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EX-32 - EXHIBIT 32 - SYNOVUS FINANCIAL CORPsnv-09302016xex32.htm
EX-31.2 - EXHIBIT 31.2 - SYNOVUS FINANCIAL CORPsnv-09302016xex312.htm
EX-31.1 - EXHIBIT 31.1 - SYNOVUS FINANCIAL CORPsnv-09302016xex311.htm
EX-12.1 - EXHIBIT 12.1 - SYNOVUS FINANCIAL CORPsnv-09302016xex121.htm
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 September 30, 2016
Commission file number 1-10312
 
______________________________
financialappendix930a09.jpg
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
 
 
 
October 31, 2016

Common Stock, $1.00 Par Value
 
 
 
122,298,503





Table of Contents
 
 
 
 
 
Page
Financial Information
 
 
 
Index of Defined Terms
 
Item 1.
Financial Statements (Unaudited)
 
 
 
Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015
 
 
Consolidated Statements of Income for the Nine and Three Months Ended September 30, 2016 and 2015
 
 
Consolidated Statements of Comprehensive Income for the Nine and Three Months Ended September 30, 2016 and 2015
 
 
Consolidated Statements of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2016 and 2015
 
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015
 
 
Notes to Unaudited Interim Consolidated Financial Statements
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
 
Item 4.
Controls and Procedures
 
 
 
 
 
Other Information
 
 
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults Upon Senior Securities
 
Item 4.
Mine Safety Disclosures
 
Item 5.
Other Information
 
Item 6.
Exhibits
 
Signatures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






SYNOVUS FINANCIAL CORP.
INDEX OF DEFINED TERMS
ALCO – Synovus' Asset Liability Management Committee
ASC – Accounting Standards Codification
ASR – Accelerated share repurchase
ASU – Accounting Standards Update
Basel III – A global regulatory framework developed by the Basel Committee on Banking Supervision
BOLI – Bank-Owned Life Insurance
BOV – Broker’s opinion of value
bp – Basis point (bps - basis points)
C&I – Commercial and industrial loans
CCC – Central clearing counterparty
CET1 – Common Equity Tier 1 Capital defined by Basel III capital rules
CMO – Collateralized Mortgage Obligation
Code – Internal Revenue Code of 1986, as amended
Company – Synovus Financial Corp. and its wholly-owned subsidiaries, except where the context requires otherwise
Covered Litigation – Certain Visa litigation for which Visa is indemnified by Visa USA members
CRE – Commercial real estate
DIF – Deposit Insurance Fund
Dodd-Frank Act – The Dodd-Frank Wall Street Reform and Consumer Protection Act
EVE – economic value of equity
Exchange Act – Securities Exchange Act of 1934, as amended
FASB – Financial Accounting Standards Board
FDIC – Federal Deposit Insurance Corporation
Federal Reserve Bank – The 12 banks that are the operating arms of the U.S. central bank. They implement the policies of the Federal Reserve Board and also conduct economic research.
Federal Reserve Board – The 7-member Board of Governors that oversees the Federal Reserve System, establishes monetary policy, and monitors the economic health of the country. Its members are appointed by the President, subject to Senate confirmation, and serve 14-year terms.
Federal Reserve System – The 12 Federal Reserve Banks, with each one serving member banks in its own district. This system, supervised by the Federal Reserve Board, has broad regulatory powers over the money supply and the credit structure.
FFIEC – Federal Financial Institutions Examination Council
FHLB – Federal Home Loan Bank
FICO – Fair Isaac Corporation
GA DBF – Georgia Department of Banking and Finance
GAAP – Generally Accepted Accounting Principles in the United States of America
HELOC – Home equity line of credit
LIBOR – London Interbank Offered Rate
LTV – Loan-to-collateral value ratio
NAICS – North American Industry Classification System

i


nm – not meaningful
NPA – Non-performing assets
NPL – Non-performing loans
NSF – Non-sufficient funds
OCI – Other comprehensive income
ORE – Other real estate
OTTI – Other-than-temporary impairment
Parent Company – Synovus Financial Corp.
SBA – Small Business Administration
SCM – State, county, and municipal
SEC – U.S. Securities and Exchange Commission
Securities Act – Securities Act of 1933, as amended
Series C Preferred Stock – Synovus' Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C, $25 liquidation preference
Synovus – Synovus Financial Corp.
Synovus Bank – A Georgia state-chartered bank and wholly-owned subsidiary of Synovus through which Synovus conducts its banking operations
Synovus' 2015 Form 10-K – Synovus' Annual Report on Form 10-K for the year ended December 31, 2015
Synovus Mortgage – Synovus Mortgage Corp., a wholly-owned subsidiary of Synovus Bank
Synovus Trust – Synovus Trust Company, N.A., a wholly-owned subsidiary of Synovus Bank
TDR – Troubled debt restructuring (as defined in ASC 310-40)
Treasury – United States Department of the Treasury
VIE – Variable interest entity, as defined in ASC 810-10
Visa – The Visa U.S.A., Inc. card association or its affiliates, collectively
Visa Class B shares – Class B shares of common stock issued by Visa which are subject to restrictions with respect to sale until all of the Covered Litigation has been settled
Visa Derivative – A derivative contract with the purchaser of Visa Class B shares which provides for settlements between the purchaser and Synovus based upon a change in the ratio for conversion of Visa Class B shares into Visa Class A shares
Warrant – A warrant issued to the Treasury by Synovus to purchase up to 2,215,820 shares of Synovus common stock at a per share exercise price of $65.52 expiring on December 19, 2018, as was issued by Synovus to Treasury in 2008 in connection with the Capital Purchase Program, promulgated under the Emergency Stabilization Act of 2008


ii



PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
September 30, 2016
 
December 31, 2015
ASSETS
 
 
 
Cash and cash equivalents
$
367,342

 
367,092

Interest bearing funds with Federal Reserve Bank
985,776

 
829,887

Interest earning deposits with banks
18,375

 
17,387

Federal funds sold and securities purchased under resale agreements
71,753

 
69,819

Trading account assets, at fair value
7,309

 
5,097

Mortgage loans held for sale, at fair value
95,769

 
59,275

Investment securities available for sale, at fair value
3,603,153

 
3,587,818

Loans, net of deferred fees and costs
23,262,887

 
22,429,565

Allowance for loan losses
(253,817
)
 
(252,496
)
Loans, net
$
23,009,070

 
22,177,069

Premises and equipment, net
418,091

 
445,155

Goodwill
24,431

 
24,431

Other real estate
28,438

 
47,030

Deferred tax asset, net
395,795

 
511,948

Other assets
701,794

 
650,645

Total assets
$
29,727,096

 
28,792,653

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Non-interest bearing deposits
$
7,059,059

 
6,732,970

Interest bearing deposits, excluding brokered deposits
15,817,596

 
15,434,171

Brokered deposits
1,315,348

 
1,075,520

Total deposits
24,192,003

 
23,242,661

Federal funds purchased and securities sold under repurchase agreements
195,025

 
177,025

Long-term debt
2,160,985

 
2,186,893

Other liabilities
272,424

 
185,878

Total liabilities
$
26,820,437

 
25,792,457

Shareholders' Equity
 
 
 
Series C Preferred Stock – no par value. Authorized 100,000,000 shares; 5,200,000 shares issued and outstanding at September 30, 2016 and December 31, 2015
125,980

 
125,980

Common stock - $1.00 par value. Authorized 342,857,143 shares; 141,066,207 issued at September 30, 2016 and 140,592,409 issued at December 31, 2015; 121,453,772 outstanding at September 30, 2016 and 129,547,032 outstanding at December 31, 2015
141,066

 
140,592

Additional paid-in capital
2,987,760

 
2,989,981

Treasury stock, at cost – 19,612,435 shares at September 30, 2016 and 11,045,377 shares at December 31, 2015
(654,014
)
 
(401,511
)
Accumulated other comprehensive income (loss)
5,165

 
(29,819
)
Retained earnings
300,702

 
174,973

Total shareholders’ equity
2,906,659

 
3,000,196

Total liabilities and shareholders' equity
$
29,727,096

 
28,792,653

 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

1


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
Nine Months Ended September 30,
 
Three Months Ended September 30,
(in thousands, except per share data)
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
      Loans, including fees
$
700,340

 
652,807

 
$
237,448

 
220,782

      Investment securities available for sale
49,926

 
43,043

 
16,269

 
14,926

      Trading account assets
46

 
258

 
13

 
34

      Mortgage loans held for sale
1,966

 
2,060

 
727

 
662

      Federal Reserve Bank balances
3,170

 
2,413

 
1,151

 
821

      Other earning assets
2,822

 
2,567

 
946

 
868

Total interest income
758,270

 
703,148

 
256,554

 
238,093

Interest expense:
 
 
 
 
 
 
 
Deposits
48,072

 
48,859

 
15,858

 
17,227

Federal funds purchased and securities sold under repurchase agreements
154

 
134

 
58

 
46

Long-term debt
44,394

 
39,457

 
14,631

 
13,030

Total interest expense
92,620

 
88,450

 
30,547

 
30,303

Net interest income
665,650

 
614,698

 
226,007

 
207,790

Provision for loan losses
21,741

 
13,990

 
5,671

 
2,956

Net interest income after provision for loan losses
643,909

 
600,708

 
220,336

 
204,834

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
60,772

 
59,621

 
20,822

 
20,692

Fiduciary and asset management fees
34,691

 
34,722

 
11,837

 
11,308

Brokerage revenue
20,019

 
20,978

 
6,199

 
6,946

Mortgage banking income
18,755

 
19,960

 
7,329

 
5,965

Bankcard fees
24,988

 
24,910

 
8,269

 
8,334

Investment securities gains, net
126

 
2,710

 
59

 

Other fee income
15,255

 
15,371

 
5,171

 
5,521

Other non-interest income
24,582

 
23,474

 
8,469

 
8,293

Total non-interest income
199,188

 
201,746

 
68,155

 
67,059

Non-interest expense:
 
 
 
 
 
 
 
Salaries and other personnel expense
300,364

 
285,394

 
101,945

 
94,341

Net occupancy and equipment expense
81,480

 
79,650

 
28,120

 
26,937

Third-party processing expense
34,033

 
31,858

 
11,219

 
10,844

FDIC insurance and other regulatory fees
20,100

 
20,315

 
6,756

 
6,591

Professional fees
19,794

 
18,382

 
6,486

 
6,371

Advertising expense
15,358

 
11,797

 
5,597

 
5,488

Foreclosed real estate expense, net
9,998

 
18,350

 
2,725

 
4,503

Merger-related expense
550

 

 
550

 

Loss on early extinguishment of debt
4,735

 

 

 

Restructuring charges, net
8,225

 
(33
)
 
1,243

 
69

Other operating expenses
68,079

 
68,908

 
21,230

 
22,763

Total non-interest expense
562,716

 
534,621

 
185,871

 
177,907

Income before income taxes
280,381

 
267,833

 
102,620

 
93,986

Income tax expense
102,148

 
100,149

 
37,375

 
36,058

Net income
178,233

 
167,684

 
65,245

 
57,928

Dividends on preferred stock
7,678

 
7,678

 
2,559

 
2,559

Net income available to common shareholders
$
170,555

 
160,006

 
$
62,686

 
55,369

Net income per common share, basic
$
1.36

 
1.20

 
$
0.51

 
0.42

Net income per common share, diluted
1.36

 
1.20

 
0.51

 
0.42

Weighted average common shares outstanding, basic
125,076

 
133,120

 
122,924

 
131,516

Weighted average common shares outstanding, diluted
125,712

 
133,876

 
123,604

 
132,297

 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

2


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
(in thousands)
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
Net income
$
280,381

 
(102,148
)
 
178,233

 
267,833

 
(100,149
)
 
167,684

Net change related to cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for losses realized in net income
402

 
(155
)
 
247

 
336

 
(130
)
 
206

Net unrealized gains on investment securities available for sale:


 


 


 
 
 
 
 
 
Reclassification adjustment for net gains realized in net income
(126
)
 
49

 
(77
)
 
(2,710
)
 
1,043

 
(1,667
)
Net unrealized gains arising during the period
56,648

 
(21,821
)
 
34,827

 
12,907

 
(4,966
)
 
7,941

Net unrealized gains
56,522

 
(21,772
)
 
34,750

 
10,197

 
(3,923
)
 
6,274

Post-retirement unfunded health benefit:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for gains realized in net income
(124
)
 
48

 
(76
)
 
(178
)
 
68

 
(110
)
Actuarial gains arising during the period
102

 
(39
)
 
63

 
236

 
(93
)
 
143

Net unrealized (realized) gains
$
(22
)
 
9

 
(13
)
 
58

 
(25
)
 
33

Other comprehensive income
$
56,902

 
(21,918
)
 
34,984

 
10,591

 
(4,078
)
 
6,513

Comprehensive income
 
 
 
 
$
213,217

 
 
 
 
 
174,197

 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.


 
Three Months Ended September 30,
 
2016
 
2015
(in thousands)
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Before-tax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
Net income
$
102,620

 
(37,375
)
 
65,245

 
93,986

 
(36,058
)
 
57,928

Net change related to cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for losses realized in net income
65

 
(25
)
 
40

 
112

 
(43
)
 
69

Net unrealized gains (losses) on investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for net gains realized in net income
(59
)
 
23

 
(36
)
 

 

 

Net unrealized gains (losses) arising during the period
(9,567
)
 
3,672

 
(5,895
)
 
26,374

 
(10,154
)
 
16,220

Net unrealized gains (losses)
(9,626
)
 
3,695

 
(5,931
)
 
26,374

 
(10,154
)
 
16,220

Post-retirement unfunded health benefit:
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment for gains realized in net income
(20
)
 
8

 
(12
)
 
(94
)
 
36

 
(58
)
Actuarial gains arising during the period
102

 
(39
)
 
63

 

 

 

Net unrealized (realized) gains
$
82

 
(31
)
 
51

 
(94
)
 
36

 
(58
)
Other comprehensive income (loss)
$
(9,479
)
 
3,639

 
(5,840
)
 
26,392

 
(10,161
)
 
16,231

Comprehensive income
 
 
 
 
$
59,405

 
 
 
 
 
74,159

 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

3


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands, except per share data)
Series C Preferred Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Total
Balance at December 31, 2014
$
125,980

 
139,950

 
2,960,825

 
(187,774
)
 
(12,605
)
 
14,894

 
3,041,270

Net income

 

 

 

 

 
167,684

 
167,684

Other comprehensive income, net of income taxes

 

 

 

 
6,513

 

 
6,513

Cash dividends declared on common stock -$0.30 per share

 

 

 

 

 
(39,736
)
 
(39,736
)
Cash dividends paid on Series C Preferred Stock

 

 

 

 

 
(7,678
)
 
(7,678
)
Repurchases and completion of ASR agreement to repurchase shares of common stock

 

 
14,516

 
(176,654
)
 

 

 
(162,138
)
Restricted share unit activity

 
282

 
(4,376
)
 

 

 
(367
)
 
(4,461
)
Stock options exercised

 
294

 
4,603

 

 

 

 
4,897

Share-based compensation net tax benefit

 

 
1,303

 

 

 

 
1,303

Share-based compensation expense

 

 
9,462

 

 

 

 
9,462

Balance at September 30, 2015
$
125,980

 
140,526

 
2,986,333

 
(364,428
)
 
(6,092
)
 
134,797

 
3,017,116

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
125,980

 
140,592

 
2,989,981

 
(401,511
)
 
(29,819
)
 
174,973

 
3,000,196

Net income

 

 

 

 

 
178,233

 
178,233

Other comprehensive income, net of income taxes

 

 

 

 
34,984

 

 
34,984

Cash dividends declared on common stock - $0.36 per share

 

 

 

 

 
(44,737
)
 
(44,737
)
Cash dividends paid on Series C Preferred Stock

 

 

 

 

 
(7,678
)
 
(7,678
)
Repurchases and agreements to repurchase shares of common stock

 

 
(10,581
)
 
(252,503
)
 

 

 
(263,084
)
Restricted share unit activity

 
301

 
(4,860
)
 

 

 
(89
)
 
(4,648
)
Stock options exercised

 
173

 
2,808

 

 

 

 
2,981

Share-based compensation net tax benefit

 

 
199

 

 

 

 
199

Share-based compensation expense

 

 
10,213

 

 

 

 
10,213

Balance at September 30, 2016
$
125,980

 
$
141,066

 
2,987,760

 
(654,014
)
 
5,165

 
300,702

 
2,906,659

 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

4


SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
Nine Months Ended September 30,
(in thousands)
2016
 
2015
Operating Activities
 
 
 
Net income
178,233

 
167,684

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
21,741

 
13,990

Depreciation, amortization, and accretion, net
43,615

 
42,725

Deferred income tax expense
94,436

 
93,198

(Increase) decrease in trading account assets
(2,212
)
 
8,019

Originations of mortgage loans held for sale
(512,572
)
 
(656,987
)
Proceeds from sales of mortgage loans held for sale
486,690

 
658,787

Gain on sales of mortgage loans held for sale, net
(10,828
)
 
(12,531
)
Increase in other assets
(38,050
)
 
(9,874
)
Increase (decrease) in other liabilities
37,068

 
(11,679
)
Investment securities gains, net
(126
)
 
(2,710
)
Losses and write-downs on other real estate, net
8,194

 
14,864

Losses and write-downs on other assets held for sale, net
7,205

 
1,043

Loss on early extinguishment of debt
4,735

 

Share-based compensation expense
10,213

 
9,462

Net cash provided by operating activities
$
328,342

 
315,991

Investing Activities
 
 
 
Net increase in interest earning deposits with banks
(988
)
 
(9,360
)
Net (increase) decrease in federal funds sold and securities purchased under resale agreements
(1,934
)
 
3,378

Net increase in interest bearing funds with Federal Reserve Bank
(155,889
)
 
(116,278
)
Proceeds from maturities and principal collections of investment securities available for sale
711,882

 
517,077

Proceeds from sales of investment securities available for sale
596,824

 
82,156

Purchases of investment securities available for sale
(1,233,236
)
 
(1,048,048
)
Proceeds from sales of loans and principal repayments on other loans held for sale
8,433

 
28,045

Proceeds from sales of other real estate
25,415

 
30,124

Net increase in loans
(879,200
)
 
(839,971
)
Purchases of BOLI policies

 
(45,000
)
Net increase in premises and equipment
(24,491
)
 
(21,667
)
Proceeds from sales of other assets held for sale
5,673

 
2,304

Net cash used in investing activities
$
(947,511
)
 
(1,417,240
)
 
 
 
 
Financing Activities
 
 
 
Net increase in demand and savings deposits
1,054,389

 
1,500,506

Net decrease in certificates of deposit
(105,698
)
 
(254,793
)
Net increase in federal funds purchased and securities sold under repurchase agreements
18,000

 
8,559

Repayments on long-term debt
(1,730,106
)
 
(525,000
)
Proceeds from issuance of long-term debt
1,700,000

 
425,000

Dividends paid to common shareholders
(44,737
)
 
(39,736
)
Dividends paid to preferred shareholders
(7,678
)
 
(7,678
)
Stock options exercised
2,981

 
4,897

Repurchases and agreements to repurchase shares of common stock
(263,084
)
 
(162,138
)
Restricted stock activity
(4,648
)
 
(4,461
)
Net cash provided by financing activities
$
619,419

 
945,156

Increase (decrease) in cash and cash equivalents
250

 
(156,093
)
Cash and cash equivalents at beginning of period
367,092

 
485,489

Cash and cash equivalents at end of period
$
367,342

 
329,396

 
 
 
 

5


 
 
 
 
Supplemental Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
Income tax payments, net
6,828

 
9,109

Interest paid
93,479

 
86,451

Non-cash Activities
 
 
 
Premises and equipment transferred to other assets held for sale
23,667

 
1,477

Loans foreclosed and transferred to other real estate
15,017

 
23,862

Loans transferred to other assets held for sale at fair value
10,482

 

Securities purchased during the period but settled after period-end
49,479

 

 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

6



Notes to Unaudited Interim Consolidated Financial Statements
Note 1 - Significant Accounting Policies
Business Operations
The accompanying unaudited interim consolidated financial statements of Synovus Financial Corp. include the accounts of the Parent Company and its consolidated subsidiaries. Synovus Financial Corp. is a financial services company based in Columbus, Georgia. Through its wholly-owned subsidiary, Synovus Bank, member FDIC, the company provides commercial and retail banking in addition to a full suite of specialized products and services including private banking, treasury management, wealth management, and international banking. Synovus also provides mortgage services, financial planning, and investment advisory services through its wholly-owned subsidiaries, Synovus Mortgage, Synovus Trust, and Synovus Securities, as well as its GLOBALT and Creative Financial Group divisions. These specialized offerings, combined with traditional banking products and services, make Synovus Bank a great choice for retail and commercial customers.
Synovus Bank's 28 locally-branded bank divisions are positioned in some of the best markets in the Southeast, with 250 branches and 332 ATMs in Georgia, Alabama, South Carolina, Florida, and Tennessee.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to the SEC Form 10-Q and Article 10 of Regulation S-X; therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, comprehensive income, and cash flows in conformity with GAAP. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the periods covered by this Report have been included. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes appearing in Synovus' 2015 Form 10-K. There have been no significant changes to the accounting policies as disclosed in Synovus' 2015 Form 10-K.
In preparing the unaudited interim consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the respective consolidated balance sheets and the reported amounts of revenues and expenses for the periods presented. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the fair value of investment securities, the fair value of private equity investments, and contingent liabilities related to legal matters.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and due from banks. At September 30, 2016 and December 31, 2015, $33 thousand and $100 thousand, respectively, of the due from banks balance was restricted as to withdrawal.
Short-term Investments
Short-term investments consist of interest bearing funds with the Federal Reserve Bank, interest earning deposits with banks, and Federal funds sold and securities purchased under resale agreements. At September 30, 2016 and December 31, 2015, interest bearing funds with the Federal Reserve Bank included $135.1 million and $117.3 million, respectively, on deposit to meet Federal Reserve Bank requirements. Interest earning deposits with banks include $5.6 million and $2.2 million at September 30, 2016 and December 31, 2015, respectively, which are pledged as collateral in connection with certain letters of credit. Federal funds sold include $71.0 million and $65.9 million at September 30, 2016 and December 31, 2015, respectively, which are pledged to collateralize certain derivative financial instruments. Federal funds sold and securities purchased under resale agreements, and Federal funds purchased and securities sold under repurchase agreements, generally mature in one day.
Recently Adopted Accounting Standards Updates
During 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which became effective for Synovus on January 1, 2016. ASU 2015-02 was issued by the FASB to modify the analysis that companies must perform in order to determine whether a legal entity should be consolidated. ASU 2015-02 simplifies current consolidation rules by reducing the number of consolidation models; placing more emphasis on risk of loss when determining a controlling financial interest; reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a VIE; and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. Adoption of ASU 2015-02 did not have an impact on Synovus’ consolidated financial statements.



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.
On October 1, 2016, Synovus completed its acquisition of Entaire Global Companies, Inc. ("Entaire"), an Atlanta-based specialty financial services company. Under the terms of the agreement, Synovus acquired Entaire for an up-front payment of $30.0 million in common stock and cash, with potential additional payments to Entaire's stockholders over the next three to five years based on Entaire's earnings. As of October 1, 2016, Entaire had approximately $370 million in total assets, including loans totaling approximately $357 million.
Note 2 - Share Repurchase Program
During the third quarter of 2015, Synovus' Board of Directors authorized a $300 million share repurchase program to be completed over the next 15 months. Effective September 29, 2016, Synovus entered into an ASR agreement to repurchase the remaining $50.0 million of Synovus common stock under the share repurchase program and repurchased 1.2 million shares at an initial average price of $31.87. As of September 30, 2016, Synovus had repurchased a total of $289.4 million or 9.7 million shares at an average price of $29.78 per share under the $300 million share repurchase program. The remaining shares will be repurchased upon settlement of the ASR agreement on or before December 28, 2016. Share repurchases under the program by quarter are as follows: third quarter of 2016 - $80.9 million (2.6 million shares), second quarter of 2016 - $60.5 million (2.0 million shares), first quarter of 2016 - $110.9 million (3.9 million shares), and fourth quarter of 2015 - $37.1 million (1.2 million shares).




Note 3 - Investment Securities
The amortized cost, gross unrealized gains and losses, and estimated fair values of investment securities available for sale at September 30, 2016 and December 31, 2015 are summarized below.
 
 
September 30, 2016
(in thousands)
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
 Fair Value
U.S. Treasury securities
 
$
73,758

 
754

 

 
74,512

U.S. Government agency securities
 
12,728

 
415

 

 
13,143

Securities issued by U.S. Government sponsored enterprises
 

 

 

 

Mortgage-backed securities issued by U.S. Government agencies
 
181,772

 
3,481

 
(102
)
 
185,151

Mortgage-backed securities issued by U.S. Government sponsored enterprises
 
2,391,778

 
31,624

 
(746
)
 
2,422,656

Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises
 
868,723

 
8,108

 
(722
)
 
876,109

State and municipal securities
 
2,870

 
30

 
(1
)
 
2,899

Equity securities
 
2,755

 
5,892

 

 
8,647

Other investments
 
20,227

 
91

 
(282
)
 
20,036

Total investment securities available for sale
 
$
3,554,611

 
50,395

 
(1,853
)
 
3,603,153

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

 
232

 

 
43,357

U.S. Government agency securities
 
13,087

 
536

 

 
13,623

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

 
389

 

 
126,909

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

 
1,340

 
(1,121
)
 
210,004

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

 
7,874

 
(22,562
)
 
2,630,419

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

 
2,396

 
(3,225
)
 
529,597

State and municipal securities
 
4,343

 
92

 
(1
)
 
4,434

Equity securities
 
3,228

 
6,444

 

 
9,672

Other investments
 
20,177

 

 
(374
)
 
19,803

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

 
19,303

 
(27,283
)
 
3,587,818

 
 
 
 
 
 
 
 
 
At September 30, 2016 and December 31, 2015, investment securities with a carrying value of $2.01 billion and $2.43 billion respectively, were pledged to secure certain deposits and securities sold under repurchase agreements as required by law and contractual agreements.
Synovus has reviewed investment securities that are in an unrealized loss position as of September 30, 2016 and December 31, 2015 for OTTI and does not consider any securities in an unrealized loss position to be other-than-temporarily impaired. If Synovus intended to sell a security in an unrealized loss position, the entire unrealized loss would be reflected in earnings. Synovus does not intend to sell investment securities in an unrealized loss position prior to the recovery of the unrealized loss, which may be until maturity, and has the ability and intent to hold those securities for that period of time. Additionally, Synovus is not currently aware of any circumstances which will require it to sell any of the securities that are in an unrealized loss position prior to the respective securities' recovery of all such unrealized losses.
Declines in the fair value of available for sale securities below their cost that are deemed to have OTTI are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. Currently, unrealized losses on debt securities are attributable to increases in interest

9


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 September 30, 2016, Synovus had sixteen investment securities in a loss position for less than twelve months and four 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 September 30, 2016 and December 31, 2015, are presented below.
 
September 30, 2016
 
Less than 12 Months
 
12 Months or Longer
 
Total
(in thousands)
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
Mortgage-backed securities issued by U.S. Government agencies
8,058

 
61

 
3,961

 
41

 
12,019

 
102

Mortgage-backed securities issued by U.S. Government sponsored enterprises
351,518

 
746

 

 

 
351,518

 
746

Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises
197,340

 
460

 
26,566

 
262

 
223,906

 
722

State and municipal securities

 

 
54

 
1

 
54

 
1

Other investments

 

 
4,945

 
282

 
4,945

 
282

    Total
$
556,916

 
1,267

 
35,526

 
586

 
592,442

 
1,853

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

 
639

 
18,435

 
482

 
141,061

 
1,121

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

 
12,874

 
489,971

 
9,688

 
2,146,165

 
22,562

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

 
963

 
72,366

 
2,262

 
269,177

 
3,225

State and municipal securities

 

 
50

 
1

 
50

 
1

Other investments
14,985

 
15

 
4,818

 
359

 
19,803

 
374

Total
$
1,990,616

 
14,491

 
585,640

 
12,792

 
2,576,256

 
27,283

 
 
 
 
 
 
 
 
 
 
 
 

10


The amortized cost and fair value by contractual maturity of investment securities available for sale at September 30, 2016 are shown below. The expected life of mortgage-backed securities or CMOs may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities and CMOs, which are not due at a single maturity date, have been classified based on the final contractual maturity date.
 
Distribution of Maturities at September 30, 2016
(in thousands)
Within One
Year
 
1 to 5
Years
 
5 to 10
Years
 
More Than
10 Years
 
No Stated
Maturity
 
Total
Amortized Cost
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
18,770

 
54,988

 

 

 

 
73,758

U.S. Government agency securities
999

 
5,929

 
5,800

 

 

 
12,728

Securities issued by U.S. Government sponsored enterprises

 

 

 

 

 

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

 

 
15,175

 
166,597

 

 
181,772

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

 
334

 
947,156

 
1,444,288

 

 
2,391,778

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

 

 

 
868,723

 

 
868,723

State and municipal securities
164

 
240

 

 
2,466

 

 
2,870

Equity securities

 

 

 


 
2,755

 
2,755

Other investments

 

 
15,000

 
2,000

 
3,227

 
20,227

Total amortized cost
$
19,933

 
61,491

 
983,131

 
2,484,074

 
5,982

 
3,554,611

 
 
 
 
 
 
 
 
 
 
 
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
18,770

 
55,742

 

 

 

 
74,512

U.S. Government agency securities
1,034

 
6,071

 
6,038

 

 

 
13,143

Securities issued by U.S. Government sponsored enterprises

 

 

 

 

 

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

 

 
15,568

 
169,583

 

 
185,151

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

 
345

 
957,800

 
1,464,511

 

 
2,422,656

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

 

 

 
876,109

 

 
876,109

State and municipal securities
164

 
242

 

 
2,493

 

 
2,899

Equity securities

 

 

 

 
8,647

 
8,647

Other investments

 

 
15,091

 
1,774

 
3,171

 
20,036

Total fair value
$
19,968

 
62,400

 
994,497

 
2,514,470

 
11,818

 
3,603,153

 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sales, gross gains, and gross losses on sales of securities available for sale for the nine and three months ended September 30, 2016 and 2015 are presented below. The specific identification method is used to reclassify gains and losses out of other comprehensive income at the time of sale.
 
 
Nine Months Ended September 30,
 
Three Months Ended September 30,
(in thousands)
 
2016
 
2015
 
2016
 
2015
Proceeds from sales of investment securities available for sale
 
$
596,824

 
82,156

 
$
353,215

 

Gross realized gains
 
2,590

 
2,710

 
1,635

 

Gross realized losses
 
(2,464
)
 

 
(1,576
)
 

Investment securities gains, net
 
$
126

 
2,710

 
$
59

 

 
 
 
 
 
 
 
 
 

11


Note 4 - Restructuring Charges
For the nine and three months ended September 30, 2016 and 2015, total restructuring charges consist of the following components:
 
Nine Months Ended September 30,
 
Three Months Ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Lease termination charges
$
6

 
(4
)
 
$
(25
)
 

Asset impairment charges
8,107

 
229

 
1,240

 
229

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

 
(374
)
 

 
(217
)
Professional fees and other charges
99

 
116

 
28

 
57

Total restructuring charges, net
$
8,225

 
(33
)
 
$
1,243

 
69

 
 
 
 
 
 
 
 
For the three months ended September 30, 2016, Synovus recorded restructuring charges of $1.2 million due to additional asset impairment charges of $973 thousand on properties previously identified for disposition as well as a $267 thousand impairment on a branch identified during the third quarter for closure by year-end. For the nine months ended September 30, 2016, restructuring charges totaled $8.2 million with $4.8 million related to Synovus' continued corporate real estate optimization activities. Synovus continues to evaluate its branch network while deploying additional digital and on-line capabilities to increase convenience for customers while lowering transaction costs, and identified nine branches for closure during the nine months ended September 30, 2016, with seven of those branches closed as of September 30, 2016. Restructuring charges associated with branch closures identified during 2016 totaled $3.3 million for the nine months ended September 30, 2016. Synovus' branch network will consist of 248 locations at year-end, which will represent a 23.2% reduction from year-end 2010.  
During the nine months ended September 30, 2015, Synovus recorded net gains of $374 thousand on the sale of certain branch locations and recorded additional expense, net of $341 thousand associated primarily with 2014 branch closings.
The following tables present aggregate activity within the accrual for restructuring charges for the nine and three months ended September 30, 2016 and 2015:
(in thousands)
Severance Charges
 
Lease Termination Charges
 
Total
Balance at December 31, 2015
$
1,930

 
4,687

 
6,617

Accruals for efficiency initiatives

 
6

 
6

Payments
(1,702
)
 
(533
)
 
(2,235
)
Balance at September 30, 2016
$
228

 
4,160

 
4,388

 
 
 
 
 
 
Balance at July 1, 2016
593

 
4,375

 
4,968

Accruals for efficiency initiatives

 
(25
)
 
(25
)
Payments
(365
)
 
(190
)
 
(555
)
Balance at September 30, 2016
$
228

 
4,160

 
4,388

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

 
5,539

 
8,830

Accruals for efficiency initiatives

 
(4
)
 
(4
)
Payments
(1,259
)
 
(608
)
 
(1,867
)
Balance at September 30, 2015
$
2,032

 
4,927

 
6,959

 
 
 
 
 
 
Balance at July 1, 2015
2,253

 
5,124

 
7,377

Accruals for efficiency initiatives

 

 

Payments
(221
)
 
(197
)
 
(418
)
Balance at September 30, 2015
$
2,032

 
4,927

 
6,959

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

12


Note 5 - Loans and Allowance for Loan Losses
The following is a summary of current, accruing past due, and non-accrual loans by portfolio class as of September 30, 2016 and December 31, 2015.
Current, Accruing Past Due, and Non-accrual Loans
 
 
September 30, 2016
 
(in thousands)
Current
 
Accruing 30-89 Days Past Due
 
Accruing 90 Days or Greater Past Due
 
Total Accruing Past Due
 
Non-accrual
 
 Total
 
Investment properties
$
5,957,788

 
2,501

 
293

 
2,794

 
8,884

 
5,969,466

 
1-4 family properties
1,047,830

 
5,355

 
717

 
6,072

 
17,152

 
1,071,054

 
Land acquisition
414,425

 
2,678

 
1,283

 
3,961

 
6,672

 
425,058

 
Total commercial real estate
7,420,043

 
10,534

 
2,293

 
12,827

 
32,708

 
7,465,578

 
Commercial, financial and agricultural
6,475,826

 
17,987

 
942

 
18,929

 
49,874

 
6,544,629

 
Owner-occupied
4,441,624

 
8,145

 
153

 
8,298

 
21,443

 
4,471,365

 
Total commercial and industrial
10,917,450

 
26,132

 
1,095

 
27,227

 
71,317

 
11,015,994

 
Home equity lines
1,613,264

 
5,283

 
482

 
5,765

 
19,815

 
1,638,844

 
Consumer mortgages
2,212,358

 
9,411

 
101

 
9,512

 
21,284

 
2,243,154

 
Credit cards
229,735

 
1,309

 
1,265

 
2,574

 

 
232,309

 
Other retail loans
686,297

 
3,754

 
122

 
3,876

 
3,031

 
693,204

 
Total retail
4,741,654

 
19,757

 
1,970

 
21,727

 
44,130

 
4,807,511

 
Total loans
$
23,079,147

 
56,423

 
5,358