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Derivative Instruments | 12 Months Ended
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Dec. 31, 2020
Summary of Derivative Instruments [Abstract] |
Derivative Instruments | Note 15 - Derivative Instruments 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" of this Report 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 flow hedges, the effective portion of the gain or loss related to the derivative instrument is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings or when the hedge is terminated and included in the same income statement line item as the earnings effect of the hedged item. Synovus recorded an unrealized gain of $9.8 million, or $7.3 million after-tax, in OCI, during the first quarter of 2020, related to terminated cash flow hedges, which is being recognized into earnings consistent with the effective terms of the original swaps through the third quarter of 2025. Synovus recognized pre-tax income of $2.8 million during the year ended December 31, 2020 related to t he amortization o f terminated cash flow hedges. As of December 31, 2020, Synovus expects to reclassify approximately $40 million of pre-tax gains from AOCI into interest income on cash flow hedges over the next twelve months. Included in this amount is approximately $5 million in pre-tax gains related to the terminated cash flow hedges. As of December 31, 2020, 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 2024. For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately. Customer Related Derivative Positions Synovus enters into interest rate swap agreements to facilitate the risk management strategies of certain commercial banking customers. Synovus mitigates this risk by entering into equal and offsetting interest rate swap agreements with highly rated counterparties. The interest rate swap agreements are free-standing derivatives and are recorded at fair value on Synovus' consolidated balance sheets. The credit risk to these customers is evaluated and included in the calculation of fair value. Fair value changes including credit-related adjustments are recorded as a component of capital markets income. Counterparty Credit Risk and Collateral Entering into derivative contracts potentially exposes Synovus to the risk of counterparties’ failure to fulfill their legal obligations, including, but not limited to, potential amounts due or payable under each derivative contract. Notional principal amounts are often used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. Synovus assesses the credit risk of its 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 seeks 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. Mortgage Derivatives Synovus originates first lien residential mortgage loans for sale into the secondary market. Mortgage loans are sold either individually or in a bulk sale by Synovus on a whole loan servicing-released basis to third-party servicing aggregators for potential conversion into mortgage-backed securities which can be traded in the secondary market or retained on their respective balance sheet. Synovus enters into interest rate lock commitments for residential mortgage loans which commits it to lend funds to a potential borrower at a specific interest rate and within a specified period of time. Interest rate lock commitments that relate to the origination of mortgage loans that, if originated, will be held for sale, are considered derivative financial instruments under applicable accounting guidance. Outstanding interest rate lock commitments expose Synovus to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan and the eventual commitment for sale into the secondary market. Forward commitments to sell primarily fixed-rate mortgage loans are entered into to reduce the exposure to market risk arising from potential changes in interest rates, which could affect the fair value of mortgage loans held for sale and outstanding interest rate lock commitments, which guarantee a certain interest rate if the loan is ultimately funded or granted by Synovus as a mortgage loan held for sale. The commitments to sell mortgage loans are at fixed prices and are scheduled to settle at specified dates that generally do not exceed 90 days. Visa Derivative In conjunction with the sale of Class B shares of common stock issued by Visa to Synovus as a Visa USA member, Synovus entered into a derivative contract with the purchaser, which provides for settlements between the parties based upon a change in the ratio for conversion of Visa Class B shares to Visa Class A shares. The conversion ratio changes when Visa deposits funds to a litigation escrow established by Visa to pay settlements for certain litigation, for which Visa is indemnified by Visa USA members. The litigation escrow is funded by proceeds from Visa’s conversion of Class B shares. The fair value of the derivative contract is determined based on management's estimate of the timing and amount of the Covered Litigation settlement, and the resulting payments due to the counterparty under the terms of the contract. Fair value changes are recorded as a component of other non-interest expense. Management believes that the estimate of Synovus' exposure to the Visa indemnification including fees associated with the Visa derivative is adequate based on current information, including Visa's recent announcements and disclosures. However, future developments in the litigation could require changes to Synovus' estimate. 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 December 31, 2020 and 2019, collateral totaling $155.4 million and $84.6 million, respectively, was pledged to the derivative counterparties to comply with collateral requirements in the normal course of business. 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 December 31, 2020 and 2019, Synovus had a variation margin of $162.7 million and $113.7 million, respectively, reducing the derivative liability. The following table reflects the notional amount and fair value of derivative instruments included on the consolidated balance sheets. Beginning on October 19, 2020, CME Group Inc. transitioned price alignment and discounting for swap futures from the daily EFFR to the SOFR. This change did not have a material impact on Synovus' financial statements.
| December 31, 2020 |  | December 31, 2019
|  |  | 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 | $ | 3,000,000 |  |  | $ | 80,802 |  |  | $ | — |  |  | $ | 2,000,000 |  |  | $ | 54 |  |  | $ | 8,624 |
Total derivatives designated as hedging instruments |  |  | $ | 80,802 |  |  | $ | — |  |  |  |  | $ | 54 |  |  | $ | 8,624 |
Derivatives not designated: as hedging instruments |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts(3) | $ | 8,784,141 |  |  | $ | 314,234 |  |  | $ | 153,204 |  |  | $ | 7,258,159 |  |  | $ | 138,672 |  |  | $ | 25,849 |
Mortgage derivatives - interest rate lock commitments | 306,138 |  |  | 6,259 |  |  | — |  |  | 70,481 |  |  | 1,290 |  |  | — |
Mortgage derivatives - forward commitments to sell fixed-rate mortgage loans | 230,500 |  |  | — |  |  | 1,611 |  |  | 107,000 |  |  | — |  |  | 168 |
Other contracts(4) | 234,884 |  |  | — |  |  | 304 |  |  | 145,764 |  |  | — |  |  | 91 |
Visa derivative | — |  |  | — |  |  | 2,048 |  |  | — |  |  | — |  |  | 2,339 |
Total derivatives not designated as hedging instruments |  |  | $ | 320,493 |  |  | $ | 157,167 |  |  |  |  | $ | 139,962 |  |  | $ | 28,447 |
(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 $2.6 million and $3.0 million at December 31, 2020 and 2019, 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 $24.1 million and $32.9 million at December 31, 2020 and 2019, respectively. The fair value of foreign currency exchange forwards was negligible at December 31, 2020 and 2019 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 years ended December 31, 2020, 2019, and 2018.
(in thousands) | 2020 |  | 2019 |  | 2018
Total amounts presented in the consolidated statements of income in interest income on loans | $ | 22,215 |  |  | $ | — |  |  | $ | — |
Gain/loss on cash flow hedging relationships:(1) |  |  |  |  |
Interest rate swaps: |  |  |  |  |
Realized gains (losses) reclassified from AOCI, pre-tax, to interest income on loans | 2,765 |  |  | — |  |  | — |
Pre-tax income recognized on cash flow hedges | $ | 2,765 |  |  | $ | — |  |  | $ | — |
(1) See "Part II - Item 8. Financial Statements and Supplementary Data - Note 11 - Shareholders' Equity and Other Comprehensive Income" in this Report for additional information. 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 years ended December 31, 2020, 2019 and 2018 is presented below.
|  |  | Gain (Loss) Recognized in Consolidated Statements of Income
|  |  | For The Years Ended December 31,
(in thousands) | Location in Consolidated Statements of Income |  | 2020 |  | 2019 |  | 2018
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Interest rate contracts(1) | Capital markets income |  | $ | (777) |  |  | $ | (338) |  |  | $ | (29) |
Other contracts(2) | Capital markets income |  | (213) |  |  | (91) |  |  | — |
Mortgage derivatives - interest rate lock commitments | Mortgage banking income |  | 4,969 |  |  | 346 |  |  | 8 |
Mortgage derivatives - forward commitments to sell fixed-rate mortgage loans | Mortgage banking income |  | (1,443) |  |  | 651 |  |  | (691) |
Visa derivative | Other non-interest expense |  | (890) |  |  | (3,611) |  |  | (2,328) |
Total derivatives not designated as hedging instruments |  |  | $ | 1,646 |  |  | $ | (3,043) |  |  | $ | (3,040) |
(1) Additionally, losses related to termination of customer swaps of $2.5 million were recorded in other non-interest expense during 2020. Gain (loss) represents net fair value adjustments (including credit related adjustments) for customer swaps and offsetting positions. (2) Includes risk participation agreements sold.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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