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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
 
FORM 10-Q
 
______________________________
Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2015
Commission file number 1-10312
 
______________________________
SYNOVUS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
______________________________
 
Georgia
 
58-1134883
(State or other jurisdiction of incorporation or organization)
 
   (I.R.S. Employer Identification No.)
1111 Bay Avenue
Suite 500, Columbus, Georgia
 
31901
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (706) 649-2311
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $1.00 Par Value
Series B Participating Cumulative Preferred Stock Purchase Rights
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
______________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES x  NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES x  NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer
x
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨    NO x
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.
Class
 
 
 
July 31, 2015

Common Stock, $1.00 Par Value
 
 
 
131,993,103





Table of Contents
 
 
 
 
 
Page
Financial Information
 
 
 
Index of Defined Terms
 
Item 1.
Financial Statements (Unaudited)
 
 
 
Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014
 
 
Consolidated Statements of Income for the Six and Three Months Ended June 30, 2015 and 2014
 
 
Consolidated Statements of Comprehensive Income for the Six and Three Months Ended June 30, 2015 and 2014
 
 
Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended June 30, 2015 and 2014
 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014
 
 
Notes to Unaudited Interim Consolidated Financial Statements
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
 
Item 4.
Controls and Procedures
 
 
 
 
 
Other Information
 
 
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults Upon Senior Securities
 
Item 4.
Mine Safety Disclosures
 
Item 5.
Other Information
 
Item 6.
Exhibits
 
Signatures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






SYNOVUS FINANCIAL CORP.
INDEX OF DEFINED TERMS
ALCO – Synovus' Asset Liability Management Committee
ASC – Accounting Standards Codification
ASR – accelerated share repurchase
ASU – Accounting Standards Update
Basel III – a global regulatory framework developed by the Basel Committee on Banking Supervision
BOV – broker’s opinion of value
bp – basis point (bps - basis points)
C&I – commercial and industrial loans
CB&T – Columbus Bank and Trust Company, a division of Synovus Bank. Synovus Bank is a wholly-owned subsidiary of Synovus Financial Corp.
CCC – central clearing counterparty
CET1 – Common Equity Tier 1 Capital defined by Basel III capital rules
CMO – Collateralized Mortgage Obligation
Company – Synovus Financial Corp. and its wholly-owned subsidiaries, except where the context requires otherwise
Covered Litigation – Certain Visa litigation for which Visa is indemnified by Visa USA members
CRE – Commercial Real Estate
Dodd-Frank Act – The Dodd-Frank Wall Street Reform and Consumer Protection Act
Exchange Act – Securities Exchange Act of 1934, as amended
FASB – Financial Accounting Standards Board
FDIC – Federal Deposit Insurance Corporation
Federal Reserve Bank – The 12 banks that are the operating arms of the U.S. central bank. They implement the policies of the Federal Reserve Board and also conduct economic research.
Federal Reserve Board – The 7-member Board of Governors that oversees the Federal Reserve System establishes monetary policy (interest rates, credit, etc.) and monitors the economic health of the country. Its members are appointed by the President, subject to Senate confirmation, and serve 14-year terms.
Federal Reserve System – The 12 Federal Reserve Banks, with each one serving member banks in its own district. This system, supervised by the Federal Reserve Board, has broad regulatory powers over the money supply and the credit structure.
FFIEC – Federal Financial Institutions Examination Council
FHLB – Federal Home Loan Bank
FICO – Fair Isaac Corporation
GA DBF – Georgia Department of Banking and Finance
GAAP – Generally Accepted Accounting Principles in the United States of America
HELOC – home equity line of credit
IASB – International Accounting Standards Board
IRC – Internal Revenue Code of 1986, as amended
LIBOR – London Interbank Offered Rate
LTV – loan-to-collateral value ratio
NAICS – North American Industry Classification System

i


NPA – non-performing assets
NPL – non-performing loans
NSF – non-sufficient funds
OCI – other comprehensive income
ORE – other real estate
OTTI – other-than-temporary impairment
Parent Company – Synovus Financial Corp.
SCM – state, county, and municipal
SEC – U.S. Securities and Exchange Commission
Securities Act – Securities Act of 1933, as amended
Series C Preferred Stock – Synovus' Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C, $25 liquidation preference
Synovus – Synovus Financial Corp.
Synovus Bank – A Georgia state-chartered bank, formerly known as Columbus Bank and Trust Company, and wholly-owned subsidiary of Synovus, through which Synovus conducts its banking operations
Synovus' 2014 Form 10-K – Synovus' Annual Report on Form 10-K for the year ended December 31, 2014
Synovus Mortgage – Synovus Mortgage Corp., a wholly-owned subsidiary of Synovus Bank
Synovus Trust Company, N. A. – a wholly-owned subsidiary of Synovus Bank
TDR – troubled debt restructuring (as defined in ASC 310-40)
Treasury – United States Department of the Treasury
VIE – variable interest entity, as defined in ASC 810-10
Visa – The Visa U.S.A., Inc. card association or its affiliates, collectively
Visa Class B shares – Class B shares of common stock issued by Visa which are subject to restrictions with respect to sale until all of the Covered Litigation has been settled
Visa derivative – A derivative contract with the purchaser of Visa Class B shares which provides for settlements between the purchaser and Synovus based upon a change in the ratio for conversion of Visa Class B shares into Visa Class A shares
Warrant – A warrant issued to the Treasury by Synovus to purchase up to 2,215,820 shares of Synovus common stock at a per share exercise price of $65.52 expiring on December 19, 2018


ii



PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
June 30, 2015
 
December 31, 2014

ASSETS
 
 
 
Cash and cash equivalents
$
360,832

 
485,489

Interest bearing funds with Federal Reserve Bank
1,289,205

 
721,362

Interest earning deposits with banks
18,694

 
11,810

Federal funds sold and securities purchased under resale agreements
72,487

 
73,111

Trading account assets, at fair value
11,973

 
13,863

Mortgage loans held for sale, at fair value
98,202

 
63,328

Investment securities available for sale, at fair value
3,354,673

 
3,041,406

Loans, net of deferred fees and costs
21,494,869

 
21,097,699

Allowance for loan losses
(254,702
)
 
(261,317
)
Loans, net
$
21,240,167

 
20,836,382

Premises and equipment, net
445,579

 
455,235

Goodwill
24,431

 
24,431

Other real estate
66,449

 
85,472

Deferred tax asset, net
571,402

 
622,464

Other assets
651,776

 
616,878

Total assets
$
28,205,870

 
27,051,231

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest bearing deposits
$
6,421,815

 
6,228,472

Interest bearing deposits, excluding brokered deposits
14,775,216

 
13,660,830

Brokered deposits
1,452,150

 
1,642,398

Total deposits
22,649,181

 
21,531,700

Federal funds purchased and securities sold under repurchase agreements
188,285

 
126,916

Long-term debt
2,139,219

 
2,140,319

Other liabilities
223,028

 
211,026

Total liabilities
$
25,199,713

 
24,009,961

Shareholders' Equity
 
 
 
Series C Preferred Stock – no par value. 5,200,000 shares outstanding at June 30, 2015 and December 31, 2014
125,980

 
125,980

Common stock - $1.00 par value. Authorized 342,857,143 shares; 140,425,254 issued at June 30, 2015 and 139,950,422 issued at December 31, 2014; 132,257,577 outstanding at June 30, 2015 and 136,122,843 outstanding at December 31, 2014
140,425

 
139,950

Additional paid-in capital
2,981,434

 
2,960,825

Treasury stock, at cost – 8,167,677 shares at June 30, 2015 and 3,827,579 shares at December 31, 2014
(311,859
)
 
(187,774
)
Accumulated other comprehensive loss, net
(22,323
)
 
(12,605
)
Retained earnings
92,500

 
14,894

Total shareholders’ equity
3,006,157

 
3,041,270

Total liabilities and shareholders' equity
$
28,205,870

 
27,051,231

See accompanying notes to unaudited interim consolidated financial statements.

1


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
Six Months Ended June 30,
 
Three Months Ended June 30,
(in thousands, except per share data)
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
      Loans, including fees
$
432,026

 
427,080

 
$
216,756

 
215,737

      Investment securities available for sale
28,117

 
29,746

 
14,175

 
14,490

      Trading account assets
224

 
251

 
117

 
90

      Mortgage loans held for sale
1,397

 
1,018

 
766

 
616

      Federal Reserve Bank balances
1,592

 
998

 
947

 
472

      Other earning assets
1,698

 
1,502

 
893

 
808

Total interest income
465,054

 
460,595

 
233,654

 
232,213

Interest expense:
 
 
 
 
 
 
 
Deposits
31,631

 
27,742

 
16,813

 
13,521

Federal funds purchased and securities sold under repurchase agreements
89

 
151

 
46

 
75

Long-term debt
26,427

 
27,136

 
13,151

 
13,566

Total interest expense
58,147

 
55,029

 
30,010

 
27,162

Net interest income
406,907

 
405,566

 
203,644

 
205,051

Provision for loan losses
11,034

 
21,795

 
6,636

 
12,284

Net interest income after provision for loan losses
395,873

 
383,771

 
197,008

 
192,767

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
38,928

 
38,451

 
19,795

 
19,238

Fiduciary and asset management fees
23,414

 
22,329

 
11,843

 
11,296

Brokerage revenue
14,032

 
12,920

 
6,782

 
6,707

Mortgage banking income
13,995

 
8,794

 
7,511

 
5,283

Bankcard fees
16,576

 
16,212

 
8,499

 
8,695

Investment securities gains, net
2,710

 
1,331

 
1,985

 

Other fee income
9,851

 
9,791

 
4,605

 
4,928

Gain on sale of Memphis branches, net

 
5,789

 

 

Other non-interest income
15,181

 
17,952

 
7,812

 
7,241

Total non-interest income
134,687

 
133,569

 
68,832

 
63,388

Non-interest expense:
 
 
 
 
 
 
 
Salaries and other personnel expense
191,054

 
185,985

 
94,565

 
92,540

Net occupancy and equipment expense
52,713

 
52,480

 
26,541

 
26,425

Third-party processing expense
21,015

 
19,560

 
10,672

 
9,464

FDIC insurance and other regulatory fees
13,725

 
17,531

 
6,767

 
7,885

Professional fees
12,011

 
15,901

 
6,417

 
8,224

Advertising expense
6,309

 
8,757

 
2,865

 
6,281

Foreclosed real estate expense, net
13,847

 
9,745

 
4,351

 
4,063

Visa indemnification charges
729

 
752

 
354

 
356

Restructuring charges, net
(102
)
 
16,293

 
5

 
7,716

Other operating expenses
45,412

 
39,361

 
25,269

 
19,251

Total non-interest expense
356,713

 
366,365

 
177,806

 
182,205

Income before income taxes
173,847

 
150,975

 
88,034

 
73,950

Income tax expense
64,091

 
55,686

 
32,242

 
27,078

Net income
109,756

 
95,289

 
55,792

 
46,872

Dividends on preferred stock
5,119

 
5,119

 
2,559

 
2,559

Net income available to common shareholders
$
104,637

 
90,170

 
$
53,233

 
44,313

Net income per common share, basic
$
0.78

 
0.65

 
$
0.40

 
0.32

Net income per common share, diluted
0.78

 
0.65

 
0.40

 
0.32

Weighted average common shares outstanding, basic
133,935

 
138,961

 
132,947

 
138,991

Weighted average common shares outstanding, diluted
134,678

 
139,535

 
133,625

 
139,567

 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

2


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)


 
Six Months Ended June 30,
 
2015
 
2014
(in thousands)
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
Net income
173,847

 
(64,091
)
 
109,756

 
150,975

 
(55,686
)
 
95,289

Net change related to cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for losses realized in net income
224

 
(87
)
 
137

 
224

 
(87
)
 
137

Net unrealized (losses) gains on investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for net gains realized in net income
(2,710
)
 
1,043

 
(1,667
)
 
(1,331
)
 
513

 
(818
)
Net unrealized (losses) gains arising during the period
(13,467
)
 
5,188

 
(8,279
)
 
45,640

 
(17,572
)
 
28,068

Net unrealized (losses) gains
(16,177
)
 
6,231

 
(9,946
)
 
44,309

 
(17,059
)
 
27,250

Post-retirement unfunded health benefit:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for gains realized in net income
(84
)
 
32

 
(52
)
 
(144
)
 
56

 
(88
)
Actuarial gains arising during the period
236

 
(93
)
 
143

 
395

 
(152
)
 
243

Net unrealized gains
$
152

 
(61
)
 
91

 
251

 
(96
)
 
155

Other comprehensive (loss) income
$
(15,801
)
 
6,083

 
(9,718
)
 
44,784

 
(17,242
)
 
27,542

Comprehensive income
 
 
 
 
$
100,038

 
 
 
 
 
122,831

 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.
 
Three Months Ended June 30,
 
2015
 
2014
(in thousands)
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
Net income
88,034

 
(32,242
)
 
55,792

 
73,950

 
(27,078
)
 
46,872

Net change related to cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for losses realized in net income
112

 
(44
)
 
68

 
112

 
(44
)
 
68

Net unrealized (losses) gains on investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for net gains realized in net income
(1,985
)
 
764

 
(1,221
)
 

 

 

Net unrealized (losses) gains arising during the period
(28,678
)
 
11,042

 
(17,636
)
 
26,797

 
(10,317
)
 
16,480

Net unrealized (losses) gains
(30,663
)
 
11,806

 
(18,857
)
 
26,797

 
(10,317
)
 
16,480

Post-retirement unfunded health benefit:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for gains realized in net income
(42
)
 
16

 
(26
)
 
(72
)
 
28

 
(44
)
Actuarial gains arising during the period
236

 
(93
)
 
143

 
395

 
(152
)
 
243

Net unrealized gains
$
194

 
(77
)
 
117

 
323

 
(124
)
 
199

Other comprehensive (loss) income
$
(30,357
)
 
11,685

 
(18,672
)
 
27,232

 
(10,485
)
 
16,747

Comprehensive income
 
 
 
 
$
37,120

 
 
 
 
 
63,619

 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

3


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands, except per share data)
Series C Preferred Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings (Deficit)
 
Total
Balance at December 31, 2013
$
125,862

 
139,721

 
2,976,348

 
(114,176
)
 
(41,258
)
 
(137,512
)
 
2,948,985

Net income

 

 

 

 

 
95,289

 
95,289

Other comprehensive income, net of income taxes

 

 

 

 
27,542

 

 
27,542

Cash dividends declared on common stock - $0.14 per share

 

 

 

 

 
(19,460
)
 
(19,460
)
Cash dividends paid on Series C Preferred Stock

 

 
(5,119
)
 

 

 

 
(5,119
)
Series C Preferred Stock-adjustment to issuance costs
118

 

 

 

 

 

 
118

Restricted share unit activity

 
39

 
(507
)
 

 

 

 
(468
)
Stock options exercised

 
75

 
1,229

 

 

 

 
1,304

Share-based compensation net tax benefit

 

 
162

 

 

 

 
162

Share-based compensation expense

 

 
4,698

 

 

 

 
4,698

Balance at June 30, 2014
$
125,980

 
139,835

 
2,976,811

 
(114,176
)
 
(13,716
)
 
(61,683
)
 
3,053,051

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at
December 31, 2014
$
125,980

 
139,950

 
2,960,825

 
(187,774
)
 
(12,605
)
 
14,894

 
3,041,270

Net income

 

 

 

 

 
109,756

 
109,756

Other comprehensive income, net of income taxes

 

 

 

 
(9,718
)
 

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

 

 

 

 

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

 

 

 

 

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

 

 
14,515

 
(124,085
)
 

 

 
(109,570
)
Restricted share unit activity

 
278

 
(4,314
)
 

 

 
(367
)
 
(4,403
)
Stock options exercised

 
197

 
3,074

 

 

 

 
3,271

Share-based compensation net tax benefit

 

 
1,063

 

 

 

 
1,063

Share-based compensation expense

 

 
6,271

 

 

 

 
6,271

Balance at June 30, 2015
$
125,980

 
140,425

 
2,981,434

 
(311,859
)
 
(22,323
)
 
92,500

 
3,006,157

 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

4


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
Six Months Ended June 30,
(in thousands)
2015
 
2014
Operating Activities
 
 
 
Net income
109,756

 
95,289

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
11,034

 
21,795

Depreciation, amortization, and accretion, net
28,169

 
26,342

Deferred income tax expense
58,302

 
49,891

Decrease (increase) in trading account assets
1,891

 
(14,205
)
Originations of mortgage loans held for sale
(454,708
)
 
(347,327
)
Proceeds from sales of mortgage loans held for sale
426,430

 
325,722

Gain on sales of mortgage loans held for sale, net
(8,988
)
 
(6,522
)
Increase in other assets
(38,776
)
 
(8,924
)
(Decrease) increase in other liabilities
(34,914
)
 
1,955

Investment securities gains, net
(2,710
)
 
(1,331
)
Losses and write-downs on other real estate, net
11,066

 
8,229

Share-based compensation expense
6,271

 
4,698

Write-downs on other assets held for sale

 
7,508

Gain on sale of Memphis branches, net

 
(5,789
)
Gain on sale of branch property

 
(3,116
)
Net cash provided by operating activities
$
112,823

 
154,215

Investing Activities
 
 
 
Net cash used in dispositions

 
(90,571
)
Net (increase) decrease in interest earning deposits with banks
(6,884
)
 
16,664

Net decrease in federal funds sold and securities purchased under resale agreements
623

 
1,422

Net increase in interest bearing funds with Federal Reserve Bank
(567,843
)
 
(44,756
)
Proceeds from maturities and principal collections of investment securities available for sale
314,239

 
245,108

Proceeds from sales of investment securities available for sale
82,156

 
20,815

Purchases of investment securities available for sale
(686,074
)
 
(111,505
)
Proceeds from sales of loans and principal repayments on other loans held for sale
21,866

 
37,300

Proceeds from sales of other real estate
19,348

 
28,147

Net increase in loans
(445,124
)
 
(594,896
)
Net increase in premises and equipment
(8,805
)
 
(23,938
)
Proceeds from sales of other assets held for sale
351

 
241

Net cash used in investing activities
$
(1,276,147
)
 
(515,969
)
Financing Activities
 
 
 
Net increase in demand and savings deposits
1,039,670

 
208,039

Net increase in certificates of deposit
77,813

 
100,011

Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements
61,369

 
(20,292
)
Principal repayments on long-term debt
(425,078
)
 
(375,667
)
Proceeds from issuance of long-term debt
425,000

 
600,000

Dividends paid to common shareholders
(26,664
)
 
(19,460
)
Dividends paid to preferred shareholders
(5,119
)
 
(5,119
)
Stock options exercised
3,271

 
1,304

Repurchases of common stock
(109,570
)
 

Excess tax benefit from share-based compensation
2,378

 
201

Restricted stock activity
(4,403
)
 
(468
)
Net cash provided by financing activities
$
1,038,667

 
488,549

(Decrease) increase in cash and cash equivalents
(124,657
)
 
126,795

Cash and cash equivalents at beginning of period
485,489

 
469,630

Cash and cash equivalents at end of period
$
360,832

 
596,425

 
 
 
 

5


Supplemental Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
Income tax payments (refunds), net
8,751

 
4,530

Interest paid
55,747

 
56,657

Non-cash Activities
 
 
 
Premises and equipment transferred to other assets held for sale
939

 
13,037

Loans foreclosed and transferred to other real estate
11,391

 
25,280

Loans transferred to other loans held for sale at fair value
19,459

 
31,605

Securities purchased during the period but settled after period-end
47,159

 

 
 
 
 
Dispositions:
 
 
 
Fair value of non-cash assets sold

 
(100,982
)
Fair value of liabilities sold

 
(191,553
)
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

6



Notes to Unaudited Interim Consolidated Financial Statements
Note 1 - Significant Accounting Policies
Business Operations
The accompanying unaudited interim consolidated financial statements of Synovus include the accounts of the Parent Company and its consolidated subsidiaries. Synovus provides integrated financial services including commercial and retail banking, financial management, insurance and mortgage services to customers through locally-branded divisions of its wholly-owned subsidiary bank, Synovus Bank, in offices located in 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, Inc., 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; Synovus Trust Company, N.A., headquartered in Columbus, Georgia, which provides trust, asset management and financial planning services; and Synovus Mortgage Corp., headquartered in Birmingham, Alabama, which offers mortgage services.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to the SEC Form 10-Q and Article 10 of Regulation S-X; therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, comprehensive income, and cash flows in conformity with GAAP. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the periods covered by this Report have been included. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes appearing in Synovus' 2014 Form 10-K. There have been no significant changes to the accounting policies as disclosed in Synovus' 2014 Form 10-K.
In preparing the unaudited interim consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the respective consolidated balance sheets and the reported amounts of revenues and expenses for the periods presented. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses; the valuation of other real estate; the fair value of investment securities; the fair value of private equity investments; contingent liabilities related to legal matters; and the deferred tax assets valuation allowance.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and due from banks. At June 30, 2015, no amount of the due from banks balance was restricted as to withdrawal. At December 31, 2014, $125 thousand of the due from banks balance was restricted as to withdrawal.
Short-term Investments
Short-term investments consist of interest bearing funds with the Federal Reserve Bank, interest earning deposits with banks, and Federal funds sold and securities purchased under resale agreements. At June 30, 2015 and December 31, 2014, interest bearing funds with the Federal Reserve Bank included $123.1 million and $89.7 million, respectively, on deposit to meet Federal Reserve Bank requirements. Interest earning deposits with banks include $6.6 million and $7.1 million at June 30, 2015 and December 31, 2014, respectively, which is pledged as collateral in connection with certain letters of credit. Federal funds sold include $68.1 million and $67.5 million at June 30, 2015 and December 31, 2014, respectively, which are pledged to collateralize certain derivative instruments. Federal funds sold and securities purchased under resale agreements, and Federal funds purchased and securities sold under repurchase agreements, generally mature in one day.
Recently Adopted Accounting Standards Updates

During 2014, the FASB issued the following ASUs, all of which became effective January 1, 2015:

ASU 2014-01, Investments-Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Qualified Affordable Housing Projects

In January 2014, the FASB issued amended guidance which permits Synovus to make an accounting policy election to account for its investments in qualified affordable housing projects using a proportional amortization method, if certain

7


conditions are met, and to present the amortization as a component of income tax expense. The amended guidance would be applied retrospectively to all periods presented and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Regardless of the policy election, the amended guidance, where disclosed, enables the users of the financial statements to understand the nature of investments in qualified affordable housing projects and the effect of the measurement of the investments in qualified affordable housing projects and the related tax credits on Synovus’ financial position and results of operations.

Synovus adopted the amended guidance on January 1, 2015, and did not make an accounting policy election to apply the proportional amortization method for its investments in qualified affordable housing projects because the impact to the consolidated financial statements was insignificant. Therefore, the adoption did not have an impact on Synovus’ consolidated financial statements. At June 30, 2015, the aggregate carrying value of Synovus' investments in LIHTC partnerships was $9.9 million. See Note 18 "Variable Interest Entities" to the consolidated financial statements of Synovus' 2014 Form 10-K for additional information regarding these investments.

Additionally, adoption of the following standards effective January 1, 2015 did not have a significant impact on Synovus’ consolidated financial statements.

ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure
ASU 2014-12, Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period
ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures
ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
ASU 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure
Reclassifications
Prior periods' consolidated financial statements are reclassified whenever necessary to conform to the current periods' presentation.
Subsequent Events
Synovus has evaluated for consideration, or disclosure, all transactions, events, and circumstances, subsequent to the date of the consolidated balance sheet and through the date the accompanying unaudited interim consolidated financial statements were issued, and has reflected, or disclosed, those items deemed appropriate within the unaudited interim consolidated financial statements.
Note 2 - Share Repurchase Program
On October 21, 2014, Synovus announced a $250 million share repurchase program, which will expire on October 23, 2015. As of June 30, 2015, Synovus had repurchased a total of $197.5 million, or 7.4 million shares, of common stock under the share repurchase program through a combination of share repurchases under the accelerated share repurchase (ASR) agreement described below and open market transactions.
During October 2014, Synovus entered into an ASR agreement to purchase $75.0 million of Synovus common stock under the share repurchase program. As of December 31, 2014, Synovus had repurchased 2.5 million shares of common stock under the ASR agreement. During January 2015, Synovus repurchased 392 thousand shares upon completion of the ASR agreement. Additionally, since October 2014 through June 30, 2015, Synovus has repurchased $122.5 million, or 4.5 million shares, of common stock through open market transactions, including $109.4 million, or 3.9 million shares, of common stock repurchased during the first half of 2015.
Note 3 - Sale of Branches
On January 17, 2014, Synovus completed the sale of certain loans, premises, deposits, and other assets and liabilities of the Memphis, Tennessee branches of Trust One Bank, a division of Synovus Bank.  The sale included $89.6 million in total loans and $191.3 million in total deposits.   Results for the six months ended June 30, 2014 reflect a pre-tax gain, net of associated costs, of $5.8 million relating to this transaction.  

8


Note 4 - Investment Securities
The amortized cost, gross unrealized gains and losses, and estimated fair values of investment securities available for sale at June 30, 2015 and December 31, 2014 are summarized below.
 
 
June 30, 2015
(in thousands)
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
 Fair Value
U.S. Treasury securities
 
$
43,149

 
383

 

 
43,532

U.S. Government agency securities
 
24,505

 
763

 

 
25,268

Securities issued by U.S. Government sponsored enterprises
 
126,947

 
920

 

 
127,867

Mortgage-backed securities issued by U.S. Government agencies
 
176,856

 
2,012

 
(794
)
 
178,074

Mortgage-backed securities issued by U.S. Government sponsored enterprises
 
2,416,229

 
12,780

 
(18,280
)
 
2,410,729

Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises
 
534,730

 
4,487

 
(1,949
)
 
537,268

State and municipal securities
 
4,566

 
120

 
(1
)
 
4,685

Equity securities
 
3,228

 
4,375

 

 
7,603

Other investments
 
20,145

 

 
(498
)
 
19,647

Total investment securities available for sale
 
$
3,350,355

 
25,840

 
(21,522
)
 
3,354,673

 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
(in thousands)
 
Amortized Cost(1)
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
U.S. Treasury securities
 
$
42,636

 
190

 

 
42,826

U.S. Government agency securities
 
26,426

 
898

 

 
27,324

Securities issued by U.S. Government sponsored enterprises
 
81,332

 
710

 

 
82,042

Mortgage-backed securities issued by U.S. Government agencies
 
177,678

 
2,578

 
(440
)
 
179,816

Mortgage-backed securities issued by U.S. Government sponsored enterprises
 
2,250,897

 
19,915

 
(9,131
)
 
2,261,681

Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises
 
414,562

 
4,856

 
(2,342
)
 
417,076

State and municipal securities
 
5,024

 
183

 
(1
)
 
5,206

Equity securities
 
3,228

 
3,520

 


 
6,748

Other investments
 
19,121

 
7

 
(441
)
 
18,687

Total investment securities available for sale
 
$
3,020,904

 
32,857

 
(12,355
)
 
3,041,406

 
 
 
 
 
 
 
 
 
(1) 
Amortized cost is adjusted for other-than-temporary impairment charges in 2014, which have been recognized in the consolidated statements of income and were considered inconsequential.
At June 30, 2015 and December 31, 2014, investment securities with a carrying value of $2.22 billion and $2.12 billion respectively, were pledged to secure certain deposits and securities sold under repurchase agreements as required by law and contractual agreements.
Synovus has reviewed investment securities that are in an unrealized loss position as of June 30, 2015 and December 31, 2014 for OTTI and does not consider any securities in an unrealized loss position to be other-than-temporarily impaired. If Synovus intended to sell a security in an unrealized loss position, the entire unrealized loss would be reflected in income. Synovus does not intend to sell investment securities in an unrealized loss position prior to the recovery of the unrealized loss, which may be until maturity, and has the ability and intent to hold those securities for that period of time. Additionally, Synovus is not currently aware of any circumstances which will require it to sell any of the securities that are in an unrealized loss position prior to the respective securities' recovery of all such unrealized losses.

9


Declines in the fair value of available for sale securities below their cost that are deemed to have OTTI are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. Currently, unrealized losses on debt securities are attributable to increases in interest rates on comparable securities from the date of purchase. Synovus regularly evaluates its investment securities portfolio to ensure that there are no conditions that would indicate that unrealized losses represent OTTI. These factors include the length of time the security has been in a loss position, the extent that the fair value is below amortized cost, and the credit standing of the issuer. As of June 30, 2015, Synovus had thirty-seven investment securities in a loss position for less than twelve months and thirty-two investment securities in a loss position for twelve months or longer.
Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2015 and December 31, 2014, are presented below.
 
June 30, 2015
 
Less than 12 Months
 
12 Months or Longer
 
Total
(in thousands)
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
Mortgage-backed securities issued by U.S. Government agencies
30,996

 
169

 
19,805

 
625

 
50,801

 
794

Mortgage-backed securities issued by U.S. Government sponsored enterprises
803,540

 
4,383

 
620,762

 
13,897

 
1,424,302

 
18,280

Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises
74,962

 
176

 
78,262

 
1,773

 
153,224

 
1,949

State and municipal securities

 

 
47

 
1

 
47

 
1

Other investments
14,900

 
100

 
4,747

 
398

 
19,647

 
498

    Total
$
924,398

 
4,828

 
723,623

 
16,694

 
1,648,021

 
21,522

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
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

 

 
21,488

 
440

 
21,488

 
440

Mortgage-backed securities issued by U.S. Government sponsored enterprises
251,134

 
763

 
798,282

 
8,368

 
1,049,416

 
9,131

Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises
20,338

 
61

 
119,172

 
2,281

 
139,510

 
2,342

State and municipal securities

 

 
45

 
1

 
45

 
1

Other investments

 

 
3,680

 
441

 
3,680

 
441

Total
$
271,472

 
824

 
942,667

 
11,531

 
1,214,139

 
12,355

 
 
 
 
 
 
 
 
 
 
 
 

10


The amortized cost and fair value by contractual maturity of investment securities available for sale at June 30, 2015 are shown below. The expected life of mortgage-backed securities or CMOs may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities and CMOs, which are not due at a single maturity date, have been classified based on the final contractual maturity date.
 
Distribution of Maturities at June 30, 2015
(in thousands)
Within One
Year
 
1 to 5
Years
 
5 to 10
Years
 
More Than
10 Years
 
No Stated
Maturity
 
Total
Amortized Cost
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
18,286

 
24,863

 

 

 

 
43,149

U.S. Government agency securities
78

 
12,000

 
12,427

 

 

 
24,505

Securities issued by U.S. Government sponsored enterprises
30,412

 
96,535

 

 

 

 
126,947

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

 

 

 
176,856

 

 
176,856

Mortgage-backed securities issued by U.S. Government sponsored enterprises
28

 
1,025

 
1,939,029

 
476,147

 

 
2,416,229

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

 

 

 
534,730

 

 
534,730

State and municipal securities
1,020

 
938

 

 
2,608

 

 
4,566

Equity securities

 

 

 

 
3,228

 
3,228

Other investments

 

 
15,000

 
2,000

 
3,145

 
20,145

Total amortized cost
$
49,824

 
135,361

 
1,966,456

 
1,192,341

 
6,373

 
3,350,355

Fair Value
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
18,286

 
25,246

 

 

 

 
43,532

U.S. Government agency securities
78

 
12,336

 
12,854

 

 

 
25,268

Securities issued by U.S. Government sponsored enterprises
30,582

 
97,285

 

 

 

 
127,867

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

 

 

 
178,074

 

 
178,074

Mortgage-backed securities issued by U.S. Government sponsored enterprises
29

 
1,077

 
1,926,628

 
482,995

 

 
2,410,729

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

 

 

 
537,268

 

 
537,268

State and municipal securities
1,038

 
945

 

 
2,702

 

 
4,685

Equity securities

 

 

 

 
7,603

 
7,603

Other investments

 

 
14,900

 
1,701

 
3,046

 
19,647

Total fair value
$
50,013

 
136,889

 
1,954,382

 
1,202,740

 
10,649

 
3,354,673

 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sales, gross gains, and gross losses on sales of securities available for sale for the six and three months ended June 30, 2015 and 2014 are presented below. Other-than-temporary impairment charges of $88 thousand are included in gross realized losses for the six months ended June 30, 2014. The specific identification method is used to reclassify gains and losses out of other comprehensive income at the time of sale.
 
 
Six Months Ended June 30,
 
Three Months Ended June 30,
(in thousands)
 
2015
 
2014
 
2015
 
2014
Proceeds from sales of investment securities available for sale
 
$
82,156

 
$20,815
 
$
49,737

 

Gross realized gains
 
2,710

 
1,419

 
1,985

 

Gross realized losses
 

 
(88
)
 

 

Investment securities gains, net
 
$
2,710

 
1,331

 
$
1,985

 

 
 
 
 
 
 
 
 
 

11


Note 5 - Restructuring Charges
For the six and three months ended June 30, 2015 and 2014, total restructuring charges consist of the following components:
 
Six Months Ended June 30,
 
Three Months Ended June 30,
(in thousands)
2015
 
2014
 
2015
 
2014
Severance charges
$

 
8,047

 
$

 

Lease termination charges
(4
)
 

 
(4
)
 

Asset impairment charges

 
7,358

 

 
7,358

Gain on sale of assets held for sale, net
(157
)
 

 

 

Professional fees and other charges
59

 
888

 
9

 
358

Total restructuring charges, net
$
(102
)
 
16,293

 
$
5

 
7,716

 
 
 
 
 
 
 
 
For the six months ended June 30, 2015, Synovus recorded net gains of $157 thousand on the sale of certain branch locations and recorded additional expense, net of $55 thousand associated with the 2014 branch closings. Restructuring charges for the six and three months ended June 30, 2014 related primarily to expense savings initiatives that were approved during 2014. The initiatives include the consolidation or closing of certain branch locations as well as workforce reductions. Severance charges for the six months ended June 30, 2014 consisted of estimated involuntary termination benefits for targeted staff reductions identified during 2014. These termination benefits were provided under an ongoing benefit arrangement as defined in ASC 712, Compensation-Nonretirement Postemployment Benefits; accordingly, the charges were recorded pursuant to the liability recognition criteria of ASC 712.   Asset impairment charges for the six and three months ended June 30, 2014 were recorded following the decision to close 13 branches during 2014. Additionally, substantially all of the professional fees and other charges for the six and three months ended June 30, 2014 consist of professional fees incurred in connection with an organizational restructuring implemented during 2014.

12


The following table presents aggregate activity associated with accruals that resulted from restructuring charges during the six and three months ended June 30, 2015 and 2014:
 
Severance Charges
 
Lease Termination Charges
 
Total
(in thousands)
 
 
 
 
 
Balance at December 31, 2014
$
3,291

 
5,539

 
8,830

Accruals for efficiency initiatives

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

 
5,124

 
7,377

 
 
 
 
 
 
Balance at April 1, 2015
2,770

 
5,318

 
8,088

Accruals for efficiency initiatives

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

 
5,124

 
7,377

 
 
 
 
 
 
 
Severance Charges
 
Lease Termination Charges
 
Total
(in thousands)
 
 
 
 
 
Balance at December 31, 2013
$
1,572

 
1,383

 
2,955

Accruals for efficiency initiatives
8,047

 

 
8,047

Payments
(3,395
)
 
(1,305
)
 
(4,700
)
Balance at June 30, 2014
6,224

 
78

 
6,302

 
 
 
 
 
 
Balance at April 1, 2014
7,688

 
94

 
7,782

Accruals for efficiency initiatives

 

 

Payments
(1,464
)
 
(16
)
 
(1,480
)
Balance at June 30, 2014
$
6,224

 
78

 
6,302

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

13


Note 6 - Loans and Allowance for Loan Losses
The following is a summary of current, accruing past due, and non-accrual loans by portfolio class as of June 30, 2015 and December 31, 2014.
Current, Accruing Past Due, and Non-accrual Loans
 
 
June 30, 2015
 
(in thousands)
Current
 
Accruing 30-89 Days Past Due
 
Accruing 90 Days or Greater Past Due
 
Total Accruing Past Due
 
Non-accrual
 
 Total
 
Investment properties
$
5,409,452

 
1,092

 
183

 
1,275

 
13,166

 
5,423,893

 
1-4 family properties
1,075,754

 
1,873

 
389

 
2,262

 
19,390

 
1,097,406

 
Land acquisition
524,265

 
6,099

 
741

 
6,840

 
23,396

 
554,501

 
Total commercial real estate
7,009,471

 
9,064

 
1,313

 
10,377

 
55,952

 
7,075,800

 
Commercial, financial and agricultural
6,205,203

 
9,691

 
926

 
10,617

 
43,733

 
6,259,553

 
Owner-occupied
4,104,001

 
6,759

 
671

 
7,430

 
29,338

 
4,140,769

 
Total commercial and industrial
10,309,204

 
16,450

 
1,597

 
18,047

 
73,071

 
10,400,322

 
Home equity lines
1,659,927

 
5,376

 
546

 
5,922

 
17,802

 
1,683,651

 
Consumer mortgages
1,758,735

 
10,160

 
2

 
10,162

 
24,855

 
1,793,752

 
Credit cards
243,464

 
1,893

 
1,367

 
3,260

 

 
246,724

 
Other retail
318,691

 
3,085

 
7

 
3,092

 
1,958

 
323,741