SYNOVUS FINANCIAL CORP
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM
10-Q
______________________________
For the quarterly period ended
March 31, 2021
Commission file number
1-10312
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(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Registrant’s telephone number, including area code: (
706
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641-6500
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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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
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Non-accelerated filer | ☐ | Smaller reporting company |
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| Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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As
of April 30, 2021,
148,599,905
shares of the registrant's common stock, $1.00 par value, were outstanding.
Table of Contents
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Part I
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Financial Information | |||||||||||||
| Index of Defined Terms | ||||||||||||||
| Item 1. | Financial Statements (Unaudited) | |||||||||||||
| Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 | ||||||||||||||
| Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020 | ||||||||||||||
| Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020 | ||||||||||||||
| Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 2021 and 2020 | ||||||||||||||
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 | ||||||||||||||
| Notes to Unaudited Interim Consolidated Financial Statements | ||||||||||||||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||||||||
| Item 3. | ||||||||||||||
| Item 4. | Controls and Procedures | |||||||||||||
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Part II
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Other Information | |||||||||||||
| Item 1. | Legal Proceedings | |||||||||||||
| Item 1A. | Risk Factors | |||||||||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||||||||
| Item 3. | Defaults Upon Senior Securities | |||||||||||||
| Item 4. | Mine Safety Disclosures | |||||||||||||
| Item 5. | Other Information | |||||||||||||
| Item 6. | Exhibits | |||||||||||||
| Signatures | ||||||||||||||
SYNOVUS FINANCIAL CORP.
INDEX OF DEFINED TERMS
Throughout this discussion, references to "Synovus", "we", "our", "us", "the Company" and similar terms refer to the consolidated entity consisting of Synovus Financial Corp. and its subsidiaries unless the context indicates that we refer only to the Parent Company, Synovus Financial Corp. When we refer to the "Bank" or "Synovus Bank" we mean our only bank subsidiary, Synovus Bank.
ACL
– Allowance for credit losses (ALL, reserve on unfunded loan commitments, and reserve, if required, on debt securities)
ALCO
– Synovus' Asset Liability Management Committee
ALL
– Allowance for loan losses
AOCI
– Accumulated other comprehensive income
ARRC
– Alternative Reference Rates Committee
ASC
– Accounting Standards Codification
ASU
– Accounting Standards Update
ATM
– Automatic teller machine
Basel III
– The third Basel Accord developed by the Basel Committee on Banking Supervision to strengthen existing regulatory capital requirements
BOLI
– Bank-owned life insurance
bp(s)
– Basis point(s)
C&I
– Commercial and industrial
CARES Act
– The Coronavirus Aid, Relief, and Economic Security Act
CDI
– Core Deposit Intangible
CECL
–
Current expected credit losses
CET1
– Common Equity Tier 1 Capital defined by Basel III capital rules
CMO
– Collateralized mortgage obligation
Code
– Internal Revenue Code, as amended
Company
– Synovus Financial Corp. and its wholly-owned subsidiaries, except where the context requires otherwise
Covered Litigation
– Certain Visa litigation for which Visa is indemnified by Visa USA members
COVID-19
– Coronavirus disease 2019
CRA
– Community Reinvestment Act
CRE
– Commercial real estate
Dodd-Frank Act
– The Dodd-Frank Wall Street Reform and Consumer Protection Act
EVE
– Economic value of equity
Exchange Act
– Securities Exchange Act of 1934, as amended
FASB
– Financial Accounting Standards Board
FCA
– Financial Conduct Authority
FDIC
– Federal Deposit Insurance Corporation
Federal Reserve Bank
– The 12 banks that are the operating arms of the U.S. central bank. They implement the policies of the Federal Reserve Board and also conduct economic research
Federal Reserve Board
– The 7-member Board of Governors that oversees the Federal Reserve System, establishes monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms
i
Federal Reserve System
– The 12 Federal Reserve Banks, with each one serving member banks in its own district. This system, supervised by the Federal Reserve Board, has broad regulatory powers over the money supply and the credit structure
FFIEC
– Federal Financial Institutions Examination Council
FFIEC Retail Credit Classification Policy
– FFIEC Uniform Retail Credit Classification and Account Management Policy
FHLB
– Federal Home Loan Bank
FICO
– Fair Isaac Corporation
FMS
– Financial Management Services, a division of Synovus Bank
FTE
– Fully taxable-equivalent
FTP
– Funds transfer pricing
GA DBF
– Georgia Department of Banking and Finance
GAAP
– Generally Accepted Accounting Principles in the United States of America
GGL
– Government guaranteed loans
HELOC
– Home equity line of credit
Interagency Supervisory Guidance
– Interagency Supervisory Guidance on Allowance for Loan and Lease Losses Estimation Practices for Loans and Lines of Credit Secured by Junior Liens on 1-4 Family Residential Properties
LGD
– Loss given default
LIBOR
– London Interbank Offered Rate
LIHTC
– Low Income Housing Tax Credit
LTV
– Loan-to-collateral value ratio
MBS
– Mortgage-backed security
MPS
– Merchant processing servicer(s)
NAICS
– North American Industry Classification System
nm
– not meaningful
NPA
– Non-performing assets
NPL
– Non-performing loans
NSF
– Non-sufficient funds
OCI
– Other comprehensive income
ORE
– Other real estate
P&I
– Principal and interest
Parent Company
– Synovus Financial Corp.
PPP
–
Paycheck Protection Program established as part of the CARES Act and launched on April 3, 2020 by the SBA and Treasury
SBA
– Small Business Administration
SBIC
– Small Business Investment Company
SEC
– U.S. Securities and Exchange Commission
Securities Act
– Securities Act of 1933, as amended
Series D Preferred Stock
– Synovus' Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, $25 liquidation preference
Series E Preferred Stock
– Synovus' Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E, $25 liquidation preference
SOFR
– Secured Overnight Financing Rate
ii
Synovus
– Synovus Financial Corp.
Synovus Bank
– A Georgia state-chartered bank and wholly-owned subsidiary of Synovus through which Synovus conducts its banking operations
Synovus' 2020 Form 10-K
– Synovus' Annual Report on Form 10-K for the year ended December 31, 2020
Synovus Forward –
Synovus' revenue growth and expense efficiency initiatives announced in January of 2020
Synovus Securities
– Synovus Securities, Inc., a wholly-owned subsidiary of Synovus
Synovus Trust
– Synovus Trust Company, N.A., a wholly-owned subsidiary of Synovus Bank
TDR
– Troubled debt restructuring (as defined in ASC 310-40)
TSR
– Total shareholder return
UPB
– Unpaid principal balance
Visa
– The Visa U.S.A., Inc. card association or its affiliates, collectively
Visa Class A shares
– Class A shares of common stock issued by Visa are publicly traded shares which are not subject to restrictions on sale
Visa Class B shares
– Class B shares of common stock issued by Visa which are subject to restrictions with respect to sale until all of the Covered Litigation has been settled. Class B shares will be convertible into Visa Class A shares using a then-current conversion ratio upon the lifting of restrictions with respect to sale of Visa Class B shares
Visa Derivative
– A derivative contract with the purchaser of Visa Class B shares which provides for settlements between the purchaser and Synovus based upon a change in the ratio for conversion of Visa Class B shares into Visa Class A shares
iii
PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| (in thousands, except share and per share data) | March 31, 2021 | December 31, 2020 | |||||||||
| ASSETS | |||||||||||
| Cash and due from banks | $ |
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$ |
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| Interest-bearing funds with Federal Reserve Bank |
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| Interest earning deposits with banks |
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| Federal funds sold and securities purchased under resale agreements |
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| Total cash, cash equivalents, and restricted cash |
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| Investment securities available for sale, at fair value |
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Loans held for sale (includes $
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| Loans, net of deferred fees and costs |
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| Allowance for loan losses |
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(
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| Loans, net |
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| Cash surrender value of bank-owned life insurance |
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| Premises, equipment and software, net |
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| Goodwill |
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| Other intangible assets, net |
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| Other assets |
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| Total assets | $ |
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$ |
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| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Liabilities | |||||||||||
| Deposits: | |||||||||||
| Non-interest-bearing deposits | $ |
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$ |
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| Interest-bearing deposits |
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| Total deposits |
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Securities sold under repurchase agreements
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| Other short-term borrowings |
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| Long-term debt |
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| Other liabilities |
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| Total liabilities |
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| Shareholders' Equity | |||||||||||
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Preferred stock - no par value; authorized
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Common stock - $
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| Additional paid-in capital |
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Treasury stock, at cost;
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| Accumulated other comprehensive income, net |
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| Retained earnings |
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| Total shareholders' equity |
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| Total liabilities and shareholders' equity | $ |
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$ |
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See accompanying notes to unaudited interim consolidated financial statements.
1
SYNOVUS FINANCIAL CORP.
CONSOLIDATE
D STATEMENTS OF INCOME
(unaudited)
| Three Months Ended March 31, | |||||||||||
| (in thousands, except per share data) | 2021 | 2020 | |||||||||
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Interest income:
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Loans, including fees
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$ |
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$ |
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Investment securities available for sale
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Loans held for sale
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Federal Reserve Bank balances
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Other earning assets
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Total interest income
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Interest expense:
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Deposits
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Federal funds purchased, securities sold under repurchase agreements, and other short-term borrowings
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Long-term debt
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Total interest expense
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Net interest income
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(Reversal of) provision for credit losses
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Net interest income after provision for credit losses
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Non-interest revenue:
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Service charges on deposit accounts
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Fiduciary and asset management fees
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Card fees
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Brokerage revenue
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Mortgage banking income
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Capital markets income
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Income from bank-owned life insurance
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Investment securities (losses) gains, net
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(
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Other non-interest revenue
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Total non-interest revenue
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Non-interest expense:
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Salaries and other personnel expense
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Net occupancy, equipment, and software expense
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Third-party processing and other services
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Professional fees
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FDIC insurance and other regulatory fees
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Other operating expenses
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Total non-interest expense
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Income before income taxes
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Income tax expense
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Net income
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Less: Preferred stock dividends
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Net income available to common shareholders
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$ |
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$ |
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Net income per common share, basic
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$ |
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$ |
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Net income per common share, diluted
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Weighted average common shares outstanding, basic
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Weighted average common shares outstanding, diluted
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See accompanying notes to unaudited interim consolidated financial statements.
2
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||
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(in thousands)
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Before-tax Amount | Income Tax | Net of Tax Amount | Before-tax Amount | Income Tax | Net of Tax Amount | |||||||||||||||||||||||||||||
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Net income
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$ |
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$ |
(
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$ |
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$ |
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$ |
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$ |
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Unrealized gains (losses) on investment securities available for sale:
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Net unrealized gains (losses) arising during the period
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(
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(
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(
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Reclassification adjustment for realized (gains) losses included in net income
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(
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(
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(
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Net change
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(
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(
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Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
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Net unrealized gains (losses) arising during the period
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(
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(
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(
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| Reclassification adjustment for realized (gains) losses included in net income |
(
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(
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(
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(
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| Net change |
(
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(
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(
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Total other comprehensive income (loss)
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$ |
(
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$ |
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$ |
(
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$ |
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$ |
(
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$ |
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Comprehensive income
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$ |
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$ |
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See accompanying notes to unaudited interim consolidated financial statements.
3
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
| (in thousands, except per share data) | Preferred Stock |
Common
Stock |
Additional
Paid-in Capital |
Treasury
Stock |
Accumulated
Other Comprehensive Income (Loss) |
Retained Earnings | Total | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ |
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$ |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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| Net income | — | — | — | — | — |
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| Other comprehensive loss, net of income taxes | — | — | — | — |
(
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— |
(
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Cash dividends declared on common stock - $
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— | — | — | — | — |
(
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(
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Cash dividends declared on preferred stock
(1)
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— | — | — | — | — |
(
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(
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| Restricted share unit vesting and taxes paid related to net share settlement | — |
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(
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— | — |
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(
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| Stock options exercised, net | — |
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— | — | — |
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| Warrants exercised with net settlement and common stock reissued | — | — |
(
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— |
(
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| Share-based compensation expense | — | — |
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— | — | — |
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| Balance at March 31, 2021 | $ |
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$ |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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| Balance, December 31, 2019 | $ |
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$ |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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| Cumulative-effect of change in accounting principle for credit losses (ASU 2016-13), net of tax | — | — | — | — | — |
(
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(
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| Net income | — | — | — | — | — |
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| Other comprehensive income, net of income taxes | — | — | — | — |
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— |
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Cash dividends declared on common stock - $
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— | — | — | — | — |
(
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(
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Cash dividends declared on preferred stock
(1)
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— | — | — | — | — |
(
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(
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| Repurchases of common stock including costs to repurchase | — | — | — |
(
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— | — |
(
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| Restricted share unit vesting and taxes paid related to net share settlement | — |
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(
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— | — |
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(
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| Stock options exercised, net | — |
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— | — | — |
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| Share-based compensation expense | — | — |
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— | — | — |
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| Balance at March 31, 2020 | $ |
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$ |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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(1)
For the three months ended March 31, 2021 and 2020, dividends per share were $
0.39
and $
0.37
for Series D and Series E Preferred Stock, respectively.
See accompanying notes to unaudited interim consolidated financial statements.
4
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2021 | 2020 | |||||||||
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Operating Activities
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Net income
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$ |
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$ |
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Adjustments to reconcile net income to net cash (used) provided by operating activities:
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(Reversal of) provision for credit losses
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(
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Depreciation, amortization, and accretion, net
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Deferred income tax expense (benefit)
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(
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Originations of loans held for sale
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(
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(
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Proceeds from sales and payments on loans held for sale
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Gain on sales of loans held for sale, net
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(
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(
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Decrease (increase) in other assets
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(
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(Decrease) increase in other liabilities
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(
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Investment securities losses (gains), net
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(
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Share-based compensation expense
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| Other |
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Net cash provided by operating activities
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Investing Activities
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Proceeds from maturities and principal collections of investment securities available for sale
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Proceeds from sales of investment securities available for sale
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Purchases of investment securities available for sale
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(
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(
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Proceeds from sales of loans
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| Purchases of loans |
(
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Net decrease (increase) in loans
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(
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Net purchases of Federal Home Loan Bank stock
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(
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(
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Net purchases of Federal Reserve Bank stock
|
|
(
|
|||||||||
|
Net proceeds from settlement (purchases) of bank-owned life insurance policies
|
|
(
|
|||||||||
|
Net increase in premises, equipment and software
|
(
|
(
|
|||||||||
| Other |
|
|
|||||||||
|
Net cash used in investing activities
|
(
|
(
|
|||||||||
|
Financing Activities
|
|||||||||||
|
Net increase in deposits
|
|
|
|||||||||
|
Net increase in federal funds purchased and securities sold under repurchase agreements
|
|
|
|||||||||
|
Net decrease in other short-term borrowings
|
(
|
(
|
|||||||||
|
Repayments and redemption of long-term debt
|
|
(
|
|||||||||
|
Proceeds from issuance of long-term debt, net
|
|
|
|||||||||
|
Dividends paid to common shareholders
|
(
|
(
|
|||||||||
|
Dividends paid to preferred shareholders
|
(
|
(
|
|||||||||
|
Repurchase of common stock
|
|
(
|
|||||||||
|
Issuances, net of taxes paid, under equity compensation plans
|
|
(
|
|||||||||
|
Net cash provided by financing activities
|
|
|
|||||||||
|
(Decrease) increase in cash and cash equivalents including restricted cash
|
(
|
|
|||||||||
|
Cash, cash equivalents, and restricted cash, at beginning of period
|
|
|
|||||||||
|
Cash, cash equivalents, and restricted cash at end of period
|
$ |
|
$ |
|
|||||||
|
Supplemental Disclosures:
|
|||||||||||
| Income taxes paid | $ |
|
$ |
|
|||||||
| Interest paid |
|
|
|||||||||
| Non-cash Activities | |||||||||||
| Securities sold during the period but settled after period-end |
|
|
|||||||||
| Securities purchased during the period but settled after period-end |
|
|
|||||||||
| Loans foreclosed and transferred to other real estate |
|
|
|||||||||
| Dividends declared on common stock during the period but paid after period-end |
|
|
|||||||||
| Dividends declared on preferred stock during the period but paid after period-end |
|
|
|||||||||
See accompanying notes to unaudited interim consolidated financial statements.
5
Notes to Unaudited Interim Consolidated Financial Statements
Note 1 - Basis of Presentation and Accounting Policies
General
The accompanying unaudited interim consolidated financial statements of Synovus Financial Corp. include the accounts of the Parent Company and its consolidated subsidiaries. Synovus Financial Corp. is a financial services company based in Columbus, Georgia. Through its wholly-owned subsidiary, Synovus Bank, a Georgia state-chartered bank that is a member of the Federal Reserve System, the Company provides commercial and retail banking in addition to a full suite of specialized products and services including private banking, treasury management, wealth management, mortgage services, premium finance, asset-based lending, structured lending, and international banking. Synovus also provides financial planning, and investment advisory services through its wholly-owned subsidiaries, Synovus Trust and Synovus Securities, as well at its GLOBALT and Creative Financial Group divisions. Synovus Bank is positioned in markets in the Southeast, with
288
branches and
388
ATMs in Alabama, Florida, Georgia, South Carolina, and Tennessee.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to the SEC Form 10-Q and Article 10 of Regulation S-X; therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, comprehensive income, and cash flows in conformity with GAAP. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the periods covered by this Report have been included. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes appearing in Synovus' 2020 Form 10-K.
Reclassifications
Use of Estimates in the Preparation of Financial Statements
In preparing the consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the respective consolidated balance sheets and the reported amounts of revenues and expenses for the periods presented. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to change relate to the determination of the ACL; estimates of fair value; income taxes; and contingent liabilities.
Recently Adopted Accounting Standards
ASU 2020-08,
Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs
. The guidance in this ASU pertains to the shortened amortization period for certain purchased callable debt securities held at a premium, which premium is amortized to the earliest call date in accordance with ASC 310-20-25-33, and clarifies that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-25-33 for each reporting period. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. Synovus adopted ASU 2020-08 effective January 1, 2021 with no material impact to the unaudited consolidated financial statements.
ASU 2019-12
, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
In December 2019, the FASB issued ASU 2019-12 to simplify and reduce complexities when accounting for income taxes by removing certain exceptions. Among the provisions of this guidance are the requirement that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.
ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020. Synovus adopted ASU 2019-12 effective January 1, 2021 with no material impact to the unaudited consolidated financial statements unless there are changes in tax law that require recognition as set forth in this guidance.
Recently Issued Accounting Standards Not Yet Adopted
ASU 2021-01, Reference Rate Reform (Topic 848): Scope:
In January 2021, the FASB issued ASU 2021-01 which provides optional expedients and exceptions in Topic 848 for derivative instruments and hedge accounting modifications resulting from the discounting transition of reference rate reform.
The expedients and exceptions provided by ASU 2021-01 will not be available after December 31, 2022, other than for existing hedging relationships entered into by December 31, 2022. The ASU may be applied as of the beginning of an interim period that includes or is subsequent to March 12, 2020, until the sunset date of December 31, 2022. Synovus adopted ASU 2020-04
Reference Rate Reform: Facilitation of the Effects of
6
Note 2 - Investment Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair values of investment securities available for sale at March 31, 2021 and December 31, 2020 are summarized below.
| March 31, 2021 | |||||||||||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| U.S. Treasury securities | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| U.S. Government agency securities |
|
|
|
|
|||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government agencies |
|
|
(
|
|
|||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government sponsored enterprises |
|
|
(
|
|
|||||||||||||||||||
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises |
|
|
(
|
|
|||||||||||||||||||
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises |
|
|
(
|
|
|||||||||||||||||||
| Corporate debt securities and other debt securities |
|
|
(
|
|
|||||||||||||||||||
| Total investment securities available for sale | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| U.S. Treasury securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| U.S. Government agency securities |
|
|
|
|
|||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government agencies |
|
|
(
|
|
|||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government sponsored enterprises |
|
|
|
|
|||||||||||||||||||
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises |
|
|
(
|
|
|||||||||||||||||||
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises |
|
|
|
|
|||||||||||||||||||
| Corporate debt securities and other debt securities |
|
|
(
|
|
|||||||||||||||||||
| Total investment securities available for sale | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
At both March 31, 2021 and December 31, 2020, investment securities with a carrying value of $
3.84
billion were pledged to secure certain deposits and other liabilities, as required by law or contractual agreements.
7
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, 2021 and December 31, 2020 are presented below.
| March 31, 2021 | |||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||
| (in thousands) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| U.S. Treasury securities | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government agencies |
|
(
|
|
|
|
(
|
|||||||||||||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government sponsored enterprises |
|
(
|
|
|
|
(
|
|||||||||||||||||||||||||||||
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises |
|
(
|
|
|
|
(
|
|||||||||||||||||||||||||||||
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises |
|
(
|
|
|
|
(
|
|||||||||||||||||||||||||||||
| Corporate debt securities and other debt securities |
|
(
|
|
|
|
(
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||
| (in thousands) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government agencies | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||||||||||
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises |
|
(
|
|
|
|
(
|
|||||||||||||||||||||||||||||
| Corporate debt securities and other debt securities |
|
(
|
|
|
|
(
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||||||||||
As of March 31, 2021, Synovus had
115
investment securities in a loss position for less than twelve months and
no
investment securities in a loss position for twelve months or longer. Synovus does not intend to sell investment securities in an unrealized loss position prior to the recovery of the unrealized loss, which may not be until maturity, and has the ability and intent to hold those securities for that period of time. Additionally, Synovus is not currently aware of any circumstances which will require it to sell any of the securities that are in an unrealized loss position prior to the respective securities' recovery of all such unrealized losses. As such, no write-downs to the amortized cost basis of the portfolio were recorded at March 31, 2021.
At March 31, 2021,
no
ACL was established for investment securities. Substantially all of the unrealized losses on the securities portfolio were the result of changes in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans. U.S. Treasury and agency securities and agency mortgage-backed securities are issued, guaranteed or otherwise supported by the United States government, an agency of the United States government, or a government sponsored enterprise.
The amortized cost and fair value by contractual maturity of investment securities available for sale at March 31, 2021 are shown below. The expected life of MBSs or CMOs may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
For purposes of the maturity table, MBSs and CMOs, which are not due at a single maturity date, have been classified based on the final contractual maturity date.
8
| Distribution of Maturities at March 31, 2021 | |||||||||||||||||||||||||||||
| (in thousands) |
Within One
Year |
1 to 5
Years |
5 to 10
Years |
More Than
10 Years |
Total | ||||||||||||||||||||||||
| Amortized Cost | |||||||||||||||||||||||||||||
| U.S. Treasury securities | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| U.S. Government agency securities |
|
|
|
|
|
||||||||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government agencies |
|
|
|
|
|
||||||||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government sponsored enterprises |
|
|
|
|
|
||||||||||||||||||||||||
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises |
|
|
|
|
|
||||||||||||||||||||||||
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises |
|
|
|
|
|
||||||||||||||||||||||||
| Corporate debt securities and other debt securities |
|
|
|
|
|
||||||||||||||||||||||||
| Total amortized cost | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Fair Value | |||||||||||||||||||||||||||||
| U.S. Treasury securities | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| U.S. Government agency securities |
|
|
|
|
|
||||||||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government agencies |
|
|
|
|
|
||||||||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government sponsored enterprises |
|
|
|
|
|
||||||||||||||||||||||||
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises |
|
|
|
|
|
||||||||||||||||||||||||
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises |
|
|
|
|
|
||||||||||||||||||||||||
| Corporate debt securities and other debt securities |
|
|
|
|
|
||||||||||||||||||||||||
| Total fair value | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
Proceeds from sales, gross gains, and gross losses on sales of securities available for sale for the three months ended March 31, 2021 and 2020 are presented below. The specific identification method is used to reclassify gains and losses out of other comprehensive income at the time of sale.
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2021 | 2020 | |||||||||
| Proceeds from sales of investment securities available for sale | $ |
|
$ |
|
|||||||
| Gross realized gains on sales |
|
|
|||||||||
| Gross realized losses on sales |
(
|
|
|||||||||
| Investment securities gains (losses), net | $ |
(
|
$ |
|
|||||||
9
Aging and Non-Accrual Analysis
The following tables provide a summary of current, accruing past due, and non-accrual loans by portfolio class as of March 31, 2021 and December 31, 2020.
| March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Current | Accruing 30-89 Days Past Due | Accruing 90 Days or Greater Past Due | Total Accruing Past Due | Non-accrual with an ALL | Non-accrual without an ALL | Total | |||||||||||||||||||||||||||||||||||||
| Commercial, financial and agricultural | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||
| Owner-occupied |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total commercial and industrial |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Investment properties |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| 1-4 family properties |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Land and development |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total commercial real estate |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Consumer mortgages |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Home equity lines |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Credit cards |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Other consumer loans |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total consumer |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Loans, net of deferred fees and costs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Current | Accruing 30-89 Days Past Due | Accruing 90 Days or Greater Past Due | Total Accruing Past Due | Non-accrual with an ALL | Non-accrual without an ALL | Total | |||||||||||||||||||||||||||||||||||||
| Commercial, financial and agricultural | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||
| Owner-occupied |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total commercial and industrial |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Investment properties |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| 1-4 family properties |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Land and development |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total commercial real estate |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Consumer mortgages |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Home equity lines |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Credit cards |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Other consumer loans |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Total consumer |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
| Loans, net of deferred fees and costs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||
Interest income on non-accrual loans outstanding that would have been recorded if the loans had been current and performing in accordance with their original terms was $
3.4
million and $
2.1
million for the three months ended March 31, 2021 and 2020, respectively. Of the interest income recognized during the three months ended March 31, 2021 and 2020, cash-basis interest income was $
622
thousand and $
961
thousand, respectively.
10
Pledged Loans
Loans with carrying values of $
14.27
billion and $
15.05
billion, respectively, were pledged as collateral for borrowings and capacity at March 31, 2021 and December 31, 2020, respectively, to the FHLB and Federal Reserve Bank.
Portfolio Segment Risk Factors
The risk characteristics and collateral information of each portfolio segment are as follows:
Commercial and Industrial Loans
-
The C&I loan portfolio is comprised of general middle market and commercial banking clients across a diverse set of industries. In accordance with Synovus' lending policy, each loan undergoes a detailed underwriting process which incorporates uniform underwriting standards and oversight in proportion to the size and complexity of the lending relationship. These loans are secured by collateral such as business equipment, inventory, and real estate. Whether for real estate or non-real estate purpose, credit decisions on loans in the C&I portfolio are based on cash flow from the operations of the business as the primary source of repayment of the debt, with underlying real estate or other collateral being the secondary source of repayment
.
PPP loans, which are categorized as C&I loans, were $
2.36
billion at March 31, 2021 and are guaranteed by the SBA.
Commercial Real Estate Loans
-
CRE loans primarily consist of income-producing investment properties loans. Additionally, CRE loans include 1-4 family properties loans as well as land and development loans. Investment properties loans consist of construction and mortgage loans for income-producing properties and are primarily made to finance multi-family properties, hotels, office buildings, shopping centers, warehouses and other commercial development properties. 1-4 family properties loans include construction loans to homebuilders and commercial mortgage loans related to 1-4 family rental properties and are almost always secured by the underlying property being financed by such loans. These properties are primarily located in the markets served by Synovus. Land and development loans include commercial and residential development as well as land acquisition loans and are secured by land held for future development, typically in excess of one year. Properties securing these loans are substantially within markets served by Synovus, and loan terms generally include personal guarantees from the principals. Loans in this portfolio are underwritten based on the LTV of the collateral and the capacity of the guarantor(s).
Consumer Loans
-
The consumer loan portfolio consists of a wide variety of loan products offered through Synovus' banking network including first and second residential mortgages, HELOCs, and credit card loans, as well as home improvement loans, student, personal, and auto loans from third-party lending. The majority of Synovus' consumer loans are consumer mortgages and HELOCs secured by first and second liens on residential real estate primarily located in the markets served by Synovus. The primary source of repayment for all consumer loans is generally the personal income of the borrower(s).
Credit Quality Indicators
The credit quality of the loan portfolio is reviewed and updated no less frequently than quarterly using the standard asset classification system utilized by the federal banking agencies. These classifications are divided into three groups: Not Criticized (Pass), Special Mention, and Classified or Adverse rating (Substandard, Doubtful, and Loss) and are defined as follows:
Pass
- loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell in a timely manner, of any underlying collateral.
Special Mention
- loans which have potential weaknesses that deserve management's close attention. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.
Substandard
- loans which are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful
- loans which have all the weaknesses inherent in loans classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.
Loss
- loans which are considered by management to be uncollectible and of such little value that their continuance on the institution's books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. Synovus fully reserves for any loans rated as Loss.
In the following tables, consumer loans are generally assigned a risk grade similar to the classifications described above; however, upon reaching
90
days and
120
days past due, they are generally downgraded to Substandard and Loss, respectively, in accordance with the FFIEC Retail Credit Classification Policy. Additionally, in accordance with Interagency Supervisory Guidance, the risk grade classifications of consumer loans (consumer mortgages and HELOCs) secured by junior liens on 1-4
11
family residential properties also consider available information on the payment status of any associated senior liens with other financial institutions.
The following tables summarize each loan portfolio class by risk grade and origination year as of March 31, 2021 and December 31, 2020 as required under CECL.
| March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Amortized Cost Basis | Converted to Term Loans | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial, financial and agricultural | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Doubtful
(2)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total commercial, financial and agricultural |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Owner-occupied | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Doubtful
(2)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total owner-occupied |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total commercial and industrial |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Investment properties | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total investment properties |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| 1-4 family properties | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total 1-4 family properties |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
12
| March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Amortized Cost Basis | Converted to Term Loans | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Land and development | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total land and development |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Consumer mortgages | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Loss
(3)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total consumer mortgages |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Home equity lines | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Doubtful
(2)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Loss
(3)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total home equity lines |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Credit cards | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Loss
(4)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total credit cards |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Other consumer loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Loss
(4)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total other consumer loans |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total consumer |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Loans, net of deferred fees and costs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
(1)
The majority of loans within Substandard risk grade are accruing loans at March 31, 2021.
(2)
Loans within Doubtful risk grade are on non-accrual status and generally have an ALL equal to
50
% of the loan amount.
(3)
Loans within Loss risk grade are on non-accrual status and have an ALL equal to the full loan amount.
(4)
Represent amounts that were 120 days past due. These credits are downgraded to the Loss category with an ALL equal to the full loan amount and are generally charged off upon reaching 181 days past due in accordance with the FFIEC Retail Credit Classification Policy.
13
| December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Amortized Cost Basis | Converted to Term Loans | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial, financial and agricultural | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Doubtful
(2)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total commercial, financial and agricultural |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Owner-occupied | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Doubtful
(2)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total owner-occupied |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total commercial and industrial |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Investment properties | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total investment properties |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| 1-4 family properties | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total 1-4 family properties |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Land and development | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Special Mention |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total land and development |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
14
| December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Amortized Cost Basis | Converted to Term Loans | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer mortgages | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Loss
(3)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total consumer mortgages |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Home equity lines | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Doubtful
(2)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Loss
(3)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total home equity lines |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Credit cards | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Loss
(4)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total credit cards |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Other consumer loans | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Substandard
(1)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Loss
(4)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total other consumer loans |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Total consumer |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
| Loans, net of deferred fees and costs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
(1)
The majority of loans within Substandard risk grade are accruing loans at December 31, 2020.
(2)
Loans within Doubtful risk grade are on non-accrual status and generally have an ALL equal to
50
% of the loan amount.
(3)
Loans within Loss risk grade are on non-accrual status and have an ALL equal to the full loan amount.
(4)
Represent amounts that were 120 days past due. These credits are downgraded to the Loss category with an ALL equal to the full loan amount and are generally charged off upon reaching 181 days past due in accordance with the FFIEC Retail Credit Classification Policy.
Collateral-Dependent Loans
We classify a loan as collateral-dependent when our borrower is experiencing financial difficulty, and we expect repayment to be provided substantially through the operation or sale of collateral. Our commercial loans have collateral that is comprised of real estate and business assets. Our consumer loans have collateral that is substantially comprised of residential real estate.
There were no significant changes in the extent to which collateral secures our collateral-dependent loans during the three months ended March 31, 2021.
15
Rollforward of Allowance for Loan Losses
The following tables detail the changes in the ALL by loan segment for the three months ended March 31, 2021 and 2020.
| As Of and For the Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| (in thousands) | Commercial & Industrial | Commercial Real Estate | Consumer | Total | |||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||
| Beginning balance | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Charge-offs |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Recoveries |
|
|
|
|
|||||||||||||||||||
| Provision for (reversal of) loan losses |
|
(
|
(
|
(
|
|||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| As Of and For the Three Months Ended March 31, 2020 | |||||||||||||||||||||||
| (in thousands) | Commercial & Industrial | Commercial Real Estate | Consumer | Total | |||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||
| Beginning balance, prior to adoption of ASC 326 | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Impact from adoption of ASC 326 |
(
|
(
|
|
|
|||||||||||||||||||
| Beginning balance, after adoption of ASC 326 | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Charge-offs |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Recoveries |
|
|
|
|
|||||||||||||||||||
| Provision for loan losses |
|
|
|
|
|||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
The ALL of $
563.2
million and the reserve for unfunded commitments of $
51.5
million, which is recorded in other liabilities, comprise the total ACL of $
614.7
million at March 31, 2021, which decreased during the first quarter of 2021 by $
38.8
million,
resulting in an ACL to loans coverage ratio of
1.58
%
.
The modeling as
sumptions for the first quarter of 2021 utilized a two-year reasonable and supportable forecast period and comprised a multiple-scenario economic framework. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, the Company reverts, on a straight-line basis back to the historical rates over a one-year period. The ACL at March 31, 2021 incorporates a baseline outlook with moderate economic expansion and benefits from the estimated impact of government stimulus. Provision for credit losses includes the provisions for loan losses and unfunded commitments. The reversal of provision for credit losses of $
18.6
million for the three months ended March 31, 2021
included net charge-offs of $
20.2
million and resulted from the improved economic outlook and stable loan portfolio metrics that were partially offset by the increased size of the loan portfolio including $
15.2
million in reserves added as result of purchases of $
607.0
million of third-party lending loans, including a $
476.2
million prime auto purchase.
16
TDRs
Information about Synovus' TDRs is presented in the following tables. Synovus began entering into loan modifications with borrowers in response to the COVID-19 pandemic, some of which have not been classified as TDRs, and therefore are not included in the discussion below.
See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" in
Synovus' 2020 Form 10-K
for information on Synovus' loan modifications due to COVID-19.
The following tables represent, by concession type, the post-modification balance for loans modified or renewed during the three months ended March 31, 2021 and 2020 that were reported as accruing or non-accruing TDRs.
| TDRs by Concession Type | ||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||
| (in thousands, except contract data) | Number of Contracts | Below Market Interest Rate |
Other Concessions
(1)
|
Total | ||||||||||||||||||||||
| Commercial, financial and agricultural |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Owner-occupied |
|
|
|
|
||||||||||||||||||||||
| Total commercial and industrial |
|
|
|
|
||||||||||||||||||||||
| Investment properties |
|
|
|
|
||||||||||||||||||||||
| 1-4 family properties |
|
|
|
|
||||||||||||||||||||||
| Land and development |
|
|
|
|
||||||||||||||||||||||
| Total commercial real estate |
|
|
|
|
||||||||||||||||||||||
| Consumer mortgages |
|
|
|
|
||||||||||||||||||||||
| Home equity lines |
|
|
|
|
||||||||||||||||||||||
| Other consumer loans |
|
|
|
|
||||||||||||||||||||||
| Total consumer |
|
|
|
|
||||||||||||||||||||||
| Total TDRs |
|
$ |
|
$ |
|
$ |
|
(2)
|
||||||||||||||||||
| Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||
| (in thousands, except contract data) | Number of Contracts | Below Market Interest Rate |
Other Concessions
(1)
|
Total | ||||||||||||||||||||||
| Commercial, financial and agricultural |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Owner-occupied |
|
|
|
|
||||||||||||||||||||||
| Total commercial and industrial |
|
|
|
|
||||||||||||||||||||||
| Investment properties |
|
|
|
|
||||||||||||||||||||||
| 1-4 family properties |
|
|
|
|
||||||||||||||||||||||
| Land and development |
|
|
|
|
||||||||||||||||||||||
| Total commercial real estate |
|
|
|
|
||||||||||||||||||||||
| Consumer mortgages |
|
|
|
|
||||||||||||||||||||||
| Home equity lines |
|
|
|
|
||||||||||||||||||||||
| Other consumer loans |
|
|
|
|
||||||||||||||||||||||
| Total consumer |
|
|
|
|
||||||||||||||||||||||
| Total TDRs |
|
$ |
|
$ |
|
$ |
|
(3)
|
||||||||||||||||||
(1)
Other concessions generally include term extensions, interest only payments for a period of time, or principal forgiveness, but there was
no
principal forgiveness for the
three months
ending March 31, 2021 and 2020.
(2)
No
net charge-offs were recorded during the
three months ended March 31, 2021
.
(3)
No
net charge-offs were recorded during the
three months ended March 31, 2020
.
For the three months ended March 31, 2021 there were
no
defaults on accruing TDRs restructured during the previous twelve months (defaults are defined as the earlier of the TDR being placed on non-accrual status or reaching 90 days past due with respect to principal and/or interest payments) compared to
three
defaults with a recorded investment of $
618
thousand for the three months ended March 31, 2020. As of March 31, 2021
and December 31, 2020, there were
no
commitments to lend a material amount of additional funds to any customer whose loan was classified as a TDR.
17
Note 4 - Goodwill and Other Intangible Assets
Goodwill allocated to each reporting unit at March 31, 2021 and December 31, 2020 is presented as follows (the FMS reportable segment includes
two
reporting units of Consumer Mortgage and Wealth Management):
| (in thousands) | Community Banking Reporting Unit | Wholesale Banking Reporting Unit | Consumer Mortgage Reporting Unit | Wealth Management Reporting Unit | Total | ||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Goodwill acquired and adjustments during the year |
|
|
|
|
|
||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
Goodwill is not amortized but is evaluated for impairment on an annual basis or whenever an event occurs or circumstances change to indicate that it is more likely than not that an impairment loss has been incurred (i.e., a triggering event). Synovus performs its annual evaluation of goodwill impairment during the fourth quarter of each year. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 7 - Goodwill and Other Intangible Assets" to the consolidated financial statements of Synovus' 2020 Form 10-K for information on Synovus' quantitative assessments of goodwill impairment during 2020.
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||||||
| March 31, 2021 | |||||||||||||||||
| CDI | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Other |
|
(
|
|
||||||||||||||
| Total other intangible assets | $ |
|
$ |
(
|
$ |
|
|||||||||||
| December 31, 2020 | |||||||||||||||||
| CDI | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Other |
|
(
|
|
||||||||||||||
| Total other intangible assets | $ |
|
$ |
(
|
$ |
|
|||||||||||
Note 5 - Shareholders' Equity and Other Comprehensive Income (Loss)
Dividends
The following table presents dividends declared related to common stock. For information related to preferred stock dividends, see "Part II - Item 8. Financial Statements and Supplementary Data - Note 11 - Shareholders' Equity and Other Comprehensive Income" to the consolidated financial statements of Synovus' 2020 Form 10-K.
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash dividends declared per common share | $ |
|
$ |
|
|||||||
Repurchases of Common Stock
Synovus announced on January 26, 2021 that its Board of Directors authorized share repurchases of up to $
200
million in 2021. During the first quarter of 2021, the Company did not complete any share repurchases.
Changes in Accumulated Other Comprehensive Income (Loss) by Component (Net of Income Taxes)
18
| Changes in Accumulated Other Comprehensive Income (Loss) by Component (Net of Income Taxes) | |||||||||||||||||||||||
| (in thousands) |
Net unrealized gains (losses) on investment securities available for sale
(1)
|
Net unrealized gains (losses) on cash flow hedges
(1)
|
Post-retirement unfunded health benefit | Total | |||||||||||||||||||
| Balance, December 31, 2020 | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Other comprehensive income (loss) before reclassifications |
(
|
(
|
|
(
|
|||||||||||||||||||
| Amounts reclassified from AOCI |
|
(
|
|
|
|||||||||||||||||||
| Net current period other comprehensive income (loss) |
(
|
(
|
|
(
|
|||||||||||||||||||
| Balance at March 31, 2021 | $ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Balance, December 31, 2019 | $ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
| Other comprehensive income (loss) before reclassifications |
|
|
|
|
|||||||||||||||||||
| Amounts reclassified from AOCI |
(
|
(
|
|
(
|
|||||||||||||||||||
| Net current period other comprehensive income (loss) |
|
|
|
|
|||||||||||||||||||
| Balance at March 31, 2020 | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
For all periods presented, the ending balance in net unrealized gains (losses) on investment securities available for sale and cash flow hedges includes unrealized losses of $
13.3
million and
$
12.1
million
, respectively, related to residual tax effects remaining in OCI due to previously established deferred tax asset valuation allowances in 2010 and 2011. In accordance with ASC 740-20-45-11(b), under the portfolio approach, these unrealized losses are realized at the time the entire portfolio is sold or disposed.
19
See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" of Synovus' 2020 Form 10-K for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis.
The following table presents assets and liabilities measured at estimated fair value on a recurring basis.
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total Estimated Fair Value | Level 1 | Level 2 | Level 3 | Total Estimated Fair Value | ||||||||||||||||||||||||||||||||||||||||||
| Recurring fair value measurements | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government agencies | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations issued by U.S. Government sponsored enterprises |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Other mortgage-backed securities |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| State and municipal securities |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Total trading securities | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||
| Investment securities available for sale: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||
| U.S. Government agency securities |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government agencies |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities issued by U.S. Government sponsored enterprises |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations issued by U.S. Government agencies or sponsored enterprises |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed securities issued by U.S. Government agencies or sponsored enterprises |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities and other debt securities |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Total investment securities available for sale | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||
| Mortgage loans held for sale | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||
| Private equity investments |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Mutual funds and mutual funds held in rabbi trusts |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| GGL/SBA loans servicing asset |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Derivative assets |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Trading liability for short positions |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Earnout liability |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Derivative liabilities |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
Fair Value Option
Synovus has elected the fair value option for mortgage loans held for sale primarily to ease the operational burden required to maintain hedge accounting for these loans. Synovus is still able to achieve effective economic hedges on mortgage loans held for sale without the time and expense needed to manage a hedge accounting program.
20
The following table summarizes the difference between the fair value and the UPB of mortgage loans held for sale and the changes in fair value of these loans. An immaterial portion of these changes in fair value was attributable to changes in instrument-specific credit risk.
| Mortgage Loans Held for Sale | |||||||||||
| (in thousands) | As of March 31, 2021 | As of December 31, 2020 | |||||||||
| Fair value | $ |
|
$ |
|
|||||||
| Unpaid principal balance |
|
|
|||||||||
| Fair value less aggregate unpaid principal balance | $ |
|
$ |
|
|||||||
| Changes in Fair Value Included in Net Income | Three Months Ended March 31, | ||||||||||
| (in thousands) | 2021 | 2020 | |||||||||
| Mortgage loans held for sale | $ |
(
|
$ |
|
|||||||
Activity for Level 3 Assets and Liabilities
Se
e "Part II - Item 8. Financial Statements and Supplementary Data - Note 14 - Fair Value Accounting" of Synovus' 2020 Form 10-K for a description of the valuation techniques and significant inputs for Level 3 assets and liabilities that are measured at fair value on a recurring and non-recurring basis.
During the
three months ended March 31, 2021 and 2020
, Synovus did not have any transfers in or out of Level 3 in the fair value hierarchy.
The following tables provide rollforwards of Level 3 assets and liabilities measured at fair value on a recurring basis.
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||
| (in thousands) | Investment Securities Available for Sale | Private Equity Investments |
GGL / SBA
Loans Servicing Asset |
Earnout
Liability |
Visa Derivative | ||||||||||||||||||||||||
| Beginning balance | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Total gains (losses) realized/unrealized: | |||||||||||||||||||||||||||||
| Included in earnings |
|
|
(
|
|
|
||||||||||||||||||||||||
| Sales |
(
|
|
|
|
|
||||||||||||||||||||||||
| Additions |
|
|
|
|
|
||||||||||||||||||||||||
| Settlements |
|
|
|
|
|
||||||||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains/(losses) relating to assets/liabilities still held at March 31, 2021 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||
| (in thousands) | Investment Securities Available for Sale | Private Equity Investments |
GGL / SBA
Loans Servicing Asset |
Earnout
Liability |
Visa Derivative | ||||||||||||||||||||||||
| Beginning balance | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Total gains (losses) realized/unrealized: | |||||||||||||||||||||||||||||
| Included in earnings |
|
(
|
(
|
|
|
||||||||||||||||||||||||
| Unrealized gains (losses) included in OCI |
(
|
|
|
|
|
||||||||||||||||||||||||
| Additions |
|
|
|
|
|
||||||||||||||||||||||||
| Settlements |
|
|
|
|
|
||||||||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Total net gains (losses) for the period included in earnings attributable to the change in unrealized gains/(losses) relating to assets/liabilities still held at March 31, 2020 | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
21
The following table presents assets measured at fair value on a non-recurring basis as of the dates indicated for which there was a fair value adjustment.
| March 31, 2021 | March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||||
|
Loans
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||
| Other real estate |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| MPS receivable |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
| Other assets held for sale |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
(1)
Collateral-dependent loans that were written down to fair value of collateral.
ORE properties are included in other assets on the consolidated balance sheets. The carrying value of ORE at March 31, 2021 and December 31, 2020 was $
1.4
million and $
1.8
million, respectively.
The following table presents fair value adjustments recognized in earnings for the three months ended March 31, 2021 and 2020 for assets measured at fair value on a non-recurring basis still held at period-end.
| Three Months Ended March 31, | Location in Consolidated Statements of Income | ||||||||||||||||
| (in thousands) | 2021 | 2020 | |||||||||||||||
|
Loans
(1)
|
$ |
|
$ |
|
Provision for credit losses | ||||||||||||
| Other real estate |
|
|
Other operating expenses | ||||||||||||||
| MPS receivable |
|
|
Other operating expenses | ||||||||||||||
| Other assets held for sale |
|
|
Other operating expenses | ||||||||||||||
(1)
Collateral-dependent loans that were written down to fair value of collateral.
22
Fair Value of Financial Instruments
The following tables present the carrying and estimated fair values of financial instruments at March 31, 2021 and December 31, 2020. The fair values represent management’s best estimates based on a range of methodologies and assumptions. See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" to the consolidated financial statements of Synovus' 2020 Form 10-K for a description of how fair value measurements are determined.
| March 31, 2021 | |||||||||||||||||||||||||||||
| (in thousands) | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| Financial assets | |||||||||||||||||||||||||||||
| Total cash, cash equivalents, and restricted cash | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Trading securities |
|
|
|
|
|
||||||||||||||||||||||||
| Investment securities available for sale |
|
|
|
|
|
||||||||||||||||||||||||
| Loans held for sale |
|
|
|
|
|
||||||||||||||||||||||||
| Private equity investments |
|
|
|
|
|
||||||||||||||||||||||||
| Mutual funds and mutual funds held in rabbi trusts |
|
|
|
|
|
||||||||||||||||||||||||
| Loans, net |
|
|
|
|
|
||||||||||||||||||||||||
| GGL/SBA loans servicing asset |
|
|
|
|
|
||||||||||||||||||||||||
| Derivative assets |
|
|
|
|
|
||||||||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||||||||
| Non-interest-bearing deposits | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Non-time interest-bearing deposits |
|
|
|
|
|
||||||||||||||||||||||||
| Time deposits |
|
|
|
|
|
||||||||||||||||||||||||
| Total deposits | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Securities sold under repurchase agreements |
|
|
|
|
|
||||||||||||||||||||||||
| Long-term debt |
|
|
|
|
|
||||||||||||||||||||||||
| Earnout liability |
|
|
|
|
|
||||||||||||||||||||||||
| Derivative liabilities |
|
|
|
|
|
||||||||||||||||||||||||
23
| December 31, 2020 | |||||||||||||||||||||||||||||
| (in thousands) | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| Financial assets | |||||||||||||||||||||||||||||
| Total cash, cash equivalents, and restricted cash | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Trading securities |
|
|
|
|
|
||||||||||||||||||||||||
| Investment securities available for sale |
|
|
|
|
|
||||||||||||||||||||||||
| Loans held for sale |
|
|
|
|
|
||||||||||||||||||||||||
| Private equity investments |
|
|
|
|
|
||||||||||||||||||||||||
| Mutual funds and mutual funds held in rabbi trusts |
|
|
|
|
|
||||||||||||||||||||||||
| Loans, net |
|
|
|
|
|
||||||||||||||||||||||||
| GGL/SBA loans servicing asset |
|
|
|
|
|
||||||||||||||||||||||||
| Derivative assets |
|
|
|
|
|
||||||||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||||||||
| Non-interest-bearing deposits | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Non-time interest-bearing deposits |
|
|
|
|
|
||||||||||||||||||||||||
| Time deposits |
|
|
|
|
|
||||||||||||||||||||||||
| Total deposits | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Securities sold under repurchase agreements |
|
|
|
|
|
||||||||||||||||||||||||
| Trading liability for short positions |
|
|
|
|
|
||||||||||||||||||||||||
| Long-term debt |
|
|
|
|
|
||||||||||||||||||||||||
| Earnout liability |
|
|
|
|
|
||||||||||||||||||||||||
| Derivative liabilities |
|
|
|
|
|
||||||||||||||||||||||||
Note 7 - Derivative Instruments and Hedging Activities
Synovus utilizes derivative instruments to manage its exposure to various types of interest rate risk, exposures related to liquidity and credit risk, and to facilitate customer transactions. The primary types of derivative instruments utilized by Synovus consist of interest rate swaps, interest rate lock commitments made to prospective mortgage loan customers, commitments to sell fixed-rate mortgage loans, and foreign currency exchange forwards. Interest rate lock commitments represent derivative instruments since it is intended that such loans will be sold. Synovus is party to master netting arrangements with its dealer counterparties; however, Synovus does not offset assets and liabilities under these arrangements for financial statement presentation purposes.
See "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" to the consolidated financial statements of Synovus' 2020 Form 10-K for additional information regarding accounting policies for derivatives.
Hedging Derivatives
Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. Synovus has entered into interest rate swap contracts to manage overall cash flow changes related to interest rate risk exposure on index-based variable rate commercial loans. The contracts effectively modify Synovus' exposure to interest rate risk by utilizing receive fixed/pay index-based variable rate interest rate swaps.
For cash f
low hedges, if the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of accumulated other comprehensive income (loss), net of the tax impact, and subsequently reclassified into earnings when the hedged transaction affects earnings with the impacts recorded in the same income statement line item used to present the earnings effect of the hedged item. When a cash flow hedge relationship is discontinued but the hedged cash flows, or forecasted transactions, are still expected to occur, gains or losses that were accumulated in OCI are amortized into earnings over the same periods which the hedged transactions would have affected earnings. If, however, it is probable the forecasted transactions will no longer occur, the remaining accumulated amounts in OCI at the de-designation date are immediately recognized in earnings.
Synovus recorded unrealized gains of $
757
thousand,
or $
565
thousand,
after tax, in OCI during the first quarter of 2021 and $
9.8
million, or $
7.3
million, after-tax, in OCI, during the first quarter of 2020, related to terminated cash flow hedges, which are being recognized into earnings in conjunction with the effective terms of the original swaps through the fourth
24
quarter of 2025. Synovus recognized pre-tax income of $
1.6
million during the
three months ended March 31, 2021
related to t
he amortization o
f terminated cash flow hedges.
As of March 31, 2021, Synovus expects to reclassify into earnings approximately $
43
million in pre-tax income due to the receipt or payment of interest payments on all cash flow hedges within the next twelve months. Included in this amount is approximately
$
13
million
in pre-tax income related to the amortization of terminated cash flow hedges.
As of March 31, 2021, the maximum length of time over which Synovus is hedging its exposure to the variability in future cash flows is through the first quarter of 2026.
For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.
Counterparty Credit Risk and Collateral
Entering into derivative contracts potentially exposes Synovus to the risk of counterparties’ failure to fulfill their legal obligations, including, but not limited to, potential amounts due or payable under each derivative contract. Notional principal amounts are often used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. Synovus assesses the credit risk of its dealer counterparties by regularly monitoring publicly available credit rating information, evaluating other market indicators, and periodically reviewing detailed financials. Dealer collateral requirements are determined via risk-based policies and procedures and in accordance with existing agreements. Synovus s
eeks to minimize dealer credit risk by dealing with highly rated counterparties and by obtaining collateral for exposures above certain predetermined limits. Management closely monitors credit conditions within the customer swap portfolio, which management deems to be of higher risk than dealer counterparties. Collateral is secured at origination and credit related fair value adjustments are recorded against the asset value of the derivative as deemed necessary based upon an analysis, which includes consideration of the current asset value of the swap, customer risk rating, collateral value, and customer standing with regards to its swap contractual obligations and other related matters. Such asset values fluctuate based upon changes in interest rates regardless of changes in notional amounts and changes in customer specific risk.
Collateral Requirements
Pursuant to the Dodd-Frank Act, certain derivative transactions have collateral requirements, both at the inception of the trade and as the value of each derivative position changes. As of March 31, 2021 and December 31, 2020, collateral totaling $
121.7
million and $
155.4
million, respectively, was pledged to the derivative counterparties to comply with collateral requirements. For derivatives cleared through central clearing houses, the variation margin payments made are legally characterized as settlements of the derivatives. As a result, these variation margin payments are netted against the fair value of the respective derivative contracts in the consolidated balance sheets and related disclosures. At March 31, 2021 and December 31, 2020, Synovus had a variation margin of $
81.8
million and $
162.7
million respectively, each reducing the derivative liability.
25
The following table reflects the notional amount and fair value of derivative instruments included on the consolidated balance sheets.
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| Fair Value | Fair Value | ||||||||||||||||||||||||||||||||||
| (in thousands) | Notional Amount |
Derivative Assets
(1)
|
Derivative Liabilities
(2)
|
Notional Amount |
Derivative Assets
(1)
|
Derivative Liabilities
(2)
|
|||||||||||||||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||||||||||||||||||||
| Interest rate contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
|
Derivatives not designated
as hedging instruments: |
|||||||||||||||||||||||||||||||||||
|
Interest rate contracts
(3)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Mortgage derivatives - interest rate lock commitments |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Mortgage derivatives - forward commitments to sell fixed-rate mortgage loans |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Other contracts
(4)
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Visa derivative |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
(1)
Derivative assets are recorded in other assets on the consolidated balance sheets.
(2)
Derivative liabilities are recorded in other liabilities on the consolidated balance sheets.
(3)
Includes interest rate contracts for customer swaps and offsetting positions, net of variation margin payments.
(4)
Includes risk participation agreements sold. Additionally, the notional amount of risk participation agreements purchased was $
2.5
million and $
2.6
million at March 31, 2021 and December 31, 2020, respectively.
Synovus also provides foreign currency exchange services, primarily forward contracts, with counterparties to allow commercial customers to mitigate exchange rate risk. Synovus covers its risk by entering into an offsetting foreign currency exchange forward contract. The notional amount of foreign currency exchange forwards was $
18.4
million and $
24.1
million at March 31, 2021 and December 31, 2020, respectively. The fair value of foreign currency exchange forwards was negligible at March 31, 2021 and December 31, 2020 due to the very short duration of these contracts.
The following table presents the effect of hedging derivative instruments on the consolidated statements of income and the total amounts for the respective line item affected for the
three months ended March 31, 2021 and 2020
.
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2021 | 2020 | |||||||||
| Total amounts presented in the consolidated statements of income in interest income on loans | $ |
|
$ |
|
|||||||
|
Gain/loss on cash flow hedging relationships:
(1)
|
|||||||||||
| Interest rate swaps: | |||||||||||
| Realized gains (losses) reclassified from AOCI, pre-tax, to interest income on loans |
|
|
|||||||||
| Pre-tax income recognized on cash flow hedges | $ |
|
$ |
|
|||||||
(1)
See "Part I - Item 1. Financial Statements and Supplementary Data - Note 5 - Shareholders' Equity and Other Comprehensive Income (Loss) in this Report for additional information.
26
The pre-tax effect of changes in fair value from derivative instruments not designated as hedging instruments on the consolidated statements of income for the three months ended March 31, 2021 and 2020 is presented below.
| Gain (Loss) Recognized in Consolidated Statements of Income | ||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||
| (in thousands) |
Location in Consolidated Statements of Income
|
2021 | 2020 | |||||||||||||||||
|
Derivatives not designated as hedging instruments:
|
||||||||||||||||||||
|
Interest rate contracts
(1)
|
Capital markets income | $ |
|
$ |
(
|
|||||||||||||||
|
Other contracts
(2)
|
Capital markets income |
|
(
|
|||||||||||||||||
| Mortgage derivatives - interest rate lock commitments | Mortgage banking income |
(
|
|
|||||||||||||||||
| Mortgage derivatives - forward commitments to sell fixed-rate mortgage loans | Mortgage banking income |
|
(
|
|||||||||||||||||
|
Total derivatives not designated as hedging instruments
|
$ |
|
$ |
|
||||||||||||||||
(2)
Includes risk participation agreements sold.
Note 8 - Net Income Per Common Share
The following table displays a reconciliation of the information used in calculating basic and diluted net income per common share for the three months ended March 31, 2021 and 2020. Diluted net income per common share incorporates the potential impact of contingently issuable shares, including awards which require future service as a condition of delivery of the underlying common stock.
| Three Months Ended March 31, | |||||||||||
| (in thousands, except per share data) | 2021 | 2020 | |||||||||
| Basic Net Income Per Common Share: | |||||||||||
| Net income available to common shareholders | $ |
|
$ |
|
|||||||
| Weighted average common shares outstanding |
|
|
|||||||||
| Net income per common share, basic | $ |
|
$ |
|
|||||||
| Diluted Net Income Per Common Share: | |||||||||||
| Net income available to common shareholders | $ |
|
$ |
|
|||||||
| Weighted average common shares outstanding |
|
|
|||||||||
| Effect of dilutive outstanding equity-based awards, warrants, and earnout payments |
|
|
|||||||||
| Weighted average diluted common shares |
|
|
|||||||||
| Net income per common share, diluted | $ |
|
$ |
|
|||||||
Note 9 - Commitments and Contingencies
In the normal course of business, Synovus enters into commitments to extend credit such as loan commitments and letters of credit to meet the financing needs of its customers. Synovus uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Synovus also has commitments to fund certain low-income housing investments, solar energy, and CRA investments.
The contractual amount of these financial instruments represents Synovus' maximum credit risk should the counterparty draw upon the commitment, and should the counterparty subsequently fail to perform according to the terms of the contract. Since many of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements. Additionally, certain commitments (primarily consumer) can generally be canceled by providing notice to the borrower.
27
The ACL associated with unfunded commitments and letters of credit is recorded within other liabilities on the consolidated balance sheets. At March 31, 2021, the ACL for unfunded commitments was $
51.5
million, compared to a reserve of $
47.8
million at December 31, 2020. Additionally, an immaterial amount of unearned fees relating to letters of credit are recorded within other liabilities on the consolidated balance sheets.
Synovus invests in certain LIHTC partnerships which are engaged in the development and operation of affordable multi-family housing pursuant to Section 42 of the Code. Additionally, Synovus invests in certain solar energy tax credit partnerships pursuant to Section 48 of the Code. Synovus typically acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnerships and as such, is not considered the primary beneficiary of the partnership. For certain of its LIHTC investments, Synovus provides financing during the construction and development of the properties and is at risk for the funded amount of its equity investment plus the outstanding amount of any construction loans in excess of the fair value of the collateral for the loan, but has no obligation to fund the operations or working capital of the partnerships and is not exposed to losses beyond Synovus’ investment. Synovus receives tax credits related to these investments which are subject to recapture by taxing authorities based on compliance provisions required to be met at the project level.
Synovus also invests in certain other CRA partnerships including SBIC programs. The SBIC is a program initiated by the SBA in 1958 to assist in the funding of small business loans.
| (in thousands) | March 31, 2021 | December 31, 2020 | |||||||||
| Letters of credit* | $ |
|
$ |
|
|||||||
| Commitments to fund commercial and industrial loans |
|
|
|||||||||
| Commitments to fund commercial real estate, construction, and land development loans |
|
|
|||||||||
| Commitments under home equity lines of credit |
|
|
|||||||||
| Unused credit card lines |
|
|
|||||||||
| Other loan commitments |
|
|
|||||||||
| Total letters of credit and unfunded lending commitments | $ |
|
$ |
|
|||||||
|
LIHTC, solar energy tax credit and other CRA partnerships:
|
|||||||||||
| Carrying amount included in other assets | $ |
|
$ |
|
|||||||
| Amount of future funding commitments included in carrying amount |
|
|
|||||||||
| Permanent and short-term construction loans and letter of credit commitments |
|
|
|||||||||
| Funded portion of permanent and short-term loans and letters of credit |
|
|
|||||||||
Merchant Services
In accordance with credit and debit card association rules, Synovus provides merchant processing services for customers with a contractual arrangement under which certain sales and processing support are provided through an outside merchant services provider with Synovus owning the merchant contract relationship. In addition, Synovus sponsors various third-party MPS businesses that process credit and debit card transactions on behalf of merchants. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder's favor. If the merchant defaults on its obligations, the cardholder, through its issuing bank, generally has until six months after the date of the transaction to present a chargeback to the MPS, which is primarily liable for any losses on covered transactions. However, if a sponsored MPS fails to meet its obligations, then Synovus, as the sponsor, could be held liable for the disputed amount. Synovus seeks to mitigate this risk through its contractual arrangements with the MPS and the merchants by withholding future settlements, retaining cash reserve accounts and/or obtaining other security. For the three months ended March 31, 2021 and 2020, Synovus and the sponsored entities processed and settled $
26.03
billion and $
18.37
billion of transactions, respectively.
Synovus covered chargebacks related to a particular sponsored MPS during 2019 and 2018 where the MPS’s cash reserve account was unavailable to support the chargebacks. As of March 31, 2021, the remaining amount, net of reserves, included in other assets and classified in NPAs, is $
15.5
million, compared to $
15.6
million at December 31, 2020. While Synovus has contractual protections to mitigate against loss, repayment of the amounts owed to Synovus will depend in large part upon the continued financial viability and/or valuation of the MPS.
28
Legal Proceedings
Synovus and its subsidiaries are subject to various legal proceedings, claims and disputes that arise in the ordinary course of its business. Additionally, in the ordinary course of business, Synovus and its subsidiaries are subject to regulatory and governmental examinations, information gathering requests, inquiries and investigations. Synovus, like many other financial institutions, has been the target of legal actions and other proceedings asserting claims for damages and related relief for losses. These actions include mortgage loan and other loan put-back claims, claims and counterclaims asserted by individual borrowers related to their loans, allegations of violations of state and federal laws and regulations relating to banking practices, and allegations related to Synovus' participation in government stimulus programs, including putative class action matters. In addition to actual damages, if Synovus does not prevail in such asserted legal actions, credit-related litigation could result in additional write-downs or charge-offs of assets, which could adversely affect Synovus' results of operations during the period in which the write-down or charge-off were to occur.
Synovus carefully examines and considers each legal matter, and, in those situations where Synovus determines that a particular legal matter presents loss contingencies that are both probable and reasonably estimable, Synovus establishes an appropriate reserve. An event is considered to be probable if the future event is likely to occur. While the final outcome of any legal proceeding is inherently uncertain, based on the information currently available, advice of counsel and available insurance coverage, management believes that the amounts accrued with respect to legal matters as of March 31, 2021 are adequate. The actual costs of resolving legal claims may be higher or lower than the amounts accrued.
In addition, where Synovus determines that there is a reasonable possibility of a loss in respect of legal matters, Synovus considers whether it is able to estimate the total reasonably possible loss or range of loss. An event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely.” An event is “remote” if “the chance of the future event or events occurring is more than slight but less than reasonably possible." In many situations, Synovus may be unable to estimate reasonably possible losses due to the preliminary nature of the legal matters, as well as a variety of other factors and uncertainties. For those legal matters where Synovus is able to estimate a range of reasonably possible losses, management currently estimates the aggregate range from our outstanding litigation is from
zero
to $
5
million in excess of the amounts accrued, if any, related to those matters. This estimated aggregate range is based upon information currently available to Synovus, and the actual losses could prove to be lower or higher. As there are further developments in these legal matters, Synovus will reassess these matters, and the estimated range of reasonably possible losses may change as a result of this assessment. Based on Synovus' current knowledge and advice of counsel, management presently does not believe that the liabilities arising from these legal matters will have a material adverse effect on Synovus' consolidated financial condition, results of operations or cash flows. However, it is possible that the ultimate resolution of these legal matters could have a material adverse effect on Synovus' results of operations or financial condition for any particular period.
Note 10 - Segment Reporting
Synovus' business segments are based on the products and services provided or the customers served and reflect the manner in which financial information is evaluated by the chief operating decision makers. Synovus has
three
major reportable business segments: Community Banking, Wholesale Banking, and Financial Management Services (FMS), with functional activities such as treasury, technology, operations, marketing, finance, enterprise risk, legal, human resources, corporate communications, executive management, among others, included in Treasury and Corporate Other.
Business segment results are determined based upon Synovus' management reporting system, which assigns balance sheet and income statement items to each of the business segments. Certain assets, liabilities, revenues, and expenses not allocated or attributable to a particular business segment are included in Treasury and Corporate Other.
Synovus's third-party lending consumer loans and held for sale loans as well as PPP loans are included in Treasury and Corporate Other.
The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unl
ike financial accounting, are not based on authoritative guidance similar to GAAP. As a result, reported segment results are not necessarily comparable with similar information reported by other financial institutions.
The Community Banking business segment serves customers using a relationship-based approach through its branch, ATM, commercial, and private wealth network in addition to mobile, Internet, and telephone banking. This segment primarily provides individual, small business, and corporate customers with an array of comprehensive banking products and services including commercial, home equity, and other consumer loans, credit and debit cards, and deposit accounts.
29
The Wholesale Banking business segment serves primarily larger corporate customers by providing commercial lending and deposit services through specialty teams including middle market, CRE, senior housing, national accounts, premium finance, structured lending, healthcare, asset-based lending, and community investment capital.
The Financial Management Services (FMS) business segment serves its customers by providing mortgage and trust services and also specializing in professional portfolio management for fixed-income securities, investment banking, the execution of securities transactions as a broker/dealer, asset management, financial planning, and family office services, as well as the provision of individual investment advice on equity and other securities.
Synovus uses a centralized FTP methodology to attribute appropriate net interest income to the business segments. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing matched duration funding of assets and liabilities. The result is to centralize the financial impact, management, and reporting of interest rate risk in the Treasury and Corporate Other function where it can be centrally monitored and managed. Treasury and Corporate Other includes certain assets and/or liabilities managed within that function. Additionally, Treasury and Corporate Other also charges (credits) an internal cost of funds for assets held in (or pays for funding provided by) each business segment. The process for determining FTP is based on a number of factors and assumptions, including prevailing market interest rates, the expected lives of various assets and liabilities, and the Company's broader funding profile.
The following tables present c
ertain financial information for each reportable business segment for the three months ended March 31, 2021 and 2020.
The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable business segment may be periodically revised.
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||
| (in thousands) | Community Banking | Wholesale Banking | Financial Management Services | Treasury and Corporate Other | Synovus Consolidated | ||||||||||||||||||||||||
| Net interest income | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Non-interest revenue |
|
|
|
|
|
||||||||||||||||||||||||
| Non-interest expense |
|
|
|
|
|
||||||||||||||||||||||||
| Pre-provision net revenue | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||
| (in thousands) | Community Banking | Wholesale Banking | Financial Management Services | Treasury and Corporate Other | Synovus Consolidated | ||||||||||||||||||||||||
| Net interest income | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Non-interest revenue |
|
|
|
|
|
||||||||||||||||||||||||
| Non-interest expense |
|
|
|
|
|
||||||||||||||||||||||||
| Pre-provision net revenue | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
30
| March 31, 2021 | |||||||||||||||||||||||||||||
| (dollars in thousands) | Community Banking | Wholesale Banking | Financial Management Services | Treasury and Corporate Other | Synovus Consolidated | ||||||||||||||||||||||||
| Loans, net of deferred fees and costs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Total deposits | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Total full-time equivalent employees |
|
|
|
|
|
||||||||||||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||||||||
| (dollars in thousands) | Community Banking | Wholesale Banking | Financial Management Services | Treasury and Corporate Other | Synovus Consolidated | ||||||||||||||||||||||||
| Loans, net of deferred fees and costs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Total deposits | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Total full-time equivalent employees |
|
|
|
|
|
||||||||||||||||||||||||
31
ITEM 2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this Report, the words “Synovus,” “the Company,” “we,” “us,” and “our” refer to Synovus Financial Corp. together with Synovus Bank and Synovus' other wholly-owned subsidiaries, except where the context requires otherwise.
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 and Section 21E of 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 financial services 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,” “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 financial services 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 document. Many of these factors are beyond Synovus' ability to control or predict. These factors include, but are not limited to:
| (1) | the risks and uncertainties related to the impact of the COVID-19 pandemic on our assets, business, capital and liquidity, financial condition, prospects and results of operations; | |||||||
| (2) | the risk that we may not realize the expected benefits from our efficiency and growth initiatives or that we may not be able to realize such cost savings or revenue benefits in the time period expected, which could negatively affect our future profitability; | |||||||
| (3) | the risk that any economic downturn and contraction could have a material adverse effect on our capital, financial condition, credit quality, results of operations and future growth, including the risk that the current economic contraction could last much longer and be more severe if efforts to contain the pandemic are unsuccessful; | |||||||
| (4) | the risk that competition in the financial services industry may adversely affect our future earnings and growth; | |||||||
| (5) | our ability to attract and retain employees and the impact of executive management transitions that are key to our growth and efficiency strategies; | |||||||
| (6) | risks that our asset quality may deteriorate, our allowance for credit losses may prove to be inadequate or may be negatively affected by credit risk exposures, and the risk that we may be unable to obtain full payment in respect of any loan or other receivables; | |||||||
| (7) | the impact of recent and proposed changes in governmental policy, laws and regulations, including recently enacted laws, regulations and guidance related to government stimulus programs related to the COVID-19 pandemic, proposed and recently enacted changes in monetary policy and in the regulation and taxation of banks and financial institutions, or the interpretation or application thereof and the uncertainty of future implementation and enforcement of these regulations; | |||||||
| (8) | changes in the interest rate environment, including changes to the federal funds rate to include a negative interest rate environment, and competition in our primary market area may result in increased funding costs or reduced earning assets yields, thus reducing margins and net interest income; | |||||||
| (9) | the risk that our current and future information technology system enhancements and operational initiatives may not be successfully implemented, which could negatively impact our operations; | |||||||
32
| (10) | risks related to our implementation of new lines of business, new products and services or new technologies; | |||||||
| (11) | risks related to our business relationships with, and reliance upon, third parties that have strategic partnerships with us or that provide key components of our business infrastructure, including the costs of services and products provided to us by third parties, and risks related to disruptions in service or financial difficulties with a third-party vendor or business relationship; | |||||||
| (12) | the risk that our enterprise risk management framework, our compliance program, or our corporate governance and supervisory oversight functions may not identify or address risks adequately, which may result in unexpected losses; | |||||||
| (13) | the risk that we may be required to make substantial expenditures to keep pace with regulatory initiatives and the rapid technological changes in the financial services market; | |||||||
| (14) | changes in the cost and availability of funding due to changes in the deposit market and credit market; | |||||||
| (15) | risks related to the ability of our operational framework to identify and manage risks associated with our business such as credit risk, compliance risk, reputational risk, and operational risk, including by virtue of our relationships with third-party business partners, as well as our relationship with third-party vendors and other service providers; | |||||||
| (16) | our ability to identify and address cyber-security risks such as data security breaches, malware, "denial of service" attacks, "hacking" and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage of our systems, increased costs, significant losses, or adverse effects to our reputation; | |||||||
| (17) | the risk that we may be exposed to potential losses in the event of fraud and/or theft, or in the event that a third-party vendor, obligor, or business partner fails to pay amounts due to us under that relationship or under any arrangement that we enter into with them; | |||||||
| (18) | the impact on our financial results, reputation, and business if we are unable to comply with all applicable federal and state regulations or other supervisory actions or directives and any necessary capital initiatives; | |||||||
| (19) | the risks that if economic conditions worsen further or regulatory capital rules are modified, we may be required to undertake initiatives to improve or conserve our capital position; | |||||||
| (20) | risks related to the continued use, availability and reliability of LIBOR and the risks related to the transition from LIBOR to other benchmark rates; | |||||||
| (21) | restrictions or limitations on access to funds from historical and alternative sources of liquidity could adversely affect our overall liquidity, which could restrict our ability to make payments on our obligations and our ability to support asset growth and sustain our operations and the operations of Synovus Bank; | |||||||
| (22) | our ability to receive dividends from our subsidiaries could affect our liquidity, including our ability to pay dividends or take other capital actions; | |||||||
| (23) | the risk that we may not be able to identify suitable bank and non-bank acquisition opportunities as part of our growth strategy and even if we are able to identify attractive acquisition opportunities, we may not be able to complete such transactions on favorable terms or realize the anticipated benefits from such acquisitions; | |||||||
| (24) | the risk that we could realize losses if we sell non-performing assets and the proceeds we receive are lower than the carrying value of such assets; | |||||||
| (25) | risks related to regulatory approval to take certain actions, including any dividends on our common stock or preferred stock, any repurchases of common stock or any other issuance or redemption of any other regulatory capital instruments; | |||||||
| (26) | the risk that our concentrated operations in the Southeastern U.S. make us vulnerable to local economic conditions, local weather catastrophes, public health issues, and other external events; | |||||||
33
| (27) | the costs and effects of litigation, investigations or similar matters, or adverse facts and developments related thereto, including the costs and effects of litigation related to our participation in government stimulus programs associated with the COVID-19 pandemic; | |||||||
| (28) | risks related to the fluctuation in our stock price and general volatility in the stock market; | |||||||
| (29) | the effects of any damages to our reputation resulting from developments related to any of the items identified above; and | |||||||
| (30) | other factors and other information contained in this Report and in other reports and filings that we make with the SEC under the Exchange Act, including, without limitation, those found in "Part II - Item 1A. Risk Factors" of this Report. | |||||||
For a discussion of these and other risks that may cause actual results to differ from expectations, refer to “Part I - Item 1A. Risk Factors” and other information contained in Synovus' 2020 Form 10-K and our other periodic filings, including quarterly reports on Form 10-Q and current reports on Form 8-K, that we file from time to time with the SEC. All written or oral forward-looking statements that are made by or are attributable to Synovus are expressly qualified by this cautionary notice. You should not place undue reliance on any forward-looking statements since 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 or to reflect the occurrence of new information or unanticipated events, except as may otherwise be required by law.
INTRODUCTION AND CORPORATE PROFILE
Synovus Financial Corp. is a financial services company and a registered bank holding company headquartered in Columbus, Georgia. Through its wholly-owned subsidiary, Synovus Bank, a Georgia state-chartered bank that is a member of the Federal Reserve System, the Company provides commercial and retail banking in addition to a full suite of specialized products and services including private banking, treasury management, wealth management, mortgage services, premium finance, asset-based lending, structured lending, and international banking. Synovus also provides financial planning, and investment advisory services through its wholly-owned subsidiaries, Synovus Trust and Synovus Securities, as well as its GLOBALT and Creative Financial Group divisions.
Synovus Bank is positioned in some of the highest growth markets in the Southeast, wi
th 288 br
anches in Alabama, Florida, Georgia, South Carolina, and Tennessee.
The following financial review summarizes the significant trends, changes in our business, transactions, and other matters affecting Synovus’ results of operations for the three months ended March 31, 2021 and financial condition as of March 31, 2021 and December 31, 2020. This discussion supplements, and should be read in conjunction with, the unaudited interim consolidated financial statements and notes thereto contained elsewhere in this Report and the consolidated financial statements of Synovus, the notes thereto, and management’s discussion and analysis contained in Synovus' 2020 Form 10-K.
Management's Discussion and Analysis of Financial Condition and Results of Operations consists of:
•
Discussion of Results of Operations - Reviews Synovus' financial performance, as well as selected balance sheet items, items from the statements of income, significant transactions, and certain key ratios that illustrate Synovus' performance.
•
Credit Quality, Capital Resources and Liquidity - Discusses credit quality, market risk, capital resources, and liquidity, as well as performance trends. It also includes a discussion of liquidity policies, how Synovus obtains funding, and related performance.
•
Additional Disclosures - Discusses additional important matters including critical accounting policies and non-GAAP financial measures used within this Report.
A reading of each section is important to understand fully our financial performance.
34
DISCUSSION OF RESULTS OF OPERATIONS
| Table 1 - Consolidated Financial Highlights | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| (dollars in thousands, except per share data) | 2021 | 2020 | Change | ||||||||||||||
|
Net interest income
|
$ | 373,857 | $ | 373,260 | — | % | |||||||||||
|
(Reversal of) provision for credit losses
|
(18,575) | 158,722 | (112) | ||||||||||||||
|
Non-interest revenue
|
110,956 | 103,857 | 7 | ||||||||||||||
|
Adjusted non-interest revenue
(1)
|
112,946 | 99,378 | 14 | ||||||||||||||
|
Total FTE revenue
|
485,587 | 477,903 | 2 | ||||||||||||||
|
Adjusted total revenue
(1)
|
487,577 | 473,424 | 3 | ||||||||||||||
|
Non-interest expense
|
267,134 | 276,279 | (3) | ||||||||||||||
|
Adjusted non-interest expense
(1)
|
266,603 | 271,155 | (2) | ||||||||||||||
|
Income before income taxes
|
236,254 | 42,116 | 461 | ||||||||||||||
|
Net income
|
187,093 | 38,521 | 386 | ||||||||||||||
|
Net income available to common shareholders
|
178,802 | 30,230 | 492 | ||||||||||||||
|
Net income per common share, basic
|
1.20 | 0.21 | 487 | ||||||||||||||
|
Net income per common share, diluted
|
1.19 | 0.20 | 486 | ||||||||||||||
|
Adjusted net income per common share, diluted
(1)
|
1.21 | 0.21 | 483 | ||||||||||||||
|
Net interest margin
(2)
|
3.04 | % | 3.37 | % | (33) | bps | |||||||||||
|
Net charge-off ratio
(2)
|
0.21 | 0.21 | — | ||||||||||||||
|
Return on average assets
(2)
|
1.40 | 0.32 | 108 | ||||||||||||||
|
Adjusted return on average assets
(1)(2)
|
1.41 | 0.32 | 109 | ||||||||||||||
|
Efficiency ratio-FTE
|
55.01 | 57.81 | (280) | ||||||||||||||
|
Adjusted tangible efficiency ratio
(1)
|
54.19 | 56.72 | (253) | ||||||||||||||
(1)
See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for the applicable reconciliation to the most comparable GAAP measure.
(2)
Annualized
| March 31, 2021 | December 31, 2020 | Sequential Quarter Change | March 31, 2020 | Year-Over-Year Change | ||||||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||
| Loans, net of deferred fees and costs | $ | 38,805,101 | $ | 38,252,984 | $ | 552,117 | $ | 38,258,024 | $ | 547,077 | ||||||||||||||||||||||
| Total average loans | 38,212,267 | 38,884,551 | (672,284) | 37,593,045 | 619,222 | |||||||||||||||||||||||||||
| Total deposits | 47,368,951 | 46,691,571 | 677,380 | 39,826,585 | 7,542,366 | |||||||||||||||||||||||||||
|
Core deposits (excludes brokered deposits)
|
44,174,284 | 43,121,165 | 1,053,119 | 35,838,637 | 8,335,647 | |||||||||||||||||||||||||||
|
Core transaction deposits (excludes brokered and public fund deposits)
|
34,804,575 | 32,754,609 | 2,049,966 | 24,790,621 | 10,013,954 | |||||||||||||||||||||||||||
|
Total average deposits
|
46,454,878 | 45,973,980 | 480,898 | 38,687,207 | 7,767,671 | |||||||||||||||||||||||||||
| Non-performing assets ratio | 0.50 | % | 0.50 | % | — | bps | 0.50 | % | — | bps | ||||||||||||||||||||||
| Non-performing loans ratio | 0.40 | 0.39 | 1 | 0.41 | (1) | |||||||||||||||||||||||||||
| Past due loans over 90 days | 0.01 | 0.01 | — | 0.02 | (1) | |||||||||||||||||||||||||||
| CET1 capital | $ | 4,184,715 | $ | 4,034,865 | $ | 149,850 | $ | 3,744,415 | $ | 440,300 | ||||||||||||||||||||||
| Tier 1 capital | 4,721,860 | 4,572,010 | 149,850 | 4,281,560 | 440,300 | |||||||||||||||||||||||||||
| Total risk-based capital | 5,733,956 | 5,604,230 | 129,726 | 5,289,039 | 444,917 | |||||||||||||||||||||||||||
| CET1 capital ratio | 9.74 | % | 9.66 | % | 8 | bps | 8.70 | % | 104 | bps | ||||||||||||||||||||||
| Tier 1 capital ratio | 10.99 | 10.95 | 4 | 9.95 | 104 | |||||||||||||||||||||||||||
| Total risk-based capital ratio | 13.34 | 13.42 | (8) | 12.29 | 105 | |||||||||||||||||||||||||||
|
Total shareholders’ equity to total assets ratio
|
9.36 | 9.49 | (13) | 10.01 | (65) | |||||||||||||||||||||||||||
|
Tangible common equity ratio
(1)
|
7.55 | 7.66 | (11) | 7.94 | (39) | |||||||||||||||||||||||||||
|
Return on average common equity
(2)
|
15.77 | 12.31 | 346 | 2.75 | 1,302 | |||||||||||||||||||||||||||
|
Adjusted return on average common equity
(1)(2)
|
15.93 | 13.91 | 202 | 2.79 | 1,314 | |||||||||||||||||||||||||||
|
Adjusted return on average tangible common equity
(1)(2)
|
18.04 | 15.79 | 225 | 3.39 | 1,465 | |||||||||||||||||||||||||||
(1)
See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for the applicable reconciliation to the most comparable GAAP measure.
(2)
Quarter annualized
35
Executive Summary
Net income available to common shareholders for the first quarter of 2021 was $178.8 million, or $1.19 per diluted common share, a significant increase compared to $30.2 million, or $0.20 per diluted common share, in
the first quarter of 2020. Adjusted net income per common share, diluted
(1)
was $1.21, compared to $0.21 for the first quarters of
2021
and 2020, respectively. The year-over-year increase was impacted by a significant provision for credit losses recorded during the first quarter of 2020 due to the onset of COVID-19 following the adoption of CECL on January 1, 2020.
Net interest income for the three months ended March 31, 2021 was $373.9 million, up $597 thousand compared to the same period in 2020 including $24.9 million in PPP processing fees during the first quarter of 2021. Net interest margin was down 33 bps over the comparable three-month period to 3.04%, due primarily to the decline in market interest rates and accelerated prepayment activity. On a sequential quarter basis, net interest income was down $12.1 million and net interest margin was down 8 bps
. The sequential quarter decline in net interest income was primarily due to a lower day count and a continuation of low-rate pressure, partially offset by further declines in deposit pricing and continued deployment of excess liquidity. As we progress through the year, we expect to see increases in net interest income, excluding PPP fees, driven by loan growth, deployment of liquidity, a deceleration of prepayments, and further deposit cost reductions.
Non-interest revenue for the first quarter of 2021 was $111.0 million, up $7.1 million, or 7%, compared to the same period in 2020
. Adjusted non-interest revenue
(1)
, which excludes net investment securities gains/(losses) and increase/(decrease) in fair value of private equity investments, for the first quarter of 2021 was $112.9 million, up $13.6 million, or 14%, from the first quarter of 2020
. Net mortgage banking income of $22.3 million remained strong and drove the year-over-year increase in non-interest revenue. While first quarter 2021 mortgage production levels remained elevated, the recent increase in interest rates is likely to reduce production levels going forward.
Non-interest expense for the first quarter of 2021 was $267.1 million
, down $9.1 million, or 3%, compared to the first quarter of 2020 and adjusted non-interest expense
(1)
of $266.6 million was down $4.6 million, or 2%. The adjusted tangible efficiency ratio
(1)
for the first three months of 2021 was 54.19%, down 253 bps compared to the same period a year ago. We remain committed to prudent expense management, enabling us to continue investing in areas that position us for greater success, deliver a superior customer experience, and promote profitable growth.
At March 31, 2021, loans, net of deferred fees and costs, of $38.81 billion, increased $552.1 million, or 1%, from December 31, 2020
led by CRE growth of $208.2 million as the recovery of commercial real estate markets continued, C&I growth of $173.7 million driven by a $170.1 million increase in PPP loans, and consumer growth of $170.2 million primarily due to purchases of $607.0 million of third-party lending loans, including a $476.2 million prime auto portfolio purchase. These growth metrics were partially offset by declines in consumer mortgages and HELOCs of $214.3 million and $105.4 million, respectively, as consumers across the industry continued to use government stimulus to reduce revolving credit balances and deleverage.
At March 31, 2021, credit metrics remained stable with NPAs, NPLs, and past dues all near historical lows at Synovus, and n
et charge-offs remained low and declined $1.9 million on a sequential quarter basis to $20.2 million, or 21 basis points. Given elevated levels of liquidity and continued economic recovery, particularly in the Southeast, we are not expecting a significant change in net charge-offs in the near term. The ACL at March 31, 2021 totaled $614.7 million, a
decrease of
$38.8 million
from December 31, 2020,
resulting from the improved economic outlook and stable loan portfolio metrics that were partially offset by the increased size of the loan portfolio. The ACL to loans coverage ratio at March 31, 2021 was 1.58%, or 1.69% excluding PPP loans, and incorporates an outlook with moderate economic expansion and benefits from the recently approved government stimulus.
Total period-end deposits at March 31, 2021 increased $677.4 million, or 1%, compared to December 31, 2020. Core transaction deposits (non-interest bearing, NOW/savings, and money market deposits excluding public and brokered funds) increased $2.05 billion, or 6%, compared to December 31, 2020. The increase in deposit balances compared to December 31, 2020 is due largely to government stimulus programs including deposits associated with PPP loans.
At March 31, 2021, Synovus' CET1 ratio was 9.74%, well in excess of regulatory requirements including the capital conservation buffer of 2.5%, and was up 8 bps compared to December 31, 2020, driven by earnings. Synovus announced on January 26, 2021 that its Board of Directors authorized share repurchases of up to $200 million in 2021
. During the first quarter of 2021, the Company did not complete any share repurchases. During the second quarter of 20
21, Synovus had repurchased $23.2 million, or 499 thousand shares of its common stock, at an average price of $46.52 per share, as of May 5, 2021.
More detail on Synovus' financial results for the three months ended March 31, 2021 may be found in subseque
nt sections of "Item 2. – Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report. See also "Item 1A. - Risk Factors" of this Report.
(1)
See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for applicable reconciliation to the most comparable GAAP mea
sure.
36
Changes in Financial Condition
During the three months ended March 31, 2021, total assets increased $764.9 million from $54.39 billion at December 31, 2020 to $55.16 billion. Loans increased $552.1 million, including
increases of $170.1 million
in PPP loans net
of unearned fees and a $476.2 million indirect auto portfolio purchase. Lo
ans held for sale increased $233.8 million. Investment securities available for sale increased $863.3 million while cash and cash equivalents decreased $924.7 million.
The growth in assets was primarily funded by increases of $677.4 million in deposits. Securities sold under repurchase agreements increased $65.7 million.
Total shareholders' equity at March 31, 2021 was flat, as compared to December 31, 2020, and included net income of $187.1 million and proceeds from stock option exercises of $12.6 million, offset by unrealized losses in investment securities available for sale and cash flow hedges of $121.0 million and $22.4 million, respectively, and dividends declared on common and preferred stock of $49.1 million and $8.3 million, respectively.
The loan to deposit ratio was 81.9% at both March 31, 2021 and December 31, 2020, compared to 96.1% at March 31, 2020.
Loans
The following table compares the composition of the loan portfolio at March 31, 2021, December 31, 2020, and March 31, 2020.
| Table 2 - Loans by Portfolio Class | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2021 vs. December 31, 2020 Change | March 31, 2021 vs. March 31, 2020 Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2021 | December 31, 2020 | March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial, financial and agricultural | $ | 12,662,329 | 32.6 | % | $ | 12,410,152 | 32.4 | % | $ | 252,177 | 2 | % | $ | 10,902,455 | 28.4 | % | $ | 1,759,874 | 16 | % | |||||||||||||||||||||||||||||||||||||||
| Owner-occupied | 7,031,505 | 18.1 | 7,110,016 | 18.6 | (78,511) | (1) | 6,907,893 | 18.1 | 123,612 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial and industrial | 19,693,834 | 50.7 | 19,520,168 | 51.0 | 173,666 | 1 | 17,810,348 | 46.5 | 1,883,486 | 11 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Investment properties | 9,335,725 | 24.1 | 9,103,379 | 23.8 | 232,346 | 3 | 9,024,916 | 23.6 | 310,809 | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 1-4 family properties | 638,954 | 1.6 | 628,695 | 1.6 | 10,259 | 2 | 736,937 | 1.9 | (97,983) | (13) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Land and development | 559,249 | 1.4 | 593,633 | 1.6 | (34,384) | (6) | 713,505 | 1.9 | (154,256) | (22) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate | 10,533,928 | 27.1 | 10,325,707 | 27.0 | 208,221 | 2 | 10,475,358 | 27.4 | 58,570 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer mortgages | 5,299,175 | 13.7 | 5,513,491 | 14.4 | (214,316) | (4) | 5,613,997 | 14.7 | (314,822) | (6) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity lines | 1,432,367 | 3.7 | 1,537,726 | 4.0 | (105,359) | (7) | 1,793,486 | 4.7 | (361,119) | (20) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Credit cards | 267,371 | 0.7 | 281,018 | 0.7 | (13,647) | (5) | 261,581 | 0.7 | 5,790 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other consumer loans | 1,578,426 | 4.1 | 1,074,874 | 2.9 | 503,552 | 47 | 2,303,254 | 6.0 | (724,828) | (31) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total consumer | 8,577,339 | 22.2 | 8,407,109 | 22.0 | 170,230 | 2 | 9,972,318 | 26.1 | (1,394,979) | (14) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Loans, net of deferred fees and costs | $ | 38,805,101 | 100.0 | % | $ | 38,252,984 | 100.0 | % | $ | 552,117 | 1 | % | $ | 38,258,024 | 100.0 | % | $ | 547,077 | 1 | % | |||||||||||||||||||||||||||||||||||||||
At March 31, 2021, loans, net of deferred fees and costs, of $38.81 billion, increased $552.1 million, or 1%, from December 31, 2020 led by CRE growth of $208.2 million as the recovery of commercial real estate markets continued, C&I growth of $173.7 million driven by a $170.1 million increase in PPP loans, and consumer growth of $170.2 million primarily due to purchases of $607.0 million of third-party lending loans, including a $476.2 million prime auto loans purchase. These growth metrics were partially offset by declines in consumer mortgages and HELOCs of $214.3 million and $105.4 million, respectively, as consumers across the industry continued to use government stimulus to reduce revolving credit balances and deleverage. C&I lo
ans remain the largest component of our loan portfolio, representing 50.7% of total loans, while CRE and consumer loans represent 27.1% and 22.2%, respectively. Our portfolio composition is established through a comprehensive concentration management policy which sets limits for C&I, CRE, and consumer loan levels as well as for sub-categories therein.
U.S. Small Business Administration Paycheck Protection Program (PPP)
Synovus is participating in the PPP, which is a loan program that originated from the CARES Act and was subsequently expanded by the Paycheck Protection Program and Health Care Enhancement Act, which was signed into law on April 24, 2020. Under the initial program, PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part.
The loans are guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. Synovus began accepting applications from qualified customers on April 3, 2020 and provided nearly $2.9 billion in funding to close to 19,000 customers through the initial PPP, at
37
an average loan size of approximately $150 thousand. In the fourth quarter of 2020, Synovus began receiving first draw PPP loan forgiveness that totals $1.25 billion, or $1.20 billion net of unearned fees, life-to-date through March 31, 2021, including PPP loan forgiveness of $711 million, or $687 million net of unearned fees, during the first quarter of 2021.
On December 27, 2020, the Economic Aid to Hard-Hit Businesses, Nonprofits, and Venues Act was signed into law, and authorized the SBA to reopen the PPP for first draw loans, as well as guarantee second draw PPP loans of up to $2 million for certain eligible borrowers that previously received a PPP loan. These loans carry a fixed rate of 1.00% and a term of five years, if not forgiven, in whole or in part
.
The loans are guaranteed by the SBA. The SBA pays the originating bank a processing fee based on the size of the loan.
On March 11, 2021, the American Rescue Plan Act of 2021 was enacted which primarily expanded and clarified eligibility for first and second draw PPP loans and revised the exclusions from payroll costs for purposes of loan forgiveness.
Synovus began participating in the second phase of the PPP on January 19, 2021 with almost 10,000 applications submitted totaling $1.09 billion and total fundings of $894 million, or $857 million net of unearned fees, as of March 31, 2021. The total balance of PPP loans was $2.36 billion as of March 31, 2021, compared to $2.19 billion as of December 31, 2020.
Commercial Loans
Total commercial loans (which are comprised of C&I and CRE loans) at March 31, 2021 were $30.23 billion, or 77.9%, of the total loan portfolio, compared to $29.85 billion, or 78.0%, at December 31, 2020 and $28.29 billion, or 73.9%, at March 31, 2020.
At March 31, 2021, Synovus had eight
commercial loan relationships with total commitments of $100 million or more (including amounts funded), with one single relationship exceeding $150 million in commitments.
Commercial and Industrial Loans
The C&I loan portfolio represents the largest category of Synovus' loan portfolio and is primarily comprised of general middle market and commercial banking clients across a wide range of industries. The following table shows the composition of the C&I loan portfolio aggregated by NAICS code. In accordance with Synovus' lending policy, each loan undergoes a detailed underwriting process which incorporates uniform underwriting standards and oversight in proportion to the size and complexity of the lending relationship.
As of March 31, 2021, 82.5% (93.7% excluding PPP loans) of Synovus' C&I loans are secured by real estate, business equipment, inventory, and other types of collateral compared to 83.2% (93.8% excluding PPP loans) as of December 31, 2020. C&I loans grew $173.7 million, or 1%, from December 31, 2020, driven
primarily by a $170.1 million increase in PPP loans at March 31, 2021.
38
| Table 3 - Commercial and Industrial Loans by Industry | |||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
| (dollars in thousands) | Amount |
%
(1)
|
Amount |
%
(1)
|
|||||||||||||||||||
| Health care and social assistance | $ | 3,962,288 | 20.1 | % | $ | 3,891,162 | 19.9 | % | |||||||||||||||
| Finance and insurance | 1,772,701 | 9.0 | 1,685,797 | 8.6 | |||||||||||||||||||
| Accommodation and food services | 1,325,876 | 6.7 | 1,205,107 | 6.2 | |||||||||||||||||||
| Manufacturing | 1,323,787 | 6.7 | 1,275,169 | 6.5 | |||||||||||||||||||
| Retail trade | 1,256,529 | 6.4 | 1,303,263 | 6.7 | |||||||||||||||||||
| Wholesale trade | 1,163,470 | 5.9 | 1,152,082 | 5.9 | |||||||||||||||||||
| Professional, scientific, and technical services | 1,122,222 | 5.7 | 1,133,549 | 5.8 | |||||||||||||||||||
| Real estate and rental and leasing | 1,118,034 | 5.7 | 1,158,367 | 5.9 | |||||||||||||||||||
| Other services | 1,104,261 | 5.6 | 1,123,109 | 5.8 | |||||||||||||||||||
| Construction | 1,056,487 | 5.4 | 1,036,652 | 5.3 | |||||||||||||||||||
| Transportation and warehousing | 938,935 | 4.8 | 924,275 | 4.7 | |||||||||||||||||||
| Arts, entertainment, and recreation | 702,007 | 3.6 | 777,905 | 4.0 | |||||||||||||||||||
| Real estate other | 701,448 | 3.6 | 686,350 | 3.5 | |||||||||||||||||||
| Educational services | 439,818 | 2.2 | 395,193 | 2.0 | |||||||||||||||||||
| Public Administration | 437,142 | 2.2 | 435,636 | 2.2 | |||||||||||||||||||
| Administration, support, waste management, and remediation | 368,172 | 1.9 | 377,065 | 1.9 | |||||||||||||||||||
| Agriculture, forestry, fishing, and hunting | 357,473 | 1.8 | 383,010 | 2.0 | |||||||||||||||||||
| Information | 312,333 | 1.6 | 291,425 | 1.5 | |||||||||||||||||||
| Other industries | 230,851 | 1.1 | 285,052 | 1.6 | |||||||||||||||||||
| Total commercial and industrial loans | $ | 19,693,834 | 100.0 | % | $ | 19,520,168 | 100.0 | % | |||||||||||||||
(1)
Loan balance in each category expressed as a percentage of total C&I loans.
At March 31, 2021, $12.66 billion of C&I loans, or 32.6% of the total loan portfolio (including PPP loans of $2.36 billion), represented loans originated for the purpose of financing commercial, financial, and agricultural business activities. The primary source of repayment on these loans is revenue generated from products or services offered by the business or organization. The secondary source of repayment is the collateral, which consists primarily of equipment, inventory, accounts receivable, time deposits, cash surrender value of life insurance, and other business assets.
At March 31, 2021, $7.03 billion of C&I loans, or 18.1% of the total loan portfolio, represented loans originated for the purpose of financing owner-occupied properties. The financing of owner-occupied facilities is considered a C&I loan even though there is improved real estate as collateral. This treatment is a result of the credit decision process, which focuses on cash flow from operations of the business to repay the debt. The secondary source of repayment on these loans is the underlying real estate. These loans are predominately secured by owner-occupied and other real estate, and to a lesser extent, other types of collateral.
Commercial Real Estate Loans
CRE loans consist primarily of income-producing investment properties loans. Additionally, CRE loans include 1-4 family properties loans as well as land and development lo
ans. Total CRE loans of $10.53 billion increased
$208.2 million, or 2%, from December 31, 2020
, driven primarily by growth in income-producing investment properties as the recovery of commercial real estate markets continues.
Investment properties loans consist of construction and mortgage loans for income-
producing properties and are primarily made to finance multi-family properties, hotels, office buildings, shopping centers, warehouses and other commercial development properties. Total investment properties loans as of March 31, 2021 were $9.34 billion, or 88.6%, of the CRE loan portfolio, and increased $232.3 million, or 3%,
from December 31, 2020 with most sub-categories experiencing growth other than warehouses, which were down $7.8 million, or 1%, from December 31, 2020.
1-4 Family Properties Loans
1-4 family properties loans include construction loans to home builders and commercial mortgage loans related to 1-4 family rental properties and are almost always secured by the underlying property being financed by such loans. These properties are primarily located in the markets served by Synovus. At March 31, 2021, 1-4 family properties loans totaled $639.0 million, or 6.1% of the CRE loan portfolio, and increased by $10.3 million, or 2%, from December 31, 2020.
39
Land and Development Loans
Land and development loans include commercial and residential development as well as land acquisition loans and are secured by land held for future development, typically in excess of one year. Properties securing these loans are substantially within markets served by Synovus and loan terms generally include personal guarantees from the principals. Loans in this portfolio are underwritten based on the LTV of the collateral and the capacity of the guarantor(s). Land and development loans of $559.2 million at March 31, 2021 decreased $34.4 million, or 6%, from $593.6 million at December 31, 2020.
Consumer Loans
The consumer loan portfolio consists of a wide variety of loan products offered through Synovus' banking network including first and second residential mortgages, HELOCs, and credit card loans, as well as home impro
vement, student, personal, and
auto loan
s from third-party lending. The majority of Synovus' consumer loans are consumer mortgages and
HELOCs secured by first and second liens on residential real estate primarily located in the markets served by Synovus. As of March 31, 2021, weighted-average FICO scores within the residential real estate portfolio based on committed balances were 790
for HELOCs and
773
for Consumer Mortgages.
Consumer loans at March 31, 2021 of $8.58 billion increased $170.2 million, or 2%, compared to December 31, 2020. Consumer mortgages decreased $214.3 million, or 4%, from December 31, 2020, and HELOCs decreased $105.4 million, or 7%, from December 31, 2020. Credit card loans of $267.4 million at March 31, 2021 decreased $13.6 million, or 5% from $281.0 million at December 31, 2020. The reductions in consumer mortgages, HELOCs, and credit card loans are primarily a result of consumers continuing to use government stimulus to reduce revolving credit balances and deleverage as well as the competitive low rate environment. Other consumer loans, which primarily includes third-party lending, increased $503.6 million, or 47%, from December 31, 2020. As of March 31, 2021, third-party lending balances totaled $1.18 billion, or 3.0%, of the total loan portfolio, and increased $503.2 million, or 74%, compared to December 31, 2020, led by purchases of $607.0 million of third-party lending loans, including a $476.2 million prime auto loans purchase. We believe that the risk-return profile, the 2-year average life, and the liquidity of the asset class is a good fit under current market conditions. We will continue to use third-party lending to manage the balance sheet, which could lead to increases in this portfolio.
Deposits
Deposits provide the most significant funding source for interest earning assets. The following table shows the composition of period-end deposits as of the dates indicated. See Table 10 - Average Balances and Yields/Rates in this Report for information on average deposits including average rates.
| Table 4 - Composition of Period-end Deposits | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2021 |
%
(1)
|
December 31, 2020 |
%
(1)
|
March 31, 2020 |
%
(1)
|
|||||||||||||||||||||||||||||
|
Non-interest-bearing demand deposits
(2)
|
$ | 13,742,075 | 29.0 | % | $ | 12,382,708 | 26.5 | % | $ | 8,968,756 | 22.5 | % | |||||||||||||||||||||||
|
Interest-bearing demand deposits
(2)
|
5,841,749 | 12.3 | 5,674,416 | 12.2 | 4,617,368 | 11.6 | |||||||||||||||||||||||||||||
|
Money market accounts
(2)
|
13,943,717 | 29.5 | 13,541,236 | 29.0 | 10,255,014 | 25.8 | |||||||||||||||||||||||||||||
|
Savings deposits
(2)
|
1,277,034 | 2.7 | 1,156,249 | 2.5 | 949,483 | 2.4 | |||||||||||||||||||||||||||||
| Public funds | 6,154,948 | 13.0 | 6,760,628 | 14.5 | 5,261,383 | 13.2 | |||||||||||||||||||||||||||||
|
Time deposits
(2)
|
3,214,761 | 6.8 | 3,605,928 | 7.7 | 5,786,633 | 14.5 | |||||||||||||||||||||||||||||
| Brokered deposits | 3,194,667 | 6.7 | 3,570,406 | 7.6 | 3,987,948 | 10.0 | |||||||||||||||||||||||||||||
| Total deposits | $ | 47,368,951 | 100.0 | % | $ | 46,691,571 | 100.0 | % | $ | 39,826,585 | 100.0 | % | |||||||||||||||||||||||
|
Core deposits
(3)
|
$ | 44,174,284 | 93.3 | % | $ | 43,121,165 | 92.4 | % | $ | 35,838,637 | 90.0 | % | |||||||||||||||||||||||
|
Core transaction deposits
(4)
|
$ | 34,804,575 | 73.5 | % | $ | 32,754,609 | 70.2 | % | $ | 24,790,621 | 62.2 | % | |||||||||||||||||||||||
| Time deposits greater than $100,000, including brokered and public funds | $ | 4,105,424 | 8.7 | % | $ | 4,748,029 | 10.2 | % | $ | 7,176,468 | 18.0 | % | |||||||||||||||||||||||
| Brokered time deposits | $ | 1,281,027 | 2.7 | % | $ | 1,590,096 | 3.4 | % | $ | 2,229,596 | 5.6 | % | |||||||||||||||||||||||
(1)
Deposits balance in each category expressed as percentage of total deposits.
(2)
Excluding any public funds or brokered deposits.
(3)
Core deposits exclude brokered deposits.
(4)
Core transaction deposits consist of non-interest-bearing demand deposits, interest-bearing demand deposits, money market accounts, and savings deposits excluding public funds and brokered deposits.
40
Total period-end deposits at March 31, 2021 increased $677.4 million, or 1%, compared to December 31, 2020. Core transaction deposits increased $2.05 billion, or 6%, compared to December 31, 2020, due largely to government stimulus programs including deposits associated with the second phase of PPP loans. The sequential quarter growth in lower cost core transaction accounts of $2.05 billion included growth in non-interest-bearing demand deposits of $1.36 billion, money market accounts of $402.5 million, NOW accounts of $167.3 million, and savings balances of $120.8 million, and more than offset decreases of $391.2 million and $375.7 million in time deposits and brokered deposits, respectively, as well as declines of $605.7 million in public funds. Total deposit costs declined 6 bps during the first quarter of 2021, compared to the fourth quarter of 2020, due to repricing and remixing within the deposit portfolio.
On an average basis, the increase in total deposits was $480.9 million, or 1%, compared to the fourth quarter of 2020.
Non-interest Revenue
Non-interest revenue for the first quarter of 2021 was $111.0 million, up $7.1 million, or 7%, compared to the same period in 2020
. Adjusted non-interest revenue, which excludes net investment securities gains/(losses) and increase/(decrease) in fair value of private equity investments, for the first quarter of 2021 was $112.9 million, up $13.6 million, or 14%, from the first quarter of 2020
. Net mortgage banking income of $22.3 million remained strong and drove the year-over-year increase in non-interest revenue. While first quarter 2021 mortgage production levels remained elevated, the recent increase in interest rates is likely to reduce production levels going forward. See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for applicable reconciliation to GAAP measures.
The following table shows the principal components of non-interest revenue.
| Table 5 - Non-interest Revenue | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| (dollars in thousands) | 2021 | 2020 | % Change | ||||||||||||||
| Service charges on deposit accounts | $ | 20,033 | $ | 20,689 | (3) | % | |||||||||||
| Fiduciary and asset management fees | 17,954 | 15,174 | 18 | ||||||||||||||
| Card fees | 11,996 | 10,950 | 10 | ||||||||||||||
| Brokerage revenue | 12,974 | 12,398 | 5 | ||||||||||||||
| Mortgage banking income | 22,315 | 12,227 | 83 | ||||||||||||||
| Capital markets income | 7,505 | 11,243 | (33) | ||||||||||||||
| Income from bank-owned life insurance | 8,843 | 6,038 | 47 | ||||||||||||||
| Investment securities (losses) gains, net | (1,990) | 8,734 | nm | ||||||||||||||
| Decrease in fair value of private equity investments | — | (4,255) | nm | ||||||||||||||
| Other non-interest revenue | 11,326 | 10,659 | 6 | ||||||||||||||
| Total non-interest revenue | $ | 110,956 | $ | 103,857 | 7 | % | |||||||||||
Three Months Ended March 31, 2021 compared to March 31, 2020
Service charges on deposit accounts for the three months ended March 31, 2021 were down $656 thousand, or 3%, due largely to the impact of higher average balances as a result of stimulus funds. Service charges on deposit accounts consist of NSF fees, account analysis fees, and all other service charges. NSF fees were do
wn $3.0 million, or 34%, for the three months ended March 31, 2021. Account analysis fees were up $2.2 million, or 32%, for the three months ended March 31, 2021, f
ollowing our pricing for value initiative implemented during the first quarter of 2021 as part of Synovus Forward.
All other service charges on deposit accounts, which consist primarily of monthly fees on retail demand deposits, saving accounts, and small business accounts, for the three months ended March 31, 2021, were up $132 thousand, or 3%.
Fiduciary and asset management fees are derived from providing estate administration, personal trust, corporate trust, corporate bond, investment management, financial planning, and family office services. Fiduciary and asset management fees increased $2.8 million, or 18%, for the three months ended March 31, 2021
. The increases were driven by growth in total assets under management which increased by 35% year-over-year to $20.59 billion.
Card fees for the three months ended March 31, 2021 were up $1.0 million, or 10%, with increased transaction volume in all card fee categories. Card fees consist primarily of credit card interchange fees, debit card interchange fees, and merchant discounts. Card fees are reported net of certain associated expense items including customer loyalty program expenses and network expenses.
Brokerage revenue of $13.0 million for the three months ended March 31, 2021 was up $576 thousand, or 5%. The year-over-year increase was driven by growth in assets under management and higher transaction revenue driven by favorable
41
market conditions. Brokerage revenue consists primarily of brokerage commissions as well as advisory fees earned from the management of customer assets.
Mortgage banking income was significantly higher in the first three months of 2021, with an increase of $10.1 million compared to the three months ended March 31, 2020. Mortgage banking income was driven by higher production and sales, including an increase in refinance volume. Total secondary market mortgage loan production was $573.1 million, up $318.6 million, for the three months ended March 31, 2021. While first quarter 2021 mortgage production levels remained elevated, the recent increase in interest rates is likely to reduce production levels going forward.
Capital markets income primarily includes fee income from customer deri
vative transactions. Additionally, capital markets income includes fee income from capital raising investment banking transactions and foreign exchange as well as other miscellaneous income from capital market transactions. Capital markets income was $3.7 million lower for the
three months ended March 31, 2021
, as commercial client activity to lock in lower rates was elevated in 2020.
Income from BOLI, which includes increases in the cash surrender value of policies and proceeds from insurance benefits, increased $2.8 million,
or 47%, for the three months ended March 31, 2021, due primarily to income on proceeds from insurance benefits. The first three months of 2021 included income on proceeds from insurance benefits of
$2.1 million
compared to $118 thousand in 2020.
Investment securities losses, net, of $2.0 million for the three months ended March 31, 2021 reflected strategic sales of mortgage-backed securities.
The main components of other non-interest revenue are fees for letters of credit and unused lines of credit, safe deposit box fees, access fees for ATM use, other service charges and loan servicing fees, income from insurance commissions, gains from sales of GGL/SBA loans, and other miscellaneous ite
ms. The
three months ended March 31, 2021 included unrealized valuation gains of $3.5 million associated with deferred compensation and the three months ended March 31, 2020 included a sale-leaseback gain of $2.4 million.
Non-interest Expense
Non-interest expense for the first quarter of 2021 was $267.1 million
, down $9.1 million, or 3%, compared to the first quarter of 2020 and adjusted non-interest expense
of $266.6 million was down $4.6 million, or 2%.
The adjusted tangible efficiency ratio for the first three months of 2021 was 54.19%, down 253 bps compared to the same period a year ago. We remain committed to prudent expense management, enabling us to continue investing in areas that position us for greater success, deliver a superior customer experience, and promote profitable growth. See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for applicable reconciliation to GAAP measures.
The following table summarizes the components of non-interest expense.
| Table 6 - Non-interest Expense | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| (dollars in thousands) | 2021 | 2020 | % Change | ||||||||||||||
| Salaries and other personnel expense | $ | 161,477 | $ | 149,678 | 8 | % | |||||||||||
| Net occupancy, equipment, and software expense | 41,134 | 42,194 | (3) | ||||||||||||||
| Third-party processing and other services | 20,032 | 22,700 | (12) | ||||||||||||||
| Professional fees | 9,084 | 10,675 | (15) | ||||||||||||||
| FDIC insurance and other regulatory fees | 5,579 | 5,278 | 6 | ||||||||||||||
| Amortization of intangibles | 2,379 | 2,640 | (10) | ||||||||||||||
| Restructuring charges | 531 | 3,220 | nm | ||||||||||||||
| Loss on early extinguishment of debt | — | 1,904 | nm | ||||||||||||||
| Other operating expenses | 26,918 | 37,990 | (29) | ||||||||||||||
| Total non-interest expense | $ | 267,134 | $ | 276,279 | (3) | % | |||||||||||
Three Months Ended March 31, 2021 compared to March 31, 2020
Salaries and other personnel expense increased $11.8 million, or 8%, for the three months ended March 31, 2021, due primarily to higher mortgage production-based commissions with commission expense up $2.3 million, higher share-based compensation expense of $4.1 million largely due to timing with higher level of retirement eligible expense acceleration, and valuation expense of $3.5 million associated with deferred compensation from higher market valuations (offset with unrealized valuation gains in other non-interest revenue). Total headcount of 5,175 declined 72 from December 31, 2020 and 253 from
42
March 31, 2020 led by Synovus' voluntary early retirement program offered during the fourth quarter of 2020 and branch closures.
Net occupancy, equipment, and software expense decreased $1.1 million, or 3%, during the three months ended March 31, 2021, due primarily to a reduction of 10 branches, as compared to December 31, 2019.
Third-party processing and other services includes all third-party core operating system and processing charges as well as third-party loan servicing charges. Third-party processing expense decreased $2.7 million, or 12%, for the three months ended March 31, 2021. The decline is primarily associated with Synovus' restructure of certain of its third-party consumer-based lending partnership arrangements during the second quarter of 2020 with a shift of new originations to held for sale and thereby reducing third-party loan servicing expense.
Professional fees decreased $1.6 million, or 15%, for the three months ended March 31, 2021, from decreases in consulting fees related to Synovus Forward, our revenue growth and efficiency initiatives.
FDIC insurance and other regulatory fees for the three months ended March 31, 2020 included the benefit of a $1.5 million reversal of estimated additional expense accrued during the fourth quarter of 2019.
During the three months ended March 31, 2021, Synovus recorded $531 thousand in restructuring charges primarily associated with two branch closures that will occur in April 2021 as part of Synovus Forward. During the three months ended March 31, 2020, Synovus recorded restructuring charges of $3.2 million from asset impairments, lease terminations, and severance related to seven branches closed in the first quarter of 2020.
Other operating expenses includes advertising, travel, insurance, network and communication, other taxes, subscriptions and dues, other loan and ORE expense, postage and freight, training, business development, supplies, donations, and other miscellaneous expenses. Other operating expenses were down $11.1 million for the three months ended March 31, 2021 driven by declines in most all expense categories including declines of $3.0 million in advertising and $1.3 million in travel.
Income Tax Expense
Income tax expense was $49.2 million for the
three months ended March 31, 2021
, representing an effective tax rate of 20.8%, compared to income tax expense of $3.6 million for the
three months ended March 31, 2020,
representing an effective tax rate of 8.5
%. The effective tax rate for the three months ended March 31, 2021 is lower than the statutory tax rate primarily due to discrete benefits of $6.2 million related to changes in amounts taxable by jurisdictions and $1.8 million related to share-based compensation, partly offset by discrete expense of $4.1 million related to other accrual adjustments. The effective tax rate for the three months ended March 31, 2020 was lower than the statutory tax rate primarily due to a one-time discrete benefit of $2.7 million for the carryback of net operating loss deductions as permitted by the CARES Act, and $3.4 million of other discrete benefit items.
Synovus’ effective tax rate considers many factors including, but not limited to, the level of pre-tax income, BOLI, tax-exempt interest, certain income tax credits, and nondeductible expenses. In addition, the effective tax rate is affected by items that may occur in any given period but are not consistent from period-to-period, such as tax benefits related to share-based compensation, jurisdiction statutory tax rate changes, valuation allowance changes, and changes to unrecognized tax benefits. Accordingly, the comparability of the effective tax rate between periods may be impacted.
On March 31, 2021, the Biden Administration released the details of the Made in America Tax Plan which proposes an increase in the federal corporate income tax rate to 28%, up from the current 21%, among numerous other proposals. We continue to monitor the legislative process and the potential impact to the Company and its customers.
CREDIT QUALITY, CAPITAL RESOURCES AND LIQUIDITY
Credit Quality
Synovus continuously monitors the quality of its loan portfolio by industry, property type, geography, as well as credit quality metrics. At March 31, 2021, credit metrics remained stable with NPAs, NPLs, and past dues all near historical lows, and net charge-offs remained low and declined $1.9 million on a sequential quarter basis to $20.2 million, or 21 basis points. Given elevated levels of liquidity and continued economic recovery, particularly in the Southeast, we are not currently expecting a significant change in net charge-offs in the near term.
43
The table below includes selected credit quality metrics.
| Table 7 - Credit Quality Metrics | |||||||||||||||||
| (dollars in thousands) | March 31, 2021 | December 31, 2020 | March 31, 2020 | ||||||||||||||
|
Non-performing loans
|
$ | 155,169 | $ | 151,079 | $ | 156,287 | |||||||||||
| Impaired loans held for sale | 23,590 | 23,590 | — | ||||||||||||||
|
ORE and other assets
|
16,849 | 17,394 | 33,679 | ||||||||||||||
|
Non-performing assets
|
$ | 195,608 | $ | 192,063 | $ | 189,966 | |||||||||||
|
Total loans
|
$ | 38,805,101 | $ | 38,252,984 | $ | 38,258,024 | |||||||||||
|
Non-performing loans as a % of total loans
|
0.40 | % | 0.39 | % | 0.41 | % | |||||||||||
|
Non-performing assets as a % of total loans, ORE, and specific other assets
|
0.50 | 0.50 | 0.50 | ||||||||||||||
|
Loans 90 days past due and still accruing
|
$ | 3,804 | $ | 4,117 | $ | 6,398 | |||||||||||
|
As a % of total loans
|
0.01 | % | 0.01 | % | 0.02 | % | |||||||||||
|
Total past due loans and still accruing
|
$ | 45,693 | $ | 47,349 | $ | 83,235 | |||||||||||
|
As a % of total loans
|
0.12 | % | 0.12 | % | 0.22 | % | |||||||||||
| Net charge-offs, quarter | $ | 20,204 | $ | 22,139 | $ | 20,061 | |||||||||||
| Net charge-offs/average loans, quarter | 0.21 | % | 0.23 | % | 0.21 | % | |||||||||||
| (Reversal of) provision for loan losses, quarter | $ | (22,318) | $ | 24,075 | $ | 149,117 | |||||||||||
| Provision for (reversal of) unfunded commitments, quarter | 3,743 | (13,009) | 9,605 | ||||||||||||||
| (Reversal of) provision for credit losses, quarter | $ | (18,575) | $ | 11,066 | $ | 158,722 | |||||||||||
| Allowance for loan losses | $ | 563,214 | $ | 605,736 | $ | 493,452 | |||||||||||
| Reserve for unfunded commitments | 51,528 | 47,785 | 38,420 | ||||||||||||||
| Allowance for credit losses | $ | 614,742 | $ | 653,521 | $ | 531,872 | |||||||||||
|
ACL to loans coverage ratio
|
1.58 | % | 1.71 | % | 1.39 | % | |||||||||||
|
ALL to loans coverage ratio
|
1.45 | 1.58 | 1.29 | ||||||||||||||
| ACL/NPLs | 396.18 | 432.57 | 340.32 | ||||||||||||||
| ALL/NPLs | 362.97 | 400.94 | 315.74 | ||||||||||||||
Non-performing Assets
Total NPAs as a percentage of total loans, ORE, and specific other assets were 0.50% at March 31, 2021, unchanged from both December 31, 2020 and March 31, 2020. Total NPAs were $195.6 million at March 31, 2021 compared to $192.1 million at December 31, 2020 and $190.0 million at
March 31, 2020.
Criticized and Classified Loans
Our loan ratings are aligned to federal banking regulators' definitions of pass and criticized categories, which include special mention, substandard, doubtful, and loss. Substandard accruing and non-accruing loans, doubtful, and loss loans are often collectively referred to as classified. Special mention, substandard, doubtful, and loss loans are often collectively referred to as criticized and classified loans. The following table presents a summary of criticized and classified loans. The increase in criticized and classified loans at March 31, 2021 compared to December 31, 2020 was primarily hospitality-related with increases in special mention and substandard accruing loans in the hotel and full-service restaurant industry as a result of COVID-19. We expect the levels of criticized and classified loans to decline as borrowers' reported financial statements begin to reflect the current monthly improvement we are seeing in borrowers' cash flows.
44
| Table 8 - Criticized and Classified Loans | |||||||||||
| (dollars in thousands) | March 31, 2021 | December 31, 2020 | |||||||||
| Special mention loans | $ | 1,107,272 | $ | 977,028 | |||||||
| Substandard loans | 685,474 | 553,720 | |||||||||
| Doubtful loans | 34,430 | 33,204 | |||||||||
| Loss loans | 2,664 | 3,032 | |||||||||
| Criticized and Classified loans | $ | 1,829,840 | $ | 1,566,984 | |||||||
|
As a % of total loans
|
4.7 | % | 4.1 | % | |||||||
Provision for Credit Losses and Allowance for Credit Losses
Provision for credit losses includes the provisions for loan losses and unfunded commitments. The reversal of provision for credit losses of $18.6 million for the three months ended March 31, 2021 included net charge-offs of $20.2 million and resulted from the improved economic outlook and stable loan portfolio metrics that were partially offset by the increased size of the loan portfolio including $15.2 million in reserves added as result of purchases of $607.0 million of third-party lending loans, including a $476.2 million prime auto purchase.
The ACL at March 31, 2021 totaled $614.7 million consisting of an ALL of $563.2 million and reserve for unfunded commitments of $51.5 million, resulting in an ACL to loans coverage ratio of 1.58% and an ACL to NPLs ratio of 396%. Excluding PPP loans, the ACL to loans coverage ratio was 1.69%. The ACL at March 31, 2021 incorporates an outlook with moderate economic expansion and benefits from the estimated impact of government stimulus.
| Table 9 - Accruing TDRs by Risk Grade | |||||||||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | March 31, 2020 | |||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||
| Pass | $ | 63,809 | 49.2 | % | $ | 72,463 | 53.7 | % | $ | 75,073 | 46.9 | % | |||||||||||||||||||||||
| Special mention | 8,560 | 6.6 | 8,935 | 6.6 | 10,925 | 6.8 | |||||||||||||||||||||||||||||
| Substandard accruing | 57,407 | 44.2 | 53,574 | 39.7 | 74,130 | 46.3 | |||||||||||||||||||||||||||||
| Total accruing TDRs | $ | 129,776 | 100.0 | % | $ | 134,972 | 100.0 | % | $ | 160,128 | 100.0 | % | |||||||||||||||||||||||
Troubled Debt Restructurings
Accruing TDRs were $129.8 million at March 31, 2021, compared to $135.0 million at December 31, 2020 and $160.1 million at March 31, 2020. Accruing TDRs decreased $5.2 million from December 31, 2020 and $30.4 million from March 31, 2020. Non-accruing TDRs were $36.1 million at March 31, 2021, compared to $39.0 million at December 31, 2020 and $12.8 million at March 31, 2020.
Accruing TDRs are considered performing because they are performing in accordance with the re
structured terms. At March 31, 2021, December 31, 2020, and March 31, 2020, approximately
99%,
99%, and 98%, respectively, of accruing TDRs were current. In addition, subsequent defaults on accruing TDRs (defaults defined as the earlier of the TDR being placed on non-accrual status or reaching 90 days past due with respect to principal and/or interest payments within twelve months of the TDR designation) have continued to remain at low levels.
Non-TDR Modifications due to COVID-19
Regulatory agencies have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of COVID-19. In the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), for example, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and their unwillingness to criticize institutions for working with borrowers in a safe and sound manner. Moreover, the Interagency Statement provided that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. On December 27, 2020, the Consolidated Appropriations Act, 2021 extended the applicable period of Section 4013 of the CARES Act. This allows banks to elect to not consider loan modifications related to COVID-19 that are made between March 1, 2020 and the earlier of January 1, 2022, or 60 days after the national emergency ends to borrowers that are current (i.e., less than 30 days past due as of December 31, 2019) as TDRs. The regulatory agencies further stated that performing loans granted payment deferrals due to COVID-19 are not considered past due or non-accrual. FASB confirmed the foregoing regulatory agencies' view that such short-term modifications (e.g., six months) made on a good-faith basis in response to COVID-19 for borrowers who are current are not TDRs.
45
During 2020, Synovus provided relief programs consisting primarily of 90-day payment deferral relief to borrowers negatively impacted by COVID-19, and as of March 31, 2021, 0.2%
of the total loan portfolio was in a P&I deferral status as compared to 0.3% of the total loan portfolio at December 31, 2020.
In addition to our P&I deferment program, under the CARES Act, we have also provided borrowers who have been impacted by COVID-19 with other modifications such as interest only relief or amortization extensions on approximately 2% of total loan
s, at both March 31, 2021 and December 31, 2020.
Capital Resources
Synovus and Synovus Bank are required to comply with capital adequacy standards established by our primary federal regulator, the Federal Reserve. Synovus and Synovus Bank measure capital adequacy using the standardized approach under Basel III. At March 31, 2021, Synovus and Synovus Bank's capital levels remained strong and exceeded well-capitalized requirements currently in effect. The following table presents certain ratios used to measure Synovus and Synovus Bank's capitalization.
| Table 10 - Capital Ratios | |||||||||||
| (dollars in thousands) | March 31, 2021 | December 31, 2020 | |||||||||
| CET1 capital | |||||||||||
| Synovus Financial Corp. | $ | 4,184,715 | $ | 4,034,865 | |||||||
| Synovus Bank | 4,746,560 | 4,641,711 | |||||||||
| Tier 1 risk-based capital | |||||||||||
| Synovus Financial Corp. | 4,721,860 | 4,572,010 | |||||||||
| Synovus Bank | 4,746,560 | 4,641,711 | |||||||||
| Total risk-based capital | |||||||||||
| Synovus Financial Corp. | 5,733,956 | 5,604,230 | |||||||||
| Synovus Bank | 5,446,080 | 5,361,611 | |||||||||
| CET1 capital ratio | |||||||||||
| Synovus Financial Corp. | 9.74 | % | 9.66 | % | |||||||
| Synovus Bank | 11.06 | 11.11 | |||||||||
| Tier 1 risk-based capital ratio | |||||||||||
| Synovus Financial Corp. | 10.99 | 10.95 | |||||||||
| Synovus Bank | 11.06 | 11.11 | |||||||||
| Total risk-based capital to risk-weighted assets ratio | |||||||||||
| Synovus Financial Corp. | 13.34 | 13.42 | |||||||||
| Synovus Bank | 12.69 | 12.83 | |||||||||
| Leverage ratio | |||||||||||
| Synovus Financial Corp. | 8.80 | 8.50 | |||||||||
| Synovus Bank | 8.85 | 8.73 | |||||||||
|
Tangible common equity ratio
(1)
|
|||||||||||
| Synovus Financial Corp. | 7.55 | 7.66 | |||||||||
(1)
See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for the applicable reconciliation to the most comparable GAAP measure.
At March 31, 2021, Synovus' CET1 ratio increased to 9.74%, well in excess of regulatory requirements including the capital conservation buffer of 2.5%. The March 31, 2021 CET1 ratio improved 8 bps compared to December 31, 2020 driven by earnings. For additional information on regulatory capital requirements, see "Part II - Item 8. Financial Statements and Supplementary Data - Note 12 - Regulatory Capital" to the consolidated financial statements of Synovus' 2020 Form 10-K. Management reviews the Company's capital position on an on-going basis and believes, based on internal capital analyses and earnings projections, that Synovus is well positioned to meet relevant regulatory capital standards.
Synovus announced on January 26, 2021 that its Board of Directors authorized share repurchases of up to $200 million in 2021. During the first quarter of 2021, the Company did not complete any share repurchases.
During the second quarter of 20
21, Synovus had repurchased $23.2 million, or 499 thousand shares of its common stock, at an average price of $46.52 per share, as of May 5, 2021.
On August 26, 2020, the federal banking regulators issued a final rule (followin
g an interim final rule issued on March 27, 2020) that allowed electing banking organizations that adopt CECL during 2020 to mitigate the estimated effects of CECL on
46
regulatory capital for two years, followed by a three-year phase-in transition period. Synovus adopted CECL on January 1, 2020 and the March 31, 2021 regulatory capital ratios reflect Synovus' election of the five-year transition provision. At March 31, 2021, $84 million, or a cumulative 20 basis points benefit to CET1, was deferred.
Dividends
Synovus has historically paid a quarterly cash dividend to the holders of its common stock. Management and the Board of Directors closely monitor current and projected capital levels, liquidity (including dividends from subsidiaries), financial markets and other economic trends, as well as regulatory requirements regarding the payment of dividends.
Synovus' ability to pay dividends on its common stock and preferred stock is primarily dependent upon dividends and distributions that it receives from its bank and non-banking subsidiaries, which are restricted by various regulations administered by federal and state bank regulatory authorities.
Synovus declared common stock dividends of $49.1 million, or $0.33 per common share, for the three months ended March 31, 2021, compared to $48.6 million, or $0.33 per common share, for the three months ended March 31, 2020. In addition, Synovus declared dividends on its preferred stock of $8.3 million during both the three months ended March 31, 2021 and 2020.
Liquidity
Liquidity represents the extent to which Synovus has readily available sources of funding to meet the needs of depositors, borrowers and creditors, to support asset growth, and to otherwise sustain operations of Synovus and its subsidiaries, at a reasonable cost, on a timely basis, and without adverse consequences. ALCO monitors Synovus' economic, competitive, and regulatory environment and is responsible for measuring, monitoring, and reporting on liquidity and funding risk as well as market risk.
In accordance with Synovus policies and regulatory guidance, ALCO evaluates contractual and anticipated cash flows under normal and stressed conditions to properly manage the Company’s liquidity profile. Synovus places an emphasis on maintaining numerous sources of current and contingent liquidity to meet its obligations to depositors, borrowers, and creditors on a timely basis. Liquidity is generated through various sources, including, but not limited to, maturities and repayments of loans by customers, maturities and sales of investment securities, and growth in core or wholesale deposits. Management continuously monitors and maintains appropriate levels of liquidity so as to provide adequate funding sources to manage customer deposit withdrawals, loan requests, and other funding demands.
Synovus Bank also generates liquidity through the issuance of brokered certificates of deposit and money market accounts. Synovus Bank accesses these funds from a broad geographic base to diversify its sources of fu
nding and liquidity. Synovus Bank also has t
he capacity to access funding through its membership in the FHLB system and through the Federal Reserve discount window.
At March 31, 2021, based on currently pledged collateral, Synovus Bank had access to incremental FHLB funding of
$6.38
billion, subject to FHLB credit policies.
In addition to bank level liquidity management, Synovus must manage liquidity at the parent company level for various operating needs including the servicing of debt, the payment of dividends on our common stock and preferred stock, share repurchases, payment of general corporate expenses and potential capital infusions into subsidiaries. The primary source of liquidity for Synovus consists of dividends from Synovus Bank, which is governed by certain rules and regulations of the GA DBF and the Federal Reserve Bank. Synovus' ability to receive dividends from Synovus Bank in future periods will depend on a number of factors, including, without limitation, Synovus Bank's future profits, asset quality, liquidit
y, and overall condition. I
n addition, both the GA DBF and Federal Reserve Bank may require approval to pay dividends, based on certain regulatory statutes and limitations.
Synovus presently believes that the sources of liquidity discussed above, including existing liquid funds on hand, are sufficient to meet its anticipated funding needs. However, if economic conditions were to significantly deteriorate, regulatory capital requirements for Synovus or Synovus Bank were to increase as the result of regulatory directives or otherwise, or Synovus believes it is prudent to enhance current liquidity levels, then Synovus may seek additional liquidity from external sources. See "Part I – Item 1A. Risk Factors - Changes in the cost and availability of funding due to changes in the deposit market and credit market may adversely affect our capital resources, liquidity and financial results
"
of
Synovus' 2020 Form 10-K. Furthermore, Synovus may, from time to time, take advantage of attractive market opportunities to refinance its existing debt, redeem its preferred stock, or strengthen its liquidity or capital position.
47
Earning Assets and Sources of Funds
Average total assets for the three months ended March 31, 2021 increased $5.49 billion, or 11%, to $54.19 billion as compared to $48.70 billion for the first three months of 2020. Average earning assets increased $5.02 billion, or 11%, in the first three months of 2021 compared to the same period in 2020 and represented 92.2% of average total assets at March 31, 2021, as compared to 92.3% at March 31, 2020. The increase in average earning assets primarily resulted from a $2.16 billion increase in average interest-bearing funds held at the Federal Reserve Bank, a $1.76 billion increase in average investment securities available for sale, an $821.3 million increase in loans held for sale, and a $619.2 million, or 2%, increase in average total loans, net of unearned, which included average PPP loans of $2.24 bill
ion
.
Average interest-bearing liabilities increased $567.9 million, or 2%, to $34.08 billion for the first three months of 2021 compared to the same period in 2020. The increase in average interest-bearing liabilities resulted from a $4.37 billion, or 34%, increase in average money market deposits (includes an increase of $573.9 million in average other brokered deposits) and a $2.12 billion, or 33%, increase in average interest-bearing demand deposits. These increases were partially offset by a $3.41 billion, or 38%, decrease in average time deposits (includes a decrease of $747.7 million in brokered time deposits) a $1.48 billion decrease in average long-term debt, including redemption of $250.0 million in subordinated debt in the fourth quarter of 2020, and a $1.38 billion decrease in other short-term borrowings. Average non-interest-bearing demand deposits increased $4.38 billion, or 47%, to $13.79 billion for the first three months of 2021 compared to the same period in 2020, due largely to liquidity associated with PPP lending.
Net interest income for the three months ended March 31, 2021 was $373.9 million, up $597 thousand compared to the same period in 2020 including $24.9 million in PPP processing fees during the first quarter of 2021. Net interest margin was down 33 bps over the comparable three-month period to 3.04%, due primarily to the decline in market interest rates and accelerated prepayment activity. For the three months ended March 31, 2021, the yield on earning assets was 3.32%, a decrease of 101 bps compared to the three months ended March 31, 2020, while the effective cost of funds decreased 68 bps to 0.28%. The yield on loans decreased 60 bps to 4.02% while the yield on investment securities decreased 169 bps to 1.40% over the three months ended March 31, 2020.
On a sequential quarter basis, net interest income was down $12.1 million and net interest margin for the first quarter was 3.04%, which was down 8 bps compared to the fourth quarter of 2020
. The sequential quarter decline in net interest income was primarily due to a lower day count and a continuation of low-rate pressure, partially offset by further declines in deposit pricing and continued deployment of excess liquidity. The first quarter of 2021 included average PPP loan balances of $2.24 billion versus $2.55 billion in the fourth quarter of 2020 and $24.9 million recognized for associated PPP processing fees versus $24.8 million in the fourth quarter of 2020. For the first quarter of 2021, the yield on earning assets decreased 17 bps, while the effective cost of funds decreased 9 bps compared to the fourth quarter of 2020.
As we progress through the year, we expect to see increases in net interest income, excluding PPP fees, driven by loan growth, deployment of liquidity, a deceleration of prepayments, and further deposit cost reductions.
48
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.
| Table 11 - Average Balances and Yields/Rates | 2021 | 2020 | |||||||||||||||||||||||||||
| (dollars in thousands) (yields and rates annualized) | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | ||||||||||||||||||||||||
|
Interest Earning Assets:
|
|||||||||||||||||||||||||||||
|
Investment securities
(1)(2)
|
$ | 8,437,563 | 7,493,822 | 7,227,400 | 6,618,533 | 6,680,047 | |||||||||||||||||||||||
|
Yield
|
1.40 | % | 2.07 | 2.39 | 2.72 | 3.09 | |||||||||||||||||||||||
|
Trading account assets
(3)
|
$ | 3,063 | 8,496 | 5,391 | 6,173 | 6,306 | |||||||||||||||||||||||
|
Yield
|
2.81 | % | 1.03 | 1.69 | 2.19 | 2.70 | |||||||||||||||||||||||
|
Commercial loans
(2)(4)
|
$ | 29,844,491 | 30,363,102 | 30,730,135 | 30,236,919 | 27,607,343 | |||||||||||||||||||||||
|
Yield
|
3.95 | % | 3.96 | 3.80 | 3.95 | 4.57 | |||||||||||||||||||||||
|
Consumer loans
(4)
|
$ | 8,367,776 | 8,521,449 | 9,032,437 | 9,899,172 | 9,985,702 | |||||||||||||||||||||||
|
Yield
|
3.98 | % | 4.00 | 4.08 | 4.34 | 4.60 | |||||||||||||||||||||||
|
Allowance for loan losses
|
$ | (599,872) | (595,547) | (591,098) | (498,545) | (368,033) | |||||||||||||||||||||||
|
Loans, net
(4)
|
$ | 37,612,395 | 38,289,004 | 39,171,474 | 39,637,546 | 37,225,012 | |||||||||||||||||||||||
|
Yield
|
4.02 | % | 4.03 | 3.92 | 4.08 | 4.62 | |||||||||||||||||||||||
|
Mortgage loans held for sale
|
$ | 246,962 | 309,278 | 244,952 | 221,157 | 86,415 | |||||||||||||||||||||||
|
Yield
|
2.68 | % | 2.74 | 2.92 | 3.09 | 3.67 | |||||||||||||||||||||||
| Other loans held for sale | $ | 660,753 | 544,301 | 493,940 | 19,246 | — | |||||||||||||||||||||||
| Yield | 2.91 | % | 2.81 | 3.61 | 4.19 | — | |||||||||||||||||||||||
|
Other earning assets
(5)
|
$ | 2,838,021 | 2,716,645 | 1,265,880 | 1,709,086 | 652,130 | |||||||||||||||||||||||
|
Yield
|
0.10 | % | 0.10 | 0.11 | 0.11 | 1.02 | |||||||||||||||||||||||
|
Federal Home Loan Bank and Federal Reserve Bank Stock
(3)
|
$ | 157,657 | 162,537 | 200,923 | 247,801 | 284,082 | |||||||||||||||||||||||
|
Yield
|
1.69 | % | 2.64 | 2.73 | 3.60 | 3.38 | |||||||||||||||||||||||
|
Total interest earning assets
|
$ | 49,956,414 | 49,524,083 | 48,609,960 | 48,459,542 | 44,933,992 | |||||||||||||||||||||||
|
Yield
|
3.32 | % | 3.49 | 3.58 | 3.75 | 4.33 | |||||||||||||||||||||||
|
Interest-Bearing Liabilities:
|
|||||||||||||||||||||||||||||
|
Interest-bearing demand deposits
|
$ | 8,570,753 | 8,531,415 | 7,789,095 | 7,260,940 | 6,445,986 | |||||||||||||||||||||||
|
Rate
|
0.14 | % | 0.16 | 0.19 | 0.21 | 0.51 | |||||||||||||||||||||||
|
Money market accounts, excluding brokered deposits
|
$ | 15,348,916 | 14,411,860 | 13,272,972 | 12,238,479 | 11,548,014 | |||||||||||||||||||||||
|
Rate
|
0.23 | % | 0.26 | 0.36 | 0.46 | 1.00 | |||||||||||||||||||||||
|
Savings deposits
|
$ | 1,219,288 | 1,147,667 | 1,114,956 | 1,036,024 | 926,822 | |||||||||||||||||||||||
|
Rate
|
0.02 | % | 0.01 | 0.02 | 0.02 | 0.05 | |||||||||||||||||||||||
|
Time deposits under $100,000
|
$ | 1,161,306 | 1,239,592 | 1,379,923 | 1,621,943 | 1,761,741 | |||||||||||||||||||||||
|
Rate
|
0.56 | % | 0.74 | 1.03 | 1.43 | 1.64 | |||||||||||||||||||||||
|
Time deposits over $100,000
|
$ | 2,993,996 | 3,302,959 | 3,863,821 | 4,772,555 | 5,051,705 | |||||||||||||||||||||||
|
Rate
|
0.74 | % | 1.03 | 1.44 | 1.80 | 2.04 | |||||||||||||||||||||||
|
Other brokered deposits
|
$ | 1,950,582 | 1,978,393 | 1,912,114 | 1,998,571 | 1,376,669 | |||||||||||||||||||||||
|
Rate
|
0.20 | % | 0.23 | 0.23 | 0.25 | 1.42 | |||||||||||||||||||||||
|
Brokered time deposits
|
$ | 1,418,751 | 1,795,982 | 2,232,940 | 2,244,429 | 2,166,496 | |||||||||||||||||||||||
|
Rate
|
1.50 | % | 1.60 | 1.59 | 1.86 | 2.11 | |||||||||||||||||||||||
|
Total interest-bearing deposits
|
$ | 32,663,592 | 32,407,868 | 31,565,821 | 31,172,941 | 29,277,433 | |||||||||||||||||||||||
|
Rate
|
0.31 | % | 0.39 | 0.54 | 0.73 | 1.18 | |||||||||||||||||||||||
|
Federal funds purchased and securities sold under repurchase agreements
|
$ | 209,448 | 174,316 | 180,342 | 250,232 | 167,324 | |||||||||||||||||||||||
|
Rate
|
0.07 | % | 0.07 | 0.09 | 0.12 | 0.30 | |||||||||||||||||||||||
|
Other short-term borrowings
|
$ | — | — | 46,739 | 550,000 | 1,384,362 | |||||||||||||||||||||||
|
Rate
|
— | % | — | 1.12 | 1.23 | 1.66 | |||||||||||||||||||||||
|
Long-term debt
|
$ | 1,202,613 | 1,552,791 | 2,234,665 | 2,834,188 | 2,678,651 | |||||||||||||||||||||||
|
Rate
|
3.63 | % | 3.96 | 2.71 | 2.36 | 2.78 | |||||||||||||||||||||||
|
Total interest-bearing liabilities
|
$ | 34,075,653 | 34,134,975 | 34,027,567 | 34,807,361 | 33,507,770 | |||||||||||||||||||||||
|
Rate
|
0.42 | % | 0.55 | 0.68 | 0.86 | 1.30 | |||||||||||||||||||||||
|
Non-interest-bearing demand deposits
|
$ | 13,791,286 | 13,566,112 | 12,773,676 | 11,923,534 | 9,409,774 | |||||||||||||||||||||||
|
Cost of funds
|
0.30 | % | 0.40 | 0.50 | 0.65 | 1.04 | |||||||||||||||||||||||
|
Effective cost of funds
(6)
|
0.28 | % | 0.37 | 0.48 | 0.62 | 0.96 | |||||||||||||||||||||||
|
Net interest margin
|
3.04 | % | 3.12 | 3.10 | 3.13 | 3.37 | |||||||||||||||||||||||
|
Taxable equivalent adjustment
(2)
|
$ | 774 | 821 | 956 | 861 | 786 | |||||||||||||||||||||||
`(1)
Excludes net unrealized gains (losses).
(2)
Reflects taxable-equivalent adjustments, using the statutory federal income tax rate of 21%, in adjusting interest on tax-exempt loans and investment securities to a taxable-equivalent basis.
(3)
Included as a component of other assets on the consolidated balance sheets.
(4)
Average loans are shown net of deferred fees and costs. NPLs are included.
(5)
Includes interest-bearing funds with Federal Reserve Bank, interest earning deposits with banks, and federal funds sold and securities purchased under resale agreements.
(6)
Includes the impact of non-interest-bearing capital funding sources.
49
Net Interest Income and Rate/Volume Analysis
The following table sets forth the major components of net interest income and the related annualized yields and rates for the three months ended March 31, 2021 and 2020, as well as the variances between the periods caused by changes in interest rates versus changes in volume.
| Table 12 - Net Interest Income and Rate/Volume Analysis | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | 2021 Compared to 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balances | Interest | Annualized Yield/Rate | Change due to | Increase (Decrease) | |||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | Volume | Rate | |||||||||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment securities | $ | 8,437,563 | $ | 6,680,047 | $ | 29,458 | $ | 51,655 | 1.40 | % | 3.09 | % | $ | 13,391 | $ | (35,588) | $ | (22,197) | |||||||||||||||||||||||||||||||||||
| Trading account assets | 3,063 | 6,306 | 22 | 43 | 2.81 | 2.70 | (22) | 1 | (21) | ||||||||||||||||||||||||||||||||||||||||||||
|
Taxable loans, net
(1)
|
37,715,121 | 37,177,611 | 369,579 | 424,387 | 3.96 | 4.59 | 6,084 | (60,892) | (54,808) | ||||||||||||||||||||||||||||||||||||||||||||
|
Tax-exempt loans, net
(1)(2)
|
497,146 | 415,434 | 3,686 | 3,734 | 3.01 | 3.61 | 727 | (775) | (48) | ||||||||||||||||||||||||||||||||||||||||||||
| Allowance for loan losses | (599,872) | (368,033) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans, net | 37,612,395 | 37,225,012 | 373,265 | 428,121 | 4.02 | 4.62 | 6,811 | (61,667) | (54,856) | ||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans held for sale | 246,962 | 86,415 | 1,657 | 792 | 2.68 | 3.67 | 1,453 | (588) | 865 | ||||||||||||||||||||||||||||||||||||||||||||
| Other loans held for sale | 660,753 | — | 4,805 | — | 2.91 | — | — | 4,805 | 4,805 | ||||||||||||||||||||||||||||||||||||||||||||
|
Other earning assets
(3)
|
2,838,021 | 652,130 | 716 | 1,675 | 0.10 | 1.02 | 5,444 | (6,403) | (959) | ||||||||||||||||||||||||||||||||||||||||||||
| Federal Home Loan Bank and Federal Reserve Bank stock | 157,657 | 284,082 | 668 | 2,397 | 1.69 | 3.38 | (1,054) | (675) | (1,729) | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest earning assets | 49,956,414 | 44,933,992 | 410,591 | 484,683 | 3.32 | 4.33 | 26,023 | (100,115) | (74,092) | ||||||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 518,780 | 515,153 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Premises and equipment, net | 460,466 | 491,244 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other real estate | 1,823 | 13,395 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash surrender value of bank-owned life insurance | 1,051,520 | 892,861 | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
Other assets
(4)
|
2,199,501 | 1,849,950 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 54,188,504 | $ | 48,696,595 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 8,570,753 | $ | 6,445,986 | $ | 2,973 | $ | 8,109 | 0.14 | % | 0.51 | % | $ | 2,672 | $ | (7,808) | $ | (5,136) | |||||||||||||||||||||||||||||||||||
| Money market accounts | 17,299,498 | 12,924,683 | 9,706 | 33,625 | 0.23 | 1.05 | 11,327 | (35,246) | (23,919) | ||||||||||||||||||||||||||||||||||||||||||||
| Savings deposits | 1,219,288 | 926,822 | 49 | 110 | 0.02 | 0.05 | 36 | (97) | (61) | ||||||||||||||||||||||||||||||||||||||||||||
| Time deposits | 5,574,053 | 8,979,942 | 12,290 | 44,158 | 0.89 | 1.98 | (16,628) | (15,240) | (31,868) | ||||||||||||||||||||||||||||||||||||||||||||
| Federal funds purchased and securities sold under repurchase agreements | 209,448 | 167,324 | 34 | 127 | 0.07 | 0.30 | 31 | (124) | (93) | ||||||||||||||||||||||||||||||||||||||||||||
| Other short-term borrowings | — | 1,384,362 | — | 5,805 | — | 1.66 | (5,666) | (139) | (5,805) | ||||||||||||||||||||||||||||||||||||||||||||
| Long-term debt | 1,202,613 | 2,678,651 | 10,908 | 18,703 | 3.63 | 2.78 | (10,118) | 2,323 | (7,795) | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 34,075,653 | 33,507,770 | 35,960 | 110,637 | 0.42 | 1.30 | (18,346) | (56,331) | (74,677) | ||||||||||||||||||||||||||||||||||||||||||||
| Non-interest-bearing deposits | 13,791,286 | 9,409,774 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 1,185,344 | 817,627 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' equity | 5,136,221 | 4,961,424 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and equity | $ | 54,188,504 | $ | 48,696,595 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate spread: | 2.90 | % | 3.03 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
|
Net interest income - FTE/margin
(5)
|
$ | 374,631 | $ | 374,046 | 3.04 | % | 3.37 | % | $ | 44,369 | $ | (43,784) | $ | 585 | |||||||||||||||||||||||||||||||||||||||
| Taxable equivalent adjustment | 774 | 786 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income, actual | $ | 373,857 | $ | 373,260 | |||||||||||||||||||||||||||||||||||||||||||||||||
(1)
Average loans are shown net of unearned income. NPLs are included. Interest income includes fees as follows: 2021 - $31.9 million, 2020 - $7.9 million.
(2)
Reflects taxable-equivalent adjustments, using the statutory federal income tax rate of 21%, in adjusting interest on tax-exempt loans to a taxable-equivalent basis.
(3)
Includes interest-bearing funds with Federal Reserve Bank, interest earning deposits with banks, and federal funds sold and securities purchased under resale agreements.
(4)
Includes average net unrealized gains (losses) on investment securities available for sale of $116.1 million and $166.8 million for the three months ended March 31, 2021 and 2020, respectively.
(5)
The net interest margin is calculated by dividing annualized net interest income - FTE by average total interest earnings assets.
50
Market Risk Analysis
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 which incorporates all of Synovus’ earning assets and liabilities. These simulations are used to determine a baseline net interest income projection and the sensitivity of the income profile based on changes in interest rates. These simula
tions incorporate assumptions and factors, including, but not limited to, changes in market rates, in the size or composition of the balance sheet, and in repricing characteris
tics as well as customer behaviors. This process is reviewed and updated on an on-going basis in a manner consistent with Synovus’ ALCO governance framework.
Synovus has modeled its baseline net interest income projection assuming a flat interest rate environment with the federal funds rate at the Federal Reserve’s current targeted range of 0% to 0.25% and the current prime rate of 3.25%. Synovus has modeled the impact of a gradual increase in market interest rates across the yield curve of 100 and 200 bps and a gradual decline of 25 bps to determine the sensitivity of net interest income for the next twelve months. The lesser decline of the downrate scenario presented was selected in light of the low absolute level of monetary policy rates and generally incorporates an assumption that rates are floored at the zero-lower-bound. Synovus' current rate risk position is considered asset-sensitive and would be expected to benefit net interest income in a rising interest rate environment and reduce net interest income in a declining interest rate environment. The decline in sensitivity relative to the prior period-end is the result of a host of factors, including a reduction in reserve balances held with the Federal Reserve and the higher absolute level of long-term interest rates. The following table represents the estimated sensitivity of net interest income at March 31, 2021, with comparable information for December 31, 2020.
| Table 13 - Twelve Month Net Interest Income Sensitivity | ||||||||||||||
| Estimated % Change in Net Interest Income as Compared to Unchanged Rates (for the next twelve months) | ||||||||||||||
| Change in Short-term Interest Rates (in bps) | March 31, 2021 | December 31, 2020 | ||||||||||||
| +200 | 4.9% | 6.8% | ||||||||||||
| +100 | 2.4% | 3.5% | ||||||||||||
| Flat | —% | —% | ||||||||||||
| -25 | (0.3)% | (0.5)% | ||||||||||||
The net interest income simulation model is the primary tool utilized to evaluate potential interest rate risks over a shorter-term time horizon. Synovus also evaluates potential longer-term interest rate risk through modeling and evaluation of the sensitivity of the Company's Economic Value of Equity (EVE). The EVE measurement process estimates the net fair value of assets, liabilities, and off-balance sheet financial instruments under various interest rate scenarios. Management uses EVE sensitivity analyses as an additional means of measuring interest rate risk and incorporates this form of analysis within its governance and limits framework.
LIBOR Transition
In July 2017, the Financial Conduct Authority (FCA), which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR at the end of 2021. On March 5, 2021, the FCA confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 for the 1-week and 2-month US dollar settings and immediately after June 30, 2023 for all remaining US dollar settings.
The ARRC has proposed SOFR as its preferred rate as an alternative to LIBOR and has proposed a paced market transition plan to SOFR from LIBOR. Organizations are currently working on industry-wide and company-specific transition plans related to derivatives and cash markets exposed to LIBOR. As noted within "Part I - Item 1A. Risk Factors" of Synovus' 2020 Form 10-K, Synovus holds instruments that may be impacted by the discontinuance of LIBOR including floating rate obligations, loans, deposits, derivatives and hedges, and other financial instruments but is not able to currently predict the associated financial impact of the transition to an alternative reference rate. Synovus has established a cross-functional LIBOR transition working group that has 1) assessed the Company's current exposure to LIBOR indexed instruments and the data, systems and processes that will be impacted; 2) established a detailed implementation plan; and 3) developed a formal governance structure for the transition.
51
Critical Accounting Policies
The accounting and financial reporting policies of Synovus are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Synovus has identified certain of its accounting policies as “critical accounting policies,” consisting of those related to the allowance for credit losses and income taxes. In determining which accounting policies are critical in nature, Synovus has identified the policies that require significant judgment or involve complex estimates. It is management's practice to discuss critical accounting policies with the Board of Directors' Audit Committee on a periodic basis, including the development, selection, implementation and disclosure of the critical accounting policies. The application of these policies has a significant impact on Synovus’ unaudited interim consolidated financial statements. Synovus’ financial results could differ significantly if different judgments or estimates are used in the application of these policies. All accounting policies described in "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" in Synovus' 2020 Form 10-K should be reviewed for a greater understanding of how we record and report our financial perform
ance. There have been no significant changes to the accounting policies, estimates and assumptions, or the judgments affecting the application of these estimates and assumptions from those disclosed
in Synovus' 2020 Form 10-K other than the exclusion of goodwill impairment as a critical accounting estimate due to lack of impairment indicators.
Non-GAAP Financial Measures
The measures entitled adjusted non-interest revenue; adjusted non-interest expense; adjusted total revenue; adjusted tangible efficiency ratio; adjusted net income per common share, diluted; adjusted return on average assets; adjusted return on average common equity; adjusted return on average tangible common equity; and tangible common equity ratio are not measures recognized under GAAP and therefore are considered non-GAAP financial measures. The most comparable GAAP measures to these measures are total non-interest revenue; total non-interest expense; total FTE revenue; efficiency ratio-FTE; net income per common share, diluted; return on average assets; return on average common equity; and the ratio of total shareholders' equity to total assets, respectively.
Management believes that these non-GAAP financial measures provide meaningful additional information about Synovus to assist management and investors in evaluating Synovus’ operating results, financial strength, the performance of its business, and the strength of its capital position. However, these non-GAAP financial measures have inherent limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of operating results or capital position as reported under GAAP. The non-GAAP financial measures should be considered as additional views of the way our financial measures are affected by significant items and other factors, and since they are not required to be uniformly applied, they may not be comparable to other similarly titled measures at other companies. Adjusted total revenue and adjusted non-interest revenue are measures used by management to evaluate total FTE revenue and non-interest revenue exclusive of net investment securities gains (losses) and changes in fair value of private equity investments, net. Adjusted non-interest expense and the adjusted tangible efficiency ratio are measures utilized by management to measure the success of expense management initiatives focused on reducing recurring controllable operating costs. Adjusted net income per common share, diluted, adjusted return on average assets, and adjusted return on average common equity are measurements used by management to evaluate operating results exclusive of items that management believes are not indicative of ongoing operations and impact period-to-period comparisons. Adjusted return on average tangible common equity is a measure used by management to compare Synovus' performance with other financial institutions because it calculates the return available to common shareholders without the impact of intangible assets and their related amortization, thereby allowing management to evaluate the performance of the business consistently. The tangible common equity ratio is used by management to assess the strength of our capital position. The computations of these measures are set forth in the tables below.
52
| Table 14 - Reconciliation of Non-GAAP Financial Measures | |||||||||||
| Three Months Ended | |||||||||||
| (in thousands) | March 31, 2021 | March 31, 2020 | |||||||||
| Adjusted non-interest revenue | |||||||||||
| Total non-interest revenue | $ | 110,956 | $ | 103,857 | |||||||
| Add/subtract: Investment securities losses (gains), net | 1,990 | (8,734) | |||||||||
| Add: Decrease in fair value of private equity investments, net | — | 4,255 | |||||||||
| Adjusted non-interest revenue | $ | 112,946 | $ | 99,378 | |||||||
| Adjusted non-interest expense | |||||||||||
| Total non-interest expense | $ | 267,134 | $ | 276,279 | |||||||
| Subtract: Restructuring charges | (531) | (3,220) | |||||||||
| Subtract: Loss on early extinguishment of debt | — | (1,904) | |||||||||
| Adjusted non-interest expense | $ | 266,603 | $ | 271,155 | |||||||
| Three Months Ended | |||||||||||
| (in thousands, except per share data) | March 31, 2021 | March 31, 2020 | |||||||||
| Adjusted total revenue and adjusted tangible efficiency ratio | |||||||||||
| Adjusted non-interest expense | $ | 266,603 | $ | 271,155 | |||||||
| Subtract: Amortization of intangibles | (2,379) | (2,640) | |||||||||
| Adjusted tangible non-interest expense | $ | 264,224 | $ | 268,515 | |||||||
| Net interest income | $ | 373,857 | $ | 373,260 | |||||||
| Add: Tax equivalent adjustment | 774 | 786 | |||||||||
| Add: Total non-interest revenue | 110,956 | 103,857 | |||||||||
| Total FTE revenue | $ | 485,587 | $ | 477,903 | |||||||
| Add/subtract: Investment securities losses (gains), net | 1,990 | (8,734) | |||||||||
| Add: Decrease in fair value of private equity investments, net | — | 4,255 | |||||||||
| Adjusted total revenue | $ | 487,577 | $ | 473,424 | |||||||
| Efficiency ratio-FTE | 55.01 | % | 57.81 | % | |||||||
| Adjusted tangible efficiency ratio | 54.19 | 56.72 | |||||||||
| Adjusted net income per common share, diluted | |||||||||||
| Net income available to common shareholders | $ | 178,802 | $ | 30,230 | |||||||
| Add: Restructuring charges | 531 | 3,220 | |||||||||
| Add: Loss on early extinguishment of debt | — | 1,904 | |||||||||
| Add/subtract: Investment securities losses (gains), net | 1,990 | (8,734) | |||||||||
| Add: Decrease in fair value of private equity investments, net | — | 4,255 | |||||||||
|
Subtract: Tax effect of adjustments
(1)
|
(638) | (167) | |||||||||
| Adjusted net income available to common shareholders | $ | 180,685 | $ | 30,708 | |||||||
| Weighted average common shares outstanding, diluted | 149,780 | 148,401 | |||||||||
| Adjusted net income per common share, diluted | $ | 1.21 | $ | 0.21 | |||||||
53
| Table 14 - Reconciliation of Non-GAAP Financial Measures, continued | |||||||||||
| Three Months Ended | |||||||||||
| (dollars in thousands) | March 31, 2021 | March 31, 2020 | |||||||||
| Adjusted return on average assets (annualized) | |||||||||||
| Net income | $ | 187,093 | $ | 38,521 | |||||||
| Add: Restructuring charges | 531 | 3,220 | |||||||||
| Add: Loss on early extinguishment of debt | — | 1,904 | |||||||||
| Add/subtract: Investment securities losses (gains), net | 1,990 | (8,734) | |||||||||
| Add: Decrease in fair value of private equity investments, net | — | 4,255 | |||||||||
|
Subtract: Tax effect of adjustments
(1)
|
(638) | (167) | |||||||||
| Adjusted net income | $ | 188,976 | $ | 38,999 | |||||||
| Net income annualized | 758,766 | 154,931 | |||||||||
| Adjusted net income annualized | 766,403 | 156,853 | |||||||||
| Total average assets | 54,188,504 | 48,696,595 | |||||||||
| Return on average assets (annualized) | 1.40 | % | 0.32 | % | |||||||
| Adjusted return on average assets (annualized) | 1.41 | 0.32 | |||||||||
| Three Months Ended | |||||||||||||||||
| (dollars in thousands) | March 31, 2021 | December 31, 2020 | March 31, 2020 | ||||||||||||||
| Adjusted return on average common equity and adjusted return on average tangible common equity (annualized) | |||||||||||||||||
| Net income available to common shareholders | $ | 178,802 | $ | 142,118 | $ | 30,230 | |||||||||||
| Add: Restructuring charges | 531 | 18,068 | 3,220 | ||||||||||||||
| Add: Valuation adjustment to Visa derivative | — | 890 | — | ||||||||||||||
| Add: Loss on early extinguishment of debt | — | 8,409 | 1,904 | ||||||||||||||
| Add/subtract: Investment securities losses (gains), net | 1,990 | (2,337) | (8,734) | ||||||||||||||
| Subtract/add: (Increase) decrease in fair value of private equity investments | — | (63) | 4,255 | ||||||||||||||
|
Subtract: Tax effect of adjustments
(1)
|
(638) | (6,467) | (167) | ||||||||||||||
| Net income available to common shareholders | $ | 180,685 | $ | 160,618 | $ | 30,708 | |||||||||||
| Adjusted net income available to common shareholders' annualized | $ | 732,778 | $ | 638,980 | $ | 123,507 | |||||||||||
| Add: Amortization of intangibles, annualized net of tax | 7,207 | 7,782 | 7,868 | ||||||||||||||
| Adjusted net income available to common shareholders excluding amortization of intangibles annualized | $ | 739,985 | $ | 646,762 | $ | 131,375 | |||||||||||
| Net income available to common shareholders annualized | $ | 725,141 | $ | 565,382 | $ | 121,584 | |||||||||||
| Total average shareholders' equity less preferred stock | $ | 4,599,076 | $ | 4,594,199 | $ | 4,424,278 | |||||||||||
| Subtract: Goodwill | (452,390) | (452,390) | (497,267) | ||||||||||||||
| Subtract: Other intangible assets, net | (44,005) | (46,511) | (54,514) | ||||||||||||||
| Total average tangible shareholders' equity less preferred stock | $ | 4,102,681 | $ | 4,095,298 | $ | 3,872,497 | |||||||||||
| Return on average common equity (annualized) | 15.77 | % | 12.31 | % | 2.75 | % | |||||||||||
| Adjusted return on average common equity (annualized) | 15.93 | 13.91 | 2.79 | ||||||||||||||
| Adjusted return on average tangible common equity (annualized) | 18.04 | 15.79 | 3.39 | ||||||||||||||
54
| Table 14 - Reconciliation of Non-GAAP Financial Measures, continued | |||||||||||||||||
| (dollars in thousands) | March 31, 2021 |
December 31,
2020 |
March 31, 2020 | ||||||||||||||
| Tangible common equity ratio | |||||||||||||||||
| Total assets | $ | 55,159,011 | $ | 54,394,159 | $ | 50,619,585 | |||||||||||
| Subtract: Goodwill | (452,390) | (452,390) | (497,267) | ||||||||||||||
| Subtract: Other intangible assets, net | (42,733) | (45,112) | (53,032) | ||||||||||||||
| Tangible assets | $ | 54,663,888 | $ | 53,896,657 | $ | 50,069,286 | |||||||||||
| Total shareholders' equity | $ | 5,161,717 | $ | 5,161,334 | $ | 5,065,205 | |||||||||||
| Subtract: Goodwill | (452,390) | (452,390) | (497,267) | ||||||||||||||
| Subtract: Other intangible assets, net | (42,733) | (45,112) | (53,032) | ||||||||||||||
| Subtract: Preferred stock, no par value | (537,145) | (537,145) | (537,145) | ||||||||||||||
| Tangible common equity | $ | 4,129,449 | $ | 4,126,687 | $ | 3,977,761 | |||||||||||
| Total shareholders' equity to total assets ratio | 9.36 | % | 9.49 | % | 10.01 | % | |||||||||||
| Tangible common equity ratio | 7.55 | 7.66 | 7.94 | ||||||||||||||
|
(1)
An assumed marginal tax rate of 25.3% for 2021 and 25.9% for 2020 was applied.
|
|||||||||||||||||
ITEM 3. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information presented in the Market Risk Analysis section of the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this Report is incorporated herein by reference.
ITEM 4. – CONTROLS AND PROCEDURES
In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by Synovus' management, with the participation of Synovus' Chief Executive Officer and Chief Financial Officer, of the effectiveness of Synovus' disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, Synovus' Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2021, Synovus' disclosure controls and procedures were effective.
There have been no material changes in Synovus' internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, Synovus' internal control over financial reporting.
55
PART II. – OTHER INFORMATION
ITEM 1. – LEGAL PROCEEDINGS
See "Part I - Item 1. Financial Statements and Supplementary Data - Note 9 - Commitments and Contingencies" of this Report.
ITEM 1A. – RISK FACTORS
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in "Part I - Item IA - Risk Factors” of Synovus' 2020 Form 10-K which could materially affect its business, financial position, results of operations, cash flows, or future results. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition or results of operations, or the trading price of our securities.
There are no material changes during the period covered by this Report to the risk factors previously disclosed in
Synovus' 2020 Form 10-K.
ITEM 2. – UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None.
(c) Issuer Purchases of Equity Securities:
The Company announced on January 26, 2021 that its Board of Directors authorized share repurchases of up to $200 million in 2021
. During the first quarter of 2021, the Company did not complete any share repurc
hases. Synovus had repurchased $23.2 million, or 499 thousand shares of its common stock, at an average price of $46.52 per share, as of May 5, 2021.
ITEM 3. – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. – MINE SAFETY DISCLOSURES
None.
ITEM 5. – OTHER INFORMATION
None.
56
ITEM 6. – EXHIBITS
|
Exhibit
Number |
Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 10.4 | ||||||||
| 10.5 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101 | Interactive Data File | |||||||
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). | |||||||
57
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. | |||||||||||
| May 6, 2021 | By: | /s/ Andrew J. Gregory, Jr. | |||||||||
| Date | Andrew J. Gregory, Jr. | ||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||
| (Duly Authorized Officer and Principal Financial Officer) | |||||||||||
58
TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. - Financial StatementsprintNote 1 - Basis Of Presentation and Accounting PoliciesprintNote 2 - Investment Securities Available For SaleprintNote 3 - Loans and Allowance For Loan LossesprintNote 4 - Goodwill and Other Intangible AssetsprintNote 5 - Shareholders' Equity and Other Comprehensive Income (loss)printNote 6 - Fair Value AccountingprintNote 7 - Derivative Instruments and Hedging ActivitiesprintNote 8 - Net Income Per Common ShareprintNote 9 - Commitments and ContingenciesprintNote 10 - Segment ReportingprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Securities and Use Of ProceedsprintItem 3. Defaults Upon Senior SecuritiesprintItem 4. Mine Safety DisclosuresprintItem 5. Other InformationprintItem 6. Exhibitsprint