SYNOVUS FINANCIAL CORP
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
Commission File Number 1-10312
Commission File Number 1-10312
SYNOVUS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
|
GEORGIA
(State or other jurisdiction of incorporation or organization) |
58-1134883
(I.R.S. Employer Identification No.) |
1111 Bay Avenue, Suite # 500
P.O. Box 120
Columbus, Georgia 31902
(Address of principal executive offices)
P.O. Box 120
Columbus, Georgia 31902
(Address of principal executive offices)
(706) 649-2311
(Registrants’ telephone number, including area code)
(Registrants’ telephone number, including area code)
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
o
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 during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes
o
No
o
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 o | Non-Accelerated Filer o | Smaller Reporting Company o | |||
|
(Do not check if a 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
o
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 | April 30, 2010 | |
| Common Stock, $1.00 Par Value | 489,843,351 shares |
SYNOVUS FINANCIAL CORP.
INDEX
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| March 31, | December 31, | |||||||
| (in thousands, except share data) | 2010 | 2009 | ||||||
|
ASSETS
|
||||||||
|
Cash and due from banks
|
$ | 579,620 | 564,482 | |||||
|
Interest bearing funds with Federal Reserve Bank
|
2,826,702 | 1,901,847 | ||||||
|
Interest earning deposits with banks
|
12,817 | 12,534 | ||||||
|
Federal funds sold and securities purchased under resale agreements
|
166,392 | 203,959 | ||||||
|
Trading account assets, at fair value
|
13,605 | 14,370 | ||||||
|
Mortgage loans held for sale, at fair value
|
112,989 | 138,056 | ||||||
|
Other loans held for sale
|
78,077 | 36,816 | ||||||
|
Investment securities available for sale, at fair value
|
3,237,519 | 3,188,735 | ||||||
|
Loans, net of unearned income
|
24,417,164 | 25,383,068 | ||||||
|
Allowance for loan losses
|
(968,697 | ) | (943,725 | ) | ||||
|
|
||||||||
|
Loans, net
|
23,448,467 | 24,439,343 | ||||||
|
|
||||||||
|
Premises and equipment, net
|
572,815 | 580,375 | ||||||
|
Goodwill
|
24,431 | 24,431 | ||||||
|
Other intangible assets, net
|
15,556 | 16,649 | ||||||
|
Other assets
|
1,350,448 | 1,709,821 | ||||||
|
|
||||||||
|
Total assets
|
$ | 32,439,438 | 32,831,418 | |||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND EQUITY
|
||||||||
|
Liabilities
|
||||||||
|
Deposits:
|
||||||||
|
Non-interest bearing deposits
|
$ | 4,352,327 | 4,172,697 | |||||
|
Interest bearing
|
22,827,721 | 23,260,836 | ||||||
|
|
||||||||
|
Total deposits
|
27,180,048 | 27,433,533 | ||||||
|
Federal funds purchased and other short-term borrowings
|
450,979 | 475,062 | ||||||
|
Long-term debt
|
1,868,343 | 1,751,592 | ||||||
|
Other liabilities
|
301,615 | 299,730 | ||||||
|
|
||||||||
|
Total liabilities
|
29,800,985 | 29,959,917 | ||||||
|
|
||||||||
|
|
||||||||
|
Equity
|
||||||||
|
Shareholders’ equity:
|
||||||||
|
Cumulative perpetual preferred stock - no par value.
Authorized 100,000,000 shares; 967,870 issued and outstanding
at March 31, 2010 and December 31, 2009
|
930,433 | 928,207 | ||||||
|
Common stock - $1.00 par value. Authorized 600,000,000 shares;
issued 495,536,131 in 2010 and 495,513,957 in 2009; outstanding
489,843,709 in 2010 and 489,828,319 in 2009
|
495,536 | 495,514 | ||||||
|
Additional paid-in capital
|
1,607,140 | 1,605,097 | ||||||
|
Treasury stock, at cost - 5,692,422 shares in 2010 and
5,685,638 shares in 2009
|
(114,174 | ) | (114,155 | ) | ||||
|
Accumulated other comprehensive income
|
80,722 | 84,806 | ||||||
|
Accumulated deficit
|
(382,914 | ) | (148,428 | ) | ||||
|
|
||||||||
|
Total shareholders’ equity
|
2,616,743 | 2,851,041 | ||||||
|
Non-controlling interest in subsidiaries
|
21,710 | 20,460 | ||||||
|
|
||||||||
|
Total equity
|
2,638,453 | 2,871,501 | ||||||
|
|
||||||||
|
Total liabilities and equity
|
$ | 32,439,438 | 32,831,418 | |||||
|
|
||||||||
|
|
||||||||
|
See accompanying notes to consolidated financial statements.
|
||||||||
3
Table of Contents
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (in thousands, except per share data) | 2010 | 2009 | ||||||
|
Interest income:
|
||||||||
|
Loans, including fees
|
$ | 304,766 | 336,228 | |||||
|
Investment securities available for sale
|
35,069 | 45,512 | ||||||
|
Trading account assets
|
194 | 334 | ||||||
|
Mortgage loans held for sale
|
1,325 | 3,382 | ||||||
|
Other loans held for sale
|
15 | – | ||||||
|
Federal funds sold and securities purchased under resale agreements
|
41 | 198 | ||||||
|
Interest on Federal Reserve Bank balances
|
1,378 | 480 | ||||||
|
Interest earning deposits with banks
|
7 | 259 | ||||||
|
|
||||||||
|
Total interest income
|
342,795 | 386,393 | ||||||
|
|
||||||||
|
|
||||||||
|
Interest expense:
|
||||||||
|
Deposits
|
83,707 | 132,294 | ||||||
|
Federal funds purchased and other short-term borrowings
|
543 | 841 | ||||||
|
Long-term debt
|
9,678 | 10,019 | ||||||
|
|
||||||||
|
Total interest expense
|
93,928 | 143,154 | ||||||
|
|
||||||||
|
Net interest income
|
248,867 | 243,239 | ||||||
|
Provision for losses on loans
|
340,948 | 290,437 | ||||||
|
|
||||||||
|
Net interest expense after provision for losses on loans
|
(92,081 | ) | (47,198 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Non-interest income:
|
||||||||
|
Service charges on deposit accounts
|
26,280 | 28,699 | ||||||
|
Fiduciary and asset management fees
|
11,338 | 10,815 | ||||||
|
Brokerage and investment banking income
|
5,931 | 6,871 | ||||||
|
Mortgage banking income
|
5,814 | 9,322 | ||||||
|
Bankcard fees
|
9,515 | 8,361 | ||||||
|
Investment securities losses, net
|
(448 | ) | – | |||||
|
Other fee income
|
5,530 | 7,690 | ||||||
|
Increase in fair value of private equity investments, net
|
899 | – | ||||||
|
Other non-interest income
|
4,839 | 12,627 | ||||||
|
|
||||||||
|
Total non-interest income
|
69,698 | 84,385 | ||||||
|
|
||||||||
|
|
||||||||
|
Non-interest expense:
|
||||||||
|
Salaries and other personnel expense
|
104,022 | 111,085 | ||||||
|
Net occupancy and equipment expense
|
29,978 | 31,484 | ||||||
|
FDIC insurance and other regulatory fees
|
17,646 | 12,999 | ||||||
|
Foreclosed real estate expense
|
45,507 | 46,330 | ||||||
|
Losses (gains) on other loans held for sale
|
61 | (65 | ) | |||||
|
Professional fees
|
9,380 | 6,945 | ||||||
|
Data processing expense
|
10,683 | 11,155 | ||||||
|
Restructuring charges
|
– | 6,358 | ||||||
|
Other operating expenses
|
35,520 | 34,748 | ||||||
|
|
||||||||
|
Total non-interest expense
|
252,797 | 261,039 | ||||||
|
|
||||||||
|
|
||||||||
|
Loss from continuing operations before income taxes
|
(275,180 | ) | (223,852 | ) | ||||
|
Income tax benefit
|
(16,337 | ) | (85,908 | ) | ||||
|
|
||||||||
|
Loss from continuing operations
|
(258,843 | ) | (137,944 | ) | ||||
|
Income from discontinued operations, net of income taxes and non-controlling
interest
|
43,161 | 1,215 | ||||||
|
|
||||||||
|
Net loss
|
(215,682 | ) | (136,729 | ) | ||||
|
Net loss attributable to non-controlling interest
|
(209 | ) | (57 | ) | ||||
|
|
||||||||
|
Net loss attributable to controlling interest
|
(215,473 | ) | (136,672 | ) | ||||
|
Dividends and accretion of discount on preferred stock
|
14,325 | 14,192 | ||||||
|
|
||||||||
|
Net loss available to common shareholders
|
$ | (229,798 | ) | (150,864 | ) | |||
|
|
||||||||
|
|
||||||||
|
Basic loss per common share:
|
||||||||
|
Net loss from continuing operations attributable to common shareholders
|
$ | (0.56 | ) | (0.46 | ) | |||
|
|
||||||||
|
Net loss attributable to common shareholders
|
(0.47 | ) | (0.46 | ) | ||||
|
|
||||||||
|
Diluted loss per common share:
|
||||||||
|
Net loss from continuing operations attributable to common shareholders
|
$ | (0.56 | ) | (0.46 | ) | |||
|
|
||||||||
|
Net loss attributable to common shareholders
|
(0.47 | ) | (0.46 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Weighted average common shares outstanding:
|
||||||||
|
Basic
|
489,607 | 329,785 | ||||||
|
|
||||||||
|
Diluted
|
489,607 | 329,785 | ||||||
|
|
||||||||
See accompanying notes to consolidated financial statements.
4
Table of Contents
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
AND COMPREHENSIVE INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||
| Additional | Other | (Deficit) | Non- | |||||||||||||||||||||||||||||
| Preferred | Common | Paid-In | Treasury | Comprehensive | Retained | Controlling | ||||||||||||||||||||||||||
| (in thousands, except per share data) | Stock | Stock | Capital | Stock | Income (Loss) | Earnings | Interest | Total | ||||||||||||||||||||||||
|
Balance at December 31, 2008
|
$ | 919,635 | 336,011 | 1,165,875 | (114,117 | ) | 129,253 | 1,350,501 | 32,349 | 3,819,507 | ||||||||||||||||||||||
|
Net loss
|
– | – | – | – | – | (136,672 | ) | (57 | ) | (136,729 | ) | |||||||||||||||||||||
|
Other comprehensive loss, net of tax:
|
||||||||||||||||||||||||||||||||
|
Net unrealized loss on cash flow hedges
|
– | – | – | – | (4,030 | ) | – | – | (4,030 | ) | ||||||||||||||||||||||
|
Change in unrealized gains/losses on investment
securities available for sale, net of
reclassification adjustment
|
– | – | – | – | (256 | ) | – | – | (256 | ) | ||||||||||||||||||||||
|
Amortization of postretirement unfunded health
benefit
|
– | – | – | – | 46 | – | – | 46 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Other comprehensive loss
|
– | – | – | – | (4,240 | ) | – | – | (4,240 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Comprehensive loss
|
(140,969 | ) | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Cash dividends declared on common stock –
$0.01 per share
|
– | – | – | – | – | (3,309 | ) | – | (3,309 | ) | ||||||||||||||||||||||
|
Cash dividends paid on preferred stock – $7.78
per share
|
– | – | – | – | – | (7,528 | ) | – | (7,528 | ) | ||||||||||||||||||||||
|
Accretion of discount on preferred stock
|
2,093 | – | – | – | – | (2,093 | ) | – | – | |||||||||||||||||||||||
|
Treasury shares purchased
|
– | – | – | (22 | ) | – | – | – | (22 | ) | ||||||||||||||||||||||
|
Issuance of non-vested stock, net of forfeitures
|
– | (8 | ) | 8 | – | – | – | – | – | |||||||||||||||||||||||
|
Restricted share unit activity
|
– | 29 | (29 | ) | – | – | – | – | – | |||||||||||||||||||||||
|
Share-based compensation expense
|
– | – | 2,769 | – | – | – | – | 2,769 | ||||||||||||||||||||||||
|
Stock options exercised
|
– | 37 | 224 | – | – | – | – | 261 | ||||||||||||||||||||||||
|
Share-based compensation tax deficiency
|
– | – | (638 | ) | – | – | – | – | (638 | ) | ||||||||||||||||||||||
|
Change in ownership at majority-owned subsidiary
|
– | – | 200 | – | – | – | 1,127 | 1,327 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance at March 31, 2009
|
$ | 921,728 | 336,069 | 1,168,409 | (114,139 | ) | 125,013 | 1,200,899 | 33,419 | 3,671,398 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance at December 31, 2009
|
$ | 928,207 | 495,514 | 1,605,097 | (114,155 | ) | 84,806 | (148,428 | ) | 20,460 | 2,871,501 | |||||||||||||||||||||
|
Net loss
|
– | – | – | – | – | (215,473 | ) | (209 | ) | (215,682 | ) | |||||||||||||||||||||
|
Other comprehensive loss, net of tax:
|
||||||||||||||||||||||||||||||||
|
Net unrealized loss on cash flow hedges
|
– | – | – | – | (4,919 | ) | – | – | (4,919 | ) | ||||||||||||||||||||||
|
Change in unrealized gains/losses on investment
securities available for sale, net of
reclassification adjustment
|
– | – | – | – | 789 | – | – | 789 | ||||||||||||||||||||||||
|
Amortization of postretirement unfunded health
benefit
|
– | – | – | 46 | – | 46 | ||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Other comprehensive loss
|
– | – | – | – | (4,084 | ) | – | – | (4,084 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Comprehensive loss
|
(219,766 | ) | ||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Cash dividends declared on common stock –
$0.01 per share
|
– | – | – | – | – | (4,906 | ) | – | (4,906 | ) | ||||||||||||||||||||||
|
Cash dividends paid on preferred stock –
$12.50 per share
|
– | – | – | – | – | (12,098 | ) | – | (12,098 | ) | ||||||||||||||||||||||
|
Accretion of discount on preferred stock
|
2,226 | – | – | – | – | (2,226 | ) | – | – | |||||||||||||||||||||||
|
Treasury shares purchased
|
– | – | – | (19 | ) | – | – | – | (19 | ) | ||||||||||||||||||||||
|
Issuance of non-vested stock, net of forfeitures
|
– | (4 | ) | 4 | – | – | – | – | – | |||||||||||||||||||||||
|
Restricted share unit activity
|
– | 25 | (25 | ) | – | – | – | – | – | |||||||||||||||||||||||
|
Share-based compensation expense
|
– | – | 2,335 | – | – | – | – | 2,335 | ||||||||||||||||||||||||
|
Stock options exercised
|
– | 1 | – | – | – | – | – | 1 | ||||||||||||||||||||||||
|
Share-based compensation tax deficiency
|
– | – | (271 | ) | – | – | – | – | (271 | ) | ||||||||||||||||||||||
|
Change in ownership at majority-owned subsidiary
|
– | – | – | – | – | 217 | 1,459 | 1,676 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance at March 31, 2010
|
$ | 930,433 | 495,536 | 1,607,140 | (114,174 | ) | 80,722 | (382,914 | ) | 21,710 | 2,638,453 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
5
Table of Contents
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Operating activities
|
||||||||
|
Net loss
|
$ | (215,682 | ) | (136,729 | ) | |||
|
Adjustments to reconcile net loss to net cash provided by operating
activities:
|
||||||||
|
Provision for losses on loans
|
340,948 | 290,437 | ||||||
|
Depreciation, amortization, and accretion, net
|
11,178 | 10,639 | ||||||
|
Deferred income tax (benefit) expense
|
(8,527 | ) | 587 | |||||
|
Decrease in interest receivable
|
7,527 | 10,981 | ||||||
|
(Decrease) increase in interest payable
|
(4,212 | ) | 10,019 | |||||
|
Decrease in trading account assets
|
765 | 9,500 | ||||||
|
Originations of mortgage loans held for sale
|
(234,425 | ) | (666,259 | ) | ||||
|
Proceeds from sales of mortgage loans held for sale
|
262,283 | 576,945 | ||||||
|
Gain on sale of mortgage loans held for sale
|
(2,824 | ) | (2,063 | ) | ||||
|
Decrease (increase) in prepaid and other assets
|
342,193 | (61,121 | ) | |||||
|
Decrease in accrued salaries and benefits
|
(451 | ) | (19,748 | ) | ||||
|
Increase (decrease) in other liabilities
|
6,546 | (9,493 | ) | |||||
|
Investment securities losses, net
|
448 | — | ||||||
|
Loss (gain) on sale of other loans held for sale
|
61 | (65 | ) | |||||
|
Loss on other real estate
|
38,044 | 41,010 | ||||||
|
Gain on sale of merchant services business
|
(69,466 | ) | — | |||||
|
Share-based compensation
|
2,335 | 2,748 | ||||||
|
Other, net
|
(545 | ) | 1,398 | |||||
|
|
||||||||
|
Net cash provided by operating activities
|
476,196 | 58,786 | ||||||
|
|
||||||||
|
|
||||||||
|
Investing activities
|
||||||||
|
Net increase in interest earning deposits with banks
|
(283 | ) | (84,952 | ) | ||||
|
Net decrease in federal funds sold and securities purchased under resale
agreements
|
37,567 | 232,648 | ||||||
|
Proceeds from maturities and principal collections of investment securities available
for sale
|
271,234 | 190,168 | ||||||
|
Net (increase) decrease in interest bearing funds with Federal Reserve
Bank
|
(924,855 | ) | 844,130 | |||||
|
Proceeds from sales of investment securities available for sale
|
219 | 7,947 | ||||||
|
Purchases of investment securities available for sale
|
(318,848 | ) | (83,422 | ) | ||||
|
Proceeds from sale of other loans held for sale
|
10,004 | — | ||||||
|
Proceeds from sale of other real estate
|
78,641 | 57,060 | ||||||
|
Net decrease (increase) in loans
|
495,633 | (218,833 | ) | |||||
|
Proceeds from sale of merchant services business
|
69,466 | — | ||||||
|
Purchases of premises and equipment
|
(5,093 | ) | (13,393 | ) | ||||
|
Proceeds from disposals of premises and equipment
|
1,310 | 1,700 | ||||||
|
|
||||||||
|
Net cash (used in) provided by investing activities
|
(285,005 | ) | 933,053 | |||||
|
|
||||||||
|
|
||||||||
|
Financing activities
|
||||||||
|
Net increase in demand and savings deposits
|
181,545 | 702,581 | ||||||
|
Net decrease in certificates of deposit
|
(435,030 | ) | (1,371,774 | ) | ||||
|
Net decrease in federal funds purchased and other short-term borrowings
|
(24,083 | ) | (148,600 | ) | ||||
|
Principal repayments on long-term debt
|
(46,487 | ) | (233,495 | ) | ||||
|
Proceeds from issuance of long-term debt
|
165,000 | — | ||||||
|
Dividends paid to common shareholders
|
(4,901 | ) | (19,823 | ) | ||||
|
Dividends paid to preferred shareholders
|
(12,098 | ) | (7,528 | ) | ||||
|
Proceeds from issuance of common stock
|
1 | 261 | ||||||
|
|
||||||||
|
Net cash used in financing activities
|
(176,053 | ) | (1,078,378 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Increase (decrease) in cash and due from banks
|
15,138 | (86,539 | ) | |||||
|
Cash and due from banks at beginning of period
|
564,482 | 524,327 | ||||||
|
|
||||||||
|
Cash and due from banks at end of period
|
$ | 579,620 | 437,788 | |||||
|
|
||||||||
|
See accompanying notes to consolidated financial statements.
|
||||||||
6
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial
statements have been prepared in accordance
with the instructions to Form 10-Q; therefore, they do not include all information and footnotes
necessary for a fair presentation of financial position, results of operations, and cash flows in
conformity with U.S. generally accepted accounting principles (GAAP). All adjustments consisting
of normally recurring accruals that, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations for the periods covered by this
report have been included. The accompanying unaudited consolidated financial statements should be
read in conjunction with the Synovus Financial Corp. (Synovus) consolidated financial statements
and related notes appearing in Synovus’ annual report on Form 10-K/A for the year ended December 31,
2009 (Synovus’ 2009 10-K) filed with the U.S. Securities and Exchange Commission (SEC).
In preparing the consolidated financial
statements, 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 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 fair value of investments; the allowance for
loan losses; the valuation of other real estate; the valuation of impaired loans; the valuation of
long-lived assets, goodwill, and other intangible assets; the valuation of deferred tax assets; and
the disclosures of contingent assets and liabilities. In connection with the determination of the
allowance for loan losses and the valuation of certain impaired loans and other real estate,
management obtains independent appraisals for significant properties and properties collateralizing
impaired loans. For valuation of impaired loans and other real estate, management also considers
other factors or recent developments such as changes in absorption rates or market conditions at
the time of valuation and anticipated sales values based on management’s plans for disposition.
A substantial portion of Synovus’ loans are
secured by real estate in five southeastern states
(Georgia, Alabama, Florida, South Carolina, and Tennessee). Accordingly, the ultimate
collectability of a substantial portion of Synovus’ loan portfolio is susceptible to changes in
market conditions in these areas. Total commercial real estate loans
represent 41.7% of the total loan portfolio at March 31, 2010. Due to
declines in economic indicators and real estate values, the loans in
the commercial real estate portfolio may have a greater risk of
non-collection than other loans. Based on available information, management believes that the
allowance for loan losses is adequate. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary based on changes in economic
conditions and the ability of borrowers to repay their loans. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review Synovus’ allowance
for loan losses. Such agencies may require Synovus to make changes to the allowance for loan
losses based on their judgment about information available to them at the time of their
examination.
Certain prior year amounts have been reclassified
to conform to the presentation adopted in
2010.
Synovus has evaluated all transactions, events,
and circumstances subsequent to the balance
sheet date for consideration or disclosure and has reflected or disclosed those items within the
consolidated financial statements and related footnotes as deemed appropriate.
During 2009, Synovus committed to a plan to sell
its merchant services business. The sale was
completed on March 31, 2010. Accordingly, the revenues and expenses of the merchant services
business have been reported as discontinued operations for the three months ended March 31, 2010
and 2009. Income from discontinued operations for the three months ended March 31, 2010 includes
the gain on sale of this business. There were no significant assets or liabilities associated with
the merchant services business.
7
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 2 - Supplemental Cash Flow Information
For the three months ended March 31, 2010,
Synovus received income tax refunds of
approximately $328.4 million (net of taxes paid) and for the three months ended March 31, 2009,
Synovus paid income taxes (net of refunds received) of approximately $20 thousand.
For the three months ended March 31, 2010 and
2009, Synovus paid interest of $87.4 million and
$130.9 million, respectively.
Non-cash investing activities consisted of loans
of approximately $100.9 million and $141.9
million, which were foreclosed and transferred to other real estate during the three months ended
March 31, 2010 and 2009, respectively; other loans of approximately $53.4 million and $21.3
million, which were transferred to other loans held for sale during the three months ended March
31, 2010 and 2009, respectively; and other loans held for sale of approximately $1.3 million, which
were foreclosed and transferred to other real estate during the three months ended March 31, 2009.
There were no other loans held for sale that were foreclosed and transferred to other real estate
during the three months ended March 31, 2010.
Note 3 - Discontinued Operations
During 2009, Synovus committed to a plan to sell
its merchant services business. The sale was
completed on March 31, 2010. Accordingly, the revenues and expenses of the merchant services
business have been reported as discontinued operations for the three months ended March 31, 2010
and 2009. Income from discontinued operations for the three months ended March 31, 2010 includes
the gain on sale of this business. There were no significant assets or liabilities
associated with the merchant services business.
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Merchant services revenue
|
$ | 73,926 | (1) | 4,363 | ||||
|
Merchant services expense
|
3,285 | 2,317 | ||||||
|
Merchant services income before taxes
|
70,641 | 2,046 | ||||||
|
Income tax expense
|
27,480 | 831 | ||||||
|
|
||||||||
|
Income from discontinued operations, net of
income taxes
(2)
|
$ | 43,161 | 1,215 | |||||
|
|
||||||||
(1) Includes a pre-tax gain of $69.5 million ($42.4 million net of
tax) from the sale of its merchant services business in March 2010.
(2) Cash
flows from discontinued operations were limited to revenues and expenses of discontinued operations as components of income from
discontinued operations, net of income taxes. The proceeds from sale of the merchant services business
are included as a component of net cash used in investing activities and the gain on sale is included as a component of net cash provided by operating
activities in the consolidated statement of cash flows for the three months ended March 31, 2010.
Note 4 - Shareholders’ Equity
Preferred Stock and Warrants to Purchase Common Stock
On December 19, 2008, Synovus issued to the
United States Department of the Treasury
(Treasury) 967,870 shares of Synovus’ Fixed Rate Cumulative Perpetual Preferred Stock, Series A,
without par value (the Series A Preferred Stock), having a liquidation amount per share equal to
$1,000, for a total price of $967,870,000. The Series A Preferred Stock pays cumulative dividends
at a rate of 5% per year for the first five years and thereafter at a rate of 9% per year. Under
provisions of the American Recovery and Reinvestment Act (ARRA), the Series A Preferred Stock may
be redeemed at any time with the consent of the Federal Deposit Insurance Corporation (FDIC). The
Series A Preferred Stock is generally non-voting. Consequences of the Series A Preferred Stock
purchase include certain restrictions on payment of dividends, repurchase or redemption of Synovus’
equity or capital securities, and limits on the tax deductibility of executive compensation.
As part of its issuance of the Series A
Preferred Stock, Synovus issued the Treasury a warrant
to purchase up to 15,510,737 shares of Synovus’ common stock (the Warrant) at an initial per share
exercise price of $9.36. The Warrant, which expires on December 19, 2018, provides for the
adjustment of the exercise price and the number of shares of Synovus’ common stock issuable upon
exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions
of securities or other assets to holders of Synovus’ common stock, and upon certain issuances of
Synovus’
common stock at or below a specified price relative to the initial exercise price. Pursuant to
the
8
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Securities Purchase Agreement, the Treasury has agreed not to exercise voting
power with respect to
any shares of common stock issued upon exercise of the Warrant.
Synovus allocated the total proceeds received from
the Treasury based on the relative fair
values of the preferred shares and the Warrant. This allocation resulted in the preferred shares
and the Warrant being initially recorded at amounts that are less than their respective fair values
at the issuance date.
The $48.5 million discount on the
Series A Preferred Stock is being accreted using a constant
effective yield over the five-year period preceding the 9% perpetual dividend. Synovus records
increases in the carrying amount of the preferred shares resulting from accretion of the discount
by charges against retained earnings.
Common Stock
On September 22, 2009, Synovus completed a
public offering of 150,000,000 shares of Synovus’
$1.00 par value common stock at a price of $4.00 per share, generating proceeds of $570.9 million,
net of issuance costs.
Exchange of Subordinated Debt for Common Stock
On November 5, 2009, Synovus completed its
previously announced exchange offer (Exchange
Offer) of $29,820,000 in aggregate principal amount of its outstanding 4.875% Subordinated Notes
Due 2013 (the Notes). The notes exchanged in the Exchange Offer represent 12.6% of the
$236,570,000 aggregate principal amount of the Notes outstanding prior to the Exchange Offer.
Pursuant to the terms of the Exchange Offer, Synovus issued approximately 9.44 million shares of
Synovus’ common stock as consideration for the Notes. The Exchange Offer resulted in a pre-tax
gain of approximately $6.1 million which was recorded during the fourth quarter of 2009.
Subsequent Events
On May 4, 2010, Synovus completed the public
offering of 293,250,000 shares of Synovus’ $1.00
par value common stock at $2.75 per share and 13,800,000 tangible equity units (tMEDS) with a
stated value of $25.00 (consisting of prepaid common stock purchase contracts to be recorded as
equity and junior subordinated amortizing notes to be recorded as debt based on relative fair
value) generating net proceeds of approximately $768.9 million and $333.7 million, respectively.
The common stock and tMEDS offerings will be recorded during the three months ending June 30, 2010.
Note 5 - Comprehensive Income (Loss)
Other comprehensive income (loss) consists of
the change in net unrealized gains (losses) on
cash flow hedges, the change in net unrealized gains (losses) on investment securities available
for sale, and the amortization of the post-retirement unfunded health benefit. Comprehensive
income (loss) consists of net income (loss) plus other comprehensive income (loss).
Comprehensive income (loss) for the three
months ended March 31, 2010 and 2009 is presented
below.
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Net loss
|
$ | (215,682 | ) | (136,729 | ) | |||
|
Other comprehensive loss, net of tax:
|
||||||||
|
Change in net unrealized gains/losses on cash flow hedges
|
(4,919 | ) | (4,030 | ) | ||||
|
Change in net unrealized gains/losses on investment securities
available for sale, net of reclassification adjustment
|
789 | (256 | ) | |||||
|
Amortization of postretirement unfunded health benefit
|
46 | 46 | ||||||
|
|
||||||||
|
Other comprehensive loss
|
(4,084 | ) | (4,240 | ) | ||||
|
|
||||||||
|
Comprehensive loss
|
$ | (219,766 | ) | (140,969 | ) | |||
|
|
||||||||
9
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 6 - Investment Securities
The following table summarizes Synovus’
available for sale investment securities as of March
31, 2010 and December 31, 2009.
| March 31, 2010 | ||||||||||||||||
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| (in thousands) | Cost | Gains | Losses | Value | ||||||||||||
|
U.S. Treasury securities
|
$ | 211,462 | 368 | (279 | ) | 211,551 | ||||||||||
|
Other U.S. Government agency
securities
|
931,778 | 24,357 | (223 | ) | 955,912 | |||||||||||
|
Government agency issued mortgage-backed securities
|
1,746,419 | 82,727 | (78 | ) | 1,829,068 | |||||||||||
|
Government agency issued
collateralized mortgage obligations
|
73,405 | 2,485 | (202 | ) | 75,688 | |||||||||||
|
State and municipal securities
|
67,698 | 1,709 | (165 | ) | 69,242 | |||||||||||
|
Equity securities
|
9,455 | 174 | — | 9,629 | ||||||||||||
|
Other investments
|
86,221 | 450 | (242 | ) | 86,429 | |||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 3,126,438 | 112,270 | (1,189 | ) | 3,237,519 | ||||||||||
|
|
||||||||||||||||
| December 31, 2009 | ||||||||||||||||
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| (in thousands) | Cost | Gains | Losses | Value | ||||||||||||
|
U.S. Treasury securities
|
$ | 121,505 | 167 | (83 | ) | 121,589 | ||||||||||
|
Other U.S. Government agency
securities
|
900,984 | 27,174 | (532 | ) | 927,626 | |||||||||||
|
Government agency issued mortgage-backed securities
|
1,795,688 | 78,821 | (529 | ) | 1,873,980 | |||||||||||
|
Government agency issued
collateralized mortgage obligations
|
83,632 | 3,271 | — | 86,903 | ||||||||||||
|
State and municipal securities
|
80,931 | 2,029 | (159 | ) | 82,801 | |||||||||||
|
Equity securities
|
9,456 | 584 | (59 | ) | 9,981 | |||||||||||
|
Other investments
|
86,744 | — | (889 | ) | 85,855 | |||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 3,078,940 | 112,046 | (2,251 | ) | 3,188,735 | ||||||||||
|
|
||||||||||||||||
At March 31, 2010 and December 31, 2009,
investment securities with a carrying value of $2.4
billion were pledged to secure certain deposits, securities sold under repurchase agreements, and
Federal Home Loan Bank (FHLB) advances, as required by law and contractual agreements.
As of March 31, 2010, Synovus has reviewed
investment securities that are in an unrealized
loss position in accordance with its accounting policy for other-than-temporary impairment and does
not consider them other-than-temporarily impaired. Synovus does not intend to sell its debt
securities, and it is more likely than not that Synovus will not be required to sell the securities
prior to recovery.
10
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
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 March 31, 2010 and December 31, 2009 were as follows:
| March 31, 2010 | ||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total Fair Value | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| (in thousands) | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
|
U.S. Treasury securities
|
$ | 109,493 | (279 | ) | — | — | 109,493 | (279 | ) | |||||||||||||||
|
Other U.S. Government agency
securities
|
67,657 | (223 | ) | — | — | 67,657 | (223 | ) | ||||||||||||||||
|
Government agency issued
mortgage-backed securities
|
67,596 | (280 | ) | — | — | 67,596 | (280 | ) | ||||||||||||||||
|
Government agency issued
collateralized mortgage
obligations
|
— | — | — | — | — | — | ||||||||||||||||||
|
State and municipal securities
|
8,688 | (165 | ) | — | — | 8,688 | (165 | ) | ||||||||||||||||
|
Equity securities
|
— | — | — | — | — | — | ||||||||||||||||||
|
Other investments
|
85,848 | (242 | ) | — | — | 85,848 | (242 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total
|
$ | 339,282 | (1,189 | ) | — | — | 339,282 | (1,189 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
| December 31, 2009 | ||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total Fair Value | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| (in thousands) | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
|
U.S. Treasury securities
|
$ | 19,681 | (83 | ) | — | — | 19,681 | (83 | ) | |||||||||||||||
|
Other U.S. Government agency
securities
|
71,689 | (532 | ) | — | — | 71,689 | (532 | ) | ||||||||||||||||
|
Government agency issued
mortgage-backed securities
|
$ | 145,461 | (529 | ) | — | — | 145,461 | (529 | ) | |||||||||||||||
|
Government agency issued
collateralized mortgage
obligations
|
— | — | — | — | — | — | ||||||||||||||||||
|
State and municipal securities
|
5,833 | (105 | ) | 1,308 | (54 | ) | 7,141 | (159 | ) | |||||||||||||||
|
Equity securities
|
2,756 | (59 | ) | — | — | 2,756 | (59 | ) | ||||||||||||||||
|
Other investments
|
79,813 | (889 | ) | — | — | 79,813 | (889 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total
|
$ | 325,233 | (2,197 | ) | 1,308 | (54 | ) | 326,541 | (2,251 | ) | ||||||||||||||
|
|
||||||||||||||||||||||||
11
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The amortized cost and estimated fair value by contractual maturity of investment
securities available for sale at March 31, 2010 are shown below. 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.
| March 31, 2010 | ||||||||
| Amortized | Estimated | |||||||
| (in thousands) | Cost | Fair Value | ||||||
|
U.S. Treasury securities:
|
||||||||
|
Within 1 year
|
$ | 25,173 | 25,173 | |||||
|
1 to 5 years
|
186,289 | 186,378 | ||||||
|
5 to 10 years
|
– | – | ||||||
|
More than 10 years
|
– | – | ||||||
|
|
||||||||
|
Total U.S. Treasury securities
|
$ | 211,462 | 211,551 | |||||
|
|
||||||||
|
|
||||||||
|
U.S. Government agency securities:
|
||||||||
|
Within 1 year
|
$ | 217,231 | 221,407 | |||||
|
1 to 5 years
|
506,540 | 520,760 | ||||||
|
5 to 10 years
|
180,784 | 185,480 | ||||||
|
More than 10 years
|
27,223 | 28,265 | ||||||
|
|
||||||||
|
Total U.S. Government agency securities
|
$ | 931,778 | 955,912 | |||||
|
|
||||||||
|
|
||||||||
|
State and municipal securities:
|
||||||||
|
Within 1 year
|
$ | 7,975 | 8,050 | |||||
|
1 to 5 years
|
27,886 | 28,622 | ||||||
|
5 to 10 years
|
25,514 | 26,274 | ||||||
|
More than 10 years
|
6,323 | 6,296 | ||||||
|
|
||||||||
|
Total state and municipal securities
|
$ | 67,698 | 69,242 | |||||
|
|
||||||||
|
|
||||||||
|
Other investments:
|
||||||||
|
Within 1 year
|
$ | – | – | |||||
|
1 to 5 years
|
81,640 | 81,398 | ||||||
|
5 to 10 years
|
450 | 900 | ||||||
|
More than 10 years
|
4,131 | 4,131 | ||||||
|
|
||||||||
|
Total other investments
|
$ | 86,221 | 86,429 | |||||
|
|
||||||||
|
|
||||||||
|
Equity securities
|
$ | 9,455 | 9,629 | |||||
|
Government agency issued mortgage-backed securities
|
1,746,419 | 1,829,068 | ||||||
|
Government agency issued collateralized mortgage obligations
|
73,405 | 75,688 | ||||||
|
|
||||||||
|
Total investment securities
|
$ | 3,126,438 | 3,237,519 | |||||
|
|
||||||||
|
|
||||||||
|
Within 1 year
|
$ | 250,379 | 254,630 | |||||
|
1 to 5 years
|
802,355 | 817,158 | ||||||
|
5 to 10 years
|
206,748 | 212,654 | ||||||
|
More than 10 years
|
37,677 | 38,692 | ||||||
|
Equity securities
|
9,455 | 9,629 | ||||||
|
Government agency issued mortgage-backed securities
|
1,746,419 | 1,829,068 | ||||||
|
Government agency issued collateralized mortgage obligations
|
73,405 | 75,688 | ||||||
|
|
||||||||
|
Total
|
$ | 3,126,438 | 3,237,519 | |||||
|
|
||||||||
12
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 7 - Other Loans Held for Sale
Loans or pools of loans are transferred to the other loans held for sale portfolio when the
intent to hold the loans has changed due to portfolio management or risk mitigation strategies,
there is a plan to sell the loans within a reasonable period of time, and the individual loans are
specifically identified. The value of the loans or pools of loans is primarily determined by
analyzing the underlying collateral of the loan and the anticipated external market prices of
similar assets. At the time of transfer, if the estimated net realizable value is less than the
carrying amount, the difference is recorded as a charge-off against the allowance for loan losses.
Decreases in estimated net realizable value subsequent to the transfer as well as losses (gains)
from sale of these loans are recognized as a component of non-interest expense. During the three
months ended March 31, 2010, Synovus transferred loans with a cost basis totaling $100.7 million to
the other loans held for sale portfolio. Synovus recognized charge-offs on these loans totaling
$47.2 million for the three months ended March 31, 2010. These charge-offs, which resulted in a
new cost basis of $53.4 million for the loans transferred during the three months ended March 31,
2010, were based on the estimated sales price of the loans at the time of transfer.
Note 8 - Loans, Net of Unearned Income
Loans, net of unearned income, at March 31, 2010 and December 31, 2009 are presented below.
| March 31, | December 31, | |||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Investment properties
|
$ | 5,720,251 | 5,887,432 | |||||
|
1-4 family properties
|
3,064,014 | 3,330,681 | ||||||
|
Land acquisition
|
1,397,870 | 1,510,981 | ||||||
|
|
||||||||
|
Total commercial real estate loans
|
10,182,135 | 10,729,094 | ||||||
|
Commercial and industrial loans
|
10,130,049 | 10,461,092 | ||||||
|
Retail loans
|
4,121,933 | 4,212,230 | ||||||
|
|
||||||||
|
Total loans
|
24,434,117 | 25,402,416 | ||||||
|
Unearned income
|
(16,953 | ) | (19,348 | ) | ||||
|
|
||||||||
|
Loans, net of unearned income
|
$ | 24,417,164 | 25,383,068 | |||||
|
|
||||||||
Note 9 - Allowance for Loan Losses
Activity in the allowance for loan losses for the three months ended March 31, 2010 and 2009
is presented below.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Balance, beginning of period
|
$ | 943,725 | 598,301 | |||||
|
Provision for losses on loans
|
340,948 | 290,437 | ||||||
|
Loans charged off, net of recoveries
|
(315,976 | ) | (246,316 | ) | ||||
|
|
||||||||
|
Balance, end of period
|
$ | 968,697 | 642,422 | |||||
|
|
||||||||
Note 10 - 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. In accordance with provisions of ASC
310-10-35 regarding subsequent measurement of loans for impairments and ASC 310-40-15 regarding
accounting for troubled debt restructurings by a creditor, 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.
ORE is reported at the lower of cost or fair value determined on the basis of current
appraisals, comparable sales, and other estimates of fair value obtained principally from
independent sources, adjusted for estimated selling costs. Management also considers other factors
or recent developments
13
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
such as changes in absorption rates or market conditions from the time of valuation, and
anticipated sales values considering management’s plans for disposition, which could result in
adjustment to the collateral value estimates indicated in the appraisals. At the time of
foreclosure or initial possession of collateral, any excess of the loan balance over the fair value
of the real estate held as collateral is recorded as a charge against the allowance for loan
losses. Revenue and expenses from ORE operations as well as gains or losses on sales and any
subsequent adjustments to the value are recorded as foreclosed real estate expense, a component of
non-interest expense.
The carrying value of ORE was $222.2 million and $238.8 million at March 31, 2010 and December
31, 2009, respectively. During the three months ended March 31, 2010, approximately $100.9 million
of loans were foreclosed and transferred to other real estate. During the three months ended March
31, 2010 and 2009, Synovus recognized foreclosed real estate expenses of $45.5 million and $46.3
million, respectively. These costs primarily consist of charges related to declines in fair value
or reductions in estimated realizable value subsequent to the date of foreclosure.
Note 11 - Fair Value Accounting
Synovus carries various assets and liabilities at fair value based on the fair value
accounting guidance under ASC 820 and ASC 825. Under ASC 820-10, 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. Synovus determines the fair values of its
financial instruments based on the fair value hierarchy established under ASC 820-10, which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. There are three levels of inputs that may be used to measure
fair value. A financial instrument’s categorization within the valuation hierarchy is based upon
the lowest level of input that is significant to the fair value measurement. The three levels of
inputs are as follows:
|
Level 1
|
Quoted prices in active markets for identical assets or
liabilities. Level 1 assets and liabilities include corporate debt
and equity securities as well as certain U.S. Treasury and U.S.
Government-sponsored enterprise debt securities that are highly
liquid and are actively traded in over-the-counter markets.
|
|
|
Level 2
|
Observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities, quoted prices in markets that
are not active, or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities. Level 2 assets and liabilities
include debt securities with quoted prices that are traded less
frequently than exchange-traded instruments and derivative
contracts whose value is determined using a pricing model with
inputs that are observable in the market or can be derived
principally from or corroborated by observable market data. This
category generally includes certain U.S. Government-sponsored
enterprises and agency mortgage-backed debt securities,
obligations of states and municipalities, certain callable
brokered certificates of deposit, collateralized mortgage
obligations, derivative contracts, and mortgage loans
held-for-sale.
|
|
|
Level 3
|
Unobservable inputs that are supported by little if any market
activity for the asset or liability. Level 3 assets and
liabilities include financial instruments whose value is
determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for
which the determination of fair value requires significant
management judgment or estimation. This category primarily
includes collateral-dependent impaired loans, other real estate,
certain equity investments, and certain private equity
investments.
|
14
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Fair Value Option
Synovus elected the fair value option for mortgage loans held for sale and certain callable
brokered certificates of deposits under ASC 825 primarily to ease the operational burdens required
to maintain hedge accounting for such instruments under the constructs of ASC 815. For both
instruments, Synovus is still able to achieve effective economic hedges without the operational time
and expense needed to manage a hedge accounting program.
Following is a description of the valuation methodologies used for the major categories of
financial assets and liabilities measured at fair value.
Trading Account Assets/Liabilities and Investment Securities Available-for-Sale
The fair values of trading account assets and liabilities and investment securities
available-for-sale are primarily based on actively traded markets where prices are based on either
quoted market prices or observed transactions. These securities are classified as Level 1 within
the valuation hierarchy and include U.S. Treasury securities, obligations of U.S.
Government-sponsored enterprises, and corporate debt and equity securities. Liquidity is a
significant factor in the determination of the fair value of trading account assets and liabilities
and available-for-sale securities. The fair value of these instruments also take into account
recent market activity as well as other market observable data such as interest rate, spread and
prepayment information, volatility, and U.S. Treasury and swap curves. When quoted market prices
are not available, which generally occurs due to the lack of liquidity for certain securities, fair
values are estimated using bid prices and quoted market prices of pool or tranches of securities
with similar characteristics. These types of securities are classified as Level 2 within the
valuation hierarchy and consist of collateralized mortgage obligations, mortgage-backed debt
securities, debt securities of U.S. Government-sponsored enterprises and agencies, and state and
municipal bonds. In both cases, Synovus has evaluated the valuation methodologies of its
third-party pricing services to determine whether such valuations are representative of an exit
price in Synovus’ principal markets. In certain cases where there is limited activity or less
transparency around inputs to valuation, securities are classified as Level 3 within the valuation
hierarchy.
Mortgage Loans Held for Sale
Synovus elected to apply the fair value option for mortgage loans originated with the intent
to sell to investors. Since quoted market prices are not available, fair value is derived from a
hypothetical-securitization model used to project the “exit price” of the loan in securitization.
The bid pricing convention is used for loan pricing for similar assets. The valuation model is
based upon forward settlement of a pool of loans of identical 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 predominantly used as collateral for
securitizations, the valuation model represents the highest and best use of the loans in Synovus’
principal market. Mortgage loans held for sale are classified within Level 2 of the valuation
hierarchy.
Private Equity Investments
Private equity investments consist primarily of investments in venture capital funds as a
minority interest investor. The valuation of these instruments requires significant management
judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term
nature of such assets. Based on these factors, the ultimate realizable value of private equity
investments could differ significantly from the values reflected in the accompanying financial
statements. Private equity investments are valued initially based upon transaction price.
Thereafter, Synovus uses information provided by the fund managers in the determination of
estimated fair value. Valuation factors such as recent or proposed purchase or sale of debt or
equity of the issuer, pricing by other dealers in similar securities, size of position held,
liquidity of the market, and changes in economic conditions affecting the issuer, are used in the
determination of estimated fair value. These private equity investments are classified as Level 3
within the valuation hierarchy.
15
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Private equity investments may also include investments in publicly traded equity securities,
which have restrictions on their sale, generally obtained through an initial public offering.
Investments in the restricted publicly traded equity securities are recorded at fair value based on
the quoted market value less adjustments for regulatory or contractual sales restrictions.
Discounts for restrictions are determined based upon the length of the restriction period and the
volatility of the equity security. Investments in restricted publicly traded equity securities are
classified as Level 2 within the valuation hierarchy.
Derivative Assets and Liabilities
As part of its overall interest rate risk management activities, Synovus utilizes derivative
instruments to manage its exposure to various types of interest rate risk. The majority of
derivatives entered into by Synovus are executed over-the-counter and consist of interest rate
swaps, floors, caps and collars. The fair values of these derivative instruments are determined
based on internally developed models that use readily observable market data, as quoted market
prices are not available for these instruments. The valuation model and inputs depend on the type
of derivative and the nature of the underlying instrument and include interest rates, prices and
indices to generate continuous yield or pricing curves, volatility factors, and customer credit
spreads. The principal techniques used to value these instruments are an income approach,
discounted cash flows, Black-Scholes or Binomial Pricing model. The sale of to-be-announced (TBA)
mortgage-backed securities for current month delivery or in the future and the purchase of option
contracts of similar duration are derivatives utilized by Synovus’ mortgage subsidiary, and are
valued by obtaining prices directly from dealers in the form of quotes for identical securities or
options using a bid pricing convention with a spread between bid and offer quotations. Interest
rate swaps, floors, caps and collars and TBA mortgage-backed securities are classified as Level 2
within the valuation hierarchy.
The mortgage subsidiary originates mortgage loans which are classified as derivatives prior to
the loan closing when there is a lock commitment outstanding to a borrower to close a loan at a
specific interest rate. The fair value of these derivative positions, which are related to
mortgage loan commitments, are valued based on a bid pricing convention as mentioned above, except
there are fall-out ratios for interest rate lock commitments. The determination of fair value
includes assumptions related to the likelihood that a commitment will ultimately result in a closed
loan, which is a significant unobservable assumption. Therefore, this type of derivative
instrument is classified as Level 3 within the valuation hierarchy. These amounts, however, are
insignificant.
In November 2009, Synovus sold certain Visa Class B shares to another Visa USA member
financial institution. The sales price was based on the Visa stock conversion ratio in effect at
the time for conversion of Visa Class B shares to Visa Class A unrestricted shares. In conjunction
with the sale, Synovus entered into a derivative contract with the purchaser which provides for
settlements between the parties based upon a change in the ratio for conversion of Visa Class B
shares to Visa Class A shares. The fair value conversion rate derivative is measured using a
discounted cash flow methodology for estimated future cash flows determined through use of
probability weighting for estimates of Visa’s aggregate exposure to the covered litigation. The
conversion rate derivative is classified as Level 3 within the valuation hierarchy as the value is
determined using discounted cash flow methodologies and involves unobservable inputs which are not
supported by market activity for the liability.
Certain Callable Brokered Certificates of Deposit
The fair value of certain callable brokered certificates of deposit is derived using several
inputs in a valuation model that calculates the discounted cash flows based upon a yield curve.
Once the yield curve is constructed, it is applied against the standard certificate of deposit
terms that may include the principal balance, payment frequency, term to maturity, and interest
accrual to arrive at the discounted cash flow based fair value. When valuing the call option, as
applicable, implied volatility is obtained for a similarly dated interest rate swaption, and it is
also entered in the model. These types of certificates of deposit are classified as Level 2 within
the valuation hierarchy.
16
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Synovus
adopted certain of the new disclosure requirements of Accounting
Standards Update (ASU) 2010-06, Improving Disclosures about Fair
Value Measurements, effective January 1, 2010. The guidance requires
fair value disclosures by class of assets and liabilities rather than
by major category. For equity and debt securities, class was
determined based on the nature and risks of the investments. The following table presents all financial instruments measured at fair value on a recurring
basis, including financial instruments for which Synovus has elected the fair value option as of
March 31, 2010 and December 31, 2009, according to the valuation hierarchy included in ASC 820-10.
| March 31, 2010 | ||||||||||||||||
| Total | ||||||||||||||||
| Assets/Liabilities | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | at Fair Value | ||||||||||||
|
Assets
|
||||||||||||||||
|
Trading securities:
|
||||||||||||||||
|
Government agency issued mortgage-backed
securities
|
$ | — | 2,277 | — | 2,277 | |||||||||||
|
Government agency issued collateralized
mortgage obligations
|
— | 1,776 | — | 1,776 | ||||||||||||
|
State and municipal securities
|
— | 3,664 | — | 3,664 | ||||||||||||
|
Corporate and other debt
|
— | 5,840 | — | 5,840 | ||||||||||||
|
Equity, mutual funds, and other
|
34 | 14 | — | 48 | ||||||||||||
|
|
||||||||||||||||
|
Total trading securities
|
34 | 13,571 | — | 13,605 | ||||||||||||
|
Mortgage loans held for sale
|
— | 112,989 | — | 112,989 | ||||||||||||
|
Investment securities available for sale:
|
— | |||||||||||||||
|
U.S. Treasury securities
|
211,551 | — | — | 211,551 | ||||||||||||
|
Other U.S. Government agency securities
|
— | 955,912 | — | 955,912 | ||||||||||||
|
Government agency issued mortgage-backed
securities
|
— | 1,829,068 | — | 1,829,068 | ||||||||||||
|
Government agency issued collateralized
mortgage obligations
|
— | 75,688 | — | 75,688 | ||||||||||||
|
State and municipal securities
|
— | 69,242 | — | 69,242 | ||||||||||||
|
Equity securities
|
2,809 | — | 6,820 | 9,629 | ||||||||||||
|
Other investments
(1)
|
— | 80,642 | 5,787 | 86,429 | ||||||||||||
|
|
||||||||||||||||
|
Total investment securities available for
sale
|
214,360 | 3,010,552 | 12,607 | 3,237,519 | ||||||||||||
|
Private equity investments
|
— | — | 52,474 | 52,474 | ||||||||||||
|
Derivative assets:
|
||||||||||||||||
|
Interest rate contracts
|
— | 106,883 | — | 106,883 | ||||||||||||
|
Mortgage derivatives
|
— | — | 1,182 | 1,182 | ||||||||||||
|
|
||||||||||||||||
|
Total derivative assets
|
$ | — | 106,883 | 1,182 | 108,065 | |||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Trading account liabilities:
|
||||||||||||||||
|
U.S. Treasury
|
$ | — | 7,241 | — | 7,241 | |||||||||||
|
Government agency issued mortgage-backed
securities
|
— | 2,457 | — | 2,457 | ||||||||||||
|
|
||||||||||||||||
|
Total trading liabilities
|
— | 9,698 | — | 9,698 | ||||||||||||
|
Derivative liabilities:
|
||||||||||||||||
|
Interest rate contracts
|
— | 91,391 | — | 91,391 | ||||||||||||
|
Mortgage derivatives
|
— | (1,166 | ) | — | (1,166 | ) | ||||||||||
|
Other contracts
(2)
|
— | — | 12,909 | 12,909 | ||||||||||||
|
|
||||||||||||||||
|
Total derivative liabilities
|
$ | — | 90,225 | 12,909 | 103,134 | |||||||||||
17
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
| December 31, 2009 | ||||||||||||||||
| Total | ||||||||||||||||
| Assets/Liabilities | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | at Fair Value | ||||||||||||
|
Assets
|
||||||||||||||||
|
Trading securities:
|
||||||||||||||||
|
U.S. Treasury
|
$ | — | 3,017 | — | 3,017 | |||||||||||
|
Government agency issued mortgage-backed
securities
|
— | 864 | — | 864 | ||||||||||||
|
Government agency issued collateralized
mortgage obligations
|
— | 2,427 | — | 2,427 | ||||||||||||
|
Other U.S. government agencies
|
— | 9 | — | 9 | ||||||||||||
|
State and municipal securities
|
— | 1,332 | — | 1,332 | ||||||||||||
|
Equity, mutual funds, and other
|
725 | — | — | 725 | ||||||||||||
|
Other investments
(1)
|
— | 5,996 | — | 5,996 | ||||||||||||
|
|
||||||||||||||||
|
Total trading securities
|
725 | 13,645 | — | 14,370 | ||||||||||||
|
Mortgage loans held for sale
|
— | 138,056 | — | 138,056 | ||||||||||||
|
Investment securities available for sale:
|
||||||||||||||||
|
U.S. Treasury securities
|
121,589 | — | — | 121,589 | ||||||||||||
|
Other U.S. Government agency securities
|
— | 927,626 | — | 927,626 | ||||||||||||
|
Government agency issued mortgage-backed
securities
|
— | 1,873,980 | — | 1,873,980 | ||||||||||||
|
Government agency issued collateralized
mortgage obligations
|
— | 86,903 | — | 86,903 | ||||||||||||
|
State and municipal securities
|
— | 82,801 | — | 82,801 | ||||||||||||
|
Equity securities
|
2,697 | — | 7,284 | 9,981 | ||||||||||||
|
Other investments
(1)
|
— | 79,813 | 6,042 | 85,855 | ||||||||||||
|
|
||||||||||||||||
|
Total investment securities available for
sale
|
124,286 | 3,051,123 | 13,326 | 3,188,735 | ||||||||||||
|
Private equity investments
|
— | — | 48,463 | 48,463 | ||||||||||||
|
Derivative assets:
|
||||||||||||||||
|
Interest rate contracts
|
— | 114,336 | — | 114,336 | ||||||||||||
|
Mortgage derivatives
|
— | — | 199 | 199 | ||||||||||||
|
|
||||||||||||||||
|
Total derivative assets
|
$ | — | 114,336 | 199 | 114,535 | |||||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Trading account liabilities:
|
||||||||||||||||
|
U.S. Treasury
|
$ | — | 6,211 | — | 6,211 | |||||||||||
|
Government agency issued mortgage-backed
securities
|
— | 859 | — | 859 | ||||||||||||
|
|
||||||||||||||||
|
Total trading liabilities
|
— | 7,070 | — | 7,070 | ||||||||||||
|
Derivative liabilities:
|
||||||||||||||||
|
Interest rate contracts
|
— | 88,048 | — | 88,048 | ||||||||||||
|
Mortgage derivatives
|
— | (1,878 | ) | — | (1,878 | ) | ||||||||||
|
Other contracts
(2)
|
— | — | 12,862 | 12,862 | ||||||||||||
|
|
||||||||||||||||
|
Total derivative liabilities
|
$ | — | 86,170 | 12,862 | 99,032 | |||||||||||
| (1) | Based on analysis of the nature and risks of these investments, Synovus has determined that presenting these investments as a single asset class is appropriate. | |
| (2) | Represents the Visa derivative. |
18
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Changes in Fair Value - FVO Items
The following table presents the changes in fair value included in the consolidated statements
of income for items for which the fair value election was made. The table does not reflect the
change in fair value attributable to the related economic hedges Synovus used to mitigate interest
rate risk associated with the financial instruments. These changes in fair value were recorded as
a component of mortgage banking income and other non-interest income, as appropriate, and
substantially offset the change in fair value of the financial instruments referenced below.
| Three Months Ended March 31, 2010 | ||||||||||||
| Mortgage | Other | Total Changes | ||||||||||
| Banking | Operating | in Fair Value | ||||||||||
| (in thousands) | Income | Income | Recorded | |||||||||
|
Mortgage loans held for sale
|
$ | (52 | ) | — | (52 | ) | ||||||
| Three Months Ended March 31, 2009 | ||||||||||||
| Mortgage | Other | Total Changes | ||||||||||
| Banking | Operating | in Fair Value | ||||||||||
| (in thousands) | Income | Income | Recorded | |||||||||
|
Mortgage loans held for sale
|
$ | (1,676 | ) | — | (1,676 | ) | ||||||
|
Certain callable brokered certificates of deposit
|
— | 502 | (502 | ) | ||||||||
|
|
||||||||||||
|
Changes in Level 3 Fair Value Measurements
|
||||||||||||
|
As noted above, Synovus uses significant unobservable inputs (Level 3) to fair-value certain
assets and liabilities as of March 31, 2010 and 2009. The table below includes a roll forward of
the balance sheet amount for the three months ended March 31, 2010 and 2009 (including the change
in fair value), for financial instruments of a material nature that are classified by Synovus
within Level 3 of the fair value hierarchy and are measured at fair value on a recurring basis.
|
||||||||||||
|
|
||||||||||||
| Three Months Ended March 31, 2010 | ||||||||||||
| Other | ||||||||||||
| Investment | Private | Derivative | ||||||||||
| Securities | Equity | Liability | ||||||||||
| (in thousands) | Available for Sale | Investments | Contracts | |||||||||
|
Beginning balance, January 1,
|
$ | 13,326 | 48,463 | 12,862 | ||||||||
|
Total gains (losses) (realized/unrealized):
|
||||||||||||
|
Included in
earnings(*)
|
— | 899 | (47 | ) | ||||||||
|
Unrealized gains (losses) included in other
comprehensive income
|
(196 | ) | — | — | ||||||||
|
Purchases, sales, issuances, and settlements,
net
|
(523 | ) | 3,112 | — | ||||||||
|
Transfers in and/or out of Level 3
|
— | — | — | |||||||||
|
|
||||||||||||
|
Ending balance, March 31,
|
$ | 12,607 | 52,474 | 12,909 | ||||||||
|
|
||||||||||||
|
The amount of total gains (losses) for the period
included in earnings attributable to the change
in unrealized gains (losses) relating to assets
still held at March 31,
|
$ | — | 899 | (47 | ) | |||||||
19
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
| Three Months Ended March 31, 2009 | ||||||||||||
| Other | ||||||||||||
| Investment | Private | Derivative | ||||||||||
| Securities | Equity | Liability | ||||||||||
| (in thousands) | Available for Sale | Investments | Contracts | |||||||||
|
Beginning balance, January 1,
|
$ | 14,358 | 123,475 | — | ||||||||
|
Total gains (losses) (realized/unrealized):
|
||||||||||||
|
Included in earnings
|
— | — | — | |||||||||
|
Unrealized gains (losses) included in other
comprehensive income
|
1,048 | — | — | |||||||||
|
Purchases, sales, issuances, and settlements,
net
|
(445 | ) | 691 | — | ||||||||
|
Transfers in and/or out of Level 3
|
— | — | — | |||||||||
|
|
||||||||||||
|
Ending balance, March 31,
|
$ | 14,961 | 124,166 | — | ||||||||
|
|
||||||||||||
|
The amount of total gains (losses) for the period
included in earnings attributable to the change
in unrealized gains (losses) relating to assets
still held at March 31,
|
$ | — | — | — | ||||||||
(*) Included in earnings as a component of other non-interest income.
Assets Measured at Fair Value on a Non-recurring Basis
Certain
assets and liabilities are measured at fair value on a non-recurring
basis and are not included in the previous tables in this note. These assets and liabilities primarily include impaired loans and other real
estate. The amounts below represent only balances measured at fair value during the period and
still held as of the reporting date.
| As of March 31, 2010 | ||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | |||||||||
|
Impaired loans
(*)
|
$ | – | – | 985.5 | ||||||||
|
Other loans held for sale
|
– | – | 78.1 | |||||||||
|
Other real estate
|
– | – | 222.2 | |||||||||
| As of December 31, 2009 | ||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | |||||||||
|
Goodwill
|
$ | – | – | 24.4 | ||||||||
|
Impaired loans
(*)
|
– | – | 1,021.5 | |||||||||
|
Other loans held for sale
|
– | – | 36.8 | |||||||||
|
Other real estate
|
– | – | 238.8 | |||||||||
(*) Impaired loans are collateral-dependent.
20
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Loans are evaluated for impairment in accordance with provisions of ASC 310-10-35 using the
present value of the expected future cash flows discounted at the loan’s effective interest rate,
or as a practical expedient, a loan’s observable market price, or the fair value of the collateral
if the loan is collateral-dependent. Impaired loans measured by applying the practical expedient in
ASC 310-10-35 are included in the requirements of ASC 820-10.
Under the practical expedient, Synovus measures the fair value of collateral-dependent
impaired loans based on the fair value of the collateral securing these loans. These measurements
are classified as Level 3 within the valuation hierarchy. Substantially all impaired loans are
secured by real estate. The fair value of this real estate is generally determined based upon
appraisals performed by a certified or licensed appraiser using inputs such as absorption rates,
capitalization rates, and comparables, adjusted for estimated selling costs. Management also
considers other factors or recent developments such as changes in absorption rates or market
conditions from the time of valuation, and anticipated sales values considering management plans
for disposition, which could result in adjustment to the collateral value estimates indicated in
the appraisals. Impaired loans are reviewed and evaluated on at least a quarterly basis for
additional impairment and adjusted accordingly, based on the same factors identified above.
The fair value of ORE is determined on the basis of current appraisals, comparable sales, and
other estimates of value obtained principally from independent sources, adjusted for estimated
selling costs. An asset that is acquired through, or in lieu of, loan foreclosures is valued at
the fair value of the asset less the estimated cost to sell. The transfer at fair value results in
a new cost basis for the asset. Subsequent to foreclosure, valuations are updated periodically,
and assets are marked to current fair value, but not to exceed the new cost basis. Determination
of fair value subsequent to foreclosure also considers management’s plans for disposition,
including liquidation sales, which could result in adjustment to the collateral value estimates
indicated in the appraisals.
Fair Value of Financial Instruments
ASC 825-10-50 requires the disclosure of the estimated fair value of financial instruments
including those financial instruments for which Synovus did not elect the fair value option. The
following table presents the carrying and estimated fair values of on-balance sheet financial
instruments at March 31, 2010 and December 31, 2009. The fair value represents management’s best
estimates based on a range of methodologies and assumptions.
Cash and due from banks, 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.
The fair value of loans is estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as commercial, mortgage, home equity, credit
card, and other consumer loans. Commercial loans are further segmented into certain collateral code
groupings. The fair value of the loan portfolio is calculated, in accordance with ASC 825-10-50, by
discounting contractual cash flows using estimated market discount rates which reflect the credit
and interest rate risk inherent in the loan. This method of estimating fair value does not
incorporate the exit-price concept of fair value prescribed by ASC
820-10 and generally produces a higher value than a pure exit price approach.
21
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Notes to Consolidated Financial Statements (Unaudited)
The fair value of deposits with no stated maturity, such as non-interest bearing demand
accounts, interest bearing demand deposits, money market accounts, and savings accounts, is
estimated to be equal to the amount payable on demand as of that respective date. The fair value of
time deposits is based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar remaining maturities.
Short-term debt that matures within ten days is assumed to be at fair value. The fair value of
other short-term and long-term debt with fixed interest rates is calculated by discounting
contractual cash flows using estimated market discount rates.
| March 31, 2010 | December 31, 2009 | |||||||||||||||
| Carrying | Estimated | Carrying | Estimated | |||||||||||||
| (in thousands) | Value | Fair Value | Value | Fair Value | ||||||||||||
|
Financial assets
|
||||||||||||||||
|
Cash and due from banks
|
$ | 579,620 | 579,620 | 564,482 | 564,482 | |||||||||||
|
Interest bearing funds with Federal
Reserve Bank
|
2,826,702 | 2,826,702 | 1,901,847 | 1,901,847 | ||||||||||||
|
Interest earning deposits with banks
|
12,817 | 12,817 | 12,534 | 12,534 | ||||||||||||
|
Federal funds sold and securities
purchased under resale agreements
|
166,392 | 166,392 | 203,959 | 203,959 | ||||||||||||
|
Trading account assets
|
13,605 | 13,605 | 14,370 | 14,370 | ||||||||||||
|
Mortgage loans held for sale
|
112,989 | 112,989 | 138,056 | 138,056 | ||||||||||||
|
Other loans held for sale
|
78,077 | 78,077 | 36,816 | 36,816 | ||||||||||||
|
Investment securities available for sale
|
3,237,519 | 3,237,519 | 3,188,735 | 3,188,735 | ||||||||||||
|
Private equity investments
|
52,474 | 52,474 | 48,463 | 48,463 | ||||||||||||
|
Loans, net
|
23,448,467 | 23,165,781 | 24,439,343 | 24,082,061 | ||||||||||||
|
Derivative asset positions
|
108,065 | 108,065 | 114,535 | 114,535 | ||||||||||||
|
|
||||||||||||||||
|
Financial liabilities
|
||||||||||||||||
|
Non-interest bearing deposits
|
$ | 4,352,327 | 4,352,327 | 4,172,697 | 4,172,697 | |||||||||||
|
Interest bearing deposits
|
22,827,721 | 22,894,658 | 23,260,836 | 23,349,007 | ||||||||||||
|
Federal funds purchased and other
short-term borrowings
|
450,979 | 450,979 | 475,062 | 475,062 | ||||||||||||
|
Trading account liabilities
|
9,698 | 9,698 | 7,070 | 7,070 | ||||||||||||
|
Long-term debt
|
1,868,343 | 1,781,880 | 1,751,592 | 1,543,015 | ||||||||||||
|
Derivative liability positions
|
103,134 | 103,134 | 99,032 | 99,032 | ||||||||||||
Note 12 - Derivative Instruments
As part of its overall interest rate risk management activities, Synovus utilizes derivative
instruments to manage its exposure to various types of interest rate risk. These derivative
instruments consist of interest rate swaps, commitments to sell fixed-rate mortgage loans, and
interest rate lock commitments made to prospective mortgage loan customers. Interest rate lock
commitments represent derivative instruments since it is intended that such loans will be sold.
Synovus utilizes interest rate swaps to manage interest rate risks, primarily arising from its
core banking activities. These interest rate swap transactions generally involve the exchange of
fixed and floating rate interest rate payment obligations without the exchange of underlying
principal amounts.
22
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The receive fixed interest rate swap contracts at March 31, 2010 are being utilized to hedge
$400 million in floating rate loans and $265 million in fixed-rate liabilities. A summary of
interest rate swap contracts and their terms at March 31, 2010 is shown below. In accordance with
the provisions of ASC 815, the fair value (net unrealized gains and losses) of these contracts has
been recorded on the consolidated balance sheets.
| Weighted-Average | ||||||||||||||||||||||||
| Maturity | ||||||||||||||||||||||||
| Notional | Receive | Pay | In | Fair Value | ||||||||||||||||||||
| (dollars in thousands) | Amount | Rate | Rate (*) | Months | Assets | Liabilities | ||||||||||||||||||
|
Receive fixed interest rate swaps:
|
||||||||||||||||||||||||
|
Fair value hedges
|
$ | 265,000 | 1.32 | % | 0.40 | 3 | $ | 507 | – | |||||||||||||||
|
Cash flow hedges
|
400,000 | 8.22 | 3.25 | 11 | 17,395 | – | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total
|
$ | 665,000 | 5.47 | % | 2.11 | 8 | $ | 17,902 | – | |||||||||||||||
|
|
||||||||||||||||||||||||
(*) Variable pay rate based upon contract rates in effect at March 31, 2010.
Cash Flow Hedges
Synovus designates hedges of floating rate loans as cash flow hedges. These swaps hedge
against the variability of cash flows from specified pools of floating rate prime based loans.
Synovus calculates effectiveness of the hedging relationship quarterly using regression analysis
for all cash flow hedges entered into after March 31, 2007. The cumulative dollar offset method is
used for all hedges entered into prior to that date. The effective portion of the gain or loss on
the derivative instrument is reported as a component of other comprehensive income and reclassified
into earnings in the same period or periods during which the hedged transactions affect earnings.
Ineffectiveness from cash flow hedges is recognized in the consolidated statements of income as a
component of other non-interest income. As of March 31, 2010, cumulative ineffectiveness for
Synovus’ portfolio of cash flow hedges represented a gain of approximately $3 thousand.
Synovus expects to reclassify from accumulated other comprehensive income (loss) approximately
$20.4 million as pre-tax income during the next twelve months, as the related payments for interest
rate swaps and amortization of deferred gains (losses) are recorded.
Fair Value Hedges
Synovus designates hedges of fixed rate liabilities as fair value hedges. These swaps hedge
against the change in fair market value of various fixed rate liabilities due to changes in the
benchmark interest rate LIBOR (London Interbank Offered Rate). Synovus calculates effectiveness of
the fair value hedges quarterly using regression analysis. As of March 31, 2010, cumulative
ineffectiveness for Synovus’ portfolio of fair value hedges represented a gain of approximately $15
thousand. Ineffectiveness from fair value hedges is recognized in the consolidated statements of
income as a component of other non-interest income.
Customer Related Derivative Positions
Synovus also enters into derivative financial instruments to meet the financing and interest
rate risk management needs of its customers. Upon entering into these instruments to meet customer
needs, Synovus enters into offsetting positions in order to minimize the interest rate risk. These
derivative financial instruments are recorded at fair value with any resulting gain or loss
recorded in current period earnings. As of March 31, 2010, the notional amount of customer related
interest rate derivative financial instruments, including both the customer position and the
offsetting position, was $2.4 billion, a decrease of $383.0 million compared to December 31, 2009.
23
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Mortgage Derivatives
Synovus originates first lien residential mortgage loans for sale into the secondary market
and generally does not hold the originated loans for investment purposes. Mortgage loans are sold
by Synovus for conversion to securities and the servicing is sold to a third party servicing
aggregator, or the mortgage loans are sold as whole loans to investors either individually or in
bulk.
At March 31, 2010, Synovus had commitments to fund primarily fixed-rate mortgage loans to
customers in the amount of $164.5 million. The fair value of these commitments at March 31, 2010,
resulted in an unrealized gain of $1.2 million, which was recorded as a component of mortgage
banking income in the consolidated statements of income.
At March 31, 2010, outstanding commitments to sell primarily fixed-rate mortgage loans
amounted to approximately $240.2 million. Such commitments are entered into to reduce the exposure
to market risk arising from potential changes in interest rates which could affect the fair value
of mortgage loans held for sale and outstanding commitments to originate residential mortgage loans
for resale.
The commitments to sell mortgage loans are at fixed prices and are scheduled to settle at
specified dates that generally do not exceed 90 days. The fair value of outstanding commitments to
sell mortgage loans at March 31, 2010 resulted in an unrealized gain of $1.2 million which was
recorded as a component of mortgage banking income in the consolidated statements of income.
Counterparty Credit Risk and Collateral
Entering into derivative contracts potentially exposes Synovus to the risk of counterparties’
failure to fulfill their legal obligations including, but not limited to, potential amounts due or
payable under each derivative contract. Notional principal amounts are often used to express the
volume of these transactions, but the amounts potentially subject to credit risk are much smaller.
Synovus assesses the credit risk of its counterparties regularly, monitoring publicly available
credit rating information as well as other market based or, where applicable, customer specific
credit metrics. Collateral requirements are determined via policies and procedures and in
accordance with existing agreements. Synovus minimizes credit risk by dealing with highly rated
counterparties and by obtaining collateral as required by policy. Management closely monitors
credit conditions within the customer swap portfolio. Credit related fair value adjustments are
recorded against the asset value of the derivative as deemed necessary based upon an analysis which
includes consideration of the current asset value of the swap, customer credit rating, collateral
value, and current economic conditions.
Collateral Contingencies
Certain of Synovus’ derivative instruments contain provisions that require Synovus to maintain
an investment grade credit rating from each of the major credit rating agencies. When Synovus’
credit rating fall below investment grade, these provisions allow the counterparties of the
derivative instrument to request immediate termination or demand immediate and ongoing full
collateralization on derivative instruments in net liability positions. During the second quarter
of 2009, Moody’s and Standard and Poor’s downgraded Synovus and its subsidiary banks’ rating to
below investment grade. Due to these downgrades, Synovus was required to post additional
collateral against these positions. As of March 31, 2010, collateral of $140.1 million, in the
form of cash and U.S. government issued securities, has been pledged to fully collateralize these
derivative liability positions. The aggregate fair value of all derivative instruments with
credit-risk-related contingent features that were in a liability position on March 31, 2010 was
$104.3 million.
24
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The impact of derivatives on the balance sheet at March 31, 2010 and 2009 is presented below.
| Fair Value of Derivative Assets | Fair Value of Derivative Liabilities | |||||||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||||||
| Balance Sheet | Balance Sheet | |||||||||||||||||||||||
| (in thousands) | Location | 2010 | 2009 | Location | 2010 | 2009 | ||||||||||||||||||
|
Derivatives Designated as
Hedging Instruments
|
||||||||||||||||||||||||
|
Interest rate contracts:
|
||||||||||||||||||||||||
|
Fair value hedges
|
Other assets | $ | 507 | 27,623 | Other liabilities | $ | ¾ | ¾ | ||||||||||||||||
|
Cash flow hedges
|
Other assets | 17,395 | 59,079 | Other liabilities | ¾ | ¾ | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total derivatives
designated as hedging
instruments
|
$ | 17,902 | 86,702 | $ | ¾ | ¾ | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Derivatives Not Designated
as Hedging Instruments
|
||||||||||||||||||||||||
|
Interest rate contracts
|
Other assets | $ | 88,981 | 179,871 | Other liabilities | $ | 91,391 | 188,832 | ||||||||||||||||
|
Mortgage derivatives
|
Other assets | 1,182 | 2,805 | Other liabilities (1) | (1,166 | ) | 3,724 | |||||||||||||||||
|
Other contract
|
Other assets | ¾ | ¾ | Other contract | 12,909 | ¾ | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total derivatives not
designated as hedging
instruments
|
$ | 90,163 | 182,676 | $ | 103,134 | 192,556 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total derivatives
|
$ | 108,065 | 269,378 | $ | 103,134 | 192,556 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
| (1) |
As of March 31, 2010, the fair value of commitments to sell mortgage loans resulted in an unrealized gain of $1.2 million.
Said amount was reflected as a contra-liability as of March 31, 2010.
|
The effect of cash flow hedges on the consolidated statements of income for the three
months ended March 31, 2010 and 2009 is presented below.
| Amount of Gain (Loss) | Location of | Amount of Gain (Loss) | ||||||||||||||||||||||||||||||
| Recognized in OCI on | Gain (Loss) | Reclassified from OCI | Location of | Amount of Gain (Loss) | ||||||||||||||||||||||||||||
| Derivative | Reclassified | into Income | Gain (Loss) | Recognized in Income | ||||||||||||||||||||||||||||
| Effective Portion | from OCI | Effective Portion | Recognized | Ineffective Portion | ||||||||||||||||||||||||||||
| Three Months Ended | into Income | Three Months Ended | in Income | Three Months Ended | ||||||||||||||||||||||||||||
| March 31, | Effective | March 31, | Ineffective | March 31, | ||||||||||||||||||||||||||||
| (in thousands) | 2010 | 2009 | Portion | 2010 | 2009 | Portion | 2010 | 2009 | ||||||||||||||||||||||||
|
|
Interest | Other | ||||||||||||||||||||||||||||||
|
Interest rate
|
Income | Non-Interest | ||||||||||||||||||||||||||||||
|
contracts
|
$ | 511 | 1,986 | (Expense) | $ | (5,430 | ) | 6,016 | Income | $ | (11 | ) | (209 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
25
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The effect of fair value hedges on the consolidated statements of income for the three
months ended March 31, 2010 and 2009 is presented below.
| Derivative | Hedged Item | |||||||||||||||||||||||
| Amount of Gain (Loss) | Amount of Gain (Loss) | |||||||||||||||||||||||
| Location of | Recognized in Income | Location of | Recognized in Income | |||||||||||||||||||||
| Gain (Loss) | on Derivative | Gain (Loss) | On Hedged Item | |||||||||||||||||||||
| Recognized in | Three Months Ended | Recognized in | Three Months Ended | |||||||||||||||||||||
| Income on | March 31, | Income on | March 31, | |||||||||||||||||||||
| (in thousands) | Derivative | 2010 | 2009 | Hedged Item | 2010 | 2009 | ||||||||||||||||||
|
Derivatives Designated
in Fair Value Hedging
Relationships
|
||||||||||||||||||||||||
|
Interest
rate contracts
(1)
|
Other Non-
Interest Income |
$ | (484 | ) | (10,858 | ) |
Other Non-
Interest Income |
$ | 480 | 11,103 | ||||||||||||||
|
|
||||||||||||||||||||||||
|
Total
|
$ | (484 | ) | (10,858 | ) | $ | 480 | 11,103 | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Derivatives Not
Designated as Hedging
Instruments
|
||||||||||||||||||||||||
|
Interest rate contracts
(2)
|
Other Non-Interest
Income (Expense) |
$ | (1,619 | ) | (7,629 | ) | ||||||||||||||||||
|
Mortgage derivatives
(3)
|
Mortgage Revenues | 271 | 168 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total
|
$ | (1,348 | ) | (7,461 | ) | |||||||||||||||||||
|
|
||||||||||||||||||||||||
| (1) |
Gain (loss) represents fair value adjustments recorded for fair value hedges designated in hedging relationships
and related hedged items.
|
|
| (2) |
Gain (loss) represents net fair value adjustments (including credit related adjustments) for customer swaps
and offsetting positions.
|
|
| (3) |
Gain (loss) represents net fair value adjustments recorded for interest rate lock commitments and
commitments to sell mortgage loans.
|
Note 13 - Share-Based Compensation
General Description of Share-Based Plans
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. At March 31, 2010,
Synovus had a total of 21,201,764 shares of its authorized but unissued common stock reserved for
future grants under the 2007 Omnibus Plan. The Plan permits grants of share-based compensation
including stock options, non-vested shares, and restricted share units. The grants generally
include vesting periods ranging from three to five years and contractual terms of ten years. Stock
options are granted at exercise prices which equal the fair market value of a share of common stock
on the grant-date. Non-vested shares and restricted share units are awarded at no cost to the
recipient upon their grant. Synovus has historically issued new shares to satisfy share option
exercises and share unit conversions.
Share-Based Compensation Expense
Synovus’ share-based compensation costs are recorded as a component of salaries and other
personnel expense in the consolidated statements of income. Share-based compensation expense for
awards is recognized net of estimated forfeitures for plan participants on a straight-line basis
over the shorter of the vesting period or the period until reaching retirement eligibility. The
vesting period for awards containing vesting criteria in addition to service is based on an
expected date for attainment of all vesting requirements. Total share-based compensation expense
was $2.3 million and $2.7 million for the three months ended March 31, 2010 and March 31, 2009,
respectively.
26
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Stock Option Awards
During the three months ended March 31, 2010, Synovus granted an aggregate amount of 3,442,586
options to purchase shares of Synovus’ common stock to certain key Synovus employees at an exercise
price of $2.80. At March 31, 2010, there were 28,845,385 options to purchase shares of Synovus’
common stock outstanding with a weighted-average exercise price of $10.21.
Non-Vested Shares and Restricted Share Units
During the three months ended March 31, 2010, Synovus awarded an aggregate amount of 844,205
restricted share units to certain key employees of Synovus. The restricted stock unit awards have
a service component, a performance component and a TARP-related component for vesting. The
weighted average grant-date fair value of the awarded stock units was $2.80. At March 31, 2010,
there were 1,055,089 non-vested Synovus shares and restricted share units outstanding with a
weighted average grant date fair value of $6.79.
In addition, 12,677 non-transferable non-vested shares of Synovus’ common stock and 6,135
non-vested shares of TSYS common stock were awarded to a key Synovus executive from a 2005
authorized grant of 63,386 shares under a performance vesting schedule during the three-month
period ended March 31, 2010 with a grant-date fair value of $10.95.
Note 14 - Variable Interest Entities
Effective January 1, 2010, Synovus adopted the provisions of ASU 2009-17, Consolidation (Topic
810)-Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
The amendments in this update are the result of FASB Statement No. 167, “Amendments to FASB
Interpretation No. 46(R).” ASU 2009-17 amendment ASC 810 to revise the criteria for determining the
primary beneficiary of a variable interest entity (VIE). The updated provisions of ASC 810 clarify
that a VIE exists when the equity investors as a group lack either the power through voting rights
or similar rights to direct the activities of an entity that most significantly impact the entity’s
economic performance, the obligation to absorb the expected losses of the entity, or the right to
receive the expected residual returns of the entity, or when the equity investors as a group do not
have sufficient equity at risk for the entity to finance its activities by itself. A variable
interest is a contractual, ownership or other interest that changes with changes in the fair value
of the VIE’s net assets exclusive of variable interests. Under ASC 810, as amended, Synovus is
deemed to be the primary beneficiary and required to consolidate a VIE if it has a variable
interest in the VIE that provides it with a controlling financial interest. For such purposes, 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 losses of the VIE or the right to receive
benefits from the VIE that could potentially be significant. ASC 810, as amended, requires
continual reconsideration of conclusions reached regarding which interest holder is a VIE’s primary
beneficiary.
Prior to the adoption of the provisions of ASU 2009-17, Synovus was deemed to be the primary
beneficiary and required to consolidate a VIE if it had a variable interest that would absorb the
majority of the VIE’s expected losses, receive the majority of expected residual returns, or both.
A VIE existed when equity investors did not have the characteristics of a controlling financial
interest or did not have sufficient equity at risk for the entity to finance its activities by
itself. Expected losses and expected residual returns were measures of variability in the expected
cash flow of a VIE. Reconsideration of conclusions reached regarding which interest holder was a
VIE’s primary beneficiary was required only upon the occurrence of certain specified events.
Synovus’ involvement with VIEs is discussed below. Synovus consolidates VIEs for which it is
deemed the primary beneficiary.
27
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Consolidated Variable Interest Entities
Rabbi Trusts -
Synovus has established certain rabbi trusts related to deferred compensation
plans offered to its employees. Synovus contributes employee cash compensation deferrals to the
trusts and directs the underlying investments made by the trusts. The assets of these trusts are
available to creditors of Synovus only in the event that Synovus becomes insolvent. These trusts
are considered VIEs because either there is no equity at risk in the trusts or because Synovus
provided the equity interest to its employees in exchange for services rendered. Synovus is
considered the primary beneficiary of the rabbi trusts as it has the ability to direct the
underlying investments made by the trusts, the activities that most significantly impact the
economic performance of the rabbi trusts. Synovus includes the assets of the rabbi trusts and a
corresponding liability for the associated benefit obligation in its consolidated balance sheet.
At March 31, 2010, the aggregate amount of rabbi trust assets
and benefit obligation was $10.6
million, and is included as a component of other assets and other liabilities in Synovus’
consolidated balance sheet, respectively.
Non-consolidated Variable Interest Entities
Low Income Housing Tax Credit Partnerships
- Synovus, and its subsidiary banks, make equity
investments as a limited partner in various partnerships which are engaged in the development and
operation of affordable multi-family housing utilizing the Low Income Housing Tax Credit (LIHTC)
pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to earn a
return on the investment and to support community reinvestment initiatives of Synovus’ subsidiary
banks. The activities of these LIHTC partnerships are limited to development and operation of
multi-family housing that is leased to qualifying residential tenants. These partnerships are
generally located in Southeastern communities where Synovus has a banking presence, and are
considered VIEs because Synovus, as the holder of an equity investment at risk, does have voting or
similar rights and does not participate in the management or direct the operations of the
partnerships (activities which affect the success of the partnerships). Synovus provides
construction lending for certain of the LIHTC partnerships in which it also has an equity
investment. Synovus is at risk for the amount of its equity investment plus the outstanding amount
of any construction loans in excess of the fair value of the collateral for the loan, but has no
obligation to fund the operations or working capital of the partnerships. The general partners of these
partnerships are considered the primary beneficiaries because they are charged with management
responsibility which give them the power to direct the activities that most significantly impact
the financial performance of the partnerships, and they are exposed to losses beyond Synovus’
equity investment. At March 31, 2010, the aggregate carrying value of Synovus’ investments in LIHTC
partnerships was $17.4 million and the cumulative amount of equity investments was $28.0 million.
Synovus uses the equity method of accounting for these investments, which are included as a
component of other assets on Synovus’ consolidated balance sheet.
Historic Rehabilitation Partnerships
- Synovus, and its subsidiary banks, make equity
investments as a limited partner in various partnerships which are engaged in the preservation,
renovation and rehabilitation of historic structures and the subsequent operation those structures
as commercial properties or multi-family housing. Tax credit incentives are awarded based on a
percentage of certified rehabilitation costs under Section 1.48-112 of the Internal Revenue Code.
The purpose of these investments is to earn a suitable return on the investment and to support
community reinvestment initiatives of Synovus’ subsidiary banks. The activities of these historic
rehabilitation partnerships are limited to preservation and rehabilitation of historic structures,
and operation of those structures for leasing to commercial or residential tenants. These
partnerships are generally located in Southeastern communities where Synovus has a banking
presence, and are considered VIEs because Synovus, as the holder of an equity investment at risk,
does have voting or similar rights and does not participate in the management or direct the
operations of the partnerships (activities which affect the success of the partnerships). Synovus
provides construction lending for certain of the LIHTC partnerships in which it also has an equity
investment. Synovus is at risk for the amount of its equity investment plus the outstanding amount
of any construction loans in excess of the fair value of the collateral for the loan, but has no
obligation to fund the operations or working capital of the partnerships. The general partners of these
partnerships are considered the primary beneficiaries because they are charged with management
responsibility which give them the power to direct the activities that most significantly impact
the financial performance of the partnerships, and they are exposed to losses
28
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
beyond Synovus’
equity investment. At March 31, 2010, the aggregate carrying value of Synovus’ investments in
historic rehabilitation partnerships was $2.8 million and the cumulative amount of equity
investments was $9.0 million. Synovus uses the equity method of accounting for these
investments, which are included as a component of other assets on Synovus’ consolidated
balance sheet.
Certain Troubled Commercial Loans -
For certain troubled commercial loans, Synovus
restructures the terms of the borrower’s debt in an effort to increase the probability of receipt
of amounts contractually due. A troubled debt restructuring generally requires consideration of
whether the borrowing entity is a VIE as economic events have proven that the entity’s equity is
not sufficient to permit it to finance its activities without additional subordinated financial
support or a restructuring of the terms of its financing. As Synovus does not have the power to
direct the activities that most significantly impact such troubled commercial borrowers’
operations, it is not considered the primary beneficiary even in situations where, based on the
size of the financing provided, Synovus is exposed to potentially significant benefits and losses
of the borrowing entity. Synovus has no contractual requirements to provide financial support to
the borrowing entities beyond certain funding commitments established upon restructuring of the
terms of the debt that allows for preparation of the underlying collateral for sale. At March 31,
2010, loans, net of unearned income, in Synovus’ balance sheet included troubled debt
restructurings with in aggregate amount of $692.0 million.
Note 15 - Income Taxes
Synovus’ income tax returns are subject to review and examination by federal, state, and local
taxing jurisdictions. Currently, there are no years for which a federal income tax return is under
examination by the IRS. However, certain state income tax examinations are currently in progress.
Although Synovus is unable to determine the ultimate outcome of these examinations, Synovus
believes that current income tax accruals are adequate for any uncertain income tax positions
relating to these jurisdictions. The tax accruals were determined in accordance with sections 25
and 40 of ASC 740-10 and ASC 835-10-60-14 regarding accounting for uncertainty in income taxes as
described in ASC 740-10-05-6. Adjustments to accruals are made when necessary to reflect a change
in the probability outcome.
A reconciliation of the beginning and ending amount of unrecognized income tax benefits is
presented below. (Unrecognized state income tax benefits are not adjusted for the federal income
tax impact.)
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Balance at January 1,
|
$ | 7,274 | 8,021 | |||||
|
First quarter activity:
|
||||||||
|
Additions based on tax positions related to current year
|
48 | 46 | ||||||
|
Additions for tax positions of prior years
|
¾ | ¾ | ||||||
|
Reductions for tax positions of prior years
|
(168 | ) | (94 | ) | ||||
|
Settlements
|
(75 | ) | — | |||||
|
|
||||||||
|
Net, first quarter activity
|
(195 | ) | (48 | ) | ||||
|
|
||||||||
|
Balance at March 31,
|
7,079 | 7,973 | ||||||
|
|
||||||||
Accrued interest and penalties related to unrecognized income tax benefits are included as a
component of income tax expense (benefit). The amount of accrued interest and penalties on
unrecognized income tax benefits totaled $1.5 million as of January 1 and March 31, 2010. The
total amount of unrecognized income tax benefits as of January 1 and March 31, 2010 that, if
recognized, would affect the effective income tax rate is $5.7 million and $5.6 million (net of the
federal benefit on state income tax issues), respectively, which includes interest and penalties of
$958 thousand and $956 thousand, respectfully. Synovus expects that approximately $1.3 million of
uncertain income tax positions will be either settled or resolved during the next twelve months.
Under provisions of ASC 740-30-25, companies are required to assess whether a valuation
allowance should be established against their deferred tax assets based on the consideration of all
available
29
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
evidence using a “more likely than not” standard. In making such judgments, significant
weight is given to evidence that can be objectively verified. Primarily as a result of increased
credit losses, Synovus reached a three-year cumulative pre-tax loss position during the three
months ended June 30, 2009. Cumulative losses in recent years are considered significant negative evidence
which is difficult to overcome in assessing the realizability of a deferred tax asset. As a result,
beginning with the second quarter of 2009, Synovus no longer considers future taxable income in
determining the realizability of its
deferred tax assets. Synovus’ estimate of the realization of its deferred tax assets is
solely based on future reversals of existing taxable temporary differences and currently available
tax planning strategies.
Synovus increased its deferred tax asset valuation allowance by $105 million during the three
months ended March 31, 2010 for a total valuation allowance of $548 million at March 31, 2010 (net
of the federal benefit on state income taxes). At March 31, 2010, management concluded that $10.0
million of its net deferred tax assets would be realized. This amount of net deferred tax assets
is based on actual separate entity state income tax liabilities and tax planning strategies.
A reconciliation of the beginning and ending amount of the valuation allowance recorded
against deferred tax assets is as follows:
| (in thousands) | 2010 | 2009 | ||||||
|
Balance at January 1,
|
$ | 443,332 | 5,068 | |||||
|
Increase in valuation allowance
|
105,079 | 3,327 | ||||||
|
|
||||||||
|
Balance at March 31,
|
$ | 548,411 | 8,395 | |||||
|
|
||||||||
ASC 740-20-2 requires total income tax expense or benefit to be allocated among continuing
operations, discontinued operations, extraordinary items, other comprehensive income and items
charged directly to shareholders’ equity. This allocation is referred to as intra-period tax
allocation. Under ASC 740-20-45-8, the amount allocated to continuing operations is the income tax
effect of the pre-tax income or loss from continuing operations during the quarter, plus or minus
the tax effects of (a) changes in circumstances that cause a change in judgment about the
realization of deferred tax assets in future years, (b) changes in income tax laws or rates and (c)
changes in income tax status, and certain tax deductible dividends charged to retained earnings.
ASC 740-20-45-7 provides an exception to the general principle of intra-period tax allocation to
continuing operations. This exception applies when there is a loss from continuing operations and
income from items outside of continuing operations that must be considered for interim reporting
periods. This exception requires that income from discontinued operations, extraordinary items and
items charged or credited directly to other comprehensive income be considered in determining the
amount of tax benefit that results from a loss in continuing operations. This exception applies to
the allocation of the current year tax provision only and does not change the total amount of tax
provision.
Management’s
estimate of the pre-tax loss for the year, any reduction in the
valuation allowance, and other factors could impact the actual
effective tax rate for continuing operations. The
effective tax rate for continuing operations for the year ending December 31, 2010 will also be
impacted by state income taxes in jurisdictions where there are profitable subsidiaries filing
separate entity or consolidated income tax returns as well as intra-period tax
allocations.
30
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 16 - Recently Adopted Accounting Pronouncements
Effective January 1, 2010, Synovus adopted the provisions of ASU 2009-16, Transfers and
Servicing (Topic 860)-Accounting for Transfers of Financial Assets. ASU 2009-16 removes the
concept of a qualifying special-purpose entity from ASC 860 and removes the exception from applying
ASC 810 provisions for consolidation of variable interest entities to qualifying special-purpose
entities. ASU 2009-16 clarifies that the objective of ASC 860-10-40-4 is to determine whether a
transferor and all of the entities included in the transferor’s financial statements being
presented have surrendered control over transferred financial assets. This determination must
consider the transferor’s continuing involvement in the transferred financial asset, including all
arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even
if they were not entered into at the time of the transfer. ASU 2009-16 modifies the
financial-components approach used in ASC 860 and limits the circumstances in which a financial
asset, or portion of a financial asset, should be derecognized when the transferor has not
transferred the entire financial asset to an entity that is not consolidated with the transferor in
the financial statements being presented and/or when the transferor has continuing involvement.
The special provisions of ASC 860 and ASC 948-10, Financial Services-Mortgage Banking, for
guaranteed mortgage securitizations are removed to require those securitizations to be treated the
same as any other transfer of financial assets within the scope of ASC 860, as amended by ASU
2009-16. If the transfer does not meet the requirements for sale accounting, the securitized
mortgage loans should continue to be classified as loans in the transferor’s statement of financial
position. ASU 2009-16 requires that a transferor recognize and initially measure at fair value all
assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result
of a transfer of financial assets accounted for as a sale. Enhanced disclosures are required to
provide financial statement users with greater transparency about transfers of financial assets and
a transferor’s continuing involvement with transferred financial assets. The impact of adoption
was not material to Synovus’ financial position, results of operations, or cash flows.
Effective January 1, 2010, Synovus adopted the provisions of ASU 2009-17, Consolidation (Topic
810)-Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
The amendments in this update are the result of FASB Statement No. 167, “Amendments to FASB
Interpretation No. 46(R).” The FASB expects ASU 2009-17 to improve financial reporting by
enterprises involved with variable interest entities. The FASB undertook this project to address
(1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities (FIN 46), as a result of the elimination of the
qualifying special-purpose entity concept in FASB Statement No. 166, and (2) constituent concerns
about the application of certain key provisions of Interpretation 46(R), including those in which
the accounting and disclosures under FIN 46 do not always provide timely and useful information
about an enterprise’s involvement in a variable interest entity. The impact of adoption was not
material to Synovus’ financial position, results of operations, or cash flows.
Effective January 1, 2010, Synovus adopted certain of the new disclosure requirements of
Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements.
ASU 2010-06 amends ASC 820-10, Fair Value Measurements and Disclosures–Overall, to add a new
requirement to disclose details of significant transfers in and out of Level 1 and Level 2
measurements and the reasons for the transfers. The ASU clarifies that fair value disclosure of
assets and liabilities should be by class rather than major category, and further clarifies that
reporting entities must disclose the valuation techniques and inputs used in determining the fair
value of each class of assets and liabilities. This clarifies that the existing disclosure
requirement of ASC 820 applies to Level 2 as well as Level 3 measurements. Further, for recurring
measurements, it clarifies that disclosure of the inputs used is required. This Update also
requires the gross presentation of activity within the Level 3 roll forward, presenting separately
information about purchases, sales, issuances, and settlements. However, this particular
disclosure requirement will not be effective for Synovus until the first annual reporting period
that begins after December 15, 2010, for interim periods within that first annual reporting period,
and for interim and annual reporting periods thereafter. Earlier application is permitted.
31
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Effective January 1, 2010, Synovus adopted the provisions of ASU 2009-12, Fair Value
Measurements and Disclosures (Topic 820)-Investments in Certain Entities That Calculate Net Asset
Value per Share (or its equivalent). This ASU provides amendments to Subtopic 820-10, Fair Value
Measurements and Disclosures-Overall, for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). The amendments in this ASU
permit, as a practical expedient, a reporting entity to measure the fair value of an investment
that is within the scope of the amendments in this ASU on the basis of the net asset value per
share of the investment (or its equivalent) if the net asset value of the investment (or its
equivalent) is calculated in a manner consistent with the measurement principles of Topic 946 as of
the reporting entity’s measurement date, including measurement of all or substantially all of the
underlying investments of the investee in accordance with Topic 820. The amendments in this ASU
also require disclosures by major category of investment about the attributes of investments within
the scope of amendments in this ASU. The impact of adoption was not material to Synovus’ financial
position, results of operations, or cash flows.
32
Table of Contents
ITEM 2 - MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements made or incorporated by reference in this report which are not statements
of historical fact, including those under Management’s Discussion and Analysis of Financial
Condition and Results of Operations, and elsewhere in this report, constitute forward-looking
statements within the meaning of, and subject to the protections of, Section 27A of the Securities
Act of 1933, as amended, (the Securities Act) and Section 21E of the Securities Exchange Act of
1934, as amended (the Exchange Act). Forward-looking statements include statements with respect to
Synovus’ beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions,
estimates, intentions, and future performance and involve known and unknown risks, many of which
are beyond Synovus’ control and which may cause Synovus’ actual results, performance, or
achievements or the commercial banking industry or economy generally, to be materially different
from future results, performance or achievements expressed or implied by such forward-looking
statements.
All statements other than statements of historical fact are forward-looking statements. You
can identify these forward-looking statements through Synovus’ use of words such as “believes,”
“anticipates,” “expects,” “may,” “will,” “assumes,” “should,” “predicts,” “could,” “should,”
“would,” “intends,” “targets,” “estimates,” “projects,” “plans,” “potential” and other similar
words and expressions of the future or otherwise regarding the outlook for Synovus’ future business
and financial performance and/or the performance of the commercial banking industry and economy in
general. Forward-looking statements are based on the current beliefs and expectations of Synovus’
management and are subject to significant risks and uncertainties. Actual results may differ
materially from those contemplated by such forward-looking statements. A number of factors could
cause actual results to differ materially from those contemplated by the forward-looking statements
in this report. Many of these factors are beyond Synovus’ ability to control or predict. These
factors include, but are not limited to:
| (1) | competitive pressures arising from aggressive competition from other financial service providers; | |
| (2) | further deteriorations in credit quality, particularly in residential construction and commercial development real estate loans, may continue to result in increased non-performing assets and credit losses, which could adversely impact Synovus’ earnings and capital; | |
| (3) | declining values of residential and commercial real estate may result in further write-downs of assets and realized losses on disposition of non-performing assets, which may increase credit losses and negatively affect Synovus’ financial results; | |
| (4) | continuing weakness in the residential real estate environment, which may negatively impact Synovus’ ability to liquidate non-performing assets; | |
| (5) | the impact on Synovus’ borrowing costs, capital costs, and liquidity due to further adverse changes in Synovus’ credit ratings; | |
| (6) | the risk that Synovus’ allowance for loan losses may prove to be inadequate or may be negatively affected by credit risk exposures; | |
| (7) | Synovus’ ability to manage fluctuations in the value of Synovus’ assets and liabilities to maintain sufficient capital and liquidity to support operations; | |
| (8) | the concentration of Synovus’ non-performing assets by loan type, in certain geographic regions and with affiliated borrowing groups; | |
| (9) | the risk of additional future losses if the proceeds received upon the liquidation of assets are less than the carrying value of such assets; | |
| (10) | changes in the interest rate environment which may increase funding costs or reduce earning assets yields, thus reducing margins; | |
| (11) | restrictions or limitations on access to funds from subsidiaries and potential obligations to contribute additional capital to subsidiaries, which may restrict Synovus’ ability to make payments on its obligations or dividend payments; | |
| (12) | future availability and cost of capital and liquidity on favorable terms, if at all; | |
| (13) | changes in accounting standards or applications and determinations made thereunder; | |
| (14) | slower than anticipated rates of growth in non-interest income and increased non-interest expense; |
33
Table of Contents
| (15) | changes in the cost and availability of funding due to changes in the deposit market and credit market, or the way in which Synovus is perceived in such markets, including a further reduction in Synovus’ debt ratings; | |
| (16) | the risk that the recoverability of the deferred tax asset balance may extend beyond 2010; | |
| (17) | the strength of the U.S. economy in general and the strength of the local economies and financial markets in which operations are conducted may be different than expected; | |
| (18) | the effects of and changes in trade, monetary and fiscal policies, and laws, including interest rate policies of the Federal Reserve Board; | |
| (19) | inflation, interest rate, market and monetary fluctuations; | |
| (20) | the impact of proposed financial reform legislation and other recent and proposed changes in governmental policy, laws and regulations, including proposed and recently enacted changes in the regulation of banks and financial institutions, or the interpretation or application thereof, including restrictions, increased capital requirements, limitations and/or penalties arising from banking, securities and insurance laws, regulations and examinations; | |
| (21) | the risk that Synovus will not be able to complete the proposed consolidation of the subsidiary banks or, if completed, realize the anticipated benefits of the proposed consolidation; | |
| (22) | the impact on Synovus’ financial results, reputation and business if Synovus is unable to comply with all applicable federal and state regulations and applicable memoranda of understanding, other supervisory actions and any necessary capital initiatives; | |
| (23) | the costs and effects of litigation, investigations, inquiries or similar matters, or adverse facts and developments related thereto; | |
| (24) | the volatility of Synovus’ stock price; | |
| (25) | the impact on the valuation of Synovus’ investments due to market volatility or counterparty payment risk; | |
| (26) | the risks that Synovus may be required to seek additional capital to satisfy applicable regulatory capital standards and pressures or supervisory actions in addition to the capital realized through the execution of Synovus’ 2010 capital plan announced on April 26, 2010; | |
| (27) | the risk that, if economic conditions worsen or regulatory capital requirements for subsidiary banks are modified, Synovus may be required to seek additional liquidity at the holding company from external sources; | |
| (28) | the costs of services and products to Synovus by third parties, whether as a result of financial condition, credit ratings, the way Synovus is perceived by such parties, the economy or otherwise; | |
| (29) | the risk that Synovus could have an “ownership change” under Section 382 of the Internal Revenue Code, which could impair the ability to timely and fully utilize Synovus’ net operating losses and built-in losses that may exist when such “ownership change” occurs; and | |
| (30) | other factors and other information contained in this document and in other reports and filings that Synovus makes with the SEC under the Exchange Act, including, without limitation, under the caption “Risk Factors”. |
For a discussion of these and other risks that may cause actual results to differ from
expectations, refer to “Risk Factors” and other information of Synovus’ annual report on Form 10-K/A
for the year ended December 31, 2009 (Synovus’ 2009 10-K) and other
periodic filings, including quarterly reports on Form 10-Q and Synovus’ April 26 8-K, that Synovus
files with the SEC, including the current report on form 8-K filed on April 26, 2010 (Synovus’
April 26 8-K). All written or oral forward-looking statements that are made by or are attributable
to Synovus are expressly qualified by this cautionary notice. Undue reliance on any forward-looking
statements should not be placed given that those statements speak only as of the date on which the
statements are made. Synovus undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the statement is made to reflect the
occurrence of new information or unanticipated events, except as may otherwise be required by law.
34
Table of Contents
Management’s Discussion and Analysis
About Synovus
Synovus Financial Corp. (Parent Company) is a financial services holding company based in
Columbus, Georgia, with approximately $32 billion in assets. Synovus provides integrated financial
services including banking, financial management, insurance, mortgage, and leasing services through
30 wholly-owned subsidiary banks and other Synovus offices in Georgia, Alabama, South Carolina,
Tennessee, and Florida. At March 31, 2010, Synovus’ banks ranged in size from $244.6 million to
$7.79 billion in total assets.
Executive Summary
The following narrative summarizes the significant trends affecting Synovus’ results of
operations and financial condition for the three months ended March 31, 2010. This overview
supplements, and should be read in conjunction with, the condensed consolidated financial
statements of Synovus and the notes thereto contained elsewhere in this report and in Synovus’ 2009
10-K.
Industry Overview
While certain economic indicators have begun to reflect improvement in the United States
economy, there remains uncertainty with respect to the rate and duration of the recovery, and
whether these improvements will be sustainable. The first three months of 2010 continue to reflect
heightened levels of credit costs and non-performing assets, although the rate of negative credit
quality migration has begun to ease. The level of credit costs and non-performing assets is
expected to decline over time, with the pace improving later in 2010 and 2011. Liquidity in debt
markets has improved for credit worthy borrowers; however, the demand for new loans is weak and
many borrowers have been reducing their borrowings under existing credit facilities where possible.
The Federal Reserve Bank (Federal Reserve) remains committed for now to maintain interest rates at
historically low levels. The federal funds rate set by the Federal Reserve has remained at 0.25%
since December 2008. If the Federal Reserve raises interest rates, it could further decrease
demand for new loans.
During
the extended period of economic downturn, a number of financial institutions have
undertaken strategic initiatives to strengthen their capital in consideration of the adverse
impact on capital which resulted from unprecedented levels of credit losses, and heightened levels
of non-performing assets, charge-offs, and foreclosures.
Strategic Initiatives
During
2009 and 2010, Synovus has taken a number of steps in an effort to position itself to emerge from
the current economic crisis as a stronger organization:
•
Capital position -
Synovus announced and executed a number of capital initiatives to
bolster its capital position against further credit deterioration and to provide additional capital
as it pursues an aggressive asset disposition strategy. Through a combination of a public equity
offering, liability management, and strategic dispositions, Synovus added approximately $644
million of Tier 1 capital in 2009. Additionally, on March 31, 2010, Synovus completed the sale of
its merchant services business which resulted in a pre-tax gain of $69.5 million. Synovus
disclosed that it continued to identify, consider, and pursue additional strategic initiatives to
bolster its capital position, including potential capital market transactions, additional liability
management initiatives, and certain non-dilutive transactions (the Capital Plan). Synovus noted
that it was exploring these strategic initiatives in response to, among other factors, regulatory
expectations, evolving industry capital standards, and a challenging economic environment. On May
4, 2010, Synovus completed the public offerings described below, which generated aggregate net proceeds of
$1.1 billion.
| o | a public offering of 293,250,000 shares of Synovus’ common stock, which generated net proceeds of approximately $768.9 million, and | |
| o | a public offering of 13,800,000 tangible equity units (tMEDS), which generated net proceeds of approximately $333.7 million. |
35
Table of Contents
Management’s Discussion and Analysis
•
Risk management -
During 2009, Synovus completed the centralization of a number of key
functions, including credit and loan review, deposit operations, loan operations, procurement and
facilities management. These changes emphasize a one-company view of Synovus’ operating structure
and reduce the risks of managing these complex internal functions.
•
Aggressive management of credit issues
- Synovus has taken a proactive approach to
recognition and disposition of problem assets. During 2009, Synovus announced and executed an
aggressive strategy to dispose of non-performing assets and manage its credit quality. Synovus
disposed of an aggregate $1.18 billion of non-performing assets in 2009, and, in the first quarter
of 2010, continued with the disposition of an additional $271 million of non-performing assets.
The total allowance and cumulative write-downs on non-performing assets as a percentage of unpaid
principal balance at March 31, 2010 was approximately 49%.
•
Deposit growth
- Synovus believes that its deposits remain a strength of its business. At
March 31, 2010, total deposits were $27.18 billion. Synovus continues to focus on improving the
mix of its deposits. At March 31, 2010, non-interest bearing deposits, or DDAs, were $4.4 billion,
a 15% increase compared to March 31, 2009. In addition, total non-CD deposits, excluding national
market brokered money market accounts, as of March 31, 2010 were $15.2 billion, an increase of 7.8%
compared to March 31, 2009.
•
Focus on expense control
- Synovus controlled expenses and reduced fundamental
non-interest expense by over $50 million during 2009. Fundamental non-interest expense, which
excludes other credit costs, FDIC insurance expense, and restructuring charges, was down $6.1
million for the three months ended March 31, 2010 as compared to the same period in the prior year.
See Non-GAAP Financial Measures in this report. The total number of employees at March 31, 2010
was 6,396, down 324, or 5.1%, from March 31, 2009.
There can be no assurance that Synovus will realize the anticipated benefits of its strategic
initiatives, including the Capital Plan, or that its regulators will be satisfied with such
initiatives and plan and will not require Synovus to take further action. See “Risk Factors” in
Synovus’ 2009 10-K and Synovus’ April 26 8-K.
Charter Consolidation
In January 2010, Synovus announced its intention to transition from 30 subsidiary banks with
30 individual charters to a single subsidiary bank with a single charter, pending receipt of all
required regulatory approvals. Synovus believes that this legal change in charter structure will:
| • | simplify regulatory oversight; | ||
| • | improve capital efficiency; | ||
| • | enhance risk management; | ||
| • | increase opportunities for efficiency; and | ||
| • | better position Synovus to emerge stronger from the current economic downturn. |
The announced charter consolidation is only a change in the legal structure of Synovus’
organization and does not change the relationship-banking business model. Synovus presently expects
to complete the consolidation of bank charters into a single charter in the second quarter of 2010,
subject to receipt of the required regulatory approvals. See “Risk Factors” in Synovus’ 2009 10-K
and Synovus’ April 26 8-K.
36
Table of Contents
Management’s Discussion and Analysis
Key Financial Performance Indicators
In terms of how Synovus measures success in its business, the following are key financial
performance indicators:
|
|
• Capital Strength | • Expense Management | ||
|
|
• Liquidity | • Core Deposit Growth | ||
|
|
• Credit Quality | • Loan Growth | ||
|
|
• Net Interest Margin | • Fee Income Growth |
The net loss for the three months ended March 31, 2010 was $215.7 million, or $0.47 per common
share. The first quarter results include a $43 million after-tax gain from the sale of Synovus’
merchant services business. Total credit costs (including provision for losses on loans, losses on
ORE, reserve for unfunded commitments and charges related to other loans held for sale) for the
three months ended March 31, 2010 were $394.5 million, including provision for losses on loans of
$340.9 million and costs related to foreclosed real estate of $45.5 million. Allowances and
cumulative write-downs on all remaining non-performing assets were approximately 49% of unpaid
principal balances at March 31, 2010 as compared to 45% at December 31, 2009. Problem asset
dispositions remained on track at $271 million in sales for the first quarter of 2010.
Pre-tax, pre-credit costs income (which excludes provision for losses on loans, other credit
costs, and certain other items), was $119.3 million, down $7.9 million from the first quarter of
2009. See Non-GAAP Financial Measures in this report. The net interest margin increased 34 basis
points to 3.39% compared to the first quarter of 2009. The net interest margin in the first quarter
was impacted by a net decrease in loans outstanding, an excess liquidity position, and the negative
impact of non-performing assets. Excluding the negative impact of non-performing assets, the net
interest margin increased 39 basis points to 3.77% compared to the first quarter of 2009. See
Non-GAAP Financial Measures in this report.
Core deposits of $22.5 billion grew slightly (2.6% annualized) compared to December 31, 2009
and were relatively flat as compared to March 31, 2009. See Non-GAAP Financial Measures in this
report. The mix of core deposits continued to improve with non-interest bearing demand deposits
and money market accounts replacing higher priced time deposits.
Fundamental non-interest expense (non-interest expense excluding other credit costs, FDIC
insurance expense, restructuring charges, Visa litigation (recovery) expense, and goodwill
impairment charges) of $182.7 million was down $6.1 million, or 3.2% from the first quarter of
2009. See Non-GAAP Financial Measures in this report. Reduced salaries and other personnel expense
contributed significantly to the reduced expenses. Total employees (6,396 at March 31, 2010) were
flat compared to year end 2009 and down 324 or 5.1% from the first quarter of 2009.
37
Table of Contents
Management’s Discussion and Analysis
A summary of Synovus’ financial performance for the three months ended March 31, 2010 and 2009
is set forth in the table below.
| Financial Performance Summary | ||||||||||||
| Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| (in thousands, except per share data) (percentages annualized) | 2010 | 2009 | Change | |||||||||
|
Net interest income
|
$ | 248,867 | 243,239 | 2.3 | % | |||||||
|
Provision for losses on loans
|
340,948 | 290,437 | 17.4 | |||||||||
|
Non-interest income
|
69,698 | 84,385 | (17.4 | ) | ||||||||
|
Non-interest expense
|
252,797 | 261,039 | (3.2 | ) | ||||||||
|
Fundamental non-interest expense
(1)(2)
|
182,680 | 188,733 | (3.2 | ) | ||||||||
|
Loss from continuing operations before income taxes
|
(275,180 | ) | (223,852 | ) | (22.9 | ) | ||||||
|
Pre-tax, pre-credit costs income
(1)
|
119,330 | 127,220 | (6.2 | ) | ||||||||
|
Net loss from continuing operations
|
(258,843 | ) | (137,944 | ) | (87.6 | ) | ||||||
|
Income from discontinued operations, net of tax
|
43,161 | 1,215 | nm | |||||||||
|
Net loss
|
(215,682 | ) | (136,729 | ) | (57.7 | ) | ||||||
|
Net loss attributable to controlling interest
|
(215,473 | ) | (136,672 | ) | (57.7 | ) | ||||||
|
Diluted earnings (loss) per common share (EPS):
|
||||||||||||
|
Net loss from continuing operations available to common
shareholders
|
(0.56 | ) | (0.46 | ) | (20.9 | ) | ||||||
|
Net loss available to common shareholders
|
(0.47 | ) | (0.46 | ) | (2.6 | ) | ||||||
| Sequential | Year Over | |||||||||||||||||||
| March 31, | December 31, | Quarter | March 31, | Year | ||||||||||||||||
| 2010 | 2009 | Change | 2009 | Change | ||||||||||||||||
|
Loans, net of unearned income
|
$ | 24,417,164 | 25,383,068 | (3.8 | )% | $ | 27,730,272 | (11.9 | )% | |||||||||||
|
Non-performing assets
|
1,842,937 | 1,831,399 | 0.6 | % | 1,725,266 | 6.8 | % | |||||||||||||
|
Total deposits
|
27,180,048 | 27,433,533 | (3.7 | )% | 27,947,986 | (2.7 | )% | |||||||||||||
|
Core deposits
(1)
|
22,303,193 | 22,613,900 | (1.4 | )% | 22,716,235 | (1.8 | )% | |||||||||||||
|
|
||||||||||||||||||||
|
Net interest margin (quarter)
|
3.39 | % | 3.25 | % | 14 | bp | 3.05 | % | 34 | bp | ||||||||||
|
Non-performing assets ratio
|
7.46 | 7.14 | 32 | bp | 6.15 | 131 | bp | |||||||||||||
|
Past due over 90 days
|
0.15 | 0.08 | 7 | bp | 0.11 | 4 | bp | |||||||||||||
|
Net charge-off ratio (quarter)
|
5.05 | 5.58 | (53 | )bp | 3.53 | 152 | bp | |||||||||||||
|
|
||||||||||||||||||||
|
Tier 1 capital
|
$ | 2,494,790 | 2,721,287 | (8.3 | )% | $ | 3,454,987 | (27.8 | )% | |||||||||||
|
Tier 1 common equity
|
1,554,290 | 1,782,998 | (12.8 | )% | 2,523,119 | (38.4 | )% | |||||||||||||
|
Total risk-based capital
|
3,357,637 | 3,637,712 | (7.7 | )% | 4,440,572 | (24.4 | )% | |||||||||||||
|
Tier 1 capital ratio
|
9.68 | % | 10.16 | % | (48 | )bp | 11.06 | % | (138 | )bp | ||||||||||
|
Tier 1 common equity ratio
|
6.03 | 6.66 | (63 | )bp | 8.08 | (205 | )bp | |||||||||||||
|
Total risk-based capital ratio
|
13.03 | 13.58 | (55 | )bp | 14.22 | (119 | )bp | |||||||||||||
|
Total common
shareholders’ equity to total assets
|
5.20 | 5.86 | (66 | )bp | 7.86 | (266 | )bp | |||||||||||||
|
Tangible common equity to tangible assets
(1)
|
5.08 | 5.74 | (66 | )bp | 7.70 | (262 | )bp | |||||||||||||
|
Tangible common equity to risk-weighted assets
(1)
|
6.39 | 7.03 | (64 | )bp | 8.51 | (212 | )bp | |||||||||||||
| (1) | See reconciliation of Non-GAAP Financial Measures in this report. | |
| (2) | Fundamental non-interest expense is comprised of total non-interest expense less other credit costs, FDIC insurance expense, and restructuring charges. |
bp = basis point
nm = not meaningful
nm = not meaningful
Critical Accounting Policies
The accounting and financial reporting policies of Synovus conform to GAAP and to general
practices within the banking and financial services industries. Synovus has identified certain of
its accounting policies as “critical accounting policies”. In determining which accounting policies
are critical in nature, Synovus has identified the policies that require significant judgment or
involve complex estimates. The application of these policies has a significant impact on Synovus’
financial statements. Synovus’ financial results could differ significantly if different judgments
or estimates are applied in the application of these policies.
Synovus’ critical accounting policies are described within Management’s Discussion and
Analysis in Synovus’ 2009 10-K. There have been no material changes to Synovus’ critical
accounting policies, estimates and assumptions, or the judgments affecting the application of these
estimates and assumptions in 2010.
38
Table of Contents
Management’s Discussion and Analysis
Shareholders’ Equity
Preferred Stock and Warrants to Purchase Common Stock
On December 19, 2008, Synovus issued to the United States Department of the Treasury
(Treasury) 967,870 shares of Synovus’ Fixed Rate Cumulative Perpetual Preferred Stock, Series A,
without par value (the Series A Preferred Stock), having a liquidation amount per share equal to
$1,000, for a total price of $967,870,000. The Series A Preferred Stock pays cumulative dividends
at a rate of 5% per year for the first five years and thereafter at a rate of 9% per year. Under
provisions of the American Recovery and Reinvestment Act (ARRA), the Series A Preferred Stock may
be redeemed at any time with the consent of the FDIC. The Series A Preferred Stock is generally
non-voting. Consequences of the Series A Preferred Stock purchase include certain restrictions on
payment of dividends, repurchase or redemption of Synovus’ equity or capital securities, and limits
on the tax deductibility of executive compensation.
As part of its issuance of the Series A Preferred Stock, Synovus issued the Treasury a warrant
to purchase up to 15,510,737 shares of Synovus’ common stock (the Warrant) at an initial per share
exercise price of $9.36. The Warrant, which expires on December 19, 2018, provides for the
adjustment of the exercise price and the number of shares of Synovus’ common stock issuable upon
exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions
of securities or other assets to holders of Synovus’ common stock, and upon certain issuances of
Synovus’ common stock at or below a specified price relative to the initial exercise price.
Pursuant to the Securities Purchase Agreement, the Treasury has agreed not to exercise voting power
with respect to any shares of common stock issued upon exercise of the Warrant.
Synovus allocated the total proceeds received from the Treasury based on the relative fair
values of the preferred shares and the Warrants. This allocation resulted in the preferred shares
and the Warrants being initially recorded at amounts that are less than their respective fair
values at the issuance date.
The $48.5 million discount on the Series A Preferred Stock is being accreted using a constant
effective yield over the five-year period preceding the 9% perpetual dividend. Synovus records
increases in the carrying amount of the preferred shares resulting from accretion of the discount
by charges against retained earnings.
Common Stock
On September 22, 2009, Synovus completed a public offering of 150,000,000 shares of Synovus’
$1.00 par value common stock at a price of $4.00 per share, generating proceeds of $570.9 million,
net of issuance costs.
Exchange of Subordinated Debt for Common Stock
On November 5, 2009, Synovus completed its previously announced exchange offer (Exchange
Offer) of $29,820,000 in aggregate principal amount of its outstanding 4.875% Subordinated Notes
Due 2013 (the Notes). The notes exchanged in the Exchange Offer represent 12.6% of the
$236,570,000 aggregate principal amount of the Notes outstanding prior to the Exchange Offer.
Pursuant to the terms of the Exchange Offer, Synovus issued approximately 9.44 million shares of
Synovus’ common stock as consideration for the Notes. The Exchange Offer resulted in a pre-tax
gain of approximately $8.0 million which was recorded during the fourth quarter of 2009.
2010 Capital Plan Initiatives
As announced in January 2010, Synovus committed to a plan to sell its merchant services
business during the fourth quarter of 2009. The sale was completed on March 31, 2010, and Synovus
recognized a gain of $69.5 million before-tax ($42.4 million after-tax) from the sale of its
merchant services business. On May 4, 2010, Synovus completed the public offering of 293,250,000
shares of Synovus’ $1.00 par value common stock at $2.75 per share and 13,800,000 tMEDS with a
stated value of $25.00 per unit
39
Table of Contents
Management’s Discussion and Analysis
(consisting of prepaid common stock purchase contracts to be recorded as equity and junior
subordinated amortizing notes to be recorded as debt) generating net proceeds of approximately
$768.9 million and $333.7 million, respectively. The common stock and tMEDS offerings will be
recorded during the three months ending June 30, 2010.
In connection with the announcement of the equity offerings described above, Synovus also
announced that it had formally requested the United States (Treasury) to consider the exchange of
$967,870,000 in aggregate principal amount of Series A Preferred Stock for a like amount of Trust
Preferred securities. If this exchange is completed, Synovus would cancel the Series A Preferred Stock, and would
expect to record the new Trust Preferred securities at their currently estimated fair value of
approximately $625 million. The warrants to purchase shares of Synovus’ common stock would remain
outstanding. The exchange of Series A Preferred Stock for Trust Preferred securities, if
successful, is expected to result in an estimated increase of $300 million in Synovus’ tangible
equity, which would complement efforts to raise capital. Synovus cannot assure that it will be
able to successfully complete the exchange of Synovus Series A Preferred Stock for Trust Preferred
Securities on a timely basis, on favorable terms, or at all. Although Synovus has formally
initiated the process for exchanging Series A Preferred Stock for Trust Preferred securities, there
is no guarantee that Treasury will approve the exchange, or that
Synovus will ultimately decide to execute such transaction.
Balance Sheet
During the first three months of 2010, total assets decreased by $392.0 million. The
principal components of this decrease were a $990.9 million decrease in loans, net of unearned
income and allowance for loan losses, and a $359.4 million decrease in other assets which were
offset in part by a $924.9 million increase in interest bearing funds with the Federal Reserve
Bank. The decrease in net loans is due to a lower loan demand, charge-offs, as well as the sale of
non-performing loans. The decline in other assets is mainly due to the receipt of income tax
refunds that were classified as receivables at year-end.
Other Loans Held for Sale
During the three months ended March 31, 2010 and 2009, Synovus transferred loans with a cost
basis totaling $100.7 million and $40.8 million to the other loans held for sale portfolio,
respectively. Synovus recognized charge-offs on these loans totaling $47.2 million and $19.5
million for the three months ended March 31, 2010 and 2009, respectively. These charge-offs, which
resulted in a new cost basis of $53.4 million and $21.3 million for the loans transferred during
the three months ended March 31, 2010 and 2009, respectively, were based on the estimated sales
price of the loans at the time of transfer. Subsequent to their transfer to the other loans held
for sale portfolio, Synovus foreclosed on certain other loans held for sale and transferred
foreclosed assets of $1.3 million to other real estate during the three months ended March 31,
2009. There were no foreclosures of other loans held for sale during the three months ended March
31, 2010.
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. The carrying value of ORE was $222.2
million and $238.8 million at March 31, 2010 and December 31, 2009, respectively. During the three
months ended March 31, 2010, approximately $100.9 million of loans were foreclosed and transferred
to other real estate. During the three months ended March 31, 2010 and 2009, Synovus recognized
foreclosed real estate expenses of $45.5 million and $46.3 million, respectively. These costs
primarily consist of charges related to declines in fair value or reductions in estimated
realizable value subsequent to the date of foreclosure.
40
Table of Contents
Management’s Discussion and Analysis
Loans
The following table compares the composition of the loan portfolio at March 31, 2010, December
31, 2009, and March 31, 2009.
| (dollars in thousands) | Total Loans | Total Loans | ||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||
| 2010 vs. | 2010 vs. | |||||||||||||||||||
| December 31, | March 31, | |||||||||||||||||||
| March 31, | December 31, | 2009 | March 31, | 2009 | ||||||||||||||||
| Loan Type | 2010 | 2009 | % Change (*) | 2009 | % Change | |||||||||||||||
|
Multi-family
|
$ | 917,478 | 946,598 | (12.5 | )% | $ | 691,327 | 32.7 | % | |||||||||||
|
Hotels
|
1,064,300 | 1,060,837 | 1.3 | 1,072,469 | (0.8 | ) | ||||||||||||||
|
Office buildings
|
1,018,060 | 1,034,934 | (6.6 | ) | 1,122,953 | (9.3 | ) | |||||||||||||
|
Shopping centers
|
1,126,052 | 1,149,245 | (8.2 | ) | 1,159,863 | (2.9 | ) | |||||||||||||
|
Commercial
development
|
510,340 | 546,055 | (26.5 | ) | 730,823 | (30.2 | ) | |||||||||||||
|
Warehouses
|
521,933 | 556,826 | (25.4 | ) | 534,252 | (2.3 | ) | |||||||||||||
|
Other investment
property
|
562,088 | 592,937 | (21.1 | ) | 729,932 | (23.0 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total Investment
Properties
|
5,720,251 | 5,887,432 | (11.5 | ) | 6,041,619 | (5.3 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
1-4 family construction
|
576,542 | 714,411 | (78.3 | ) | 1,466,636 | (60.7 | ) | |||||||||||||
|
1-4 family perm/mini-perm
|
1,266,446 | 1,281,411 | (4.7 | ) | 1,376,198 | (8.0 | ) | |||||||||||||
|
Residential development
|
1,221,026 | 1,334,859 | (34.6 | ) | 1,931,607 | (36.8 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total 1-4 Family
Properties
|
3,064,014 | 3,330,681 | (32.5 | ) | 4,774,441 | (35.8 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Land Acquisition
|
1,397,870 | 1,510,981 | (30.4 | ) | 1,742,024 | (19.8 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total Commercial
Real Estate
|
10,182,135 | 10,729,094 | (20.7 | ) | 12,558,084 | (18.9 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Commercial, financial,
and agricultural
|
5,779,238 | 6,015,445 | (15.9 | ) | 6,461,156 | (10.6 | ) | |||||||||||||
|
Owner-occupied
|
4,350,811 | 4,445,647 | (8.7 | ) | 4,416,435 | (1.5 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total Commercial and
Industrial
|
10,130,049 | 10,461,092 | (12.8 | ) | 10,877,591 | (6.9 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Home equity
|
1,695,679 | 1,714,994 | (4.6 | ) | 1,718,918 | (1.4 | ) | |||||||||||||
|
Consumer mortgages
|
1,587,537 | 1,637,978 | (12.5 | ) | 1,734,438 | (8.5 | ) | |||||||||||||
|
Credit card
|
284,781 | 294,126 | (12.9 | ) | 285,099 | (0.1 | ) | |||||||||||||
|
Other retail loans
|
553,936 | 565,131 | (8.0 | ) | 588,164 | (5.8 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total Retail
|
4,121,933 | 4,212,229 | (8.7 | ) | 4,326,619 | (4.7 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Unearned Income
|
(16,953 | ) | (19,348 | ) | (50.2 | ) | (32,022 | ) | (47.1 | ) | ||||||||||
|
|
||||||||||||||||||||
|
Total
|
$ | 24,417,164 | 25,383,068 | (15.4 | )% | $ | 27,730,272 | (11.9 | )% | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
| (*) Percentage changes are annualized. | ||||||||||||||||||||
At March 31, 2010, loans outstanding were $24.42 billion, a decrease of $3.31 billion, or
11.9%, compared to March 31, 2009. On a sequential quarter basis, total loans outstanding declined
by $965.9 million or 15.4% annualized. The decline in loan balances was driven by reduced demand
in the commercial loan portfolio as commercial customers have a propensity to de-leverage in a weak
economic environment. The decline was also impacted by charge-offs and the deliberate reduction of
non-performing assets through Synovus’ aggressive asset disposition strategy.
Total commercial real estate loans, which represent 41.7% of the total loan portfolio at March
31, 2010, were $10.18 billion, a decline of $547.0 million or 20.7% annualized from year-end 2009
and $2.38 billion or 18.9% from March 31, 2009. The commercial real estate portfolio is
diversified among various property types: investment properties, 1-4 family properties, and land
acquisition. The investment properties portfolio comprises 56.2% of the total commercial real
estate portfolio. The investment properties portfolio has no concentrations by property type,
geography, or tenants. Investment property loans are generally recourse in nature with short-term
maturities (generally 3
41
Table of Contents
Management’s Discussion and Analysis
years of less), allowing for restructuring opportunities which reduces vintage exposures. In
addition, as part of its risk management strategy, in early 2008, Synovus placed restrictions on
both hotel and shopping center lending.
Total residential construction and development (C & D) loans (consisting of 1-4 family
construction loans and residential development loans) were $1.80 billion at March 31, 2010, a
decline of 49.8% annualized from December 31, 2009 and 47.1% from March 31, 2009. Total land
acquisition loans were $1.40 billion, a decline of 30.4% annualized from December 31, 2009 and
19.8% from March 31, 2009. Synovus’ combined exposure on performing residential C & D and land
acquisition loans has declined $360.8 million or 52.1% annualized from December 31, 2009 with the
greatest dollar decline in the Atlanta market.
| March 31, 2010 | ||||||||
| % of Total | ||||||||
| Residential | Residential | |||||||
| C&D and Land | C&D and Land | |||||||
| Acquisition | Acquisition | |||||||
| (dollars in thousands) | Total Loans | Portfolio | ||||||
|
Georgia
|
$ | 1,662,269 | 52.0 | % | ||||
|
Atlanta
|
699,735 | 21.9 | ||||||
|
Florida
|
446,883 | 14.0 | ||||||
|
South Carolina
|
700,262 | 21.9 | ||||||
|
Tennessee
|
58,344 | 1.8 | ||||||
|
Alabama
|
327,680 | 10.3 | ||||||
|
|
||||||||
|
Total
|
$ | 3,195,438 | 100.0 | % | ||||
|
|
||||||||
Commercial and industrial (C & I) loans, representing 41.5% of the total loan portfolio, were
$10.13 billion at March 31, 2010 down $331.0 million or 12.8% annualized from December 31, 2009 and
$747.5 million or 6.9% from March 31, 2009. This portfolio has diverse industry exposure. The
portfolio is relationship-focused; Synovus lenders have in-depth knowledge of the borrowers, most
of which have guaranty arrangements. Synovus concentrates on small to middle market C & I lending,
and the portfolio is disbursed across the southeast.
Retail loans at March 31, 2010 totaled $4.12 billion, representing 16.9% of the total loan
portfolio. Total retail loans decreased by 8.7% compared to March 31, 2009 and declined at an
annualized rate of 16.6% since December 31, 2009 led principally by a decline in consumer mortgage
and was partially offset by an increase in small business loans which are a component of other
retail loans. The retail loan portfolio credit scores were updated as of December 31, 2009. There
was no material migration within the retail loan portfolio. These loans are primarily extended to
customers who have an existing banking relationship with Synovus. The home equity loan portfolio
consists primarily of loans with strong credit scores (average beacon score of 744 at March 31,
2010) and conservative debt-to-income ratios (average debt to income of 29.0% at March 31, 2010).
The utilization rate (total amount outstanding as a percentage of total available lines) of this
portfolio was approximately 62% at March 31, 2010 compared to 61% a year ago.
At March 31, 2010, Synovus had 36 loan relationships with total commitments of $50 million or
more (including amounts funded). The average funded balance of these relationships at March 31,
2010 was approximately $75 million.
Credit Quality
Synovus continuously monitors credit quality and maintains an allowance for loan losses that
management believes is sufficient to absorb probable and estimable losses inherent in its loan
portfolio. Synovus continues to take an aggressive approach to address problem assets and reduce
future exposures through an accelerated asset disposition strategy as well as aggressive
recognition of expected losses on problem loans. Total allowance and cumulative write-downs on
non-performing assets (NPAs) as a percentage of unpaid principal balance at March 31, 2010, were
approximately 49%, up from 45% at December 31, 2009.
42
Table of Contents
Management’s Discussion and Analysis
Total non-performing assets were
$1.84 billion at March 31, 2010, compared to $1.83 billion
and $1.73 billion at December 31, 2009 and March 31, 2009, respectively. Total non-performing
assets as a percentage of total loans, other loans held for sale, and other real estate increased
to 7.46% at March 31, 2010 compared to 7.14% and 6.15% at December 31, 2009 and March 31, 2009,
respectively. At March 31, 2010, approximately 50.3% of total non-performing assets were in the
Atlanta and South Carolina markets (31.9% and 18.3%, respectively).
While asset quality is expected to
remain stressed in the near term, Synovus presently
believes that it is beginning to see stabilization of certain credit quality metrics/indicators and
presently expects further improvement in 2010. The inflow of non-performing loans (NPLS) has
declined each of the past four quarters with additions during the first quarter of 2010 amounting
to $531.4 million, down approximately 20% from fourth quarter additions of $661.1 million and
significantly down from first quarter 2009 additions of $938.6 million. Synovus has seen
improvements in the NPA inflow trends within most of its portfolios. In the first quarter of 2010,
the C & I portfolio had an approximate 41% decline in NPA inflows compared to the fourth quarter of
2009. Diminishing exposure within the residential C & D and land acquisition portfolios has helped
to drive continued declines in NPA inflows within these categories. Combined, NPA inflows for
these portfolios are down approximately 20% from the fourth quarter of 2009. The C & I,
residential C & D, and land acquisition portfolios represented 16.6%, 32.2%, and 16.3%,
respectively, of non-performing loans at March 31, 2010. Within commercial real estate, NPA inflows
related to the investment real estate portfolio were relatively flat (an increase of approximately
2%) from the prior quarter. While management anticipates some near term pressure on NPA inflows
within the investment real estate portfolio, the inflow trends are expected to remain relatively
stable with improvement later in 2010. At March 31, 2010, the investment properties portfolio
represented 25.3% of non-performing loans.
The following table shows the
composition of the residential C & D and land acquisition
non-performing loan portfolios as of March 31, 2010. The Atlanta market represents 36% of total
non-performing loans in the residential C & D and land acquisition portfolios as of March 31, 2010.
| March 31, 2010 | ||||||||
| % of Total | ||||||||
| Residential | Residential | |||||||
| C&D and Land | C&D and Land | |||||||
| Acquisition | Acquisition | |||||||
| (dollars in thousands) | NPLs | NPLs | ||||||
|
Georgia
|
$ | 503,893 | 67.4 | % | ||||
|
Atlanta
|
269,750 | 36.1 | ||||||
|
Florida
|
110,496 | 14.8 | ||||||
|
South Carolina
|
90,457 | 12.1 | ||||||
|
Tennessee
|
16,726 | 2.2 | ||||||
|
Alabama
|
26,348 | 3.5 | ||||||
|
|
||||||||
|
Consolidated
|
$ | 747,920 | 100.0 | % | ||||
|
|
||||||||
Accruing restructured loans were
approximately $261 million at March 31, 2010 compared to $214
million at December 31, 2009. At March 31, 2010, the allowance for loan losses allocated to these
accruing restructured loans was approximately $27.1 million. The increase in accruing restructured
loans since the prior quarter is directly related to the challenges commercial customers continue
to face in the current economic environment and Synovus’ efforts to work with creditworthy
customers to find solutions that are in the best interest of both the customer and Synovus. Such
restructurings are primarily in the form of extension of terms or reduction in interest rate.
During the first quarter of 2010,
Synovus completed sales of problem assets totaling
approximately $271 million as compared to sales of $331 million in the fourth quarter of 2009.
Asset sales for the first
43
Table of Contents
Management’s Discussion and Analysis
quarter included sales of approximately $91 million of
residential real
estate loans and ORE properties, $88 million of investment real estate loans and ORE properties,
and $87 million of loans and ORE
properties which are primarily comprised of owner occupied C & I loans and land acquisition
loans. While it is very difficult to predict the volume or speed of the migration of performing
loans to problem assets, and while market conditions, regulatory directives and a number of other
factors may ultimately affect that migration and the attractiveness of selling problem assets,
Synovus presently believes that it is on track to sell a total of $600 million in problem assets
during the first and second quarters of 2010.
Management presently believes that the allowance for loan losses is near peak levels and
believes that the trend will decline beginning in the second half of the year. The allowance for
loan losses at March 31, 2010 was $968.7 million, or 3.97% of total loans, compared to $943.7
million, or 3.72% of total loans, in the prior quarter. Total credit costs for the quarter ended
March 31, 2010 were $394.5 million including provision for losses on loans of $340.9 million and
expenses related to foreclosed real estate of $45.5 million. The credit costs were largely driven
by valuation charges on new non-performing loans and existing non-performing assets, as well as
charges for estimated losses on future asset dispositions. For a further discussion of the
potential impact of additional credit losses on results of operations and capital, see Capital
Resources and Liquidity in this report and “Risk Factors” in Synovus’ 2009 10-K and Synovus’ April 26 8-K.
Management considers the current level of allowance for credit losses adequate to absorb losses inherent in the loan portfolio and
unfunded commitments. Management’s determination of the adequacy of the allowance for credit losses, which is based on the factors and
risk identification procedures previously discussed, requires the use of judgments and estimations that may change in the future. Changes
in the factors used by management to determine the adequacy of the allowance or the availability of new information could cause the
allowance for credit losses to be increased or decreased in future periods. In addition, bank regulatory agencies, as part of their
examination process, may require changes in the level of the allowance based on their judgments and estimates.
Charge-Offs
Net charge-offs for the three months ended March 31, 2010 were $316 million, an increase of
$69.7 million compared to the same period a year ago and a decrease of $45.9 million compared to
the fourth quarter of 2009. The charge-off ratio for the first quarter of 2010 was 5.05%
annualized, compared to 5.58% annualized for the fourth quarter of 2009. The largest components of
first quarter charge-offs included approximately $97 million related to fair value write-downs on
existing non-performing loans, $65 million related to impairment on new non-performing loans, and
$67 million related to charge-offs on loan dispositions. Management presently anticipates that the
level of net charge-offs will continue to decline in future periods.
The following tables show net charge-offs by geography and type for the three months ended
March 31, 2010, December 31, 2009, and March 31, 2009. Residential construction and development
loans continue to be the largest component of credit losses.
| Net Charge-offs by Geography | Three Months Ended | |||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| (in thousands) | 2010 | 2009 | 2009 | |||||||||
|
Georgia
|
$ | 187,015 | 233,032 | 161,486 | ||||||||
|
Atlanta
|
66,592 | 102,396 | 99,601 | |||||||||
|
Florida
|
34,282 | 61,645 | 35,692 | |||||||||
|
South Carolina
|
78,934 | 33,945 | 35,651 | |||||||||
|
Tennessee
|
7,290 | 17,367 | 5,040 | |||||||||
|
Alabama
|
8,455 | 15,868 | 8,445 | |||||||||
|
|
||||||||||||
|
Consolidated
|
$ | 315,976 | 361,857 | 246,314 | ||||||||
|
|
||||||||||||
| Net Charge-offs by Loan Type | Three Months Ended | |||||||||||||||||||||||
| March 31, 2010 | December 31, 2009 | March 31, 2009 | ||||||||||||||||||||||
| % of Average | % of Average | % of Average | ||||||||||||||||||||||
| Net | Loans for | Net | Loans for | Net | Loans for | |||||||||||||||||||
| ( in thousands) | Charge-offs | Quarter(*) | Charge-offs | Quarter(*) | Charge-offs | Quarter(*) | ||||||||||||||||||
|
Investment properties
|
$ | 77,986 | 5.40 | % | $ | 48,557 | 3.39 | % | $ | 16,087 | 1.08 | % | ||||||||||||
|
1 - 4 Family properties
|
96,330 | 12.10 | 140,087 | 16.41 | 113,427 | 9.63 | ||||||||||||||||||
|
Land
acquisition
|
46,399 | 12.76 | 52,694 | 14.82 | 46,504 | 10.83 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total commercial real estate
|
220,715 | 8.48 | 241,338 | 9.13 | 176,018 | 5.68 | ||||||||||||||||||
|
Commercial and industrial
|
64,229 | 2.53 | 85,693 | 3.18 | 53,239 | 1.98 | ||||||||||||||||||
|
Retail
|
31,032 | 3.02 | 34,826 | 3.28 | 17,056 | 1.61 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total
|
$ | 315,976 | 5.05 | % | $ | 361,857 | 5.58 | % | $ | 246,314 | 3.53 | % | ||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
| (*) percentages annualized | ||||||||||||||||||||||||
44
Table of Contents
Management’s Discussion and Analysis
Provision Expense and Allowance for Loan Losses
Provision expense for the three months ended March 31, 2010 was $340.9 million, an increase of
$50.5 million compared to the same period in the prior year and a decrease of $46.2 million from
the prior quarter. The allowance for loan losses was $968.7 million, or 3.97% of net loans, at
March 31, 2010 compared to $943.7 million, or 3.72% of net loans, at December 31, 2009 and $642.4
million or 2.32% of net loans at March 31, 2009.
The allowance for loan losses to non-performing loans coverage was 62.79% at March 31, 2010
compared to 60.66% and 45.39% at December 31, 2009 and March 31, 2009, respectively. This ratio
is impacted by collateral-dependent impaired loans, which have no allowance for loan losses as the
estimated losses on these credits have been charged-off. Therefore, a more meaningful allowance for
loan losses coverage ratio is the allowance to non-performing loans excluding collateral-dependent
impaired loans for which there is no related allowance for loan losses which was 127.6% at March
31, 2010 compared to 124.7% at December 31, 2009 and 100.6% at March 31, 2009.
A substantial part of Synovus’ loans are secured by real estate in five southeastern states
(Georgia, Alabama, Florida, South Carolina, and Tennessee). Accordingly, the ultimate
collectability of a substantial part of Synovus’ loan portfolio is susceptible to changes in market
conditions in these areas. Based on current information and market conditions, management believes
that the allowance for loan losses is adequate.
The table below includes selected credit quality metrics.
| March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||
| ( dollars in thousands ) | 2010 | 2009 | 2009 | 2009 | 2009 | |||||||||||||||
|
Non-performing loans
(1)
|
$ | 1,542,704 | 1,555,776 | 1,519,049 | 1,472,242 | 1,415,269 | ||||||||||||||
|
Impaired loans held for sale
(2)
|
78,078 | 36,816 | 40,932 | 34,938 | 22,751 | |||||||||||||||
|
Other real estate
|
222,155 | 238,807 | 187,494 | 210,968 | 287,246 | |||||||||||||||
|
|
||||||||||||||||||||
|
Non-performing assets
(3)
|
$ | 1,842,937 | 1,831,399 | 1,747,475 | 1,718,148 | 1,725,266 | ||||||||||||||
|
|
||||||||||||||||||||
|
Net charge-offs - quarter
|
$ | 315,976 | 361,857 | 496,777 | 355,222 | 246,316 | ||||||||||||||
|
Net charge-offs/Avg. loans - quarter
(4)
|
5.05 | % | 5.58 | 7.33 | 5.09 | 3.53 | ||||||||||||||
|
Net charge-offs - YTD
|
$ | 315,976 | 1,460,172 | 1,098,315 | 601,538 | 246,316 | ||||||||||||||
|
Net charge-offs/Avg. loans - YTD
(4)
|
5.05 | % | 5.37 | 5.30 | 4.31 | 3.53 | ||||||||||||||
|
Loans over 90 days past due and still accruing
|
$ | 35,491 | 19,938 | 43,816 | 31,018 | 31,316 | ||||||||||||||
|
As a % of loans
|
0.15 | % | 0.08 | 0.17 | 0.11 | 0.11 | ||||||||||||||
|
Total past due loans and still accruing
|
$ | 294,753 | 262,446 | 356,456 | 331,731 | 587,014 | ||||||||||||||
|
As a % of loans
|
1.21 | % | 1.03 | 1.35 | 1.20 | 2.12 | ||||||||||||||
|
Restructured loans (accruing)
|
$ | 261,157 | 213,552 | 192,559 | 18,025 | 25,919 | ||||||||||||||
|
Allowance for loan losses
|
$ | 968,697 | 943,725 | 918,468 | 918,723 | 642,422 | ||||||||||||||
|
Allowance for loan losses as a % of loans
|
3.97 | % | 3.72 | 3.49 | 3.33 | 2.32 | ||||||||||||||
|
Non-performing loans as a % of total loans
|
6.32 | 6.13 | 5.77 | 5.34 | 5.10 | |||||||||||||||
|
Non-performing assets as a % of total loans,
other loans held for sale, and ORE
|
7.46 | 7.14 | 6.58 | 6.17 | 6.15 | |||||||||||||||
|
Allowance to non-performing loans
|
62.79 | 60.66 | 60.46 | 62.40 | 45.39 | |||||||||||||||
|
Collateral-dependent impaired loans
(5)
|
$ | 1,269,817 | 1,021,038 | 1,231,788 | 1,228,704 | 1,179,624 | ||||||||||||||
| (1) |
The total allowance and cumulative write-downs on non-performing loans as a percentage of unpaid principal balance at March 31, 2010 was
approximately 45% compared to 42% at December 31, 2009.
|
|
| (2) |
Represent only the impaired loans that are intended to be sold. Impaired loans held for sale are carried at the lower of cost or fair
value.
|
|
| (3) |
The total allowance and cumulative write-downs on non-performing assets as a percentage of unpaid principal balance at March 31, 2010
was approximately 49% compared to 45% at December 31, 2009.
|
|
| (4) |
Ratio is annualized.
|
|
| (5) |
Collateral-dependent impaired loans for which there was no associated reserve were $783.6 million at March 31, 2010 and $784.6
million at December 31, 2009.
|
Management continuously monitors non-performing and past due loans in an effort 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. Management’s decision
to include
45
Table of Contents
Management’s Discussion and Analysis
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, Synovus had approximately $1.57 billion of potential problem commercial loans at
March 31, 2010 as compared to approximately $1.43 billion at December 31, 2009. Management’s
current expectation of probable losses from potential problem loans is included in the allowance
for loan losses. At March 31, 2010, the allowance for loan losses allocated to these potential
problem loans was approximately $214 million. Synovus cannot predict at this time whether these
potential problem loans ultimately will become problem loans or result in losses.
The table below shows potential problem commercial loans as of March 31, 2010.
| (dollars in thousands) | Potential | |||
| Problem | ||||
| Commercial | ||||
| Loan Type | Loans | |||
|
Multi-family
|
$ | 32,853 | ||
|
Hotels
|
51,833 | |||
|
Office buildings
|
65,149 | |||
|
Shopping centers
|
67,027 | |||
|
Commercial development
|
67,584 | |||
|
Warehouses
|
19,160 | |||
|
Other investment property
|
16,446 | |||
|
|
||||
|
Total Investment Properties
|
320,052 | |||
|
|
||||
|
1-4 family construction
|
72,400 | |||
|
1-4 family perm/mini-perm
|
100,419 | |||
|
Residential development
|
268,821 | |||
|
|
||||
|
Total 1-4 Family Properties
|
441,640 | |||
|
|
||||
|
Land Acquisition
|
250,342 | |||
|
|
||||
|
Total Commercial Real Estate
|
1,012,034 | |||
|
|
||||
|
Commercial, financial, and agricultural
|
320,565 | |||
|
Owner-occupied
|
237,956 | |||
|
|
||||
|
Total Commercial and Industrial
|
558,521 | |||
|
|
||||
|
Total Commercial
|
1,570,555 | |||
|
|
||||
|
|
||||
The table below shows credit quality measures for the investment property loan portfolio as of
March 31, 2010.
| Outstanding | 30+ Past Due | |||||||||||
| (dollars in thousands) | Balance | NPL Ratio | Ratio | |||||||||
|
Multi-family
|
$ | 917,478 | 1.3 | % | 0.3 | |||||||
|
Hotels
|
1,064,300 | 21.5 | 0.7 | |||||||||
|
Office buildings
|
1,018,060 | 1.8 | 1.9 | |||||||||
|
Shopping centers
|
1,126,052 | 2.5 | 2.6 | |||||||||
|
Commercial development
|
510,340 | 14.0 | 0.6 | |||||||||
|
Warehouses
|
521,933 | 1.1 | 0.2 | |||||||||
|
Other investment property
|
562,088 | 4.7 | 1.3 | |||||||||
|
|
||||||||||||
|
Total investment property loans
|
$ | 5,720,251 | 6.8 | % | 1.2 | |||||||
|
|
||||||||||||
|
|
||||||||||||
The table below shows credit quality measures for the C & I loan portfolio as of March 31,
2010.
| Outstanding | 30+ Past Due | |||||||||||
| (dollars in thousands) | Balance | NPL Ratio | Ratio | |||||||||
|
Commercial, financial, and agricultural
|
$ | 5,779,238 | 3.0 | % | 0.9 | |||||||
|
Owner occupied real estate
|
4,350,811 | 2.0 | 1.0 | |||||||||
|
|
||||||||||||
|
Total commercial and industrial loans
|
$ | 10,130,049 | 2.5 | % | 0.9 | |||||||
|
|
||||||||||||
|
|
||||||||||||
46
Table of Contents
Management’s Discussion and Analysis
The table below shows credit quality measures for the retail loan portfolio as of March 31,
2010.
| Outstanding | 30+ Past Due | |||||||||||
| (dollars in thousands) | Balance | NPL Ratio | Ratio | |||||||||
|
Home equity lines
|
$ | 1,695,679 | 1.0 | % | 0.9 | |||||||
|
Consumer mortgage
|
1,587,537 | 2.8 | 2.1 | |||||||||
|
Small business
|
196,261 | 1.7 | 2.0 | |||||||||
|
Credit card
|
284,781 | ¾ | 3.3 | |||||||||
|
Other consumer loans
|
357,675 | 0.9 | 1.6 | |||||||||
|
|
||||||||||||
|
Total retail loans
|
$ | 4,121,933 | 1.7 | % | 1.6 | |||||||
|
|
||||||||||||
|
|
||||||||||||
The following table shows the composition of the loan portfolio and non-performing loans
(classified by loan type) as of March 31, 2010.
| (dollars in thousands) | % of | |||||||||||||||
| Total | Total | |||||||||||||||
| % of | Non- | Non- | ||||||||||||||
| Total Loans | Performing | Performing | ||||||||||||||
| Loan Type | Total Loans | Outstanding | Loans | Loans | ||||||||||||
|
Multi-family
|
$ | 917,478 | 3.8 | % | $ | 12,048 | 0.8 | % | ||||||||
|
Hotels
|
1,064,300 | 4.4 | 228,402 | 14.8 | ||||||||||||
|
Office buildings
|
1,018,060 | 4.2 | 17,996 | 1.2 | ||||||||||||
|
Shopping centers
|
1,126,052 | 4.6 | 28,183 | 1.8 | ||||||||||||
|
Commercial development
|
510,340 | 2.1 | 71,509 | 4.6 | ||||||||||||
|
Warehouses
|
521,933 | 2.1 | 5,776 | 0.4 | ||||||||||||
|
Other investment property
|
562,088 | 2.2 | 26,118 | 1.7 | ||||||||||||
|
|
||||||||||||||||
|
Total Investment Properties
|
5,720,251 | 23.4 | 390,032 | 25.3 | ||||||||||||
|
|
||||||||||||||||
|
1-4 family construction
|
576,542 | 2.4 | 151,767 | 9.8 | ||||||||||||
|
1-4 family perm/mini-perm
|
1,266,446 | 5.2 | 79,546 | 5.2 | ||||||||||||
|
Residential development
|
1,221,026 | 5.0 | 344,886 | 22.4 | ||||||||||||
|
|
||||||||||||||||
|
Total 1-4 Family Properties
|
3,064,014 | 12.6 | 576,199 | 37.4 | ||||||||||||
|
|
||||||||||||||||
|
Land Acquisition
|
1,397,870 | 5.7 | 251,267 | 16.3 | ||||||||||||
|
|
||||||||||||||||
|
Total Commercial Real Estate
|
10,182,135 | 41.7 | 1,217,498 | 79.0 | ||||||||||||
|
|
||||||||||||||||
|
Commercial, financial, and agricultural
|
5,779,238 | 23.7 | 171,864 | 11.1 | ||||||||||||
|
Owner-occupied
|
4,350,811 | 17.8 | 85,495 | 5.5 | ||||||||||||
|
|
||||||||||||||||
|
Total Commercial and Industrial
Loans
|
10,130,049 | 41.5 | 257,359 | 16.6 | ||||||||||||
|
|
||||||||||||||||
|
Home equity
|
1,695,679 | 6.9 | 16,943 | 1.1 | ||||||||||||
|
Consumer mortgages
|
1,587,537 | 6.5 | 44,383 | 2.9 | ||||||||||||
|
Credit card
|
284,781 | 1.2 | ¾ | ¾ | ||||||||||||
|
Other retail loans
|
553,936 | 2.3 | 6,521 | 0.4 | ||||||||||||
|
|
||||||||||||||||
|
Total Retail
|
4,121,933 | 16.9 | 67,847 | 4.4 | ||||||||||||
|
|
||||||||||||||||
|
Unearned Income
|
(16,953 | ) | (0.1 | ) | ¾ | ¾ | ||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 24,417,164 | 100.0 | % | $ | 1,542,704 | 100.0 | % | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
47
Table of Contents
Management’s Discussion and Analysis
Deposits
The following table presents the composition of deposits.
| March 31, | December 31, | March 31, | ||||||||||
| (in thousands) | 2010 | 2009 | 2009 | |||||||||
|
Non-interest bearing demand deposit accounts
|
$ | 4,352,327 | 4,172,697 | 3,785,089 | ||||||||
|
Money market accounts
|
7,513,050 | 7,363,677 | 8,340,549 | |||||||||
|
National market brokered money market accounts
|
922,431 | 1,098,117 | 2,101,136 | |||||||||
|
NOW accounts
|
3,718,374 | 3,894,243 | 3,562,442 | |||||||||
|
Savings accounts
|
492,379 | 463,967 | 469,637 | |||||||||
|
Time deposits
|
11,103,918 | 11,538,949 | 11,790,269 | |||||||||
|
National market brokered time deposits
|
3,719,914 | 3,941,211 | 3,157,705 | |||||||||
|
|
||||||||||||
|
Total deposits
|
$ | 27,180,048 | 27,433,533 | 27,947,986 | ||||||||
|
|
||||||||||||
|
Core deposits
(*)
|
$ | 22,537,703 | 22,394,205 | 22,689,145 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
| (*) Core deposits consist of total deposits less national market brokered deposits. See reconciliation of Non-GAAP Financial Measures in this report. | ||||||||||||
Core deposits (total deposits excluding national market brokered deposits) increased
$143.5 million or 2.6% annualized compared to December 31, 2009 and decreased $151.4 million or
0.7% compared to March 31, 2009. During 2009 and the first quarter of 2010, the overall mix of core
deposits improved with non-interest bearing demand deposits and other interest bearing core
deposits replacing higher priced time deposits. Non-interest bearing demand deposits grew $179.6
million or 17.5% annualized compared to December 31, 2009 and $567.2 million or 15.0% compared to
March 31, 2009. Other interest bearing deposits grew $177.6 million or 6.8% annualized compared to
December 31, 2009 and $529.9 million or 5.2% compared to March 31, 2009.
With the multiple charter structure, Synovus has had the unique ability to offer certain
shared deposit products (Synovus
®
Shared Deposit). At March 31, 2010, Synovus’ Shared
CD and Money Market accounts offered customers the unique opportunity to access up to $7.5 million
in FDIC insurance by spreading deposits across its 30 separately-chartered banks. Shared deposit
products totaled $1.97 billion at March 31, 2010 as compared to $1.86 billion at December 31, 2009
and $1.84 billion at March 31, 2009. Upon completion of the charter consolidation, as discussed on
page 36, Synovus’ shared deposit customers will have a six month grace period, per FDIC
regulations, during which their total deposit will remain fully insured. Additionally, during that
grace period, shared CD customers whose CDs mature during the grace period can elect to renew their
shared CD on a fully insured basis for the same term as a one-time rollover. Synovus will work
with its shared deposit products customers during and after this grace period to offer additional
deposit products to meet their needs.
During the first quarter of 2009, Synovus received notification from the FDIC that deposits
obtained through Synovus
â
Shared Deposit products should be listed as brokered
deposits in bank subsidiary Call Reports. Therefore, beginning March 31, 2009, Synovus’ bank
subsidiary Call Reports reflect customer deposits held in Synovus
â
Shared Deposit
products as brokered deposits as requested by the FDIC. The FDIC defines brokered deposits as
“funds which the reporting bank obtains, directly or indirectly, by or through any deposit broker
for deposit into one or more deposit accounts.” The FDIC further defines the term deposit broker
to include: “(1) any person engaged in the business of placing deposits, or facilitating the
placement of deposits, of third parties with insured depository institutions or the business of
placing deposits with insured depository institutions for the purpose of selling interests in those
deposits to third parties, and (2) an agent or trustee who establishes a deposit account to
facilitate a business arrangement with an insured depository institution to use the proceeds of the
account to fund a prearranged loan.” The FDIC also provides the following nine exclusions for what
the term deposit broker does not include: “(1) an insured depository institution, with respect to
funds placed with that depository institution; (2) an employee of an insured depository
institution, with respect to funds placed with the employing depository institution; (3) a trust
department of an insured depository institution, if the trust in question has not been established
for the primary purpose of placing funds with insured depository institutions; (4) the trustee of a
pension or other employee benefit plan, with respect to funds of the plan; (5) a person acting as a
plan administrator or an investment adviser in connection with a pension plan or other employee
benefit plan provided that
48
Table of Contents
Management’s Discussion and Analysis
that person is performing managerial functions with respect to the plan; (6) the trustee of a
testamentary account; (7) the trustee of an irrevocable trust (other than a trustee who establishes
a deposit account to facilitate a business arrangement with an insured depository institution to
use the proceeds of the account to fund a prearranged loan), as long as the trust in question has
not been established for the primary purpose of placing funds with insured depository institutions;
(8) a trustee or custodian of a pension or profit-sharing plan qualified under Section 401(d) or
430(a) of the Internal Revenue Code of 1986; or (9) an agent or nominee whose primary purpose is
not the placement of funds with depository institutions. (For purposes of applying this ninth
exclusion from the definition of deposit broker, “primary purpose” does not mean “primary
activity,” but should be construed as “primary intent”).” The FDIC requested this reporting change
since Synovus facilitates the placement of customer deposits among its separately-chartered bank
subsidiaries. At a consolidated level, Synovus includes and reports Synovus
â
Shared Deposit product balances held throughout its bank subsidiaries as core deposits (total
deposits excluding national market brokered deposits).
Due to the significant turmoil in financial markets during the second half of 2008, national
market brokered deposits became more attractive to financial market participants and investors as
an FDIC insured alternative to money market and other investment accounts. Synovus grew this
funding source as demand for these products increased during the second half of 2008, but has
reduced its dependence on funding from these products through normal run off during 2009 and the
three months ended March 31, 2010. National market brokered deposits were $4.64 billion at March
31, 2010 as compared to $5.04 billion at December 31, 2009 and $5.26 billion at March 31, 2009.
Capital Resources and Liquidity
Capital Resources
Synovus has always placed great emphasis on maintaining a solid capital base and continues to
satisfy applicable regulatory capital requirements. Management is committed to maintaining a
capital level sufficient to assure shareholders, customers, and regulators that Synovus is
financially sound, and to enable Synovus to provide a desirable level of long-term profitability.
The following table presents certain ratios used to measure Synovus’ capitalization.
| March 31, | December 31, | |||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Tier 1 capital
|
$ | 2,494,790 | 2,721,287 | |||||
|
Tier 1 common equity
|
1,554,290 | 1,782,998 | ||||||
|
Total risk-based capital
|
3,357,637 | 3,637,712 | ||||||
|
Tier 1 capital ratio
|
9.68 | % | 10.16 | |||||
|
Tier 1 common equity ratio
|
6.03 | 6.66 | ||||||
|
Total risk-based capital to risk-weighted assets ratio
|
13.03 | 13.58 | ||||||
|
Leverage ratio
|
7.68 | 8.12 | ||||||
|
Common equity to assets ratio
|
5.20 | 5.86 | ||||||
|
Tangible common equity to tangible assets ratio
(*)
|
5.08 | 5.74 | ||||||
|
Tangible common equity to risk-weighted assets
(*)
|
6.39 | 7.03 | ||||||
|
|
||||||||
| (*) See reconciliation of Non-GAAP Financial Measures in this report. | ||||||||
As a financial holding company, Synovus and its subsidiary banks are required to maintain
capital levels required for a well-capitalized institution as defined by federal banking
regulations. The capital measures used by the federal banking regulators are the total risk-based
capital ratio, Tier 1 risk-based capital ratio, and the leverage ratio. Under the regulations, a
national or state-chartered bank will be well-capitalized if it has a total capital ratio of 10% or
greater, a Tier 1 capital ratio of 6% or greater, a leverage ratio of 5% or greater, and is not
subject to any written agreement, order, capital directive, or prompt corrective action directive
by a federal bank regulatory agency to meet and maintain a specific capital level for any capital
measure. However, even if a bank satisfies all applicable
49
Table of Contents
Management’s Discussion and Analysis
quantitative criteria to be considered well-capitalized, the regulations also establish
procedures for “downgrading” an institution to a lower capital category based on supervisory
factors other than capital. At March 31, 2010, several of Synovus’ subsidiary state chartered
banks were required to hold regulatory capital levels in excess of minimum well-capitalized
requirements, primarily as a result of increases in non-performing assets. Management believes
that, as of March 31, 2010, Synovus and its subsidiary banks meet all capital requirements to which
they are subject.
Since the third quarter of 2007, the credit markets and the residential and commercial
development real estate markets have experienced severe difficulties and challenging economic
conditions. As a result, Synovus’ capital has been negatively impacted by credit costs since
mid-2008. Synovus continually monitors its capital position and has taken a number of steps
focused on strengthening Synovus’ capital position as described below. However, credit
deterioration, further regulatory directives (including formal or informal increases in minimum
capital requirements), and increases in non-performing assets and the allowance for loan losses
significantly exceeding current expectations could adversely impact Synovus’ liquidity position and
capital ratios. Accordingly, Synovus continues to actively monitor its capital position and will
pursue additional strategies designed to bolster its capital position as deemed necessary.
In December 2008, Synovus issued 967,870 shares of Series A Preferred Stock to the United
States Department of the Treasury as part of the Capital Purchase Program (CPP), generating $967.9
million of Tier 1 Capital. See Note 4 of Notes to Consolidated Financial Statements in this report
and Note 12 of Notes to Consolidated Financial Statements in Synovus’
2009 10-K.
During 2009 and 2010, Synovus has continued to carefully monitor the dramatically evolving
financial services landscape in general and its position in that landscape compared to its peers.
In particular, Synovus considered a number of factors, including, but not limited to: the
regulators’ urging for Synovus to bolster its capital position; strategies pursued by Synovus’
peers to improve their capital position; market conditions and the ability to raise available
capital; and available strategic opportunities resulting from the distressed banking environment.
During 2009, Synovus undertook initiatives to bolster its capital including a public offering
of 150,000,000 shares of common stock at a price of $4.00 per share, generating net proceeds of
approximately $570.9 million, the exchange of $29.8 million in aggregate principal amount of its
4.875% Subordinated Notes Due 2013 for 9.44 million shares of Synovus’ common stock, which resulted
in an increase to tangible common equity of approximately $28 million, and the sale of Synovus’
remaining shares of Visa Class B common stock, which resulted in a pre-tax gain of approximately
$51.9 million. See Notes 12 and 18 of Notes to Consolidated Financial Statements in Synovus’ 2009
10-K for further information regarding the 2009 common stock offering, note exchange, and sale of
Visa Class B common stock.
50
Table of Contents
Management’s Discussion and Analysis
Heightened levels of non-performing assets and the associated credit costs continued to exert
pressure on Synovus’ capital during the fourth quarter of 2009 and the first quarter of 2010.
During this same period, regulatory capital standards and expectations have continued to evolve
with overall industry capital ratios trending higher. In consideration of these and other factors,
on April 26, 2010 Synovus announced ongoing elements of its Capital Plan, expanding on initiatives
undertaken during 2009 to strengthen its capital position. The 2010 initiatives include public
offerings of common stock and tMEDS (consisting of prepaid common stock purchase contracts to be
recorded as equity and junior subordinated amortizing notes to be recorded as debt). The common
stock and tMEDS offerings, which were completed on May 4, 2010, are expected to increase Tier 1
common equity by approximately $1.03 billion and improve the Tier 1 common equity ratio at March
31, 2010, on an as adjusted basis, to 10.05%. The aggregate proceeds of the equity offerings, which
were completed on May 4, 2010, are as follows:
| Tangible Equity | ||||||||||||
| Units (tMEDS) | ||||||||||||
| Common Stock | $25.00 Stated | Total | ||||||||||
| (in thousands, except per share and per unit amounts) | $1.00 Par Value | Value | Equity Offerings | |||||||||
|
Shares/units issued
|
293,250 | 13,800 | ||||||||||
|
Price per share/unit
|
$ | 2.75 | 25.00 | |||||||||
|
|
||||||||||||
|
Gross proceeds
|
$ | 806,438 | 345,000 | 1,151,438 | ||||||||
|
Issuance costs
(*)
|
37,540 | 11,275 | 48,815 | |||||||||
|
|
||||||||||||
|
Proceeds, net of issuance costs
(*)
|
$ | 768,898 | 333,725 | 1,102,623 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
| (*) Issuance costs are estimated pending receipt of invoices for certain costs. | ||||||||||||
Approximately $70.4 million of the tMEDS will be recorded as debt and the balance will be
recorded as a component of equity.
The following table shows certain regulatory measures and ratios used to measure Synovus’
capitalization at March 31, 2010 as compared to those same measures and ratios giving effect to the
impact of the May 2010 equity offerings described above as if the
transactions had occurred on March 31, 2010.
| March 31, 2010 | ||||||||
| (in thousands) | As Reported | As Adjusted (2) | ||||||
|
Tier 1 capital
|
$ | 2,494,790 | 3,529,357 | |||||
|
Tier 1 common equity
|
1,554,290 | 2,588,924 | ||||||
|
Total risk-based capital
|
3,357,637 | 4,420,348 | ||||||
|
Tier 1 capital ratio
|
9.68 | % | 13.70 | |||||
|
Tier 1 common equity ratio
|
6.03 | 10.05 | ||||||
|
Total risk-based capital to risk-weighted assets ratio
|
13.03 | 17.15 | ||||||
|
Leverage ratio
|
7.68 | 10.87 | ||||||
|
Common equity to assets ratio
|
5.20 | 8.46 | ||||||
|
Tangible common equity to tangible assets ratio
(1)
|
5.08 | 8.00 | ||||||
|
Tangible common equity to risk-weighted assets
(1)
|
6.39 | 10.41 | ||||||
| (1) |
See reconciliation of Non-GAAP Financial Measures in this report.
|
|
| (2) |
The as adjusted amounts reflect the issuance of common stock and tMEDS which was completed on May 4, 2010.
|
In addition to the above actions, Synovus has formally requested the United States
Treasury to consider the exchange of its 967,870 shares of Series A Preferred Stock into an
equivalent amount of trust preferred securities. This transaction,
should it be completed, would be expected to further enhance Synovus’ Tier 1 Common Equity ratio and
tangible common equity ratio.
51
Table of Contents
Management’s Discussion and Analysis
Synovus continually monitors its capital position, particularly as capital is impacted by
current credit conditions, economic conditions and regulatory requirements, and engages in regular
discussions with its regulators regarding capital at both the Parent Company and Synovus subsidiary
banks. During 2009 and continuing into 2010, Synovus has experienced significant declines in the
value of collateral for real estate loans and heightened credit losses, which have resulted in
record levels of non-performing assets, charge-offs, foreclosures, and losses on disposition of the
underlying assets. While these levels continue to remain high, certain indicators of negative
credit quality migration have begun to improve. Synovus presently expects that levels of
non-performing assets will begin to decline and that charge-offs, foreclosures, and losses on
disposition of non-performing assets will continue to decline; however, it is difficult to predict
the effects of further negative developments in the credit, economic and regulatory environments,
which could cause these levels to worsen or delay their improvement.
Management currently believes, based on internal capital analysis and projections which
include the impact of Capital Plan initiatives executed and expected to be executed in 2010, that
Synovus’ capital position is adequate under current regulatory standards. However, Synovus
continues to monitor economic conditions, actual performance against forecasted credit losses,
evolving industry capital standards, and changes in regulatory standards and requirements. As part
of its ongoing management of capital, Synovus will continue to monitor its capital position and
pursue additional strategic initiatives to bolster its capital position as deemed necessary. See
“Risk Factors” in Synovus’ 2009 10-K and Synovus’ April 26 8-K.
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, to
maintain reserve requirements, and to otherwise sustain operations of Synovus and its subsidiary
banks, at a reasonable cost, on a timely basis, and without adverse consequences. The Asset
Liability Management Committee (ALCO), operating under liquidity and funding policies approved by
the Board of Directors and in coordination with subsidiary banks, actively analyzes contractual and
anticipated cash flows in order to properly manage Synovus’ liquidity position.
Synovus generates liquidity through maturities and repayments of loans by customers, deposit
growth, and access to sources of funds other than deposits. Management must ensure that adequate
liquidity, at a reasonable cost, is available to meet the cash flow needs of depositors, borrowers,
and creditors. Management constantly monitors and maintains appropriate levels of liquidity so as
to provide adequate funding sources to meet estimated customer deposit withdrawals and future loan
requests. Liquidity is also enhanced by the acquisition of new deposits. Each of the 30 subsidiary
banks monitors deposit flows and evaluates alternate pricing structures in an effort to retain and
grow deposits. In the current market environment, customer confidence is a critical element in
growing and retaining deposits. In this regard, Synovus subsidiary banks’ asset quality could play
a larger role in the stability of the deposit base. In the event asset quality declines
significantly from its current level, the subsidiary banks’ ability to grow and retain deposits
could be diminished, which in turn could reduce deposits as a liquidity source.
Synovus has also grown deposits through the offering of shared deposit products which allow
customers the opportunity to access up to $7.5 million in FDIC insurance by spreading deposits
across Synovus’ 30 separately chartered banks. As discussed above in the Executive Summary of
Management’s Discussion and Analysis, Synovus intends to transition from 30 subsidiary banks to a
single subsidiary bank structure during the second quarter of 2010. This charter consolidation,
should it be completed, will result in the inability to offer the shared deposit products in the
future. Upon completion of the charter consolidation, Synovus’ shared deposit customers will have a
six month grace period, per FDIC regulations, during which their total deposit will remain fully
insured. Additionally, CD customers whose CDs mature during the grace period can elect to renew
their shared CD on a fully insured basis for the same term as a one-time rollover. Synovus intends
to work with these customers during and after this grace period to offer additional deposit
products to meet their needs. While Synovus intends to aggressively pursue retention of this
deposit base, there can be no assurance that a significant portion of these deposits will remain on
deposit at Synovus subsidiary banks after their final maturity.
52
Table of Contents
Management’s Discussion and Analysis
The possibility of this deposit outflow is a potential liquidity risk. Due to this and other
liquidity risks, Synovus expects to maintain an above average short term liquidity cushion,
primarily in the form of interest bearing funds with the Federal Reserve Bank.
Certain
Synovus subsidiary banks also generate liquidity through the national deposit markets. These
subsidiary banks issue longer-term certificates of deposit across a broad geographic base to
increase their liquidity and funding positions. For certain Synovus banks, access to these
deposits could become more limited if their asset quality and financial performance were to
significantly deteriorate. Selected Synovus subsidiary banks have the capacity to access funding
through their membership in the FHLB System. At March 31, 2010, most Synovus subsidiary banks had
access to incremental funding, subject to available collateral and FHLB credit policies, through
utilization of FHLB advances.
In addition to bank level liquidity management, Synovus must manage liquidity at the holding
company level for various operating needs including capital infusions into subsidiaries, the
servicing of debt, the payment of general corporate expenses, and the payment of dividends to
shareholders. The primary source of liquidity for Synovus consists of dividends from the subsidiary
banks which are governed by certain rules and regulations of various state and federal banking
regulatory agencies. Dividends from subsidiaries in 2009 were, and Synovus expects that dividends
from subsidiaries in 2010 will be, significantly lower than those received in previous years.
Should Synovus’ subsidiaries continue to require additional capital resources, either due to asset
growth or realized losses, Synovus may be required to provide capital infusions to these
subsidiaries. During 2009, Synovus was required to provide capital to certain subsidiary banks and
expects to continue to do so during 2010. In addition, several of Synovus’ subsidiary
state chartered banks are currently required to maintain regulatory capital levels in excess of minimum
well-capitalized requirements primarily as a result of increases in nonperforming assets. See Note
13, Regulatory Capital, in the Notes to Consolidated Financial Statements of Synovus’ 2009 10-K.
There is an increasing possibility that additional Synovus subsidiary banks may be directed by
their regulators to increase their capital levels as a result of weakened financial conditions
and/or formal or informal regulatory pressures. This may require that Synovus contribute additional
capital to these banks at a time when Synovus is not receiving a meaningful amount of dividend
payments from its other banks to offset those capital infusions. Synovus anticipates that its plan
to transition from 30 subsidiary banks to a single subsidiary bank structure will result in a more
efficient bank level capital structure.
Synovus’ holding company has historically enjoyed a solid reputation and credit standing in
the capital markets and historically has been able to raise funds in the form of either short or
long-term borrowings or equity issuances, including the public offerings completed in September
2009 and May 2010 as part of the Capital Plan. The public offerings completed in May 2010 have
provided significant liquidity resources to Synovus and the holding company. Due to the liquidity
risks noted above, Synovus anticipates retaining a portion of this liquidity in readily available
funds. While the equity offerings completed in May 2010 have generated net proceeds of
approximately $1.1 billion, and have significantly bolstered capital and liquidity, Synovus will
continue to identify, consider, and pursue additional strategic initiatives to further strengthen
its capital position as deemed necessary. See Capital Resources.
While liquidity is an ongoing challenge for all financial institutions, Synovus presently
believes that the sources of liquidity discussed above, including existing liquid funds on hand,
are sufficient to meet its anticipated funding needs through the near future. However, if economic
conditions or other factors worsen to a greater degree than the assumptions underlying Synovus’
internal financial performance projections, if regulatory capital requirements for Synovus or its
subsidiary banks increase as the result of regulatory directives or otherwise, or if Synovus’
capital projections for any reason fail to adequately address some of the more complex dynamics of
the current operating structure, then Synovus may be required to seek additional liquidity from
external sources. See “Risk Factors” in Synovus’ 2009 10-K and Synovus’ April 26 8-K.
53
Table of Contents
Management’s Discussion and Analysis
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the three months ended March 31, 2010 decreased $2.63 billion or 7.5%
to $32.54 billion compared to the first three months of 2009. Average earning assets decreased
$2.61 billion or 8.0% in the first three months of 2010 compared to the same period in 2009 and
represented 91.6% of average total assets. The reduction in average total assets provided funding
through a $3.15 billion net decrease in loans outstanding, a $547.0 million decrease in the
investment securities portfolio, a $151.5 million decrease in mortgage loans held for sale, and a
$121.3 million decrease in federal funds sold which were offset in part by a decrease in deposits
of $1.29 billion and a decrease in shareholders’ equity of $889.6 million. Funding provided by the
items named above was used to reduce short-term borrowings by $106.0 million, long-term debt by
$158.7 million, and to increase the balance of interest bearing funds held with the Federal Reserve
Bank by $1.45 billion.
Net interest income for the three months ended March 31, 2010 was $248.9 million, an increase
of $5.6 million or 2.3%, compared to $243.2 million for the three months ended March 31, 2009.
The net interest margin for the three months ended March 31, 2010 was 3.39% up 34 basis points
from 3.05% for the three months ended March 31, 2009. Compared to the three months ended March 31,
2009, earning asset yields decreased by 17 basis points while the effective cost of funds decreased
by 51 basis points. The yield on earning assets was positively impacted by a 14 basis point
increase in loan yields. Earning asset yields were negatively impacted by a 52 basis point
decrease in taxable investment securities yields and by the $1.45 billion increase in lower
yielding funds held at the Federal Reserve Bank. The effective cost of funds was positively impacted by
the downward repricing of maturing certificates of deposit. Pricing of core certificates of
deposit declined by 126 basis points and pricing of national market brokered certificates of
deposit decreased 125 basis points. Excluding the impact of non-performing assets, the first
quarter margin was 3.77%, up 39 basis points from the first quarter
of 2009. See Non-GAAP Financial Measures in this report.
On a sequential quarter basis, net interest income decreased by $7.0 million, while the net
interest margin increased 14 basis points to 3.39%. Yields on earning assets increased 8 basis
points, while the effective cost of funds decreased by 6 basis points. Yields on earning assets
were positively impacted by a 5 basis point increase in loan yields and a lower level of funds held
at the Federal Reserve Bank. The effective cost of funds was positively impacted by the downward repricing
of maturing certificates of deposit. Pricing for core certificates of deposit declined by 27 basis
points and pricing for national market brokered certificates of deposit decreased 28 basis points.
Excluding the impact of non-performing
assets, the first quarter margin was 3.77%, up 14 basis points, from
the fourth quarter of 2009. See Non-GAAP Financial Measures in this report.
The second quarter margin is expected to be negatively impacted by an increase in funds held
at the Federal Reserve Bank, including funds received from the April public offerings of common
stock and tangible equity units. Investment of these funds initially in short term investments is
accretive to net interest income, but dilutive to the net interest margin. While the fundamental
operating margin is expected to improve, the reported margin could modestly decline due to the
dilutive impact of these lower yielding assets. An improvement in the reported margin is possible in the
second half of the year as excess liquidity is reduced.
54
Table of Contents
Management’s Discussion and Analysis
Quarterly yields earned on average interest-earning assets and rates paid on average
interest-bearing liabilities for the five most recent quarters are presented below.
| 2010 | 2009 | |||||||||||||||||||
|
|
||||||||||||||||||||
| (dollars in thousands) | First | Fourth | Third | Second | First | |||||||||||||||
| (yields and rates annualized) | Quarter | Quarter | Quarter | Quarter | Quarter | |||||||||||||||
|
Interest Earning Assets
|
||||||||||||||||||||
|
Taxable investment securities
|
$ | 2,952,188 | 2,983,914 | 3,209,718 | 3,353,382 | 3,455,091 | ||||||||||||||
|
Yield
|
4.70 | % | 4.79 | 5.06 | 5.16 | 5.22 | ||||||||||||||
|
Tax-exempt investment securities
|
$ | 72,041 | 88,848 | 98,435 | 107,626 | 116,163 | ||||||||||||||
|
Yield
|
7.16 | % | 7.03 | 7.06 | 7.08 | 6.91 | ||||||||||||||
|
Trading account assets
|
$ | 14,881 | 14,356 | 13,439 | 19,984 | 22,580 | ||||||||||||||
|
Yield
|
5.30 | % | 5.60 | 8.22 | 5.57 | 6.02 | ||||||||||||||
|
Commercial loans
|
$ | 20,880,069 | 21,722,140 | 22,850,126 | 23,572,578 | 23,525,450 | ||||||||||||||
|
Yield
|
4.85 | % | 4.82 | 4.73 | 4.72 | 4.77 | ||||||||||||||
|
Consumer loans
|
$ | 4,174,320 | 4,249,316 | 4,303,592 | 4,335,897 | 4,353,580 | ||||||||||||||
|
Yield
|
5.36 | % | 5.32 | 5.37 | 5.38 | 5.5 | ||||||||||||||
|
Allowance for loan losses
|
$ | (951,552 | ) | (906,484 | ) | (905,700 | ) | (663,355 | ) | (627,110 | ) | |||||||||
|
|
||||||||||||||||||||
|
Loans, net
|
$ | 24,102,837 | 25,064,972 | 26,248,018 | 27,245,120 | 27,251,920 | ||||||||||||||
|
Yield
|
5.15 | % | 5.10 | 5.01 | 4.96 | 5.01 | ||||||||||||||
|
Mortgage loans held for sale
|
$ | 96,440 | 114,906 | 194,158 | 268,933 | 247,937 | ||||||||||||||
|
Yield
|
5.49 | % | 5.29 | 5.39 | 4.94 | 5.46 | ||||||||||||||
|
Federal funds sold, due from
Federal Reserve Bank and other
short-term investments
|
$ | 2,435,880 | 2,995,367 | 1,653,546 | 996,754 | 1,214,897 | ||||||||||||||
|
Yield
|
0.24 | % | 0.24 | 0.24 | 0.24 | 0.31 | ||||||||||||||
|
Federal Home Loan Bank and
Federal Reserve Bank Stock
(*)
|
$ | 142,524 | 140,550 | 139,230 | 132,346 | 117,205 | ||||||||||||||
|
Yield
|
0.97 | % | 1.01 | 1.38 | 0.54 | 0.66 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total interest earning assets
|
$ | 29,816,791 | 31,402,913 | 31,556,544 | 32,124,145 | 32,425,793 | ||||||||||||||
|
Yield
|
4.67 | % | 4.59 | 4.76 | 4.83 | 4.84 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Interest Bearing Liabilities
|
||||||||||||||||||||
|
Interest bearing demand deposits
|
$ | 3,636,437 | 3,851,237 | 3,310,924 | 3,582,954 | 3,602,371 | ||||||||||||||
|
Rate
|
0.42 | % | 0.41 | 0.42 | 0.45 | 0.49 | ||||||||||||||
|
Money market accounts
|
$ | 6,450,696 | 6,420,003 | 6,309,578 | 6,241,764 | 6,272,015 | ||||||||||||||
|
Rate
|
1.19 | % | 1.21 | 1.23 | 1.24 | 1.30 | ||||||||||||||
|
Savings deposits
|
$ | 476,007 | 469,526 | 477,909 | 477,752 | 452,206 | ||||||||||||||
|
Rate
|
0.15 | % | 0.15 | 0.15 | 0.15 | 0.16 | ||||||||||||||
|
Time deposits under $100,000
|
$ | 2,726,002 | 2,851,913 | 3,030,346 | 3,126,984 | 3,222,601 | ||||||||||||||
|
Rate
|
2.17 | % | 2.44 | 2.86 | 3.13 | 3.41 | ||||||||||||||
|
Time deposits over $100,000
|
$ | 4,770,429 | 4,909,253 | 5,281,529 | 5,355,736 | 5,555,084 | ||||||||||||||
|
Rate
|
2.05 | % | 2.32 | 2.73 | 3.04 | 3.31 | ||||||||||||||
|
National market brokered money
market accounts
|
$ | 1,047,417 | 1,218,363 | 1,365,477 | 1,885,214 | 2,073,734 | ||||||||||||||
|
Rate
|
0.74 | % | 0.75 | 0.77 | 0.75 | 0.82 | ||||||||||||||
|
National market brokered time
Deposits
|
$ | 3,871,581 | 4,011,648 | 3,941,977 | 3,203,546 | 3,718,570 | ||||||||||||||
|
Rate
|
2.13 | % | 2.41 | 2.66 | 3.09 | 3.38 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total interest bearing deposits
|
$ | 22,978,569 | 23,731,943 | 23,717,740 | 23,873,950 | 24,896,581 | ||||||||||||||
|
Rate
|
1.48 | % | 1.62 | 1.85 | 1.96 | 2.16 | ||||||||||||||
|
Federal funds purchased and other
short-term liabilities
|
$ | 472,691 | 729,988 | 1,194,759 | 1,166,785 | 578,717 | ||||||||||||||
|
Rate
|
0.47 | % | 0.45 | 0.37 | 0.36 | 0.59 | ||||||||||||||
|
Long-term debt
|
$ | 1,805,363 | 1,897,915 | 1,906,320 | 2,090,710 | 1,964,064 | ||||||||||||||
|
Rate
|
2.17 | % | 1.75 | 2.14 | 1.94 | 2.07 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total interest bearing liabilities
|
$ | 25,256,623 | 26,359,846 | 26,818,819 | 27,131,445 | 27,439,362 | ||||||||||||||
|
Rate
|
1.51 | % | 1.59 | 1.80 | 1.89 | 2.11 | ||||||||||||||
|
|
||||||||||||||||||||
|
Non-interest bearing demand
deposits
|
$ | 4,243,622 | 4,162,027 | 4,069,108 | 3,812,876 | 3,611,958 | ||||||||||||||
|
Net interest margin
|
3.39 | % | 3.25 | 3.22 | 3.23 | 3.05 | ||||||||||||||
|
|
||||||||||||||||||||
(*) Included as a component of other assets on the accompanying balance sheet.
55
Table of Contents
Management’s Discussion and Analysis
The following table summarizes the components of net interest income for the three months
ended March 31, 2010 and 2009, 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 35% Federal income tax rate.
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Interest income
|
$ | 342,795 | 386,393 | |||||
|
Taxable-equivalent adjustment
|
1,111 | 1,181 | ||||||
|
|
||||||||
|
Interest income, taxable equivalent
|
343,906 | 387,574 | ||||||
|
Interest expense
|
93,928 | 143,154 | ||||||
|
|
||||||||
|
Net interest income, taxable equivalent
|
$ | 249,978 | 244,420 | |||||
|
|
||||||||
Non-Interest Income
The following table summarizes non-interest income for the three months ended March 31, 2010
and 2009.
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Service charges on deposit accounts
|
$ | 26,280 | 28,699 | |||||
|
Fiduciary and asset management fees
|
11,338 | 10,815 | ||||||
|
Brokerage and investment banking income
|
5,931 | 6,871 | ||||||
|
Mortgage banking income
|
5,814 | 9,322 | ||||||
|
Bankcard fees
|
9,515 | 8,361 | ||||||
|
Investment
securities losses, net
|
(448 | ) | — | |||||
|
Other fee income
|
5,530 | 7,690 | ||||||
|
Other non-interest income
|
4,839 | 12,627 | ||||||
|
Increase in fair value of private equity investments, net
|
899 | — | ||||||
|
|
||||||||
|
Total non-interest income
|
$ | 69,698 | 84,385 | |||||
|
|
||||||||
Total non-interest income for the three months ended March 31, 2010 was $69.7 million, down
17.4% from the same period in 2009.
Service charges on deposit accounts, the single largest component of fee income, were $26.3
million for the three months ended March 31, 2010 down 8.4% from the same period in 2009. Service
charges on deposit accounts consist of non-sufficient funds (NSF) fees (which represent 58.0% of
the total for the three months ended March 31, 2010), account analysis fees, and all other service
charges.
NSF fees for the three months ended March 31, 2010 were $15.2 million, down $2.2 million or
12.7%, compared to the same period in 2009. Account analysis fees were $6.7 million for the three
months ended March 31, 2010, down $570 thousand or 7.8%, compared to the same period in 2009. All
other service charges on deposit accounts, which consist primarily of monthly fees on retail demand
deposit and saving accounts, were $4.3 million for the three months ended March 31, 2010 up $375
thousand or 9.5% compared to the same period in 2009. The increase in all other service charges
was driven by improvement in pricing strategies implemented through Project Optimus, launched in
April 2008, an initiative focused on operating efficiency gains and enhanced revenue growth.
Financial management services revenues (which primarily consist of fiduciary and asset
management fees, brokerage and investment banking revenue, and customer interest rate swap revenue
which is included in other fee income) decreased $675 thousand or 3.5% to $18.8 million for the
three months ended March 31, 2010 as compared to the same period in 2009.
Mortgage banking income decreased $3.5 million or 37.6% for the three months ended March 31,
2010 as compared to the same period in 2009. Mortgage production volume was $255.2 million, which
decreased $431.9 million or 62.9%, as compared to the same period in 2009. The decrease in
mortgage banking income and production volume is primarily due to a decrease in refinance activity.
56
Table of Contents
Management’s Discussion and Analysis
Other fee income decreased $2.2 million or 28.1%, for the three months ended March 31, 2010 as
compared to the same period in 2009 principally due to a decline in fees associated with letters of
credit.
Other non-interest income decreased $7.8 million or 61.7% for the three months ended March 31,
2010 compared to the same period in 2009. The largest component of the change in other
non-interest income is that the prior year included a $5.8 million
gain on early debt extinguishment.
Non-Interest Expense
The following table summarizes non-interest expense for the three months ended March 31, 2010
and 2009.
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2010 | 2009 | ||||||
|
Salaries and other personnel expense
|
$ | 104,022 | 111,085 | |||||
|
Net occupancy and equipment expense
|
29,978 | 31,484 | ||||||
|
FDIC insurance and other regulatory fees
|
17,646 | 12,999 | ||||||
|
Foreclosed real estate expense
|
45,507 | 46,330 | ||||||
|
Losses (gains) on other loans held for sale
|
61 | (65 | ) | |||||
|
Professional fees
|
9,380 | 6,945 | ||||||
|
Data processing expense
|
10,683 | 11,155 | ||||||
|
Restructuring charges
|
— | 6,358 | ||||||
|
Other operating expenses
|
35,520 | 34,748 | ||||||
|
|
||||||||
|
Total non-interest expense
|
$ | 252,797 | 261,039 | |||||
|
|
||||||||
Non-interest expense decreased by 3.2% for the three months ended March 31, 2010 compared to
the same period in 2009.
For the three months ended March 31, 2010, salaries and other personnel expenses decreased by
$7.1 million or 6.4% compared to the same period in 2009. The decline in expense was largely due
to planned reductions in headcount that occurred during 2009 as a result of Project Optimus. Total
employees at March 31, 2010 were 6,396, down 324
compared to March 31, 2009.
Net occupancy and equipment expense for the three months ended March 31, 2010 decreased by
$1.5 million or 4.8% compared to the three months ended March 31, 2009. FDIC insurance expense
increased $4.6 million to $17.6 million for the three months ended March 31, 2010 compared to the
same period in 2009. The increase in FDIC insurance and other regulatory fees is primarily a result
of increases in base assessment rates.
Foreclosed real estate costs for the three months ended March 31, 2010 declined $823 thousand
or 1.8% compared to the same time period of 2009. Professional fees were $9.4 million for the
three months ended March 31, 2010, an increase of $2.4 million over March 31, 2009. The increase
in professional fees is driven by fees associated with Synovus’
planned charter consolidation as well as legal fees.
Data processing expense for the three months ended March 31, 2010 declined $472 thousand or
4.2% compared to the same time period of 2009 and other operating expenses increased $772 thousand
or 2.2% for the three months ended March 31, 2010 compared to the three months ended March 31,
2009.
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Management’s Discussion and Analysis
Income Tax Expense
Under provisions of ASC 740-30-25, companies are required to assess whether a valuation
allowance should be established against their deferred tax assets based on the consideration of all
available evidence using a “more likely than not” standard. In making such judgments, significant
weight is given to evidence that can be objectively verified. Primarily as a result of increased
credit losses, Synovus reached a three-year cumulative pre-tax loss position during the three
months ended June 30, 2009. Cumulative losses in recent years are considered significant negative evidence
which is difficult to overcome in assessing the realizability of a deferred tax asset. As a result,
beginning with the second quarter of 2009, Synovus no longer considers future taxable income in
determining the realizability of its deferred tax assets. Synovus’ estimate of the realization of
its deferred tax assets is solely based on future reversals of existing taxable temporary
differences and currently available tax planning strategies.
Synovus increased its deferred tax asset valuation allowance by $105 million during the three
months ended March 31, 2010 for a total valuation allowance of $548 million at March 31, 2010 (net
of the federal benefit on state income taxes). At March 31, 2010, management concluded that $10.0
million of its net deferred tax assets would be realized. This amount of net deferred tax assets
is based on actual separate entity state income tax liabilities and tax planning strategies.
Synovus expects to reverse the majority of the valuation allowance once it has
demonstrated a sustainable return to profitability. However, until
such event occurs, Synovus will have minimal to no ability to
partially offset pre-tax operating losses with income tax benefits.
In other words, Synovus will continue to increase its valuation
allowance for deferred tax assets. Management’s estimate of the pre-tax loss for the year, any
reduction in the valuation allowance, and other factors could impact the actual effective tax rate
for continuing operations. The effective tax rate for continuing operations for the year ending
December 31, 2010 will also be impacted by state income taxes in jurisdictions where there are
profitable subsidiaries filing separate entity or consolidated income tax returns and intra-period
tax allocations.
The table below shows the effective tax rate for the three months ended March 31, 2010 and
2009.
| Three Months Ended March 31, 2010 | ||||||||||||
| Discontinued | Continuing | |||||||||||
| (dollars in thousands) | Operations | Operations | Total | |||||||||
|
Income (loss) before income taxes
|
$ | 70,640 | (275,180 | ) | (204,540 | ) | ||||||
|
Income tax expense (benefit), gross
|
27,479 | (121,416 | ) | (93,937 | ) | |||||||
|
Increase in valuation allowance for deferred tax assets
|
— | 105,079 | 105,079 | |||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | 43,161 | (258,843 | ) | (215,682 | ) | ||||||
|
|
||||||||||||
|
Effective tax rate before valuation allowance
(1)
|
38.9 | % | (44.1 | ) | (45.9 | ) | ||||||
|
Effective tax rate after valuation allowance
(1)
|
38.9 | % | (5.9 | ) | 5.4 | |||||||
| Three Months Ended March 31, 2009 | ||||||||||||
| Discontinued | Continuing | |||||||||||
| (dollars in thousands) | Operations | Operations | Total | |||||||||
|
Income (loss) before income taxes
|
$ | 2,046 | (223,852 | ) | (221,806 | ) | ||||||
|
Income tax (benefit) expense, gross
|
831 | (89,235 | ) | (88,404 | ) | |||||||
|
Increase in valuation allowance for deferred tax assets
|
— | 3,327 | 3,327 | |||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | 1,215 | (137,944 | ) | (136,729 | ) | ||||||
|
|
||||||||||||
|
Effective tax rate before valuation allowance
(1)
|
40.6 | % | (39.9 | ) | (39.9 | ) | ||||||
|
Effective tax rate after valuation allowance
(1)
|
40.6 | % | (38.4 | ) | (38.4 | ) | ||||||
(1) Negative percentages reference a net tax benefit and positive percentages reference net tax expense.
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Management’s Discussion and Analysis
A reconciliation of the beginning and ending amount of the valuation allowance recorded
against deferred tax assets is as follows:
| (in thousands) | 2010 | 2009 | ||||||
|
Balance at January 1,
|
$ | 443,332 | 5,068 | |||||
|
Increase for three months ended March 31,
|
105,079 | 3,327 | ||||||
|
|
||||||||
|
Balance at March 31,
|
$ | 548,411 | 8,395 | |||||
|
|
||||||||
When
Synovus begins to report a pre-tax profit, Synovus expects that it
will record minimal to no tax
expense as reductions to the deferred tax asset valuation allowance will be recognized. Recapture
of the deferred tax asset balance (i.e., reversal of the valuation allowance) is subject to
considerable judgment. However, Synovus expects to reverse the
majority of the valuation allowance once Synovus has demonstrated a sustainable return to profitability. Even after the recovery of the deferred tax asset balance under GAAP, which would
immediately benefit GAAP capital and the tangible common equity ratio, there will remain
limitations on the ability to count the deferred tax assets for regulatory capital purposes. This
is because once taxes paid in carryback periods are exhausted, financial institutions must deduct
from Tier I capital the lower of (1) the amount by which net deferred tax assets exceed what they
would expect to realize within one year or (2) the amount by which the net deferred tax assets
exceed 10% of Tier I Capital.
On April 26, 2010, the Synovus Board of Directors adopted a shareholder rights plan
designed to preserve substantial tax assets. This plan is similar to tax benefit preservation
plans adopted by other public companies with significant tax attributes. Synovus’ tax attributes
include net operating losses, capital losses and certain built-in losses that it could utilize in
certain circumstances to offset taxable income and reduce its federal income tax liability.
Synovus’ ability to use its tax attributes would be substantially limited if there were an
“ownership change” as defined under Section 382 of the Internal Revenue Code and related Internal
Revenue Service pronouncements. In general, an ownership change would occur if Synovus’ “5-percent
shareholders,” as defined under Section 382, collectively increase their ownership in Synovus by
more than 50 percentage points over a rolling three-year period. The shareholder rights plan is
designed to reduce the likelihood that Synovus experiences such an ownership change by deterring
acquisitions that would increase the holdings of existing 5-percent shareholders or cause any
person or group to become a 5-percent shareholder. 5-percent shareholders generally do not include
certain institutional holders, such as mutual fund companies, that hold Synovus equity securities
on behalf of several individual mutual funds where no single fund owns 5 percent or more of Synovus
equity securities.
As part of the plan, the Board of Directors declared a dividend of one preferred stock
purchase right for each outstanding share of Synovus common stock. The preferred stock purchase
rights were distributed to shareholders of record as of April 29, 2010, as well as to holders of
common stock issued after that date, but will only be activated if triggered by the plan and will
not trade separately from Synovus’ common stock until that time.
The Synovus Board of Directors has the discretion to exempt any acquisition of company
securities from the provisions of the shareholder rights plan. The plan may be terminated by the
Board at any time prior to the preferred stock purchase rights being triggered.
The issuance of the preferred stock purchase rights will not affect Synovus’ reported earnings
per share and is not taxable to Synovus or its shareholders.
Dividends
Synovus has historically paid a quarterly cash dividend to the holders of its common stock.
Management closely monitors trends and developments in credit quality, liquidity (including
dividends from subsidiaries, which are expected to be significantly lower than those received in
previous years), financial markets and other economic trends, as well as regulatory requirements
regarding the payment of dividends, all of which impact Synovus’ capital position, and will
continue to periodically review dividend levels to determine if they are appropriate in light of
these factors and the restrictions on payment of dividends described below. In the current
environment, regulatory restrictions may limit Synovus’ ability to continue to pay dividends.
Synovus must inform and consult with the Federal Reserve Board prior to declaring and paying any
future dividends, and the Federal Reserve Board could decide at any time that paying any common
stock dividends could be an unsafe or unsound banking practice. In addition, Synovus must obtain
the prior approval of the Banking Commissioner of the State of Georgia prior to increasing the cash
dividend on Synovus’ common stock above the current level of $0.01 per share. See “Part
I-Business-Supervision, Regulation and Other Factors-Dividends,” “Risk factors-Business Risks-We
presently are subject to, and in the future may become subject to additional supervisory actions
and/or enhanced regulation that could have a material negative effect on Synovus’ business,
operating flexibility, financial condition, and the value of our common stock,” and “Risk
factors-Business risks-We may be unable to pay dividends on our common stock” in Synovus’ 2009
10-K.
Synovus’ ability to pay dividends is partially dependent upon dividends and distributions that
it receives from its banking and non-banking subsidiaries, which are restricted by various
regulations administered by federal and state bank regulatory authorities. Dividends from
subsidiaries in 2009 were, and Synovus expects that dividends from subsidiaries in 2010 will be,
significantly lower than those received in previous years.
Synovus declared dividends of $0.01 per common share during the three months ended March 31,
2010 and 2009. In March 2009, Synovus announced that its Board
of Directors voted to reduce its
dividend from $0.06 to $0.01 per share, or 83%, to enable Synovus to further preserve its capital
base.
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Management’s Discussion and Analysis
In addition to dividends paid on its common stock, Synovus paid dividends of $12.1 million to
the Treasury on the Series A Preferred Stock during the three months ended March 31, 2010 and $7.5
million during the three months ended March 31, 2009.
Synovus’ participation in the Capital Purchase Program restricts its ability to increase the
quarterly cash dividends payable on Synovus’ common stock (without consent of the Treasury) until
the earlier of December 19, 2011, or until Synovus has redeemed the Series A Preferred Stock in
whole or the Treasury has transferred the Series A preferred stock to a third party. In addition,
Synovus must seek the Federal Reserve’s permission to increase the quarterly dividend on its common
stock above $0.01 per common share. Synovus is presently subject to, and in the future may become
subject to, additional supervisory actions and/or enhanced regulation that could have a material
negative effect on business, operating flexibility, financial condition, and the value of Synovus
common stock. See “Part I-Business-Supervision, Regulation and Other Factors-Dividends,” “Risk
factors-Business Risks-We presently are subject to, and in the future may become subject to
additional supervisory actions and/or enhanced regulation that could have a material negative
effect on Synovus’ business, operating flexibility, financial condition, and the value of our
common stock,” and “Risk factors-Business risks-We may be unable to pay dividends on our common
stock” in Synovus’ 2009 10-K and Synovus’ April 26 8-K.
Recently Issued Accounting Standards
In March 2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic 815),” (ASU
2010-11). ASU 2010-11 provides amendments to ASC 815-15, “Derivatives and Hedging-Embedded
Derivatives.” ASU 2010-11 clarifies application of the embedded derivative scope exception in ASC
815-15-15-8 and 15-9 for embedded credit derivative features related to the transfer of credit risk
in the form of subordination of one financial instrument to another, which should not be subject to
bifurcation and separate accounting. ASU 2010-11 primarily affect entities that hold or issue
investments in financial instruments that contain embedded credit derivative features (including
entities that consolidate a variable interest entity that issues financial instruments containing
embedded credit derivative features), and its provisions could affect the accounting for many types
of financial instruments, including collateralized debt obligations (CDOs) and synthetic CDOs. In
initially adopting the amendments in ASU 2010-11, and entity may irrevocably elect the fair value
option for any investment in a beneficial interest in a securitized financial asset. Synovus does
not expect that the provisions of ASU 2010-11, which are effective for the first fiscal quarter
beginning after June 15, 2010, will have an impact on Synovus’ financial position, results of
operations or cash flows.
Non-GAAP Financial Measures
The measures entitled pre-tax, pre-credit costs income; fundamental non-interest expense; net
interest margin excluding the negative impact of non-performing assets; core deposits; the tangible
common equity to tangible assets ratio; and the tangible common equity to risk-weighted assets are
not measures recognized under U.S. GAAP, and therefore are considered non-GAAP financial measures.
The most comparable GAAP measures are income (loss) before income taxes, total non-interest
expense, net interest margin, total deposits, and the ratio of total common shareholders’ equity to
total assets, respectively.
Management uses these non-GAAP financial measures to assess the performance of Synovus’ core
business and the strength of its capital position. Synovus believes that these non-GAAP financial
measures provide meaningful additional information about Synovus to assist investors in evaluating
Synovus’ operating results, financial strength and capital position. These non-GAAP financial
measures should not be considered as a substitute for operating results determined in accordance
with GAAP and may not be comparable to other similarly titled measures at other companies.
Pre-tax, pre-credit costs income is a measure used by management to evaluate core operating results
exclusive of credit costs as well as certain non-core expenses such as goodwill impairment charges,
restructuring charges, and Visa litigation expense (recovery). Fundamental non-interest expense is
a measure used by management to evaluate core non-interest expense exclusive of other credit costs,
FDIC insurance expense, restructuring charges, Visa litigation expense (recovery), and goodwill
impairment charges. Net interest margin excluding the impact of non-performing assets is a measure
used by management
60
Table of Contents
Management’s Discussion and Analysis
to measure the net interest margin exclusive of the impact of non-performing assets and
associated net interest charge-offs on the net interest margin. Core deposits is a measure used by
management to evaluate organic growth of deposits and the quality of deposits as a funding source.
Total risk-weighted assets is a required measure used by banks and financial institutions in
reporting regulatory capital and regulatory capital ratios to Federal and state regulatory
agencies. The tangible common equity to tangible assets ratio and the tangible common equity to
risk-weighted assets ratio are used by management and investment analysts to assess the strength of
Synovus’ capital position.
The computations of pre-tax, pre-credit costs income; fundamental non-interest expense; net
interest margin excluding the impact of non-performing assets; core deposits; the tangible common
equity to tangible assets ratio; and the tangible common equity to risk-weighted assets, and the
reconciliation of these measures to income (loss) before income taxes, total non-interest expense,
net interest margin, total deposits, and the ratio of total common shareholders’ equity to total
assets are set forth in the tables below.
Reconciliation of Non-GAAP Financial Measures
| March 31, | December 31, | March 31, | ||||||||||
| (dollars in thousands) | 2010 | 2009 | 2009 | |||||||||
|
Tangible Common Equity Ratios
|
||||||||||||
|
Total risk-weighted assets
|
$ | 25,767,271 | 26,781,973 | 31,236,550 | ||||||||
|
Total assets
|
$ | 32,439,438 | 32,831,418 | 34,547,432 | ||||||||
|
Goodwill
|
(24,431 | ) | (24,431 | ) | (39,521 | ) | ||||||
|
Other intangible assets, net
|
(15,556 | ) | (16,649 | ) | (20,064 | ) | ||||||
|
|
||||||||||||
|
Tangible assets
|
$ | 32,399,451 | 32,790,338 | 34,487,847 | ||||||||
|
|
||||||||||||
|
Total shareholders’ equity
|
$ | 2,616,743 | 2,851,041 | 3,637,979 | ||||||||
|
Goodwill
|
(24,431 | ) | (24,431 | ) | (39,521 | ) | ||||||
|
Other intangible assets, net
|
(15,556 | ) | (16,649 | ) | (20,064 | ) | ||||||
|
Cumulative perpetual preferred stock
|
(930,433 | ) | (928,207 | ) | (921,728 | ) | ||||||
|
|
||||||||||||
|
Tangible common equity
|
$ | 1,646,323 | 1,881,754 | 2,656,666 | ||||||||
|
|
||||||||||||
|
Total common shareholders’ equity to total assets
(1)
|
5.20 | % | 5.86 | 7.86 | ||||||||
|
Tangible common equity to tangible assets
|
5.08 | % | 5.74 | 7.70 | ||||||||
|
Tangible common equity to risk-weighted assets
|
6.39 | % | 7.03 | 8.51 | ||||||||
|
|
||||||||||||
|
Core Deposits
|
||||||||||||
|
Total deposits
|
$ | 27,180,048 | 27,433,533 | 27,947,986 | ||||||||
|
National market brokered deposits
|
(4,642,345 | ) | (5,039,328 | ) | (5,258,841 | ) | ||||||
|
|
||||||||||||
|
Core deposits
|
$ | 22,537,703 | 22,394,205 | 22,689,145 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net Interest Margin Excluding the Negative Impact of
Non-performing Assets
|
||||||||||||
|
Average earning assets
(2)
|
$ | 29,816,791 | 31,402,913 | 32,425,793 | ||||||||
|
Net interest income (taxable equivalent)
|
249,978 | 257,058 | 244,420 | |||||||||
|
Add: Negative impact of non-performing assets on net
interest income
(3)
|
27,863 | 30,102 | 26,371 | |||||||||
|
|
||||||||||||
|
Net interest income excluding the negative impact
of non-performing assets
|
$ | 277,841 | 287,160 | 270,791 | ||||||||
|
|
||||||||||||
|
Net interest margin
|
3.39 | % | 3.25 | 3.05 | ||||||||
|
Add: Negative impact of non-performing assets on net
interest margin
|
0.38 | 0.38 | 0.33 | |||||||||
|
|
||||||||||||
|
Net interest margin excluding the negative impact
of non-performing assets
|
3.77 | % | 3.63 | 3.38 | ||||||||
|
|
||||||||||||
| (1) |
Total shareholders’ equity less preferred stock divided by total assets.
|
|
| (2) |
Quarterly average balance.
|
|
| (3) |
Represents pro forma interest income on non-performing loans at current commercial loan portfolio
yield, carrying cost of ORE, and net interest charge-offs on loans recognized during the quarter.
|
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Management’s Discussion and Analysis
Reconciliation of Non-GAAP Financial Measures
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| (dollars in thousands) | 2010 | 2009 | 2009 | |||||||||
|
Pre-Tax Pre-Credit Costs Income
|
||||||||||||
|
Income (loss) before income taxes
|
$ | (275,180 | ) | (243,929 | ) | (223,852 | ) | |||||
|
Add: Provision for losses on loans
|
340,948 | 387,114 | 290,437 | |||||||||
|
Add: Other credit costs
(4)
|
53,562 | 40,659 | 54,277 | |||||||||
|
Add: Goodwill impairment
|
¾ | 14,849 | ¾ | |||||||||
|
Add: Restructuring costs
|
¾ | (347 | ) | 6,358 | ||||||||
|
Less: Net litigation contingency recovery
|
¾ | (2,374 | ) | ¾ | ||||||||
|
Less: Gain on sale of Visa shares
|
¾ | (51,900 | ) | ¾ | ||||||||
|
|
||||||||||||
|
Pre-tax pre-credit costs income
|
$ | 119,330 | 144,072 | 127,220 | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Fundamental Non-Interest Expense
|
||||||||||||
|
Total non-interest expense
|
$ | 252,797 | 249,493 | 261,039 | ||||||||
|
Less: Other credit costs
(4)
|
(53,562 | ) | (40,659 | ) | (54,277 | ) | ||||||
|
Less: FDIC insurance expense
|
(16,555 | ) | (16,675 | ) | (11,671 | ) | ||||||
|
Less: Restructuring charges
|
¾ | 347 | (6,358 | ) | ||||||||
|
Less: Net litigation contingency recovery
|
¾ | 2,374 | ¾ | |||||||||
|
Less: Goodwill impairment expense
|
¾ | (14,849 | ) | ¾ | ||||||||
|
|
||||||||||||
|
Fundamental non-interest expense
|
$ | 182,680 | 180,031 | 188,733 | ||||||||
|
|
||||||||||||
| (4) |
Other credit costs consist primarily of losses on ORE, reserve for unfunded commitments, and
charges related to other loans held for sale.
|
62
Table of Contents
ITEM 3 - QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Interest rate risk is the primary market risk to which Synovus is potentially exposed. Synovus
measures its sensitivity to changes in market interest rates through the use of a simulation model.
Synovus uses this simulation model to determine a baseline net interest income forecast and the
sensitivity of this forecast to changes in interest rates. These simulations include all of
Synovus’ earning assets, liabilities, and derivative instruments. Forecasted balance sheet
changes, primarily reflecting loan and deposit growth forecasts, are included in the periods
modeled. Anticipated deposit mix changes in each interest rate scenario are also included in the
periods modeled.
Synovus has modeled its baseline net interest income forecast assuming a flat interest rate
environment with the federal funds rate at the Federal Reserve’s current targeted range of 0% to
0.25%. Due to short-term interest rates being at or near 0% at this time, only rising rate
scenarios have been modeled. Synovus has modeled the impact of a gradual increase in short-term
rates of 100 and 200 basis points to determine the sensitivity of net interest income for the next
twelve months. As of March 31, 2010, the interest rate sensitivity of Synovus has not
significantly changed as compared to December 31, 2009. Synovus continues to maintain a moderately
asset sensitive position which would be expected to benefit net interest income in a rising
interest rate environment. Several factors could serve to diminish this asset sensitivity, the
primary of which would be an increase in the expected level of deposit pricing competition. The
following table represents the estimated sensitivity of net interest income to these changes in
short term interest rates at March 31, 2010, with comparable information for December 31, 2009.
| Estimated % Change in Net Interest Income as Compared to | ||||
| Unchanged Rates (for the next twelve months) | ||||
| Change in Short-Term Interest | ||||
| Rates (in basis points) | March 31, 2010 | December 31, 2009 | ||
|
+ 200
|
2.4% | 2.5% | ||
| + 100 | 1.7% | 0.9% | ||
While these estimates are reflective of the general interest rate sensitivity of Synovus,
local market conditions and their impact on loan and deposit pricing would be expected to have a
significant impact on the realized level of net interest income. Actual realized balance sheet
growth and mix would also impact the realized level of net interest income. Synovus also considers
the interest rate sensitivity of non-interest income, primarily deposit account analysis fees,
mortgage banking income, and financial management services income, in determining the appropriate
net interest income sensitivity positioning.
63
Table of Contents
ITEM 4 - CONTROLS AND PROCEDURES
Synovus has evaluated the effectiveness of the design and operation of disclosure controls and
procedures as of the end of the period covered by this quarterly report as required by Rule 13a-15
of the Exchange Act. This evaluation was carried out under the supervision and with the
participation of Synovus’ management, including the chief executive officer and chief financial
officer. Based on this evaluation, these officers have concluded that disclosure controls and
procedures are effective in timely alerting them to material information relating to Synovus
(including its consolidated subsidiaries) required to be included in periodic SEC filings. No
change in Synovus’ internal control over financial reporting occurred during the period covered by
this report that materially affected, or is reasonably likely to materially affect, internal
control over financial reporting.
64
Table of Contents
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Synovus and its subsidiaries are subject to various legal proceedings and claims that arise in
the ordinary course of its business. In the ordinary course of business, Synovus and its
subsidiaries are also subject to regulatory examinations, information gathering requests,
inquiries, and investigations. Synovus establishes accruals for litigation and regulatory matters
when those matters present loss contingencies that Synovus determines to be both probable and
reasonably estimable. Based on current knowledge, advice of counsel and available insurance
coverage, management does not believe that the eventual outcome of pending litigation and/or
regulatory matters, including those described below, will have a material adverse effect on
Synovus’ consolidated financial condition, results of operations or cash flows. However, in the
event of unexpected future developments, it is possible that the ultimate resolution of these
matters, if unfavorable, may be material to Synovus’ results of operations for any particular
period.
Synovus is a member of the Visa USA network. Under Visa USA bylaws, Visa members are obligated
to indemnify Visa USA and/or its parent company, Visa, Inc., for potential future settlement of, or
judgments resulting from, certain litigation, which Visa refers to as the “covered litigation”.
Synovus’ indemnification obligation is limited to its membership proportion of Visa USA. See Note
18 of Notes to Consolidated Financial Statements of Synovus’ 2009 10-K for further discussion of
the Visa litigation.
As previously disclosed, the FDIC conducted an investigation of the policies, practices and
procedures used by Columbus Bank and Trust Company (CB&T), a wholly owned banking subsidiary of
Synovus Financial Corp. (Synovus), in connection with the credit card programs offered pursuant to
its Affinity Agreement with CompuCredit Corporation (CompuCredit). CB&T issues credit cards that
are marketed and serviced by CompuCredit pursuant to the Affinity Agreement. A provision of the
Affinity Agreement generally requires CompuCredit to indemnify CB&T for losses incurred as a result
of the failure of credit card programs offered pursuant to the Affinity Agreement to comply with
applicable law. Synovus is subject to a per event 10% share of any such loss, but Synovus’ 10%
payment obligation is limited to a cumulative total of $2 million for all losses incurred.
On June 9, 2008, the FDIC and CB&T entered into a settlement related to this investigation.
CB&T did not admit or deny any alleged violations of law or regulations or any unsafe and unsound
banking practices in connection with the settlement. As a part of the settlement, CB&T and the FDIC
entered into a Cease and Desist Order and Order to Pay whereby CB&T agreed to: (1) pay a civil
money penalty in the amount of $2.4 million; (2) institute certain changes to CB&T’s policies,
practices and procedures in connection with credit card programs; (3) continue to implement its
compliance plan to maintain a sound risk-based compliance management system and to modify them, if
necessary, to comply with the Order; and (4) maintain its previously established Director
Compliance Committee to oversee compliance with the Order. CB&T has paid the civil money penalty,
and that payment is not subject to the indemnification provisions of the Affinity Agreement
described above.
CB&T and the FDIC also entered into an Order for Restitution pursuant to which CB&T agreed to
establish and maintain an account in the amount of $7.5 million to ensure the availability of
restitution with respect to categories of consumers, specified by the FDIC, who activated Aspire
credit card accounts issued pursuant to the Affinity Agreement on or before May 31, 2005. The FDIC
may require the account to be applied if, and to the extent that, CompuCredit defaults, in whole or
in part, on its obligation to pay restitution to any consumers required under the settlement
agreements CompuCredit entered into with the FDIC and the Federal Trade Commission (FTC) on
December 19, 2008. Those settlement agreements require CompuCredit to credit approximately $114
million to certain customer accounts that were opened between 2001 and 2005 and subsequently
charged off or were closed with no purchase activity. CompuCredit has stated that this restitution
involves mostly non-cash credits – in effect, reversals of amounts for which payments were never
received. In addition, CompuCredit has stated that cash refunds to consumers are estimated to be
approximately $3.7 million. This $7.5 million account represents a contingent liability of CB&T. At
December 31, 2009, CB&T has not recorded a liability for this contingency. Any amounts paid from
the restitution account are expected to be subject to the indemnification provisions of the
Affinity Agreement described above. Synovus does not currently expect that the settlement will have
a material adverse effect on its consolidated financial condition, results of operations or cash
flows.
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On May 23, 2008, CompuCredit and its wholly owned subsidiary, CompuCredit Acquisition
Corporation, sued CB&T and Synovus in the State Court of Fulton County, Georgia, alleging breach of
contract with respect to the Affinity Agreement. This case has subsequently been transferred to
Georgia Superior Court, CompuCredit Corp,. v. Columbus Bank and Trust Co., Case No. 08-CV-157010
(Ga. Super Ct.) (the “Superior Court Litigation”). CompuCredit seeks compensatory and general
damages in an unspecified amount, a full accounting of the shares received by CB&T and Synovus in
connection with the MasterCard and Visa initial public offerings and remittance of certain of those
shares to CompuCredit, and the transfer of accounts under the Affinity Agreement to a third-party.
The parties are actively engaged in settlement discussions to resolve the Superior Court
Litigation. Although no assurances can be given as to whether the litigation will settle, Synovus
recorded a contingent liability in the amount of $10.5 million in the third quarter of 2009
relating to this potential settlement. CB&T and Synovus intend to continue to vigorously defend
themselves against these allegations. Based on current knowledge and advice of counsel, management
does not believe that the eventual outcome of this case will have a material adverse effect on
Synovus’ consolidated financial condition, results of operations or cash flows. It is possible,
however, that in the event of unexpected future developments the ultimate resolution of this
matter, if unfavorable, may be material to Synovus’ results of operations for any particular
period.
On October 24, 2008, a putative class action lawsuit was filed against CompuCredit and CB&T in
the United States District Court for the Northern District of California, Greenwood v. CompuCredit,
et. al., Case No. 4:08-cv-04878 (CW) (“Greenwood”), alleging that the solicitations used in
connection with the credit card programs offered pursuant to the Affinity Agreement violated the
Credit Repair Organization Act, 15 U.S.C. § 1679 (“CROA”), and the California Unfair Competition
Law, Cal. Bus. & Prof. Code § 17200. CB&T intends to vigorously defend itself against these
allegations. On January 22, 2009, the court in the Superior Court Litigation ruled that CompuCredit
must pay the reasonable attorneys’ fees incurred by CB&T in connection with the Greenwood case
pursuant to the indemnification provision of the Affinity Agreement described above. Any losses
that CB&T incurs in connection with Greenwood are also expected to be subject to the
indemnification provisions of the Affinity Agreement described above. Based on current knowledge
and advice of counsel, management does not believe that the eventual outcome of this case will have
a material adverse effect on Synovus’ consolidated financial condition, results of operations or
cash flows.
On July 7, 2009, the City of Pompano Beach General Employees’ Retirement System filed suit
against Synovus, and certain of Synovus’ current and former officers, in the United States District
Court, Northern District of Georgia (Civil Action File No. 1 09-CV-1811) (the “Securities Class
Action”) alleging, among other things, that Synovus and the named individual defendants
misrepresented or failed to disclose material facts that artificially inflated Synovus’ stock price
in violation of the federal securities laws, including purported exposure to Synovus’ Sea Island
lending relationship and the impact of real estate values as a threat to Synovus’ credit, capital
position, and business, and failed to adequately and timely record losses for impaired loans. The
plaintiffs in the Securities Class Action seek damages in an unspecified amount.
On November 4, 2009, a shareholder filed a putative derivative action purportedly on behalf of
Synovus in the United States District Court, Northern District of Georgia (Civil Action File No. 1
09-CV-3069) (the “Federal Shareholder Derivative Lawsuit”), against certain current and/or former
directors and executive officers of Synovus. The Federal Shareholder Derivative Lawsuit asserts
that the individual defendants violated their fiduciary duties based upon substantially the same
facts as alleged in the Securities Class Action described above. The plaintiff is seeking to
recover damages in an unspecified amount and equitable and/or injunctive relief.
On December 1, 2009, the Court consolidated the Securities Class Action and Federal
Shareholder Derivative Lawsuit for discovery purposes, captioned In re Synovus Financial Corp.,
09-CV-1811-JOF, holding that the two cases involve “common issues of law and fact.”
On December 21, 2009, a shareholder filed a putative derivative action purportedly on behalf
of Synovus in the Superior Court of Fulton County, Georgia (the “State Shareholder Derivative
Lawsuit”), against certain current and/or former directors and executive officers of Synovus. The
State Shareholder Derivative Lawsuit asserts that the individual defendants violated their
fiduciary duties based upon substantially the same facts as alleged in the Federal Shareholder
Derivative Lawsuit described above. The plaintiff is seeking to recover damages in an unspecified
amount and equitable and/or injunctive relief.
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Synovus and the individual named defendants collectively intend to vigorously defend
themselves against the Securities Class Action and Shareholder Derivative Lawsuit allegations.
There are significant uncertainties involved in any potential class action and derivative
litigation. Based upon information that presently is available to it, Synovus’ management is unable
to predict the outcome of the purported Securities Class Action and Shareholder Derivative Lawsuits
and cannot currently reasonably determine the probability of a material adverse result or
reasonably estimate a range of potential exposure, if any. Although the ultimate outcome of these
lawsuits cannot be ascertained at this time, based upon information that presently is available to
it, Synovus’ management presently does not believe that the Securities Class Action or the
Shareholder Derivative Lawsuits, when resolved, will have a material adverse effect on Synovus’
consolidated financial condition, results of operations, or cash flows.
Synovus has received a letter from the SEC Atlanta regional office, dated December 15, 2009,
informing Synovus that it is conducting an informal inquiry “to determine whether any person or
entity has violated the federal securities laws.” The SEC has not asserted, nor does management
believe, that Synovus or any person or entity has committed any securities violations. Synovus
intends to cooperate fully with the SEC’s informal inquiry. Based upon information that presently
is available to it, Synovus’ management is unable to predict the outcome of the informal SEC
inquiry and cannot currently reasonably determine the probability of a material adverse result or
reasonably estimate a range of potential exposure, if any. Although the ultimate outcome of this
informal inquiry cannot be ascertained at this time, based upon information that presently is
available to it, Synovus’ management presently does not believe
that the informal inquiry, when
resolved, will have a material adverse effect on Synovus’ consolidated financial condition, results
of operations, or cash flows.
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ITEM 1A - RISK FACTORS
In addition to the other information set forth in this Report, you should carefully consider
the factors discussed in “Risk Factors” Synovus’ 2009 10-K and Synovus’ April 26 8-K which could
materially affect its business, financial position, results of operations, cash flows, or future
results. The risks described in Synovus’ 2009 10-K and Synovus’ April 26 8-K are not the only risks facing Synovus.
Additional risks and uncertainties not currently known to Synovus or that are currently deemed to
be immaterial also may materially adversely affect Synovus’ business, financial position, results
of operations or cash flows, or future results.
There were no material changes during the period covered by this report to the risk factors
previously disclosed in Synovus’ 2009 10-K and Synovus’ April 26 8-K.
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ITEM 2 - UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
SECURITIES AND USE OF PROCEEDS
In prior periods, Synovus received previously owned shares of its common stock in payment of
the exercise price of stock options and shares withheld to cover taxes on vesting for non-vested
shares granted. No shares of Synovus’ common stock were delivered during the three months ended
March 31, 2010.
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ITEM 6 - EXHIBITS
| (a) Exhibits | Description | |
|
3.1
|
Articles of Incorporation of Synovus, as amended, incorporated by reference to Exhibit 3.1 of
Synovus’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, as filed with the
SEC on May 10, 2006.
|
|
|
|
||
|
3.2
|
Articles of Amendment to Articles of Incorporation of Synovus incorporated by reference to
Exhibit 3.1 of Synovus’ Report on Form 8-K dated December 17, 2008, as filed with the SEC on
December 17, 2008.
|
|
|
|
||
|
3.3
|
Articles of Amendment to Articles of Incorporation of Synovus establishing the terms of the
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated by reference to
Exhibit 3.1 of Synovus’ Report on Form 8-K dated December 17, 2008, as filed with the SEC on
December 22, 2008.
|
|
|
|
||
|
3.4
|
Articles of Amendment to Articles of Incorporation of Synovus establishing the terms of the
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated by reference to
Exhibit 3.2 of Synovus’ Report on Form 8-K dated December 17, 2008, as filed with the SEC on
December 22, 2008.
|
|
|
|
||
|
3.5
|
Articles of Amendment to Articles of Incorporation of Synovus increasing the number of
authorized shares of Synovus, incorporated by reference to Exhibit 3.1 of Synovus’ Report on
Form 8-K dated April 22, 2010, as filed with the SEC on April 27, 2010.
|
|
|
|
||
|
3.6
|
Articles of Amendment to Articles of Incorporation of Synovus establishing the terms of the
Series B Participating Cumulative Perpetual Preferred Stock, incorporated by reference to
Exhibit 3.2 of Synovus’ Report on Form 8-K dated April 22, 2010, as filed with the SEC on
April 27, 2010.
|
|
|
|
||
|
3.7
|
Bylaws, as amended, of Synovus, incorporated by reference to Exhibit 3.1 of Synovus’ Report
on Form 8-K date January 28, 2010, as filed with the SEC on January 29, 2010.
|
|
|
|
||
|
4.1
|
Shareholder Rights Plan, dated as of April 26, 2010, between Synovus Financial Corp. and
Mellon Investor Services LLC, as Rights Agent, which includes the Form of Articles of
Amendment to the Articles of Incorporation of Synovus Financial Corp. (Series B Participating
Cumulative Preferred Stock) as Exhibit A, the Summary of Terms of the Rights Agreement as
Exhibit B and the Form of Right Certificate as Exhibit C, incorporated by reference to Exhibit
4.1 of Synovus’ Current Report on Form 8-K dated April 26, 2010, as filed with the SEC on
April 26, 2010.
|
|
|
|
||
|
4.2
|
Junior Subordinated Debt Indenture dated May 4, 2010, between Synovus Financial Corp. and The
Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit
4.1 of Synovus’ Current Report on Form 8-K dated May 4, 2010, as filed with the SEC on May 4,
2010.
|
|
|
|
||
|
4.3
|
Form of First Supplemental Indenture dated May 4, 2010, between Synovus Financial Corp. and
The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to
Exhibit 4.2 of Synovus’ Current Report on Form 8-K dated May 4, 2010 as filed with the SEC on
May 4, 2010.
|
|
|
|
||
|
4.4
|
Purchase Contract Agreement dated May 4, 2010 among Synovus Financial Corp., The Bank of New
York Mellon Trust Company, N.A., as purchase contract agent, and The Bank of New York Mellon
Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.3 of Synovus’ Current
Report on Form 8-K dated May 4, 2010 as filed with the SEC on May 4, 2010.
|
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|
4.5
|
Indenture, dated as of February 18, 2003, between Synovus Financial Corp. and
The Bank of New York Trust Company of Florida, N.A., as trustee,
incorporated by reference to Exhibit 4.1 of Synovus’ Registration Statement
on Form S-4 (No. 333-104625) filed with the SEC on April 18, 2003.
|
|
|
|
||
|
4.6
|
Indenture, dated as of June 20, 2005, between Synovus Financial Corp. and The Bank of New
York Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 of Synovus’
Registration Statement on Form S-4 (No. 333-126767) filed with the SEC on July 21, 2005.
|
|
|
|
||
|
10.2
|
Form of Waiver to be executed by senior executive officers of Synovus Financial Corp.
incorporated by reference to Exhibit 10.2 of Synovus’ Current Report on Form 8-K dated January
29, 2010, as filed with the SEC on January 29, 2010.
|
|
|
|
||
|
12.1
|
Ratio of Earnings to Fixed Charges
|
|
|
|
||
|
31.1
|
Certification of Chief Executive Officer
|
|
|
|
||
|
31.2
|
Certification of Chief Financial Officer
|
|
|
|
||
|
32
|
Certification of Periodic Report
|
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
SYNOVUS FINANCIAL CORP.
|
||||
| Date: May 10, 2010 | BY: | /s/ Thomas J. Prescott | ||
| Thomas J. Prescott | ||||
|
Executive Vice President and
Chief Financial Officer |
||||
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INDEX TO EXHIBITS
| Exhibit Number | Description | |
|
3.1
|
Articles of Incorporation of Synovus, as amended, incorporated by reference to Exhibit 3.1 of
Synovus’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, as filed with the
SEC on May 10, 2006.
|
|
|
|
||
|
3.2
|
Articles of Amendment to Articles of Incorporation of Synovus incorporated by reference to
Exhibit 3.1 of Synovus’ Report on Form 8-K dated December 17, 2008, as filed with the SEC on
December 17, 2008.
|
|
|
|
||
|
3.3
|
Articles of Amendment to Articles of Incorporation of Synovus establishing the terms of the
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated by reference to
Exhibit 3.1 of Synovus’ Report on Form 8-K dated December 17, 2008, as filed with the SEC on
December 22, 2008.
|
|
|
|
||
|
3.4
|
Articles of Amendment to Articles of Incorporation of Synovus establishing the terms of the
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated by reference to
Exhibit 3.2 of Synovus’ Report on Form 8-K dated December 17, 2008, as filed with the SEC on
December 22, 2008.
|
|
|
|
||
|
3.5
|
Articles of Amendment to Articles of Incorporation of Synovus increasing the number of
authorized shares of Synovus, incorporated by reference to Exhibit 3.1 of Synovus’ Report on
Form 8-K dated April 22, 2010, as filed with the SEC on April 27, 2010.
|
|
|
|
||
|
3.6
|
Articles of Amendment to Articles of Incorporation of Synovus establishing the terms of the
Series B Participating Cumulative Perpetual Preferred Stock, incorporated by reference to
Exhibit 3.2 of Synovus’ Report on Form 8-K dated April 22, 2010, as filed with the SEC on
April 27, 2010.
|
|
|
|
||
|
3.7
|
Bylaws, as amended, of Synovus, incorporated by reference to Exhibit 3.1 of Synovus’ Report
on Form 8-K date January 28, 2010, as filed with the SEC on January 29, 2010.
|
|
|
|
||
|
4.1
|
Shareholder Rights Plan, dated as of April 26, 2010, between Synovus Financial Corp. and
Mellon Investor Services LLC, as Rights Agent, which includes the Form of Articles of
Amendment to the Articles of Incorporation of Synovus Financial Corp. (Series B Participating
Cumulative Preferred Stock) as Exhibit A, the Summary of Terms of the Rights Agreement as
Exhibit B and the Form of Right Certificate as Exhibit C, incorporated by reference to Exhibit
4.1 of Synovus’ Current Report on Form 8-K dated April 26, 2010, as filed with the SEC on
April 26, 2010.
|
|
|
|
||
|
4.2
|
Junior Subordinated Debt Indenture dated May 4, 2010, between Synovus Financial Corp. and The
Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit
4.1 of Synovus’ Current Report on Form 8-K dated May 4, 2010, as filed with the SEC on May 4,
2010.
|
|
|
|
||
|
4.3
|
Form of First Supplemental Indenture dated May 4, 2010, between Synovus Financial Corp. and
The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to
Exhibit 4.2 of Synovus’ Current Report on Form 8-K dated May 4, 2010 as filed with the SEC on
May 4, 2010.
|
|
|
|
||
|
4.4
|
Purchase Contract Agreement dated May 4, 2010 among Synovus Financial Corp., The Bank of New
York Mellon Trust Company, N.A., as purchase contract agent, and The Bank of New York Mellon
Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.3 of Synovus’ Current
Report on Form 8-K dated May 4, 2010 as filed with the SEC on May 4, 2010.
|
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Table of Contents
|
4.5
|
Indenture, dated as of February 18, 2003, between Synovus Financial Corp. and
The Bank of New York Trust Company of Florida, N.A., as trustee,
incorporated by reference to Exhibit 4.1 of Synovus’ Registration Statement
on Form S-4 (No. 333-104625) filed with the SEC on April 18, 2003.
|
|
|
|
||
|
4.6
|
Indenture, dated as of June 20, 2005, between Synovus Financial Corp. and The Bank of New
York Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 of Synovus’
Registration Statement on Form S-4 (No. 333-126767) filed with the SEC on July 21, 2005.
|
|
|
|
||
|
10.2
|
Form of Waiver to be executed by senior executive officers of Synovus Financial Corp.
|
|
|
|
incorporated by reference to Exhibit 10.2 of Synovus’ Current Report on Form 8-K dated January
29, 2010, as filed with the SEC on January 29, 2010.
|
|
|
|
||
|
12.1
|
Ratio of Earnings to Fixed Charges
|
|
|
|
||
|
31.1
|
Certification of Chief Executive Officer
|
|
|
|
||
|
31.2
|
Certification of Chief Financial Officer
|
|
|
|
||
|
32
|
Certification of Periodic Report
|
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TABLE OF CONTENTS
Part I. Financial InformationprintItem 1 - Financial StatementsprintNote 1 - Basis Of PresentationprintNote 2 - Supplemental Cash Flow InformationprintNote 3 - Discontinued OperationsprintNote 4 - Shareholders EquityprintNote 5 - Comprehensive Income (loss)printNote 6 - Investment SecuritiesprintNote 7 - Other Loans Held For SaleprintNote 8 - Loans, Net Of Unearned IncomeprintNote 9 - Allowance For Loan LossesprintNote 10 - Other Real EstateprintNote 11 - Fair Value AccountingprintNote 12 - Derivative InstrumentsprintNote 13 - Share-based CompensationprintNote 14 - Variable Interest EntitiesprintNote 15 - Income TaxesprintNote 16 - Recently Adopted Accounting PronouncementsprintItem 2 - Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3 - Quantitative andprintItem 4 - Controls and ProceduresprintPart II - Other InformationprintItem 1 - Legal ProceedingsprintItem 1A - Risk FactorsprintItem 2 - Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 6 - Exhibitsprint