the Federal Reserve Bank to meet reserve requirements and at December 31, 2017, required deposits with the Federal Reserve Bank amounted to $8.6 million. Cash and cash equivalents included $25.6 million at December 31, 2018 and $49.7 million at December 31, 2017, which were pledged to collateralize certain derivative instruments and letters of credit. Federal funds sold and securities purchased under resale agreements, and federal funds purchased and securities sold under repurchase agreements generally mature in one day.
In connection with the adoption of ASU 2016-18, Statement of Cash Flows-Restricted Cash, Synovus changed its presentation of cash and cash equivalents, effective January 1, 2018, to include 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. Priorequivalents. On March 15, 2020, the Federal Reserve Board announced that, effective March 26, 2020, it would reduce reserve requirement ratios to 2018, cashzero percent for all depository institutions. At December 31, 2019, required deposits with the Federal Reserve Bank amounted to $111.5 million. Cash and cash equivalents only included cash$158.7 million at December 31, 2020 and due from banks. Prior periods have been revised$87.8 million at December 31, 2019, which were pledged to maintain comparability.
Mortgage Loans Held for Salecollateralize certain derivative instruments 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 as a componentletters of mortgage banking income in the consolidated statements of income.
Mortgage Banking Income
Mortgage banking income consists primarily of origination and ancillary fees on loans originated for sale, and gains and losses from the sale of mortgage loans. Mortgage loans are sold servicing released, without recourse or continuing involvement, and meet ASC Topic 860, Transfers and Servicing criteria for sale accounting.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.
Synovus performs a quarterly assessment of itsFor investment securities available for sale to determine if the decline in fair value of a security below its amortized cost is deemed to be other-than-temporary. Factors included in the assessment include the length of time the security has been in aan unrealized loss position, the extent that the fair value is below amortized cost, and the credit standing of the issuer. Other-than-temporary impairment losses are recognized on securities when: (1)if Synovus has an intention to sell the security; (2)security, or it is more likely than not that the security will be required to be sold prior to recovery; or (3)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 is not met, Synovus does not expectperforms a quarterly assessment of its available for sale debt securities to recoverdetermine if the entiredecline in fair value of a security below its amortized cost basis of the security. Other-than-temporary impairment losses are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amountlosses 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 isare 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 and prepayment assumptions. Actual prepayment experienceunless the premium is reviewed periodically andrelated to callable debt securities. For these securities, the timing ofamortization period is shortened to the accretion and amortization is adjusted accordingly. Interest income on securities available for sale is recorded on the accrual basis. 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 on Loans
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 expenses.costs, and purchase premium/discount. Interest income and deferred fees, net of expenses on loans, areis 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).
Impaired Loans
Impaired loans are loans for which it is probable that Synovus will not be able to collect all amounts due according to the contractual terms of the loan agreements and include all loans modified in a troubled debt restructuring (TDR). Impaired loans do not include smaller-balance homogeneous loans that are collectively evaluated for impairment, which consist of most consumer loans and commercial loan relationships lower than $1.0 million. Impairment is measured as described below under "allowance for loan losses." Interest income on non-accrual impaired loans is recognized as described above under "non-accrual loans." At December 31, 2018 and 2017, substantially all non-accrual impaired loans were collateral-dependent and secured by real estate. Impaired accruing loans generally consist of those TDRs for which management has concluded that the collectability of the loan is not in doubt.
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. All TDRs are consideredThe 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 be impaired loans, anddiscount the amount of impairment, if any, is determined in accordance with ASC Topic 310-10-35.
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 one timeshort-term deferrals, of three months or less, 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 that has been renewed 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.
On March 27, 2020, the CARES Act was signed into law. The CARES Act provided financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. Regulatory agencies have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of COVID-19. In the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and their unwillingness to criticize institutions for working with borrowers in a safe and sound manner. Moreover, the Interagency Statement provided that eligible loan modifications related to COVID-19 may be accounted for under Section 4013 of the CARES Act or in accordance with ASC 310-40. Section 4013 of the CARES Act allows banks to elect to not consider loan modifications related to COVID-19 that are made between March 1, 2020 and the earlier of December 31, 2020, or 60 days after the national emergency ends to borrowers that are current (i.e., less than 30 days past due as of December 31, 2019) as TDRs. The regulatory agencies further stated that performing loans granted payment deferrals due to COVID-19 are not considered past due or non-accrual. The FASB confirmed the foregoing regulatory agencies' view, that such short-term modifications (e.g., six months) made on a good-faith basis in response to COVID-19 for borrowers who are current are not TDRs.
As such, beginning in late March 2020, Synovus provided relief programs consisting primarily of 90-day payment deferral relief of P&I to borrowers negatively impacted by COVID-19 and primarily accounted for these loan modifications in accordance with ASC 310-40. During the third and fourth quarters of 2020, upon evaluation of facts and circumstances, the CARES Act was elected for certain loan modifications that met the criteria of section 4013 of the CARES Act. The deferred payments along with interest accrued during the deferral period are generally due and payable on the maturity date of the existing loan. Based on the terms of the deferral relief program which did not provide for forgiveness of interest, Synovus recognized interest income on loans during the deferral period. The Consolidated Appropriations Act, 2021, which was signed into law on December 27, 2020, extended relief from TDRs under Section 4013 of the CARES Act to the earlier of January 1, 2022 or 60 days after the national emergency ends.
Concentrations of Credit Risk
A substantial portion of the loan portfolio is secured by real estate in markets located throughout Alabama, Florida, Georgia, Alabama, South Carolina Florida, 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
Substantially all loan origination fees and 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. Net deferred income on originated loans, including unearned income and unamortized costs, fees, premiums and discounts, totaled $77.7 million and $25.4 million at December 31, 2020 and 2019, respectively. Net deferred income at December 31, 2020 included $48.9 million of net fees from PPP loans.
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:
| | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | |
The following table illustrates the distribution of the ASC 326 adoption impact to loans and equity:
| | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | |
Allowance for Loan Losses (ALL)
The allowanceALL on loans held for loan lossesinvestment represents management's estimate of probablecredit losses inherentexpected over the life of the loans included in the funded loanSynovus' existing loans held for investment portfolio. Changes to the allowance are recorded through a provision for loancredit 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.
ImpairedAccrued 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 individual loan risk ratings. 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.
ImpairedExpected 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 generallynecessary 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 subpools.
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 ASC 310-10-35, which provides for measurement of a loan's impairment based on one of threetwo 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 is collateral-dependent.
UnderFor individually evaluated loans, under the discounted cash flowDCF method, impairment isresulting expected credit losses are recorded as a specific reserve with a charge-off for any portion of the impairment.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.
IfFor 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 the pertinent facts and circumstances for each impaired loan when selecting the appropriate method to measure impairment, and quarterly evaluates each selection to ensure its continued appropriateness and evaluates the reasonableness of specific reserves, if any.
Non-impaired Loans
For loans that are not considered impaired, the allocated allowance for loan losses is determined based upon EL factors, which are applied to groupings of specific loan types by loan risk ratings. The EL is determined based upon a PD, which is the probability that a borrower, segregated by loan type and loan risk grade, will default, and LGD, which is the estimatemigration of the amount of net loss in the event of default. The groupingscredit 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 loan categories are determinedinterest 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 typestype and the level of inherent risk associated with the various loan categories. The loan groupings are further segregated based upon the individual loan risk ratings as described below. noted above.
The EL factors appliedaccounting treatment for purchased loans classified as non-PCD is the same as loans held for investment as detailed in the methodology are periodically re-evaluated and adjusted to reflect changesabove 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 historical loss levels or other risks.
Allocated EL factors may also be adjusted,liabilities on the consolidated balance sheets with offsetting expense recognized as necessary, for certain qualitative factors that in management's judgment are necessary to reflect losses incurred in the portfolio.
Qualitative factors that management considers in the analysis include:
changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses
changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans
loan growth
effects of changes in credit concentrations
experience, ability, and depth of lending management, loan review personnel, and other relevant staff
changes in the qualitya component of the loan review function
national and local economic trends and conditions
value of underlying collateralprovision for collateral-dependent loans
other external factors such as the effects for the current competitive, legal, and regulatory environment
The adjusted EL factors by portfolio are then adjusted by a loss emergence period for each loan type. A loss emergence period represents the amount of time between when a loss event first occurs to when it is charged off. The loss emergence period was determined for each loan type basedcredit losses on the Company's historical experienceconsolidated statements of income. The reserve for off-balance-sheet credit exposures considers the likelihood that funding will occur and is validated at least annually.estimates the expected credit losses on resulting commitments expected to be funded over its 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 will beis 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 theC&I loan portfolio as well as certain income-producing real estate loans.IPRE loans. At December 31, 20182020 and 2017,2019, approximately $7.6 billion40%and 45% of C&Itotal commercial loans waswere rated using the DRR methodology.methodology, respectively. The DRR includes sixteen PD categories and nine categories for estimating losses given an event of default. The result is an EL rate established for each borrower.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 loan's 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 at the time of origination 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 a 6 at origination are approved for funding. At 90-119 days past due, a loan grade of 7-substandard non-accrual rating is
applied and at 120 days past due, the loan is generally downgraded to grade 9-loss andor is generally charged-off. The consumer loan portfolio is sent on a quarterly basis to a consumer credit bureau-based ratingsreporting agency for a refresh of customers' credit scores so that management can evaluate ongoing consistency or negative migration in the quality of the portfolio. Revolving lines of credit are updated at least semi-annuallyreviewed for a material change in financial circumstances, and when appropriate, the ratingsline 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 past due status are updated monthly.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 in 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 in the consolidated statements of income.
Premises, Equipment and EquipmentSoftware
Premises, equipment and equipment,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 equipmentsoftware 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, on anequivalent to a business segment or one level below. Synovus performs its annual basisevaluation 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. During 2020, due to triggering events brought on by COVID-19, Synovus reviews goodwill for impairmentperformed quantitative assessments as of March 31, 2020, June 30,th 2020, September 30, 2020, and at interim periods if indicatorsNovember 30, 2020. The quantitative assessment of impairment exist.
Synovus applies judgment when assessing goodwill for impairment. ASC 350-20-35-3A, Goodwill Subsequent Measurement - Qualitative Assessment, provides the option to perform a qualitative assessment to determine whether the two-step goodwill impairment testincluded determining the estimated fair value of each reporting unit, utilizing a combination of discounted cash flow and market-based approaches, and comparing that fair value to each reporting unit’s carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is necessary.recognized in an amount equal to that excess. The discounted cash flow method was weighted 60% and the market-based approach was weighted 40%. The discounted cash flow method included internal forecasts, long-term profitability targets, growth rates and discount rates. The market approach was based on a comparison of certain financial metrics of the Company’s reporting units to guideline public company peers.Refer to "Part II - Item 8. Financial Statements and Supplementary Data - Note 7 - Goodwill and Other Intangible Assets" of this Report for additional details.
Prior to 2020, Synovus appliesapplied the qualitative assessment guidance to determine if the following factors indicateindicated that goodwill iswas more likely than not impaired: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, events affecting the reporting unit, and common stock share price. Management applies judgment when weighingASC Topic 350-20-35-3A, Goodwill Subsequent Measurement - Qualitative Assessment, provides the factors most likelyoption to impactperform a reporting unit's fair value.qualitative assessment to determine whether the quantitative portion of the goodwill impairment test is necessary.
Other intangible assets relate primarily to a core deposit intangible and borrower relationships trade name, and a distribution network resulting from a business acquisition. Theseacquisitions. 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. Amortizationassets with amortization periods rangeranging 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 that 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 of the asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered impaired, the amount of theAny resulting impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets basedasset (based on the discounted expected futureundiscounted cash flows expected to be generated by the assets.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 in these standards as those revenue-producing components for which discrete financial information is produced internally and which are subject to evaluation by the chief operating decision makermakers in deciding how to allocate resources to segments.making resource allocation decisions. Based on this guidance, Synovus identified 3 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. Prior to the fourth quarter of 2019, Synovus identified its overall banking operations as its
only reportable segment. Refer to "Part II - Item 8. Financial Statements and Supplementary Data - Note 19 - 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 the overall banking operations comprise substantially all of Synovus' consolidated operations, no separatethese enhancements are made, financial results presented by each reportable segment disclosures are presented.may be periodically revised.
Other Assets
Other assets include ROU assets, FRB and FHLB stock, derivative asset positions, accrued interest receivable and investments in LIHTC accounts receivable, prepaid expensesand solar energy tax credits and other balances as shown in "Part II - Item 8. Financial Statements and Supplementary Data - Note 78 - Other Assets" of this Report. FRB
As a member of the Federal Reserve System, Synovus is currently required to purchase and FHLBhold shares of capital stock is recordedin the Federal Reserve Bank (recorded at amortized cost, which approximates fair value.value, of $142.5 million and $141.7 million at December 31, 2020 and 2019, 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 $15.0 million and $144.7 million at December 31, 2020 and 2019, 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 and qualifies as part of a hedging relationship.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. Any amounts excluded fromWhen a cash flow hedge is discontinued but the assessment of hedge effectiveness,hedged cash flows or forecasted transactions are reportedstill expected to occur, gains or losses that were accumulated in earnings immediately as a component of other non-interest income on the consolidated statements of income or recorded to other comprehensive income and recognized inare amortized into earnings over the life ofsame periods which the hedging instrument. hedged transactions would have affected 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 incomerevenue 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 customers (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 customers. 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 income.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 customers 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 customers' 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 customer 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 customers' 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 expenses and network expenses.
Brokerage Revenue: Brokerage revenue consists primarily of commissions. Additionally, brokerage revenue includes advisory fees earned from the management of customer 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 customer executes an insurance policy with the insurance carrier. In some cases, Synovus receives payment of trailing commissions each year when the customer 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 revenues 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.
Advertising Expense
Advertising costs are expensed as incurred and recorded as a component of non-interest expense.
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.
Synovus characterizes its AMT tax credit carryforward as an income tax receivable and is expected to be realized over time either through a reduction in taxes currently payable or cash collection. Accordingly, it is classified as a current asset.
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 net operating losses,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 unrecognized income tax benefits as a component of income tax expense.
Share-based Compensation
Synovus has a long-term incentive plan under which the Compensation 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 inon 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 expenses. Vesting for grants of share-based awards granted to Synovus employees during 2018 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, stockholders'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 820-10,820-10-35, 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:
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| 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 trading securities and 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, and mutual fund investments.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.
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. The majority of the balance of Level 3 investment securities available for sale consists primarily of trust preferred securities issued by financial institutions. To determine the fair value of the trust preferred securities, management uses a measurement technique that utilizes credit spreads and/or credit indices available from a third-party pricing service. In addition, for each trust preferred security, management projects non-credit adjusted cash flows, and discounts those cash flows to net present value incorporating a relevant credit spread in the discount rate. Other inputs to calculating fair value include potential discounts for lack of marketability.
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. The Level 3 investment securities available for sale consists of a trust preferred security issued by a financial institutions. Management determines the fair value of this holding by calculating the net present value of projected cash flows based on the debt terms using a discount rate that includes a credit spread.
Mortgage Loans Held for Sale
Synovus elected to apply the fair value option for mortgage loans originated with the intent to sell to investors.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. The bidmodel using current market pricing conventionindicators. A best execution valuation model is used for loan pricing for similar assets. The valuation model isassets 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 representsmethodology attempts to reflect the highest and best use of the loans inpricing execution available to Synovus’ principal market. Mortgage loans held for sale are classified within Level 2 of the valuation hierarchy.
Private equity instruments
The private equity 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 swaps, 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 customer credit-related adjustments.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 provided by the clearing house, or centralized counter party (CCP). An independent third-party valuation is used to verify and confirm these values.
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.
Other Loans Held for Sale
Loans are transferred to other loans held for sale at fair valueamortized 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 underlying collateral of the loan and the anticipated market prices of similar assets less estimated costs to sell. At the time of transfer, if the estimated fair value is less than the carrying amount, the difference isany credit losses are determined in accordance with Synovus' policy and recorded as a charge-off against the allowance for loan losses. DecreasesSubsequent 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 the lower of cost or 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 within our 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 and Cash Equivalents
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
ASU 2016-01, adopted during 2018, emphasized the existing requirement to use an exit price concept to measure fair value for disclosure purposes in determining the fair value of loans. Synovus' exit price methodology, adopted during 2018,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 liquidity discount based on the estimated time period to complete a sale transaction with a market participant. Prior to 2018, Synovus' method to estimate the fair value of its loan portfolio did not incorporate the exit price concept of fair value. Loans are considered a Level 3 fair value measurement.
Deposits
The fair value of deposits with no stated maturity, such as non-interest bearingnon-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. In addition, it must be probable that one or more future events will occur confirming the fact of the loss. 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 2014-09, Revenue from Contracts with Customers (Topic 606) issued by the FASB in May 2014, and all subsequent ASUs that modified Topic 606. ASU 2014-09 implements a common revenue standard that establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts to provide goods or services to customers. The core principle2020-04, Reference Rate Reform: Facilitation of the revenue modelEffects of Reference Rate Reform on Financial Reporting (ASC 848).Synovus adopted ASU 2020-04 effective October 1, 2020. This ASU provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the LIBOR or other interbank offered rate on financial reporting. To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships. The main provisions include:
•A change in a contract’s reference interest rate would be accounted for as a continuation of that contract rather than as the creation of a new one for contracts, including loans, debt, leases, and other arrangements, that meet specific criteria.
•When updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its hedge accounting.
The guidance is applicable only to contracts or hedge accounting relationships that a company will recognize revenue when it transfers control of goodsreference LIBOR or services to customers at an amount that reflects the consideration to which it expectsanother reference rate expected to be entitleddiscontinued. Because the guidance is meant to help entities through the transition period, it will be in exchangeeffect for those goodsa limited time and will not apply to contract modifications made and hedging relationships entered into or services. The scopeevaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. The amendments in this ASU are effective
March 12, 2020 through December 31, 2022. Synovus will apply the relief provided by ASU 2020-04 to eligible contract modifications with no material impact expected impact at this time.
Recently Issued Accounting Standards Not Yet Adopted
ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs. The guidance explicitly excludes net interest income as well as many other revenues from financial assets. Management reviewed its revenue streams and contracts with customers and did not identify material changesin this ASU pertains to the timing or amount of revenue recognition. Synovus adopted these ASUs on the required effective date of January 1, 2018 utilizing the modified retrospective method of adoption. The adoption resulted inshortened amortization period for certain purchased callable debt securities held a cumulative effect adjustment of $685 thousandt a premium, which premium is amortized to the opening balance of retained earnings. Beginning January 1, 2018, in connection with the adoption of this standard, Synovus began including merchant discounts and other card-related fees in card fees. For periods prior to January 1, 2018, these amounts were previously presented in other non-interest income and have been reclassified for comparability. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 18 - Non-interest Income" for the required disclosuresearliest call date in accordance with ASC 310-20-25-33, and clarifies that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-25-33 for each reporting period. The amendments in this ASU.
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the FASB issued final guidance on reclassification of tax effects stranded in other comprehensive income due to Federal Tax Reform. The guidance provides entities the option to reclassify the tax effects that are stranded in accumulated other comprehensive income, or AOCI, as a result of Federal Tax Reform to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018; early2020. Early adoption is not permitted. Synovus elected to early adopt ASU 2018-02 as of January 1, 2018 and elected to reclassify the income tax effects of Federal Tax Reform from AOCI to retained earnings. For Synovus, tax effects stranded in AOCI due to Federal Tax Reform totaled $7.6 million at December 31, 2017 and primarily related to unrealized losses on the available-for-sale investment securities portfolio. The reclassification adjustment resulted in an increase to retained earnings as of January 1, 2018 of $7.6 million and a corresponding decrease to AOCI for the same amount.
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. In January 2016, the FASB issued ASU 2016-01, which included targeted amendments to accounting guidance for recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting or those that are consolidated) to be measured at fair value with changes in fair value recognized in net income. This ASU requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption to reclassify the cumulative change in fair value of equity securities previously recognized in AOCI. ASU 2016-01 became effective for Synovus on January 1, 2018. The adoption of the guidance resulted in a transfer of investments in mutual funds of $3.2 million, at fair value, from investment securities available for sale to other assets and a $117 thousand cumulative-effect adjustment that decreased retained earnings, with offsetting related adjustments to deferred
taxes and AOCI. ASU 2016-01 also emphasizes the existing requirement to use an exit price concept to measure fair value for disclosure purposes in determining the fair value of loans. Determination of the fair value under the exit price method requires judgment because substantially all of the loans within the loan portfolioWe do not have observable market prices. Synovus' exit price methodology, adopted during 2018, estimatesexpect a material impact upon adoption.
ASU 2019-12, Income Taxes (Topic 740) - Simplifying the fair value of loans based on the present value of the future cash flows using the interest rate that would be chargedAccounting for a similar loan to a borrower with similar risk, adjustedIncome Taxes. This update provides, among other things, simplifications for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant. The adoption of this guidance did not have a significant impact on Synovus' fair value disclosures.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirementsaccounting for Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, which changes the fair value measurement disclosure requirements of ASC 820.income taxes by removing certain exceptions. The amendments in this ASU remove, modify, and add certain required disclosures on fair value measurements. The guidance isare effective for fiscal years beginning after December 15, 2019; early adoption is permitted. Synovus elected to early adopt ASU 2018-13 for eliminated and modified disclosures upon issuance of this ASU. Synovus will delay adoption of the additional disclosures until their effective date. The adoption of this guidance did not have a significant impact on Synovus' fair value disclosures.
ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. In August 2018, the FASB issued ASU 2018-15, which amends ASC 350-40. The ASU aligns the requirements for capitalizing implementation costs for a hosting arrangement that is a service contract with those incurred for hosting arrangements that contain a software license as well as those incurred to develop or implement software for internal use. This guidance is effective for fiscal years beginning after December 15, 2019; early adoption is permitted. Synovus elected to early adopt ASU 2018-15, on a prospective basis, upon issuance of this ASU. As of December 31, 2018, approximately $500 thousand of certain qualifying implementation costs related to hosting arrangements under a service contract were capitalized in accordance with this guidance.
ASU 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.In August 2017, the FASB issued ASU 2017-12 which amends the hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. A modified retrospective transition method of adoption is required. The Company elected to early adopt the amendments effective October 1, 2018. As Synovus had no designated hedges during 2018, the adoption of the amendments did not impact the Company’s consolidated financial statements during this period.
Recently Issued Accounting Standards Updates
The following ASUs will be implemented effective January 1, 2019 or later:
ASU 2016-13, Financial Instruments-Credit Losses (CECL). In June 2016, the FASB issued new guidance related to credit losses. The new guidance (and all subsequent ASUs) replaces the existing incurred loss impairment guidance with an expected credit loss methodology. The new guidance will require management’s estimate of credit losses over the full remaining expected life of loans and other financial instruments. For Synovus, the standard will apply to loans, unfunded loan commitments, and debt securities available for sale. The standard is effective for fiscal years beginning after December 15, 20192020, and interim periods within those fiscal years, with early adoption permitted on January 1, 2019. Synovuspermitted. We will adopt the guidance on January 1, 2020. Upon adoption, Synovus will record a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. In addition, the amendments provide for a simplified accounting model for purchased financial assets with a more-than-insignificant amount of credit deterioration since their acquisition ("PCD assets"). The initial estimate of expected credit losses on PCD assets will be recognized through the ALL with an offset to the cost basis of the related financial asset at acquisition. Synovus is in the process of implementing the new credit loss standard, with efforts being led by a cross-functional steering committee. Management expects that the allowance for loan losses will be higher under the new standard; however, management is still in the process of determining the magnitude of the impact on its financial statements and regulatory capital ratios. Additionally, the extent of the expected increase on the allowance for loan losses will dependthis ASU upon the composition of the loan portfolio upon adoption of the standard, as well as economic conditions and forecasts at that time.
ASU 2016-02, Leases (ASC 842). In February 2016, the FASB issued ASU 2016-02, its new standard on lease accounting. ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet and disclose key information about leasing arrangements. Under the new standard, all lessees will recognize a right-of-use asset and a lease liability, including operating leases, with a lease term greater than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. From a lessor perspective, the accounting model is largely unchanged from existing GAAP. Additional amendments include, but are not limited to, the elimination of leveraged leases; modification to the definition of a lease; amendments on sale and leaseback transactions; and disclosure of additional qualitative and quantitative information.
In July 2018, the FASB issued ASU 2018-11, Leases (ASC 842), Targeted Improvements. The ASU 2018-11 amendments include an optional transition method to apply ASU 2016-02 on a prospective basis as of the effective date with a cumulative- effect adjustment to retained earnings in the period of adoption, instead of applying the guidance using the modified retrospective
approach as originally required under ASU 2016-02. ASU 2018-11 also provides lessors with a practical expedient, by class of underlying asset, to not separate lease and non-lease components under certain circumstances, and clarifies which guidance (ASC 842 or ASC 606) to apply to the combined lease and non-lease components.
Synovus will elect the optional transition method provided through ASU 2018-11 and will adopt ASU 2016-02 prospectively on January 1, 2019. As such, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. Synovus will elect the package of practical expedients to not reassess (a) whether existing contracts contain leases, (b) lease classification for existing leases, and (c) initial direct cost for any existing leases as well as the short-term lease recognition exemption for all leases that qualify. Additionally, we will not elect the practical expedient to not separate lease and non-lease components for all of our leases.
On adoption, we currently expect to:
Recognize additional operating liabilities estimated at 1.1% of total assets, with corresponding ROU assets of the same amount based on the present value of the remaining rental payments under current leasing standards for existing operating leases;
Recognize deferred gains, net of income taxes, of $3.9 million associated with sale-leaseback transactions that previously did not qualify for recognition as a cumulative-effect adjustment to the beginning balance of retained earnings; and
Provide significant new disclosures about our leasing activities.
Synovus doesdo not expect this ASUit to have a material impact on the timing of expense recognition in its consolidated statements of income.upon adoption..
ASU 2017-04, Intangibles-Goodwill and Other, Simplifying the Test for Goodwill Impairment:In January 2017, the FASB issued ASU 2017-04, which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Therefore, any carrying amount which exceeds the reporting unit’s fair value (up to the amount of goodwill recorded) will be recognized as an impairment loss. The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Synovus plans to early adopt the guidance, effective January 1, 2019 and will apply the guidance prospectively, beginning with its annual impairment test as of June 30, 2019. Based on recent goodwill impairment tests, which did not require the application of Step 2, Synovus does not expect the adoption of this ASU to have an immediate impact.
Note 2 - Acquisitions
Cabela's Transaction
On September 25, 2017, Synovus' wholly owned subsidiary, Synovus Bank, completed the acquisition of certain assets and assumption of certain liabilities of WFB. Immediately following the closing of this transaction, Synovus Bank sold WFB’s credit card assets and related liabilities to Capital One Bank (USA), National Association, a bank subsidiary of Capital One Financial Corporation.
Synovus retained WFB’s $1.10 billion brokered time deposits portfolio, which had a weighted average remaining maturity of 2.53 years and a weighted average rate of 1.83% as of September 25, 2017. The transaction was accounted for as an assumption of a liability (accounted for under the asset acquisition model). In accordance with ASC 820, Fair Value Measurements and Disclosures, the brokered time deposit portfolio was recorded at $1.10 billion, which was the amount of cash received for the deposits and represented the estimated fair value of the deposits at the transaction date. Additionally, Synovus received a $75.0 million transaction fee from Cabela’s Incorporated and Capital One, which was recognized into earnings on September 25, 2017 upon closing of the transaction, based on having achieved the recognition criteria outlined in SEC SAB Topic 13.A, Revenue Recognition.
Acquisition of Global OneFCB Financial Holdings, Inc.
On OctoberEffective January 1, 2016,2019, Synovus completed its acquisition of all of the outstanding stock of Global One. Under the termsFCB, a bank holding company based in Weston, Florida, for total consideration of the merger agreement,$1.63 billion. Effective January 1, 2019, FCB's wholly-owned banking subsidiary, Florida Community Bank, National Association, merged into Synovus acquired Global One for an up-front payment of $30 million, consisting of the issuance of 821 thousand shares of Synovus common stock valued at $26.6 million and $3.4 million in cash, with additional payments to Global One's former shareholders over a three to five year period based on earnings from the Global One business, as further discussed below.
Bank. The acquisition of Global One constituted a business combination. Accordingly,FCB expanded Synovus' presence in Florida and the assets acquiredSoutheast, adding $9.29 billion in loans and liabilities assumed were recorded at their estimated fair values$10.93 billion in deposits on October 1, 2016. The determination of fair value required management to make estimates about discount rates, future expected earnings and cash flows, market conditions, future loan growth, and other future events that are highly subjective in nature and subject to change.the Acquisition Date.
Under the terms of the merger agreement,Merger Agreement, each outstanding share of FCB common stock was converted into the right to receive 1.055 Synovus common shares and cash in lieu of fractional shares. The aggregate purchase price includes additional annual payments ("Earnout Payments") to Global One's former shareholders over a three to five year period, with amounts based on a percentage of "Global One Earnings," as defined$1.63 billion included $173 thousand in the merger agreement. The Earnout Payments consist ofcash, $1.58 billion, or 49.5 million shares, of Synovus common stock and $44.0 million of exchanged equity awards and warrants, based on Synovus' closing stock price of $31.99 per share on December 31, 2018, as well as valuation pricing models for the exchanged stock options and warrants.
The acquisition of FCB constituted a smaller cash consideration component.business combination and was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations, with the valuation finalized as of December 31, 2019. The firstresults of FCB's operations are included in Synovus' consolidated financial statements since the Acquisition Date.
Note 3 - Restructuring
For the years ended December 31, 2020, 2019, and second annual Earnout Payments were made during November 2017 and November 2018, consistingtotal restructuring charges consist of the issuancefollowing components:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2020 | | 2019 | | 2018 |
| Severance charges | $ | 15,645 | | | $ | 1,097 | | | $ | (273) | |
| Lease termination charges | 7,117 | | | 0 | | | 136 | |
| Asset impairment charges | 3,374 | | | 0 | | | 86 | |
| Other charges | 855 | | | 133 | | | 0 | |
| Total restructuring charges | $ | 26,991 | | | $ | 1,230 | | | $ | (51) | |
| | | | | |
In January 2020, Synovus announced efficiency initiatives as part of 118 thousandits Synovus Forward plan and 199 thousand shares, respectively,recorded restructuring charges of Synovus common stock valued at $5.5$27.0 million, and $7.4consisting largely of severance charges of $15.6 million, respectively, and $892 thousand and $1.2during the year ended December 31, 2020. Severance charges included $13.7 million in cash, respectively.one-time termination benefits associated with a voluntary early retirement program offered to employees in the latter part of 2020. During 2018,2020, Synovus also recorded an $11.7$10.5 million increasein lease termination charges and asset impairment charges related to branch closures and restructuring of corporate real estate.
The following table presents aggregate activity associated with accruals that resulted from the earnout liability driven by increased earnings projections of Global One. The total fair value ofrestructuring charges recorded during the earnout liability atyear ended December 31, 2018 was $14.4 million based on2020.
| | | | | | | | | | | | | | | | | |
| (in thousands) | Severance Charges | | Lease Termination Charges | | Total |
| Balance at December 31, 2019 | $ | 1,085 | | | $ | 940 | | | $ | 2,025 | |
| Accruals for voluntary and involuntary termination benefits | 15,645 | | | 0 | | | 15,645 | |
| Accruals for lease terminations | 0 | | | 7,117 | | | 7,117 | |
| Payments | (7,511) | | | (2,065) | | | (9,576) | |
| Balance at December 31, 2020 | $ | 9,219 | | | $ | 5,992 | | | $ | 15,211 | |
| | | | | |
Other charges were paid in the estimated fair value of the remaining Earnout Payments.years that they were incurred. No other restructuring charges resulted in payment accruals.
Note 34 - 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, 20182020 and 20172019 are summarized below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| (in thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| U.S. Treasury securities | | $ | 20,257 | | | $ | 0 | | | $ | 0 | | | $ | 20,257 | |
| U.S. Government agency securities | | 79,638 | | | 2,682 | | | 0 | | | 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 | | | 0 | | | 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 | | | 0 | | | 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 | |
| | | | | | | | |
| | December 31, 2019 |
| (in thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| U.S. Treasury securities | | $ | 19,855 | | | $ | 0 | | | $ | 0 | | | $ | 19,855 | |
| U.S. Government agency securities | | 35,499 | | | 1,042 | | | 0 | | | 36,541 | |
| Mortgage-backed securities issued by U.S. Government agencies | | 56,328 | | | 560 | | | (72) | | | 56,816 | |
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 5,079,396 | | | 103,495 | | | (2,076) | | | 5,180,815 | |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 629,706 | | | 7,349 | | | (204) | | | 636,851 | |
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | | 357,291 | | | 14,301 | | | 0 | | | 371,592 | |
| State and municipal securities | | 2,069 | | | 6 | | | 0 | | | 2,075 | |
| Asset-backed securities | | 323,237 | | | 4,315 | | | (152) | | | 327,400 | |
| Corporate debt securities and other debt securities | | 144,410 | | | 2,317 | | | (2) | | | 146,725 | |
| Total investment securities available for sale | | $ | 6,647,791 | | | $ | 133,385 | | | $ | (2,506) | | | $ | 6,778,670 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| (in thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| U.S. Treasury securities | | $ | 123,436 |
| | $ | — |
| | $ | (1,359 | ) | | $ | 122,077 |
|
| U.S. Government agency securities | | 38,021 |
| | 361 |
| | — |
| | 38,382 |
|
| Mortgage-backed securities issued by U.S. Government agencies | | 100,060 |
| | 172 |
| | (3,027 | ) | | 97,205 |
|
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 2,460,498 |
| | 1,981 |
| | (63,829 | ) | | 2,398,650 |
|
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 1,215,406 |
| | 2,997 |
| | (29,885 | ) | | 1,188,518 |
|
| Commercial mortgage-backed securities issued by U.S. Government sponsored enterprises | | 131,492 |
| | 613 |
| | (2,240 | ) | | 129,865 |
|
| Corporate debt and other debt securities | | 17,000 |
| | 150 |
| | (215 | ) | | 16,935 |
|
| Total investment securities available for sale | | $ | 4,085,913 |
| | $ | 6,274 |
| | $ | (100,555 | ) | | $ | 3,991,632 |
|
| | | | | | | | | |
| | | December 31, 2017 |
| (in thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| U.S. Treasury securities | | $ | 83,608 |
| | $ | — |
| | $ | (934 | ) | | $ | 82,674 |
|
| U.S. Government agency securities | | 10,771 |
| | 91 |
| | — |
| | 10,862 |
|
| Mortgage-backed securities issued by U.S. Government agencies | | 121,283 |
| | 519 |
| | (1,362 | ) | | 120,440 |
|
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 2,621,694 |
| | 5,037 |
| | (31,105 | ) | | 2,595,626 |
|
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 1,135,259 |
| | 144 |
| | (23,404 | ) | | 1,111,999 |
|
| Commercial mortgage-backed securities issued by U.S. Government sponsored enterprises | | 45,124 |
| | 22 |
| | (249 | ) | | 44,897 |
|
| State and municipal securities | | 180 |
| | — |
| | — |
| | 180 |
|
| Corporate debt and other securities | | 20,320 |
| | 294 |
| | (223 | ) | | 20,391 |
|
| Total investment securities available for sale | | $ | 4,038,239 |
| | $ | 6,107 |
| | $ | (57,277 | ) | | $ | 3,987,069 |
|
| | | | | | | | | |
At December 31, 20182020 and 2017,2019, investment securities with a carrying value of $1.56$3.84 billion and $2.00$1.71 billion,, respectively, were pledged to secure certain deposits and securities sold under repurchase agreementsother liabilities, as required by law andor contractual agreements.
Synovus has reviewedGross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that areindividual securities have been in ana continuous unrealized loss position, as of at December 31, 20182020 and 2017 for OTTI and does not consider anyDecember 31, 2019 are presented below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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) | | | $ | 0 | | | $ | 0 | | | $ | 566,896 | | | $ | (5,925) | |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 803,429 | | | (10,576) | | | 0 | | | 0 | | | 803,429 | | | (10,576) | |
| Corporate debt securities and other debt securities | | 9,337 | | | (168) | | | 0 | | | 0 | | | 9,337 | | | (168) | |
| Total | | $ | 1,379,662 | | | $ | (16,669) | | | $ | 0 | | | $ | 0 | | | $ | 1,379,662 | | | $ | (16,669) | |
| | | | | | | | | | | | |
| | December 31, 2019 |
| | 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 | | $ | 19,543 | | | $ | (70) | | | $ | 355 | | | $ | (2) | | | $ | 19,898 | | | $ | (72) | |
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 768,040 | | | (2,076) | | | 0 | | | 0 | | | 768,040 | | | (2,076) | |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 57,670 | | | (204) | | | 0 | | | 0 | | | 57,670 | | | (204) | |
| Asset-backed securities | | 37,156 | | | (116) | | | 4,954 | | | (36) | | | 42,110 | | | (152) | |
| Corporate debt securities and other debt securities | | 9,505 | | | (2) | | | 0 | | | 0 | | | 9,505 | | | (2) | |
| Total | | $ | 891,914 | | | $ | (2,468) | | | $ | 5,309 | | | $ | (38) | | | $ | 897,223 | | | $ | (2,506) | |
| | | | | | | | | | | | |
As of December 31, 2020, Synovus had 22 investment securities in an unrealizeda loss position to be other-than-temporarily impaired. If Synovus intended to sellfor less than twelve months and 0 investment securities in a security in an unrealized loss position the entire unrealized loss would be reflected in earnings.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.
For investment securities that Synovus does not expect As such, no write-downs to sell, or it is not more likely than not it will be required to sell prior to recovery of itsthe amortized cost basis of the credit componentportfolio were recorded at December 31, 2020. During 2020, as part of an OTTI would be recognized in earnings andoverall strategic repositioning of the non-credit component would be recognized in OCI. Currently,investment securities portfolio, Synovus realized net gains of $78.9 million from sales of investment securities, including losses of $6.4 million primarily related to the sale of Synovus' remaining portfolio of asset-backed securities.
At December 31, 2020, no ACL was established for investment securities. Substantially all of the unrealized losses on debtthe securities are attributable to increasesportfolio were the result of changes in market interest rates on comparable securities fromcompared to the date of purchase. Synovus regularly evaluates its investmentthe securities portfolio to ensure that there are no conditions that would indicate that unrealized losses represent OTTI. These factors include the length of time the security has been in a loss position, the extent that the fair value is below amortized cost, andwere acquired rather than the credit standingquality of the issuer. As of December 31, 2018, Synovus had 9 investment securities in a loss position for less than twelve months and 123 investment securities in a loss position for twelve monthsissuers or longer.
Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2018 and December 31, 2017 are presented below.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | 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 | | $ | 39,031 |
| | $ | (118 | ) | | $ | 63,570 |
| | $ | (1,241 | ) | | $ | 102,601 |
| | $ | (1,359 | ) |
| Mortgage-backed securities issued by U.S. Government agencies | | 2,059 |
| | (2 | ) | | 79,736 |
| | (3,025 | ) | | 81,795 |
| | (3,027 | ) |
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 130,432 |
| | (700 | ) | | 2,105,358 |
| | (63,129 | ) | | 2,235,790 |
| | (63,829 | ) |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | — |
| | — |
| | 964,732 |
| | (29,885 | ) | | 964,732 |
| | (29,885 | ) |
| Commercial mortgage-backed securities issued by U.S. Government sponsored enterprises | | 58,998 |
| | (1,298 | ) | | 44,220 |
| | (942 | ) | | 103,218 |
| | (2,240 | ) |
| Corporate debt and other debt securities | | — |
| | — |
| | 1,785 |
| | (215 | ) | | 1,785 |
| | (215 | ) |
| Total | | $ | 230,520 |
| | $ | (2,118 | ) | | $ | 3,259,401 |
| | $ | (98,437 | ) | | $ | 3,489,921 |
| | $ | (100,555 | ) |
| | | | | | | | | | | | | |
| | | December 31, 2017 |
| | | 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 | | $ | 34,243 |
| | $ | (443 | ) | | $ | 29,562 |
| | $ | (491 | ) | | $ | 63,805 |
| | $ | (934 | ) |
| Mortgage-backed securities issued by U.S. Government agencies | | 36,810 |
| | (357 | ) | | 55,740 |
| | (1,005 | ) | | 92,550 |
| | (1,362 | ) |
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 1,238,464 |
| | (10,014 | ) | | 929,223 |
| | (21,091 | ) | | 2,167,687 |
| | (31,105 | ) |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 653,781 |
| | (9,497 | ) | | 426,237 |
| | (13,907 | ) | | 1,080,018 |
| | (23,404 | ) |
| Commercial mortgage-backed securities issued by U.S. Government sponsored enterprises | | 32,548 |
| | (249 | ) | | — |
| | — |
| | 32,548 |
| | (249 | ) |
| Corporate debt and other securities | | — |
| | — |
| | 5,097 |
| | (223 | ) | | 5,097 |
| | (223 | ) |
| Total | | $ | 1,995,846 |
| | $ | (20,560 | ) | | $ | 1,445,859 |
| | $ | (36,717 | ) | | $ | 3,441,705 |
| | $ | (57,277 | ) |
| | | | | | | | | | | | | |
underlying loans.
The amortized cost and fair value by contractual maturity of investment securities available for sale at December 31, 20182020 are shown below. The expected life of mortgage-backed securitiesMBSs or CMOs may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securitiesMBSs and CMOs, which are not due at a single maturity date, have been classified based on the final contractual maturity date.
| | | | | Distribution of Maturities at December 31, 2018 | | Distribution of Maturities at December 31, 2020 |
| (in thousands) | | Within One Year | | 1 to 5 Years | | 5 to 10 Years | | More Than 10 Years | | Total | (in thousands) | | Within One Year | | 1 to 5
Years | | 5 to 10
Years | | More Than
10 Years | | Total |
| Amortized Cost | | | | | | | | | | | Amortized Cost | | | | | | | | | | |
| U.S. Treasury securities | | $ | 19,476 |
| | $ | 103,960 |
| | $ | — |
| | $ | — |
| | $ | 123,436 |
| U.S. Treasury securities | | $ | 20,257 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 20,257 | |
| U.S. Government agency securities | | 1,917 |
| | 6,118 |
| | 29,986 |
| | — |
| | 38,021 |
| U.S. Government agency securities | | 430 | | | 2,085 | | | 77,123 | | | 0 | | | 79,638 | |
| Mortgage-backed securities issued by U.S. Government agencies | | — |
| | — |
| | 24,076 |
| | 75,984 |
| | 100,060 |
| Mortgage-backed securities issued by U.S. Government agencies | | 0 | | | 1,390 | | | 232 | | | 1,214,390 | | | 1,216,012 | |
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | | — |
| | 52,656 |
| | 414,265 |
| | 1,993,577 |
| | 2,460,498 |
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 0 | | | 231 | | | 83,163 | | | 4,782,464 | | | 4,865,858 | |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | — |
| | — |
| | 26,950 |
| | 1,188,456 |
| | 1,215,406 |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 0 | | | 0 | | | 225 | | | 1,245,419 | | | 1,245,644 | |
| Commercial mortgage-backed securities issued by U.S. Government sponsored enterprises | | — |
| | — |
| | 131,492 |
| | — |
| | 131,492 |
| |
| Corporate debt and other debt securities | | — |
| | — |
| | 15,000 |
| | 2,000 |
| | 17,000 |
| |
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | | Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | | 4,160 | | | 105,549 | | | 136,656 | | | 107,879 | | | 354,244 | |
| Corporate debt securities and other debt securities | | Corporate debt securities and other debt securities | | 0 | | | 9,505 | | | 8,706 | | | 2,000 | | | 20,211 | |
| Total amortized cost | | $ | 21,393 |
| | $ | 162,734 |
| | $ | 641,769 |
| | $ | 3,260,017 |
| | $ | 4,085,913 |
| Total amortized cost | | $ | 24,847 | | | $ | 118,760 | | | $ | 306,105 | | | $ | 7,352,152 | | | $ | 7,801,864 | |
| | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | | | | | | | | | | Fair Value | |
| U.S. Treasury securities | | $ | 19,476 |
| | $ | 102,601 |
| | $ | — |
| | $ | — |
| | $ | 122,077 |
| U.S. Treasury securities | | $ | 20,257 | | | $ | 0 | | | $ | — | | | $ | 0 | | | $ | 20,257 | |
| U.S. Government agency securities | | 1,922 |
| | 6,161 |
| | 30,299 |
| | — |
| | 38,382 |
| U.S. Government agency securities | | 432 | | | 2,112 | | | 79,776 | | | 0 | | | 82,320 | |
| Mortgage-backed securities issued by U.S. Government agencies | | — |
| | — |
| | 23,698 |
| | 73,507 |
| | 97,205 |
| Mortgage-backed securities issued by U.S. Government agencies | | 0 | | | 1,442 | | | 242 | | | 1,216,333 | | | 1,218,017 | |
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | | — |
| | 52,316 |
| | 404,554 |
| | 1,941,780 |
| | 2,398,650 |
| Mortgage-backed securities issued by U.S. Government sponsored enterprises | | 0 | | | 236 | | | 86,192 | | | 4,913,618 | | | 5,000,046 | |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | — |
| | — |
| | 26,291 |
| | 1,162,227 |
| | 1,188,518 |
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises | | 0 | | | 0 | | | 235 | | | 1,250,142 | | | 1,250,377 | |
| Commercial mortgage-backed securities issued by U.S. Government sponsored enterprises | | — |
| | — |
| | 129,865 |
| | — |
| | 129,865 |
| |
| Corporate debt and other securities | | — |
| | — |
| | 15,150 |
| | 1,785 |
| | 16,935 |
| |
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | | Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises | | 4,181 | | | 109,813 | | | 142,952 | | | 113,975 | | | 370,921 | |
| Corporate debt securities and other debt securities | | Corporate debt securities and other debt securities | | 0 | | | 9,337 | | | 9,142 | | | 2,021 | | | 20,500 | |
| Total fair value | | $ | 21,398 |
| | $ | 161,078 |
| | $ | 629,857 |
| | $ | 3,179,299 |
| | $ | 3,991,632 |
| Total fair value | | $ | 24,870 | | | $ | 122,940 | | | $ | 318,539 | | | $ | 7,496,089 | | | $ | 7,962,438 | |
| | | | | | | | | | | | | | | | | | | | | |
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 home equity lines)HELOCs) secured by junior liens on 1-4
family residential properties also consider available information on the payment status of the associated senior lienliens with other financial institutions.
