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Derivative Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2021
Summary of Derivative Instruments [Abstract] |
Derivative Instruments and Hedging Activities | 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 client transactions. The primary types of derivative instruments utilized by Synovus consist of interest rate swaps, interest rate lock commitments made to prospective mortgage loan clients, 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 for the impacted cash flow hedges are immediately recognized in earnings. Synovus recorded unrealized gains of $488 thousand, or $364 thousand, after tax, in OCI during the third quarter of 2021 and $1.2 million, or $930 thousand, after-tax, in OCI, during the first nine months of 2021, related to terminated cash flow hedges, which are being recognized into earnings in conjunction with the effective terms of the original swaps through the second quarter of 2026. Synovus recognized pre-tax income of $4.0 million and $9.3 million during the three and nine months ended September 30, 2021 related to t he amortization o f terminated cash flow hedges. As of September 30, 2021, Synovus expects to reclassify into earnings approximately $42 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 $7 million in pre-tax income related to the amortization of terminated cash flow hedges. As of September 30, 2021, the maximum length of time over which Synovus is hedging its exposure to the variability in future cash flows is through the third 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 client 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, client risk rating, and client 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 client specific risk. Collateral Requirements Certain derivative transactions have collateral requirements, both at the inception of the trade and as the value of each derivative position changes. As of September 30, 2021 and December 31, 2020, collateral totaling $72.7 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 September 30, 2021 and December 31, 2020, Synovus had a variation margin of $92.7 million and $162.7 million respectively, each reducing the derivative liability. The following table reflects the notional amount and fair value of derivative instruments included on the consolidated balance sheets.
| September 30, 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 | $ | 3,600,000 |  |  | $ | 44,294 |  |  | $ | 3,799 |  |  | $ | 3,000,000 |  |  | $ | 80,802 |  |  | $ | — |
Total derivatives designated as hedging instruments |  |  | $ | 44,294 |  |  | $ | 3,799 |  |  |  |  | $ | 80,802 |  |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts(3) | $ | 9,273,899 |  |  | $ | 197,018 |  |  | $ | 105,488 |  |  | $ | 8,784,141 |  |  | $ | 314,234 |  |  | $ | 153,204 |
Mortgage derivatives - interest rate lock commitments | 159,858 |  |  | 3,100 |  |  | — |  |  | 306,138 |  |  | 6,259 |  |  | — |
Mortgage derivatives - forward commitments to sell fixed-rate mortgage loans | 155,500 |  |  | 579 |  |  | — |  |  | 230,500 |  |  | — |  |  | 1,611 |
Other contracts(4) | 206,365 |  |  | — |  |  | 33 |  |  | 234,884 |  |  | — |  |  | 304 |
Visa derivative | — |  |  | — |  |  | 1,171 |  |  | — |  |  | — |  |  | 2,048 |
Total derivatives not designated as hedging instruments |  |  | $ | 200,697 |  |  | $ | 106,692 |  |  |  |  | $ | 320,493 |  |  | $ | 157,167 |
(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 client 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 $56.2 million and $2.6 million at September 30, 2021 and December 31, 2020, respectively. Synovus also provides foreign currency exchange services, primarily forward contracts, with counterparties to allow commercial clients 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 $16.1 million and $24.1 million at September 30, 2021 and December 31, 2020, respectively. The fair value of foreign currency exchange forwards was negligible at September 30, 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 and nine months ended September 30, 2021 and 2020.
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Total amounts presented in the consolidated statements of income in interest income on loans | $ | 7,266 |  |  | $ | 8,509 |  |  | $ | 23,213 |  |  | $ | 13,595 |
Gain/loss on cash flow hedging relationships:(1) |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |
Realized gains (losses) reclassified from AOCI, pre-tax, to interest income on loans | 4,009 |  |  | 1,031 |  |  | 9,265 |  |  | 1,421 |
Pre-tax income recognized on cash flow hedges | $ | 4,009 |  |  | $ | 1,031 |  |  | $ | 9,265 |  |  | $ | 1,421 |
(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. 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 and nine months ended September 30, 2021 and 2020 is presented below.
|  |  |  | Gain (Loss) Recognized in Consolidated Statements of Income
|  |  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) |  | Location in Consolidated Statements of Income |  | 2021 |  | 2020 |  | 2021 |  | 2020
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest rate contracts(1) |  | Capital markets income |  | $ | 164 |  |  | $ | 176 |  |  | $ | 474 |  |  | $ | 225 |
Other contracts(2) |  | Capital markets income |  | 90 |  |  | 47 |  |  | 272 |  |  | (286) |
Mortgage derivatives - interest rate lock commitments |  | Mortgage banking income |  | (1,388) |  |  | 2,532 |  |  | (3,160) |  |  | 8,922 |
Mortgage derivatives - forward commitments to sell fixed-rate mortgage loans |  | Mortgage banking income |  | 922 |  |  | (396) |  |  | 2,190 |  |  | (1,624) |
Total derivatives not designated as hedging instruments |  |  |  | $ | (212) |  |  | $ | 2,359 |  |  | $ | (224) |  |  | $ | 7,237 |
(1) Gain (loss) represents net fair value adjustments (including credit related adjustments) for client swaps and offsetting positions. Additionally, losses related to termination of client swaps of $2.5 million were recorded in other non-interest expense during the first quarter of 2020. (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 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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