BBVA USA Bancshares, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - BBVA USA Bancshares, Inc.	exhibit322x20170331.htm
EX-32.1 - EXHIBIT 32.1 - BBVA USA Bancshares, Inc.	exhibit321x20170331.htm
EX-31.2 - EXHIBIT 31.2 - BBVA USA Bancshares, Inc.	exhibit312x20170331.htm
EX-31.1 - EXHIBIT 31.1 - BBVA USA Bancshares, Inc.	exhibit311x20170331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2017



¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 000-55106

BBVA Compass Bancshares, Inc.

(Exact name of registrant as specified in its charter)



Texas		20-8948381
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2200 Post Oak Blvd. Houston, Texas		77056
(Address of principal executive offices)		(Zip Code)
	(205) 297-3000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ (Do not check if a smaller reporting company)
Smaller reporting company o	Emerging growth company o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding as of April 30, 2017
Common Stock (par value $0.01 per share)		222,950,751 shares

Explanatory Note

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this report with certain reduced disclosures as permitted by those instructions.

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		Page

Part I	Financial Information
Item 1.	Financial Statements (Unaudited)	7
	Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	7
	Condensed Consolidated Statements of Income for the three months ended March 31, 2017 and 2016	8
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016	9
	Condensed Consolidated Statements of Shareholder's Equity for the three months ended March 31, 2017 and 2016	10
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016	11
	Notes to the March 31, 2017 Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	56
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	79
Item 4.	Controls and Procedures	79

Part II	Other Information
Item 1.	Legal Proceedings	80
Item 1A.	Risk Factors	80
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 3.	Defaults Upon Senior Securities	80
Item 4.	Mine Safety Disclosures	80
Item 5.	Other Information	80
Item 6.	Exhibits	82
Signatures		83

Glossary of Acronyms and Terms

The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:



AFS	Available For Sale
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Basel III	Global regulatory framework developed by the Basel Committee on Banking Supervision
Bank	Compass Bank
BBVA	Banco Bilbao Vizcaya Argentaria, S.A.
BBVA Compass	Registered trade name of Compass Bank
BBVA Group	BBVA and its consolidated subsidiaries
BOLI	Bank Owned Life Insurance
BSI	BBVA Securities Inc.
Capital Securities	Debentures issued by the Parent
Cash Flow Hedge	A hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability
CD	Certificate of Deposit and/or time deposits
CET1	Common Equity Tier 1
CET1 Risk-Based Capital Ratio	Ratio of Common Equity Tier 1 capital to risk-weighted assets
CFPB	Consumer Financial Protection Bureau
Company	BBVA Compass Bancshares, Inc. and its subsidiaries
Covered Assets	Loans and other real estate owned acquired from the FDIC subject to loss sharing agreements
Covered Loans	Loans acquired from the FDIC subject to loss sharing agreements
CRA	Community Reinvestment Act
ERM	Enterprise Risk Management
EVE	Economic Value of Equity
Exchange Act	Securities and Exchange Act of 1934, as amended
Fair Value Hedge	A hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
Federal Reserve Board	Board of Governors of the Federal Reserve System
FHLB	Federal Home Loan Bank
FICO	Fair Isaac Corporation
Fitch	Fitch Ratings
FNMA	Federal National Mortgage Association
Guaranty Bank	Collectively, certain assets and liabilities of Guaranty Bank, acquired by the Company in 2009
HTM	Held To Maturity
LCR	Liquidity Coverage Ratio
Leverage Ratio	Ratio of Tier 1 capital to quarterly average on-balance sheet assets
Moody's	Moody's Investor Services, Inc.
MRA	Master Repurchase Agreement
MSR	Mortgage Servicing Rights
OCC	Office of the Comptroller of the Currency
OREO	Other Real Estate Owned
OTTI	Other-Than-Temporary Impairment
Parent	BBVA Compass Bancshares, Inc.



Potential Problem Loans	Commercial loans rated substandard or below, which do not meet the definition of nonaccrual, TDR, or 90 days past due and still accruing
Purchased Impaired Loans	Loans with evidence of credit deterioration since acquisition for which it is probable all contractual payments will not be received that are accounted for under ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality
Purchased Nonimpaired Loans	Acquired loans with a fair value that is lower than the contractual amounts due that are not required to be accounted for in accordance with ASC Subtopic 310-30
SBA	Small Business Administration
SBIC	Small Business Investment Company
SEC	Securities and Exchange Commission
S&P	Standard and Poor's Rating Services
Series A Preferred Stock	Floating Non-Cumulative Perpetual Preferred Stock, Series A
TBA	To be announced
TDR	Troubled Debt Restructuring
Tier 1 Risk-Based Capital Ratio	Ratio of Tier 1 capital to risk-weighted assets
Total Risk-Based Capital Ratio	Ratio of Total capital (the sum of Tier 1 capital and Tier 2 capital) to risk-weighted assets
U.S.	United States of America
U.S. Treasury	United States Department of the Treasury
U.S. GAAP	Accounting principles generally accepted in the U.S.

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Unless otherwise specified, the terms “we,” “us,” “our,” and the “Company” are used to refer to BBVA Compass Bancshares, Inc. and its subsidiaries, or any one or more of them, as the context may require. The term “Parent” refers to BBVA Compass Bancshares, Inc. The term “BBVA” refers to Banco Bilbao Vizcaya Argentaria, S.A., the parent company of BBVA Compass Bancshares, Inc.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements about the Company and its industry that involve substantial risks and uncertainties. Statements other than statements of current or historical fact, including statements regarding the Company's future financial condition, results of operations, business plans, liquidity, cash flows, projected costs, and the impact of any laws or regulations applicable to the Company, are forward-looking statements. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “projects,” “may,” “will,” “should,” and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following:


•	national, regional and local economic conditions may be less favorable than expected, resulting in, among other things, increased charge-offs of loans, higher provisions for credit losses and/or reduced demand for the Company's services;


•	disruptions to the credit and financial markets, either nationally or globally, including further downgrades of the U.S. government's credit rating and the failure of the European Union to stabilize the fiscal condition of member countries;


•	weakness in the real estate market, including the secondary residential mortgage market, which can affect, among other things, the value of collateral securing mortgage loans, mortgage loan originations and delinquencies, and profits on sales of mortgage loans;


•	legislative, regulatory or accounting changes, which may adversely affect our business and/or competitive position, impose additional costs on the Company or cause us to change our business practices;


•	the impact of consumer protection regulations, including the CFPB's residential mortgage and other retail lending regulations, which could adversely affect the Company's business, financial condition or results of operations;


•	the Federal Reserve Board could object to the Company's annual capital plan, which could cause the Company to change its strategy with respect to its capital plan;


•	volatile or declining oil prices, which could have a negative impact on the economies and real estate markets of states such as Texas, resulting in, among other things, higher delinquencies and increased charge-offs in the energy lending portfolio as well as other commercial and consumer loan portfolios indirectly impacted by declining oil prices;


•	if the Bank's CRA rating were to decline, that could result in certain restrictions on the Company's activities;


•	disruptions in the Company's ability to access capital markets, which may adversely affect its capital resources and liquidity;


•	the Company's heavy reliance on communications and information systems to conduct its business and reliance on third parties and affiliates to provide key components of its business infrastructure, any disruptions of which could interrupt the Company's operations or increase the costs of doing business;


•	that the Company's financial reporting controls and procedures may not prevent or detect all errors or fraud;


•	the Company is subject to certain risks related to originating and selling mortgages. It may be required to repurchase mortgage loans or indemnify mortgage loan purchases as a result of breaches of representations and warranties, borrower fraud or certain breaches of its servicing agreements, and this could harm the Company's liquidity, results of operations and financial condition;


•	the Company's dependence on the accuracy and completeness of information about clients and counterparties;


•	the fiscal and monetary policies of the federal government and its agencies;


•	the failure to satisfy capital adequacy and liquidity guidelines applicable to the Company;


•	downgrades to the Company's credit ratings;


•	changes in interest rates which could affect interest rate spreads and net interest income;


•	costs and effects of litigation, regulatory investigations or similar matters;


•	a failure by the Company to effectively manage the risks the Company faces, including credit, operational and cyber security risks;

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•	increased pressures from competitors (both banks and non-banks) and/or an inability by the Company to remain competitive in the financial services industry, particularly in the markets which the Company serves, and keep pace with technological changes;


•	unpredictable natural or other disasters, which could impact the Company's customers or operations;


•	a loss of customer deposits, which could increase the Company's funding costs;


•	the impact that can result from having loans concentrated by loan type, industry segment, borrower type or location of the borrower or collateral;


•	changes in the creditworthiness of customers;


•	increased loan losses or impairment of goodwill and other intangibles;


•	potential changes in interchange fees;


•	negative public opinion, which could damage the Company's reputation and adversely impact business and revenues;


•	the Company has in the past and may in the future pursue acquisitions, which could affect costs and from which the Company may not be able to realize anticipated benefits;


•	the Company depends on the expertise of key personnel, and if these individuals leave or change their roles without effective replacements, operations may suffer;


•	the Company may not be able to hire or retain additional qualified personnel and recruiting and compensation costs may increase as a result of turnover, both of which may increase costs and reduce profitability and may adversely impact the Company's ability to implement the Company's business strategies; and


•	changes in the Company's accounting policies or in accounting standards which could materially affect how the Company reports financial results and condition.

The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the time they are made and do not necessarily reflect the Company’s outlook at any other point in time. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or for any other reason. However, readers should carefully review the risk factors set forth in other reports or documents the Company files periodically with the SEC.

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PART I FINANCIAL INFORMATION


Item 1.	Financial Statements (Unaudited)

BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	March 31, 2017			December 31, 2016
	(In Thousands)
Assets:
Cash and due from banks	$	1,093,797		$	1,284,261
Interest bearing funds with the Federal Reserve	2,669,135			1,830,078
Federal funds sold, securities purchased under agreements to resell and interest bearing deposits	197,000			137,447
Cash and cash equivalents	3,959,932			3,251,786
Trading account assets	2,892,254			3,144,600
Investment securities available for sale	11,846,618			11,665,055
Investment securities held to maturity (fair value of $1,142,694 and $1,182,009 at March 31, 2017 and December 31, 2016, respectively)	1,158,785			1,203,217
Loans held for sale, (includes $74,741 and $105,257 measured at fair value for March 31, 2017 and December 31, 2016, respectively)	74,741			161,849
Loans	59,705,767			60,061,263
Allowance for loan losses	(834,106		)	(838,293		)
Net loans	58,871,661			59,222,970
Premises and equipment, net	1,273,226			1,300,054
Bank owned life insurance	715,883			711,939
Goodwill	4,983,296			4,983,296
Other assets	1,532,837			1,435,187
Total assets	$	87,309,233		$	87,079,953
Liabilities:
Deposits:
Noninterest bearing	$	21,476,890		$	20,332,792
Interest bearing	46,052,748			46,946,741
Total deposits	67,529,638			67,279,533
FHLB and other borrowings	2,993,222			3,001,551
Federal funds purchased and securities sold under agreements to repurchase	71,559			39,052
Other short-term borrowings	2,642,539			2,802,977
Accrued expenses and other liabilities	1,186,776			1,206,133
Total liabilities	74,423,734			74,329,246
Shareholder’s Equity:
Series A Preferred stock — $0.01 par value, liquidation preference $200,000 per share
Authorized - 30,000,000 shares
Issued — 1,150 shares at both March 31, 2017 and December 31, 2016	229,475			229,475
Common stock — $0.01 par value:
Authorized — 300,000,000 shares
Issued — 222,950,751 shares at both March 31, 2017 and December 31, 2016	2,230			2,230
Surplus	14,982,125			14,985,673
Accumulated deficit	(2,207,060		)	(2,327,440		)
Accumulated other comprehensive loss	(150,781		)	(168,252		)
Total BBVA Compass Bancshares, Inc. shareholder’s equity	12,855,989			12,721,686
Noncontrolling interests	29,510			29,021
Total shareholder’s equity	12,885,499			12,750,707
Total liabilities and shareholder’s equity	$	87,309,233		$	87,079,953

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended March 31,
	2017		2016
	(In Thousands)
Interest income:
Interest and fees on loans	$	574,712	$	561,083
Interest on investment securities available for sale	54,878		46,197
Interest on investment securities held to maturity	6,639		6,795
Interest on federal funds sold, securities purchased under agreements to resell and interest bearing deposits	9,262		4,366
Interest on trading account assets	10,297		14,321
Total interest income	655,788		632,762
Interest expense:
Interest on deposits	70,304		77,815
Interest on FHLB and other borrowings	19,068		18,012
Interest on federal funds purchased and securities sold under agreements to repurchase	4,897		6,157
Interest on other short-term borrowings	10,086		13,896
Total interest expense	104,355		115,880
Net interest income	551,433		516,882
Provision for loan losses	80,139		113,245
Net interest income after provision for loan losses	471,294		403,637
Noninterest income:
Service charges on deposit accounts	55,168		51,425
Card and merchant processing fees	29,992		29,742
Investment banking and advisory fees	28,301		23,604
Retail investment sales	27,471		22,567
Money transfer income	25,197		24,425
Asset management fees	9,771		8,805
Corporate and correspondent investment sales	8,915		4,413
Mortgage banking	2,870		(3,434		)
Bank owned life insurance	4,169		4,416
Investment securities gains, net	—		8,353
Other	52,833		78,889
Total noninterest income	244,687		253,205
Noninterest expense:
Salaries, benefits and commissions	268,015		279,769
Equipment	61,630		60,441
Professional services	57,807		56,367
Net occupancy	42,101		39,272
Money transfer expense	16,324		15,600
Amortization of intangibles	2,525		4,093
Securities impairment:
Other-than-temporary impairment	242		—
Less: non-credit portion recognized in other comprehensive income	—		—
Total securities impairment	242		—
Other	100,668		136,602
Total noninterest expense	549,312		592,144
Net income before income tax expense	166,669		64,698
Income tax expense	45,846		25,431
Net income	120,823		39,267
Less: net income attributable to noncontrolling interests	443		528
Net income attributable to BBVA Compass Bancshares, Inc.	120,380		38,739
Less: preferred stock dividends	3,548		3,219
Net income attributable to common shareholder	$	116,832	$	35,520

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended March 31,
	2017			2016
	(In Thousands)
Net income	$	120,823		$	39,267
Other comprehensive income, net of tax:
Unrealized holding gains arising during period from securities available for sale	26,933			68,264
Less: reclassification adjustment for net gains on sale of securities available for sale in net income	—			5,294
Net change in unrealized holding gains on securities available for sale	26,933			62,970
Change in unamortized net holding losses on investment securities held to maturity	666			529
Change in unamortized non-credit related impairment on investment securities held to maturity	223			222
Net change in unamortized holding losses on securities held to maturity	889			751
Unrealized holding (losses) gains arising during period from cash flow hedge instruments	(9,866		)	2,739
Change in defined benefit plans	(485		)	931
Other comprehensive income, net of tax	17,471			67,391
Comprehensive income	138,294			106,658
Less: comprehensive income attributable to noncontrolling interests	443			528
Comprehensive income attributable to BBVA Compass Bancshares, Inc.	$	137,851		$	106,130

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (Unaudited)

	Preferred Stock		Common Stock		Surplus			Accumulated Deficit			Accumulated Other Comprehensive Loss			Non-Controlling Interests		Total Shareholder’s Equity
	(In Thousands)
Balance, December 31, 2015	$	229,475	$	2,230	$	15,160,267		$	(2,696,953	)	$	(99,336	)	$	29,026	$	12,624,709
Net income	—		—		—			38,739			—			528		39,267
Other comprehensive income, net of tax	—		—		—			—			67,391			—		67,391
Preferred stock dividends	—		—		(3,219		)	—			—			—		(3,219		)
Vesting of restricted stock	—		—		(6,175		)	—			—			—		(6,175		)
Restricted stock tax benefit	—		—		1,204			—			—			—		1,204
Balance, March 31, 2016	$	229,475	$	2,230	$	15,152,077		$	(2,658,214	)	$	(31,945	)	$	29,554	$	12,723,177

Balance, December 31, 2016	$	229,475	$	2,230	$	14,985,673		$	(2,327,440	)	$	(168,252	)	$	29,021	$	12,750,707
Net income	—		—		—			120,380			—			443		120,823
Other comprehensive income, net of tax	—		—		—			—			17,471			—		17,471
Preferred stock dividends	—		—		(3,548		)	—			—			—		(3,548		)
Capital contribution	—		—		—			—			—			46		46
Balance, March 31, 2017	$	229,475	$	2,230	$	14,982,125		$	(2,207,060	)	$	(150,781	)	$	29,510	$	12,885,499

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended March 31,
	2017			2016
	(In Thousands)
Operating Activities:
Net income	$	120,823		$	39,267
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	71,870			71,616
Securities impairment	242			—
Amortization of intangibles	2,525			4,093
Accretion of discount, loan fees and purchase market adjustments, net	(29		)	(12,524		)
Net change in FDIC indemnification liability	96			4,710
Provision for loan losses	80,139			113,245
Amortization of stock based compensation	—			1,204
Net change in trading account assets	65,829			(272,999		)
Net change in trading account liabilities	(40,247		)	180,253
Net change in loans held for sale	30,687			(22,477		)
Deferred tax benefit	28,504			11,991
Investment securities gains, net	—			(8,353		)
Loss on sale of premises and equipment	1,446			1,346
Gain on sale of loans	—			(16,143		)
Net loss (gain) on sale of other real estate and other assets	1,072			(1,232		)
Increase in other assets	(147,103		)	(188,806		)
Increase (decrease) in other liabilities	4,928			(46,266		)
Net cash provided by (used in) operating activities	220,782			(141,075		)
Investing Activities:
Proceeds from sales of investment securities available for sale	—			561,488
Proceeds from prepayments, maturities and calls of investment securities available for sale	636,803			436,760
Purchases of investment securities available for sale	(797,095		)	(1,126,225		)
Proceeds from prepayments, maturities and calls of investment securities held to maturity	46,492			57,457
Purchases of investment securities held to maturity	(642		)	(1,429		)
Proceeds from sales of trading securities	228,980			173,678
Purchases of trading securities	(42,463		)	(121,080		)
Net change in loan portfolio	188,541			(1,591,797		)
Proceeds from sales of loans	128,842			776,440
Purchase of premises and equipment	(22,086		)	(25,015		)
Proceeds from sale of premises and equipment	80			2,337
Payments to FDIC for covered assets	(1,091		)	(124		)
Proceeds from sales of other real estate owned	5,153			10,868
Net cash provided by (used in) investing activities	371,514			(846,642		)
Financing Activities:
Net increase in demand deposits, NOW accounts and savings accounts	1,603,782			1,850,255
Net (decrease) increase in time deposits	(1,356,449		)	1,084,078
Net increase in federal funds purchased and securities sold under agreements to repurchase	32,507			143,632
Net decrease in other short-term borrowings	(160,438		)	(107,863		)
Proceeds from FHLB and other borrowings	1,150,000			—
Repayment of FHLB and other borrowings	(1,150,050		)	(1,100,125		)
Capital contribution for non-controlling interest	46			—
Vesting of restricted stock	—			(6,175		)
Preferred dividends paid	(3,548		)	(3,219		)
Net cash provided by financing activities	115,850			1,860,583
Net increase in cash and cash equivalents	708,146			872,866
Cash and cash equivalents at beginning of year	3,251,786			4,496,828
Cash and cash equivalents at end of period	$	3,959,932		$	5,369,694

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

General

The accounting and reporting policies of the Company and the methods of applying those policies that materially affect the consolidated financial statements conform with U.S. GAAP and with general financial services industry practices. The accompanying unaudited consolidated financial statements include the accounts of BBVA Compass Bancshares, Inc. and its subsidiaries and have been prepared in conformity with U.S. GAAP for interim financial information and in accordance with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements have been included. Operating results for the three months ended March 31, 2017, are not necessarily indicative of the results that may be expected for the year ended December 31, 2017. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

The Company has evaluated subsequent events for potential recognition and disclosure through the filing date of this Quarterly Report on Form 10-Q to determine if either recognition or disclosure of significant events or transactions is required.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, the most significant of which relate to the allowance for loan losses, goodwill impairment, fair value measurements and income taxes. Actual results could differ from those estimates.

Recently Adopted Accounting Standards

Stock Compensation

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The FASB issued this ASU to improve the accounting for share-based payment transactions as part of its simplification initiative. The areas for simplification in this ASU involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU were effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The adoption of this standard did not have an impact on the financial condition or results of operations of the Company.

Recently Issued Accounting Standards Not Yet Adopted

Revenue from Contracts with Customers

In May 2014, the FASB released ASU 2014-09, Revenue from Contracts with Customers. The core principle of this codified guidance requires an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU were originally effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Subsequently, the FASB issued a one-year deferral for implementation, which results in the new guidance being effective for annual and interim reporting periods beginning after December 15, 2017. The Company is currently assessing the impact that the adoption of this standard will have on the financial condition and results of operations of the Company and its selection of transition method. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities accounted for under other U.S. GAAP, the Company does not expect the new revenue recognition guidance to have a material impact on the elements of its statement of income most closely associated with financial instruments, including securities

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gains, interest income and interest expense. The Company plans to adopt this standard utilizing a modified retrospective transition method in the first quarter of 2018.

Recognition and Measurement of Financial Assets and Liabilities

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. The amendments in this ASU revise an entity's accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted for the presentation of certain fair value changes for financial liabilities measured at fair value. The adoption of this standard is not expected to have a material impact on the financial condition or results of operations of the Company.

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. The Company is currently assessing the impact that the adoption of this standard will have on the financial condition and results of operations of the Company.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for AFS debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early application of this ASU is permitted. The Company is currently assessing the impact that the adoption of this standard will have on the financial condition and results of operations of the Company.

Statement of Cash Flows

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early application of this ASU is permitted. The Company is currently assessing the impact that the adoption of this standard will have on the Statements of Cash Flows of the Company.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows - Restricted Cash. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early application of this ASU is permitted. The Company is currently assessing the impact that the adoption of this standard will have on the Statement of Cash Flows of the Company.

Goodwill

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under the amendments in this ASU, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting

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unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU No. 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The ASU should be applied using a prospective method. The Company is currently assessing this pronouncement and the impact of adoption.

Retirement Benefits

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this ASU require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. This ASU is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. Early adoption is permitted. The ASU should be applied retrospectively for the presentation of the service cost component and the other components of net benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net benefit cost. The Company is currently assessing the impact that the adoption of this standard will have on the financial condition and results of operations of the Company.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU reduce the amortization period for certain callable debt securities carried at a premium and require the premium to be amortized over a period not to exceed the earliest call date. These amendments do not apply to securities carried at a discount. This ASU is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. Early adoption is permitted. The ASU should be applied using a modified retrospective method. The Company is currently assessing the impact that the adoption of this standard will have on the financial condition and results of operations of the Company.

(2) Acquisition Activity

On June 6, 2016, the Parent completed the purchase of four subsidiaries (Bancomer Transfer Services, Bancomer Payment Services, Bancomer Foreign Exchange, and Bancomer Financial Services) from BBVA Bancomer USA, Inc. BBVA Bancomer USA, Inc. was a wholly owned U.S. subsidiary of BBVA Bancomer, S.A., Mexico City, Mexico and ultimately a wholly owned subsidiary of BBVA. These four subsidiaries engage in money transfer services, including money transmission and foreign exchange services and are subsidiaries of BBVA Compass Payments, Inc., a wholly owned subsidiary of the Parent.

Because the Company and the acquired subsidiaries were under common control of the ultimate parent, BBVA, prior to the purchase this transaction was accounted for in a manner similar to the pooling-of-interest method, which requires the merged entities be combined at their historical cost. The difference between the net carrying amount of the four subsidiaries and the total consideration paid to BBVA Bancomer USA, Inc. was recorded as a capital transaction. The Company's consolidated financial statements and related footnotes are presented as if the transaction occurred at the beginning of the earliest date presented and the prior periods have been retrospectively adjusted.

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The following table summarizes the impact of the acquisition to certain captions within the Company's Unaudited Condensed Consolidated Income Statement for the three months ended March 31, 2016.



Income Statement	As Previously Reported		Retrospective Adjustments		As Retrospectively Adjusted
	(In Thousands)
Three Months Ended March 31, 2016
Interest income	$	632,761	$	1	$	632,762
Noninterest income	226,579		26,626		253,205
Noninterest expense	573,119		19,025		592,144
Income tax expense	22,618		2,813		25,431
Net income	34,478		4,789		39,267

Additionally, the Unaudited Condensed Consolidated Statements of Comprehensive Income, Shareholder's Equity and Cash Flows along with Footnotes 6, 9, 10, 12, and 13 have been adjusted to reflect these retrospective adjustments.

(3) Investment Securities Available for Sale and Investment Securities Held to Maturity

The following tables present the adjusted cost and approximate fair value of investment securities available for sale and investment securities held to maturity.



	March 31, 2017
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(In Thousands)
Investment securities available for sale:
Debt securities:
U.S. Treasury and other U.S. government agencies	$	2,995,084	$	4,896	$	32,595	$	2,967,385
Mortgage-backed securities	3,541,581		14,965		34,522		3,522,024
Collateralized mortgage obligations	5,013,180		5,796		84,833		4,934,143
States and political subdivisions	8,089		144		25		8,208
Other	14,129		48		116		14,061
Equity securities	400,727		70		—		400,797
Total	$	11,972,790	$	25,919	$	152,091	$	11,846,618
Investment securities held to maturity:
Collateralized mortgage obligations	$	77,791	$	4,926	$	3,424	$	79,293
Asset-backed securities	13,314		1,914		956		14,272
States and political subdivisions	1,002,928		3,302		20,680		985,550
Other	64,752		928		2,101		63,579
Total	$	1,158,785	$	11,070	$	27,161	$	1,142,694

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	December 31, 2016
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(In Thousands)
Investment securities available for sale:
Debt securities:
U.S. Treasury and other U.S. government agencies	$	2,409,141	$	2,390	$	37,200	$	2,374,331
Mortgage-backed securities	3,796,270		12,869		45,801		3,763,338
Collateralized mortgage obligations	5,200,241		5,292		106,605		5,098,928
States and political subdivisions	8,457		184		—		8,641
Other	16,321		6		142		16,185
Equity securities	403,548		84		—		403,632
Total	$	11,833,978	$	20,825	$	189,748	$	11,665,055
Investment securities held to maturity:
Collateralized mortgage obligations	$	83,087	$	5,265	$	3,278	$	85,074
Asset-backed securities	15,118		1,982		1,081		16,019
States and political subdivisions	1,040,716		2,309		25,518		1,017,507
Other	64,296		1,143		2,030		63,409
Total	$	1,203,217	$	10,699	$	31,907	$	1,182,009

In the above tables, equity securities include $400 million and $403 million at March 31, 2017 and December 31, 2016, respectively, of FHLB and Federal Reserve stock carried at par.

The investments held within the states and political subdivision caption of investment securities held to maturity relate to private placement transactions underwritten as loans by the Company but that meet the definition of a security within ASC Topic 320, Investments – Debt and Equity Securities.

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The following tables disclose the fair value and the gross unrealized losses of the Company’s available for sale securities and held to maturity securities that were in a loss position at March 31, 2017 and December 31, 2016. This information is aggregated by investment category and the length of time the individual securities have been in an unrealized loss position.



	March 31, 2017
	Securities in a loss position for less than 12 months				Securities in a loss position for 12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Investment securities available for sale:
Debt securities:
U.S. Treasury and other U.S. government agencies	$	1,342,663	$	13,129	$	747,898	$	19,466	$	2,090,561	$	32,595
Mortgage-backed securities	1,202,675		9,804		1,293,140		24,718		2,495,815		34,522
Collateralized mortgage obligations	2,979,987		68,468		1,074,947		16,365		4,054,934		84,833
States and political subdivisions	4,333		25		—		—		4,333		25
Other	3,871		55		1,060		61		4,931		116
Total	$	5,533,529	$	91,481	$	3,117,045	$	60,610	$	8,650,574	$	152,091

Investment securities held to maturity:
Collateralized mortgage obligations	$	8,468	$	199	$	40,759	$	3,225	$	49,227	$	3,424
Asset-backed securities	—		—		8,317		956		8,317		956
States and political subdivisions	422,213		9,863		311,319		10,817		733,532		20,680
Other	9,380		130		10,872		1,971		20,252		2,101
Total	$	440,061	$	10,192	$	371,267	$	16,969	$	811,328	$	27,161



	December 31, 2016
	Securities in a loss position for less than 12 months				Securities in a loss position for 12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Investment securities available for sale:
Debt securities:
U.S. Treasury and other U.S. government agencies	$	1,277,341	$	23,862	$	609,078	$	13,338	$	1,886,419	$	37,200
Mortgage-backed securities	1,425,743		15,235		1,368,957		30,566		2,794,700		45,801
Collateralized mortgage obligations	3,527,757		99,477		782,849		7,128		4,310,606		106,605
Other	3,849		77		1,057		65		4,906		142
Total	$	6,234,690	$	138,651	$	2,761,941	$	51,097	$	8,996,631	$	189,748

Investment securities held to maturity:
Collateralized mortgage obligations	$	3,847	$	527	$	40,083	$	2,751	$	43,930	$	3,278
Asset-backed securities	343		1		9,238		1,080		9,581		1,081
States and political subdivisions	532,090		13,043		313,803		12,475		845,893		25,518
Other	16,578		174		3,587		1,856		20,165		2,030
Total	$	552,858	$	13,745	$	366,711	$	18,162	$	919,569	$	31,907

As indicated in the previous tables, at March 31, 2017, the Company held certain investment securities in unrealized loss positions. The Company does not have the intent to sell these securities and believes it is not more likely than not that it will be required to sell these securities before their anticipated recovery.

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The Company regularly evaluates each available for sale and held to maturity security in a loss position for OTTI. In its evaluation, the Company considers such factors as the length of time and the extent to which the fair value has been below cost, the financial condition of the issuer, the Company’s intent to hold the security to an expected recovery in market value and whether it is more likely than not that the Company will have to sell the security before its fair value recovers. Activity related to the credit loss component of the OTTI is recognized in earnings. The portion of OTTI related to all other factors is recognized in other comprehensive income.

Management does not believe that any individual unrealized loss in the Company’s investment securities available for sale or held to maturity portfolios, presented in the preceding tables, represents an OTTI at either March 31, 2017 or December 31, 2016, other than those noted below.

The following table discloses activity related to credit losses for debt securities where a portion of the OTTI was recognized in other comprehensive income.



	Three Months Ended March 31,
	2017		2016
	(In Thousands)
Balance at beginning of period	$	22,582	$	22,452
Reductions for securities paid off during the period (realized)	—		—
Additions for the credit component on debt securities in which OTTI was not previously recognized	242		—
Additions for the credit component on debt securities in which OTTI was previously recognized	—		—
Balance at end of period	$	22,824	$	22,452

For the three months ended March 31, 2017, there was $242 thousand of OTTI recognized on held to maturity securities. For the three months ended March 31, 2016, there was no OTTI recognized on held to maturity securities. The investment securities primarily impacted by credit impairment are held to maturity non-agency collateralized mortgage obligations.

The contractual maturities of the securities portfolios are presented in the following table.



March 31, 2017	Amortized Cost		Fair Value
	(In Thousands)
Investment securities available for sale:
Maturing within one year	$	350,956	$	350,702
Maturing after one but within five years	621,527		612,890
Maturing after five but within ten years	1,027,104		1,027,567
Maturing after ten years	1,017,715		998,495
	3,017,302		2,989,654
Mortgage-backed securities and collateralized mortgage obligations	8,554,761		8,456,167
Equity securities	400,727		400,797
Total	$	11,972,790	$	11,846,618

Investment securities held to maturity:
Maturing within one year	$	67,232	$	67,298
Maturing after one but within five years	274,836		269,078
Maturing after five but within ten years	233,024		229,624
Maturing after ten years	505,902		497,401
	1,080,994		1,063,401
Collateralized mortgage obligations	77,791		79,293
Total	$	1,158,785	$	1,142,694

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The gross realized gains and losses recognized on sales of investment securities available for sale are shown in the table below.



	Three Months Ended March 31,
	2017		2016
	(In Thousands)
Gross gains	$	—	$	8,353
Gross losses	—		—
Net realized gains	$	—	$	8,353

(4) Loans and Allowance for Loan Losses

The following table presents the composition of the loan portfolio.



	March 31, 2017		December 31, 2016
	(In Thousands)
Commercial loans:
Commercial, financial and agricultural	$	24,660,668	$	25,122,002
Real estate – construction	2,227,405		2,125,316
Commercial real estate – mortgage	11,398,821		11,210,660
Total commercial loans	38,286,894		38,457,978
Consumer loans:
Residential real estate – mortgage	13,117,776		13,259,994
Equity lines of credit	2,560,495		2,543,778
Equity loans	420,362		445,709
Credit card	570,311		604,881
Consumer direct	1,329,242		1,254,641
Consumer indirect	3,078,748		3,134,948
Total consumer loans	21,076,934		21,243,951
Covered loans	341,939		359,334
Total loans	$	59,705,767	$	60,061,263

At March 31, 2017, the Company considered its energy lending portfolio as a concentration due to the impact of oil prices which reached historically low levels in 2015 and 2016 on the portfolio. Total energy exposure, including unused commitments to extend credit and letters of credit was $7.9 billion and $8.1 billion at March 31, 2017 and December 31, 2016, respectively. The funded amount of the Company's energy lending portfolio was approximately $2.9 billion and $3.2 billion at March 31, 2017 and December 31, 2016, respectively, and is reported in total commercial, financial and agricultural in the table above. The decline in oil prices negatively impacted the financial results of many borrowers in the energy lending portfolio, leading to internal risk rating downgrades. If oil prices resume their decline, the energy-related portfolio may be subject to additional pressure on credit quality metrics including past due, criticized, and nonperforming loans, as well as net charge-offs.

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Allowance for Loan Losses and Credit Quality

The following table, which excludes loans held for sale, presents a summary of the activity in the allowance for loan losses. The portion of the allowance that has not been identified by the Company as related to specific loan categories has been allocated to the individual loan categories on a pro rata basis for purposes of the table below:



	Commercial, Financial and Agricultural			Commercial Real Estate (1)			Residential Real Estate (2)			Consumer (3)			Covered			Total
	(In Thousands)
Three months ended March 31, 2017
Allowance for loan losses:
Beginning balance	$	458,580		$	116,937		$	119,484		$	143,292		$	—		$	838,293
Provision (credit) for loan losses	40,045			(3,128		)	(330		)	43,583			(31		)	80,139
Loans charged off	(42,908		)	(114		)	(6,338		)	(52,828		)	—			(102,188		)
Loan recoveries	3,497			912			3,129			10,293			31			17,862
Net (charge-offs) recoveries	(39,411		)	798			(3,209		)	(42,535		)	31			(84,326		)
Ending balance	$	459,214		$	114,607		$	115,945		$	144,340		$	—		$	834,106
Three months ended March 31, 2016
Allowance for loan losses:
Beginning balance	$	402,113		$	122,068		$	132,104		$	104,948		$	1,440		$	762,673
Provision (credit) for loan losses	83,582			(6,417		)	(3,149		)	39,273			(44		)	113,245
Loans charged off	(19,806		)	(689		)	(6,201		)	(39,953		)	(249		)	(66,898		)
Loan recoveries	1,749			969			2,419			8,283			—			13,420
Net (charge-offs) recoveries	(18,057		)	280			(3,782		)	(31,670		)	(249		)	(53,478		)
Ending balance	$	467,638		$	115,931		$	125,173		$	112,551		$	1,147		$	822,440


(1)	Includes commercial real estate – mortgage and real estate – construction loans.


(2)	Includes residential real estate – mortgage, equity lines of credit and equity loans.


(3)	Includes credit card, consumer direct and consumer indirect loans.

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The table below provides a summary of the allowance for loan losses and related loan balances by portfolio.



	Commercial, Financial and Agricultural		Commercial Real Estate (1)		Residential Real Estate (2)		Consumer (3)		Covered		Total
	(In Thousands)
March 31, 2017
Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	96,429	$	7,225	$	31,746	$	1,951	$	—	$	137,351
Collectively evaluated for impairment	362,785		107,382		84,199		142,389		—		696,755
Purchased loans	—		—		—		—		—		—
Total allowance for loan losses	$	459,214	$	114,607	$	115,945	$	144,340	$	—	$	834,106
Ending balance of loans:
Individually evaluated for impairment	$	553,976	$	61,172	$	176,269	$	2,670	$	—	$	794,087
Collectively evaluated for impairment	24,082,230		13,553,116		15,922,100		4,971,678		—		58,529,124
Purchased loans	24,462		11,938		264		3,953		341,939		382,556
Total loans	$	24,660,668	$	13,626,226	$	16,098,633	$	4,978,301	$	341,939	$	59,705,767

December 31, 2016
Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	99,932	$	4,037	$	32,016	$	2,223	$	—	$	138,208
Collectively evaluated for impairment	358,648		112,900		87,468		141,069		—		700,085
Purchased loans	—		—		—		—		—		—
Total allowance for loan losses	$	458,580	$	116,937	$	119,484	$	143,292	$	—	$	838,293
Ending balance of loans:
Individually evaluated for impairment	$	719,468	$	44,258	$	186,338	$	3,042	$	—	$	953,106
Collectively evaluated for impairment	24,377,200		13,275,968		16,062,554		4,987,208		—		58,702,930
Purchased loans	25,334		15,750		589		4,220		359,334		405,227
Total loans	$	25,122,002	$	13,335,976	$	16,249,481	$	4,994,470	$	359,334	$	60,061,263


(1)	Includes commercial real estate – mortgage and real estate – construction loans.


(2)	Includes residential real estate – mortgage, equity lines of credit and equity loans.


(3)	Includes credit card, consumer direct and consumer indirect loans.

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The following tables present information on individually evaluated impaired loans, by loan class.



	March 31, 2017
	Individually Evaluated Impaired Loans With No Recorded Allowance						Individually Evaluated Impaired Loans With a Recorded Allowance
	Recorded Investment		Unpaid Principal Balance		Allowance		Recorded Investment		Unpaid Principal Balance		Allowance
	(In Thousands)
Commercial, financial and agricultural	$	200,288	$	216,689	$	—	$	353,688	$	394,842	$	96,429
Real estate – construction	—		—		—		328		371		234
Commercial real estate – mortgage	21,640		22,704		—		39,204		39,504		6,991
Residential real estate – mortgage	—		—		—		113,680		113,680		9,759
Equity lines of credit	—		—		—		22,912		23,037		16,945
Equity loans	—		—		—		39,677		40,446		5,042
Credit card	—		—		—		—		—		—
Consumer direct	—		—		—		691		691		49
Consumer indirect	—		—		—		1,979		1,979		1,902
Total loans	$	221,928	$	239,393	$	—	$	572,159	$	614,550	$	137,351



	December 31, 2016
	Individually Evaluated Impaired Loans With No Recorded Allowance						Individually Evaluated Impaired Loans With a Recorded Allowance
	Recorded Investment		Unpaid Principal Balance		Allowance		Recorded Investment		Unpaid Principal Balance		Allowance
	(In Thousands)
Commercial, financial and agricultural	$	375,957	$	396,294	$	—	$	343,511	$	371,085	$	99,932
Real estate – construction	—		—		—		344		459		344
Commercial real estate – mortgage	19,235		20,177		—		24,679		24,865		3,693
Residential real estate – mortgage	—		—		—		119,986		119,986		7,529
Equity lines of credit	—		—		—		24,591		25,045		19,083
Equity loans	—		—		—		41,761		42,561		5,404
Credit card	—		—		—		—		—		—
Consumer direct	—		—		—		745		745		59
Consumer indirect	—		—		—		2,297		2,297		2,164
Total loans	$	395,192	$	416,471	$	—	$	557,914	$	587,043	$	138,208

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The following table presents information on individually evaluated impaired loans, by loan class.



	Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In Thousands)
Commercial, financial and agricultural	$	598,126	$	404	$	343,028	$	320
Real estate – construction	334		2		3,999		2
Commercial real estate – mortgage	49,265		284		60,504		413
Residential real estate – mortgage	116,979		646		108,918		636
Equity lines of credit	23,338		229		27,912		281
Equity loans	40,570		344		45,947		373
Credit card	—		—		—		—
Consumer direct	707		6		904		8
Consumer indirect	2,064		3		1,859		2
Total loans	$	831,383	$	1,918	$	593,071	$	2,035

The table above does not include Purchased Impaired Loans, Purchased Nonimpaired Loans or loans held for sale.

Detailed information on the Company's allowance for loan losses methodology and the Company's impaired loan policy are included in the Company's Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2016.

The Company monitors the credit quality of its commercial portfolio using an internal dual risk rating, which considers both the obligor and the facility. The obligor risk ratings are defined by ranges of default probabilities of the borrowers, through internally assigned letter grades (AAA through D2) and the facility risk ratings are defined by ranges of the loss given default. The combination of those two approaches results in the assessment of the likelihood of loss and it is mapped to the regulatory classifications. The Company assigns internal risk ratings at loan origination and at regular intervals subsequent to origination. Loan review intervals are dependent on the size and risk grade of the loan, and are generally conducted at least annually. Additional reviews are conducted when information affecting the loan’s risk grade becomes available. The general characteristics of the risk grades are as follows:

•

The Company’s internally assigned letter grades “AAA” through “B-” correspond to the regulatory classification “Pass.” These loans do not have any identified potential or well-defined weaknesses and have a high likelihood of orderly repayment. Exceptions exist when either the facility is fully secured by a CD and held at the Company or the facility is secured by properly margined and controlled marketable securities.

•

Internally assigned letter grades “CCC+” through “CCC” correspond to the regulatory classification “Special Mention.” Loans within this classification have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

•

Internally assigned letter grades “CCC-” through “D1” correspond to the regulatory classification “Substandard.” A loan classified as substandard is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the loan. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.


•	The internally assigned letter grade “D2” corresponds to the regulatory classification “Doubtful.” Loans classified as doubtful have all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable or improbable.

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The Company considers payment history as the best indicator of credit quality for the consumer portfolio. Nonperforming loans in the tables below include loans classified as nonaccrual, loans 90 days or more past due and loans modified in a TDR 90 days or more past due.

The following tables, which exclude loans held for sale and covered loans, illustrate the credit quality indicators associated with the Company’s loans, by loan class.



	Commercial
	March 31, 2017
	Commercial, Financial and Agricultural		Real Estate - Construction		Commercial Real Estate - Mortgage
	(In Thousands)
Pass	$	22,819,424	$	2,181,799	$	11,107,996
Special Mention	713,760		41,654		148,639
Substandard	957,263		3,889		121,427
Doubtful	170,221		63		20,759
	$	24,660,668	$	2,227,405	$	11,398,821



	December 31, 2016
	Commercial, Financial and Agricultural		Real Estate - Construction		Commercial Real Estate - Mortgage
	(In Thousands)
Pass	$	23,142,975	$	2,055,483	$	10,898,877
Special Mention	758,417		60,826		187,182
Substandard	1,081,439		9,007		106,183
Doubtful	139,171		—		18,418
	$	25,122,002	$	2,125,316	$	11,210,660



	Consumer
	March 31, 2017
	Residential Real Estate – Mortgage		Equity Lines of Credit		Equity Loans		Credit Card		Consumer Direct		Consumer Indirect
	(In Thousands)
Noncovered loans:
Performing	$	12,973,925	$	2,526,342	$	407,031	$	557,858	$	1,323,731	$	3,063,330
Nonperforming	143,851		34,153		13,331		12,453		5,511		15,418
	$	13,117,776	$	2,560,495	$	420,362	$	570,311	$	1,329,242	$	3,078,748



	December 31, 2016
	Residential Real Estate -Mortgage		Equity Lines of Credit		Equity Loans		Credit Card		Consumer Direct		Consumer Indirect
	(In Thousands)
Noncovered loans:
Performing	$	13,115,936	$	2,507,375	$	431,417	$	593,927	$	1,249,370	$	3,121,825
Nonperforming	144,058		36,403		14,292		10,954		5,271		13,123
	$	13,259,994	$	2,543,778	$	445,709	$	604,881	$	1,254,641	$	3,134,948

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The following tables present an aging analysis of the Company’s past due loans, excluding loans classified as held for sale.



	March 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Nonaccrual		Accruing TDRs		Total Past Due and Impaired		Not Past Due or Impaired		Total
	(In Thousands)
Commercial, financial and agricultural	$	22,472	$	11,804	$	4,405	$	540,407	$	31,644	$	610,732	$	24,049,936	$	24,660,668
Real estate – construction	487		25		3,640		1,028		114		5,294		2,222,111		2,227,405
Commercial real estate – mortgage	13,872		1,226		4,602		89,908		4,821		114,429		11,284,392		11,398,821
Residential real estate – mortgage	61,234		22,337		2,653		140,342		58,867		285,433		12,832,343		13,117,776
Equity lines of credit	9,144		3,619		1,478		32,675		—		46,916		2,513,579		2,560,495
Equity loans	5,105		1,592		376		12,626		33,635		53,334		367,028		420,362
Credit card	6,262		4,719		12,453		—		—		23,434		546,877		570,311
Consumer direct	12,025		4,866		4,874		637		662		23,064		1,306,178		1,329,242
Consumer indirect	68,851		16,161		7,463		7,955		—		100,430		2,978,318		3,078,748
Covered loans	6,448		3,479		23,673		410		—		34,010		307,929		341,939
Total loans	$	205,900	$	69,828	$	65,617	$	825,988	$	129,743	$	1,297,076	$	58,408,691	$	59,705,767



	December 31, 2016
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Nonaccrual		Accruing TDRs		Total Past Due and Impaired		Not Past Due or Impaired		Total
	(In Thousands)
Commercial, financial and agricultural	$	23,788	$	6,581	$	2,891	$	596,454	$	8,726	$	638,440	$	24,483,562	$	25,122,002
Real estate – construction	918		50		2,007		1,239		2,393		6,607		2,118,709		2,125,316
Commercial real estate – mortgage	3,791		3,474		—		71,921		4,860		84,046		11,126,614		11,210,660
Residential real estate – mortgage	57,359		28,450		3,356		140,303		59,893		289,361		12,970,633		13,259,994
Equity lines of credit	7,922		4,583		2,950		33,453		—		48,908		2,494,870		2,543,778
Equity loans	5,615		1,843		467		13,635		34,746		56,306		389,403		445,709
Credit card	6,411		5,042		10,954		—		—		22,407		582,474		604,881
Consumer direct	13,338		4,563		4,482		789		704		23,876		1,230,765		1,254,641
Consumer indirect	85,198		22,833		7,197		5,926		—		121,154		3,013,794		3,134,948
Covered loans	7,311		1,351		27,238		730		—		36,630		322,704		359,334
Total loans	$	211,651	$	78,770	$	61,542	$	864,450	$	111,322	$	1,327,735	$	58,733,528	$	60,061,263

Policies related to the Company's nonaccrual and past due loans are included in the Company's Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2016.

It is the Company’s policy to classify TDRs that are not accruing interest as nonaccrual loans. It is also the Company’s policy to classify TDR past due loans that are accruing interest as TDRs and not according to their past due status. The tables above reflect this policy.

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Modifications to borrowers' loan agreements are considered TDRs if a concession is granted for economic or legal reasons related to a borrower’s financial difficulties that otherwise would not be considered. Within each of the Company’s loan classes, TDRs typically involve modification of the loan interest rate to a below market rate or an extension or deferment of the loan. During the three months ended March 31, 2017, $465 thousand of TDR modifications included an interest rate concession and $84.3 million of TDR modifications resulted from modifications to the loan’s structure. During the three months ended March 31, 2016, $1.9 million of TDR modifications included an interest rate concession and $7.0 million of TDR modifications resulted from modifications to the loan’s structure.

The following table presents an analysis of the types of loans that were restructured and classified as TDRs, excluding loans classified as held for sale.



	Three Months Ended March 31, 2017			Three Months Ended March 31, 2016
	Number of Contracts	Post-Modification Outstanding Recorded Investment		Number of Contracts	Post-Modification Outstanding Recorded Investment
	(Dollars in Thousands)
Commercial, financial and agricultural	10	$	80,790	3	$	262
Real estate – construction	—	—		1	3,392
Commercial real estate – mortgage	—	—		3	1,275
Residential real estate – mortgage	13	2,772		17	2,338
Equity lines of credit	17	546		8	977
Equity loans	10	408		3	103
Credit card	—	—		—	—
Consumer direct	—	—		—	—
Consumer indirect	10	168		30	515
Covered loans	2	103		—	—

For the three months ended March 31, 2017 and 2016, charge-offs and changes to the allowance related to modifications classified as TDRs were not material.

The Company considers TDRs aged 90 days or more past due, charged off or classified as nonaccrual subsequent to modification, where the loan was not classified as a nonperforming loan at the time of modification, as subsequently defaulted.

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The following table provides a summary of initial subsequent defaults that occurred within one year of the restructure date. The table excludes loans classified as held for sale as of period-end and includes loans no longer in default as of period-end.



	Three Months Ended March 31, 2017			Three Months Ended March 31, 2016
	Number of Contracts	Recorded Investment at Default		Number of Contracts	Recorded Investment at Default
	(Dollars in Thousands)
Commercial, financial and agricultural	—	$	—	—	$	—
Real estate – construction	—	—		—	—
Commercial real estate – mortgage	—	—		—	—
Residential real estate – mortgage	1	505		—	—
Equity lines of credit	—	—		—	—
Equity loans	—	—		—	—
Credit card	—	—		—	—
Consumer direct	—	—		—	—
Consumer indirect	1	22		—	—
Covered loans	—	—		—	—

The Company’s allowance for loan losses is largely driven by updated risk ratings assigned to commercial loans, updated borrower credit scores on consumer loans, and borrower delinquency history in both commercial and consumer portfolios. As such, the provision for loan losses is impacted primarily by changes in borrower payment performance rather than TDR classification. In addition, all commercial and consumer loans modified in a TDR are considered to be impaired, even if they maintain their accrual status.

At March 31, 2017 and December 31, 2016, there were $25.9 million and $12.6 million, respectively, of commitments to lend additional funds to borrowers whose terms have been modified in a TDR.

Foreclosure Proceedings

OREO totaled $25 million and $21 million at March 31, 2017 and December 31, 2016, respectively. OREO included $22 million and $18 million of foreclosed residential real estate properties at March 31, 2017 and December 31, 2016, respectively. As of March 31, 2017 and December 31, 2016, there were $49 million and $48 million, respectively, of residential real estate loans secured by residential real estate properties for which formal foreclosure proceedings were in process.

(5) Loan Sales and Servicing

Loans held for sale were $75 million and $162 million at March 31, 2017 and December 31, 2016, respectively. Loans held for sale at March 31, 2017 were comprised entirely of residential real estate — mortgage loans. Loans held for sale at December 31, 2016 were comprised of $57 million of commercial, financial and agricultural loans and $105 million of residential real estate — mortgage loans.

The following table summarizes the Company's activity in the loans held for sale portfolio and loan sales, excluding activity related to loans originated for sale in the secondary market.



	Three Months Ended March 31,
	2017		2016
	(In Thousands)
Loans transferred from held for investment to held for sale	$	—	$	764,022
Charge-offs on loans recognized at transfer from held for investment to held for sale	—		—
Loans and loans held for sale sold	128,842		760,297

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The following table summarizes the Company's sales of loans originated for sale in the secondary market.



	Three Months Ended March 31,
	2017		2016
	(In Thousands)
Residential real estate loans originated for sale in the secondary market sold (1)	$	172,206	$	128,911
Net gains recognized on sales of residential real estate loans originated for sale in the secondary market (2)	4,621		5,768


(1)	Includes loans originated for sale where the Company retained servicing responsibilities.


(2)	Net gains were recorded in mortgage banking income in the Company's Unaudited Condensed Consolidated Statements of Income.

Residential Real Estate Mortgage Loans Sold with Retained Servicing

The following table summarizes the Company's activity related to residential real estate mortgage loans sold with retained servicing.



	Three Months Ended March 31,
	2017		2016
	(In Thousands)
Residential real estate mortgage loans sold with retained servicing (3)	$	172,206	$	444,807
Servicing fees recognized (4)	6,490		6,063


(3)	There is no recourse to the Company for the failures of borrowers to pay loans when due.


(4)	Recorded as a component of other noninterest income in the Company's Unaudited Condensed Consolidated Statements of Income.

The following table provides the recorded balance of loans sold with retained servicing and the related MSRs.



	March 31, 2017		December 31, 2016
	(In Thousands)
Recorded balance of residential real estate mortgage loans sold with retained servicing (5)	$	4,691,319	$	4,684,899
MSRs (6)	50,776		51,428


(5)	These loans are not included in loans on the Company's Unaudited Condensed Consolidated Balance Sheets.


(6)	Recorded under the fair value method and included in other assets on the Company's Unaudited Condensed Consolidated Balance Sheets.

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The fair value of MSRs is significantly affected by mortgage interest rates available in the marketplace, which influence mortgage loan prepayment speeds. In general, during periods of declining rates, the fair value of MSRs declines due to increasing prepayments attributable to increased mortgage-refinance activity. During periods of rising interest rates, the fair value of MSRs generally increases due to reduced refinance activity. The Company maintains a non-qualifying hedging strategy to manage a portion of the risk associated with changes in the fair value of the MSR portfolio. This strategy includes the purchase of various trading securities. The interest income, mark-to-market adjustments and gain or loss from sale activities associated with these securities are expected to economically hedge a portion of the change in the fair value of the MSR portfolio.

The following table is an analysis of the activity in the Company’s MSRs.



	Three Months Ended March 31,
	2017			2016
	(In Thousands)
Carrying value, at beginning of period	$	51,428		$	44,541
Additions	2,018			4,407
Increase (decrease) in fair value:
Due to changes in valuation inputs or assumptions	346			(5,762		)
Due to other changes in fair value (7)	(3,016		)	(2,469		)
Carrying value, at end of period	$	50,776		$	40,717


(7)	Represents the realization of expected net servicing cash flows, expected borrower repayments and the passage of time.

See Note 9, Fair Value of Financial Instruments, for additional disclosures related to the assumptions and estimates used in determining fair value of MSRs.

At March 31, 2017 and December 31, 2016, the sensitivity of the current fair value of the residential MSRs to immediate 10% and 20% adverse changes in key economic assumptions are included in the following table:



	March 31, 2017			December 31, 2016
	(Dollars in Thousands)
Fair value of MSRs	$	50,776		$	51,428
Composition of residential loans serviced for others:
Fixed rate mortgage loans	97.4		%	97.3		%
Adjustable rate mortgage loans	2.6			2.7
Total	100.0		%	100.0		%
Weighted average life (in years)	7.0			6.5
Prepayment speed:	6.6		%	15.7		%
Effect on fair value of a 10% increase	$	(1,502	)	$	(1,646	)
Effect on fair value of a 20% increase	(2,909		)	(3,184		)
Weighted average option adjusted spread:	8.7		%	8.1		%
Effect on fair value of a 10% increase	$	(1,756	)	$	(1,758	)
Effect on fair value of a 20% increase	(3,400		)	(3,402		)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one assumption may result in changes to another, which may magnify or counteract the effect of the change.

(6) Derivatives and Hedging

The Company is a party to derivative instruments in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates and foreign currency exchange rates. The

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Company has made an accounting policy decision to not offset derivative fair value amounts under master netting agreements. See Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 for additional information on the Company's accounting policies related to derivative instruments and hedging activities. The following table reflects the notional amount and fair value of derivative instruments included on the Company’s Unaudited Condensed Consolidated Balance Sheets on a gross basis.



	March 31, 2017 (4)						December 31, 2016
			Fair Value						Fair Value
	Notional Amount		Derivative Assets (1)		Derivative Liabilities (2)		Notional Amount		Derivative Assets (1)		Derivative Liabilities (2)
	(In Thousands)
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate swaps related to long-term debt	$	2,123,950	$	32,003	$	16,169	$	2,123,950	$	38,890	$	14,226
Total fair value hedges			32,003		16,169				38,890		14,226
Cash flow hedges:
Interest rate contracts:
Swaps related to commercial loans	8,950,000		4		25,369		7,625,000		2,340		11,570
Swaps related to FHLB advances	120,000		—		6,333		120,000		—		7,093
Foreign currency contracts:
Forwards related to currency fluctuations	4,907		433		—		3,618		—		380
Total cash flow hedges			437		31,702				2,340		19,043
Total derivatives designated as hedging instruments			$	32,440	$	47,871			$	41,230	$	33,269

Free-standing derivatives not designated as hedging instruments:
Interest rate contracts:
Forward contracts related to held for sale mortgages	$	254,000	$	374	$	1,053	$	251,500	$	2,479	$	493
Interest rate lock commitments	156,991		3,178		1		150,616		2,424		32
Equity contracts:
Purchased equity option related to equity-linked CDs	818,832		60,829		—		833,763		57,198		—
Written equity option related to equity-linked CDs	750,485		—		56,178		770,632		—		53,044
Foreign exchange contracts:
Forwards and swaps related to commercial loans	514,870		869		3,144		424,155		3,741		1,723
Spots related to commercial loans	56,775		34		25		54,599		134		—
Swap associated with sale of Visa, Inc. Class B shares	77,807		—		1,945		68,308		—		1,708
Futures contracts (3)	119,000		—		—		104,000		—		—
Trading account assets and liabilities:
Interest rate contracts for customers	28,964,141		244,525		193,258		28,000,014		290,238		228,748
Foreign exchange contracts for customers	859,575		23,633		21,560		870,084		28,367		26,317
Total trading account assets and liabilities			268,158		214,818				318,605		255,065
Total free-standing derivative instruments not designated as hedging instruments			$	333,442	$	277,164			$	384,581	$	312,065


(1)	Derivative assets, except for trading account assets that are recorded as a component of trading account assets on the Company's Unaudited Condensed Consolidated Balance Sheets, are recorded in other assets on the Company’s Unaudited Condensed Consolidated Balance Sheets.


(2)	Derivative liabilities are recorded in accrued expenses and other liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets.


(3)	Changes in fair value are cash settled daily; therefore, there is no ending balance at any given reporting period.

(4)

In January 2017, a clearing organization adopted a rule change that requires transactions to be considered settled-to-market each day. Beginning in the first quarter of 2017, to the extent the Company determined transactions with this clearing organization to be settled-to-market, the impact was a reduction to the derivative assets and liabilities as well as a corresponding decrease in cash collateral.

Hedging Derivatives

The Company uses derivative instruments to manage the risk of earnings fluctuations caused by interest rate volatility. For those financial instruments that qualify and are designated as a hedging relationship, either a fair value hedge or cash flow hedge, the effect of interest rate movements on the hedged assets or liabilities will generally be offset by change in fair value of the derivative instrument.

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Fair Value Hedges

The Company enters into fair value hedging relationships using interest rate swaps to mitigate the Company’s exposure to losses in value as interest rates change. Derivative instruments that are used as part of the Company’s interest rate risk management strategy include interest rate swaps that relate to the pricing of specific balance sheet assets and liabilities. Interest rate swaps generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date.

Interest rate swaps are used to convert the Company’s fixed rate long-term debt to a variable rate. The critical terms of the interest rate swaps match the terms of the corresponding hedged items. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness.

The Company recognized no gains or losses for the three months ended March 31, 2017 and 2016 related to hedged firm commitments no longer qualifying as a fair value hedge. At March 31, 2017, the fair value hedges had a weighted average expected remaining term of 3.9 years.

The following table reflects the change in fair value for interest rate contracts and the related hedged items as well as other gains and losses related to fair value hedges including gains and losses recognized because of hedge ineffectiveness.



		Gain (Loss) for the
	Condensed Consolidated	Three Months Ended March 31,
	Statements of Income Caption	2017			2016
		(In Thousands)
Change in fair value of interest rate contracts:
Interest rate swaps hedging long term debt	Interest on FHLB and other borrowings	$	(8,830	)	$	48,876
Hedged long term debt	Interest on FHLB and other borrowings	8,493			(44,731		)
Other gains on interest rate contracts:
Interest and amortization related to interest rate swaps on hedged long term debt	Interest on FHLB and other borrowings	8,864			10,790

Cash Flow Hedges

The Company enters into cash flow hedging relationships using interest rate swaps and options, such as caps and floors, to mitigate exposure to the variability in future cash flows or other forecasted transactions associated with its floating rate assets and liabilities. The Company uses interest rate swaps and options to hedge the repricing characteristics of its floating rate commercial loans and FHLB advances. The Company also uses foreign currency forward contracts to hedge its exposure to fluctuations in foreign currency exchange rates due to a portion of money transfer expense being denominated in foreign currency. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. The initial assessment of expected hedge effectiveness is based on regression analysis. The ongoing periodic measures of hedge ineffectiveness are based on the expected change in cash flows of the hedged item caused by changes in the benchmark interest rate. There was $(749) thousand of cash flow hedging gains or losses recognized because of hedge ineffectiveness for the three months ended March 31, 2017 and there was no material cash flow hedging gains or losses recognized because of hedge ineffectiveness for the three months ended March 31, 2016. There were no gains or losses reclassified from other comprehensive income because of the discontinuance of cash flow hedges related to certain forecasted transactions that are probable of not occurring for the three months ended March 31, 2017 and 2016.

At March 31, 2017, cash flow hedges not terminated had a net fair value of $(31.3) million and a weighted average life of 1.6 years. Net losses of $34.4 million are expected to be reclassified to income over the next 12 months as net settlements occur. The maximum length of time over which the entity is hedging its exposure to the variability in future cash flows for forecasted transactions is 4.3 years.

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The following table presents the effect of derivative instruments designated and qualifying as cash flow hedges on the Company’s Unaudited Condensed Consolidated Balance Sheets and the Company’s Unaudited Condensed Consolidated Statements of Income.



	Gain (Loss) for the
	Three Months Ended March 31,
	2017			2016
	(In Thousands)
Interest rate and foreign currency exchange contracts:
Net change in amount recognized in other comprehensive income	$	(9,866	)	$	2,739
Amount reclassified from accumulated other comprehensive income (loss) into net income	5,694			519
Amount of ineffectiveness recognized in net income	(749		)	—

Derivatives Not Designated As Hedges

Derivatives not designated as hedges include those that are entered into as either economic hedges as part of the Company’s overall risk management strategy or to facilitate client needs. Economic hedges are those that do not qualify to be treated as a fair value hedge, cash flow hedge or foreign currency hedge for accounting purposes, but are necessary to economically manage the risk exposure associated with the assets and liabilities of the Company.

The Company also enters into a variety of interest rate contracts, commodity contracts and foreign exchange contracts in its trading activities. The primary purpose for using these derivative instruments in the trading account is to facilitate customer transactions. The interest rate contract portfolio classified as trading is actively managed and hedged with similar products to limit market value risk of the portfolio. Changes in the estimated fair value of contracts in the trading account along with the related interest settlements on the contracts are recorded in noninterest income as corporate and correspondent investment sales in the Company's Unaudited Condensed Consolidated Statements of Income.

The Company enters into forward contracts to economically hedge the change in fair value of certain residential mortgage loans held for sale due to changes in interest rates. Revaluation gains and losses from free-standing derivatives related to mortgage banking activity are recorded as a component of mortgage banking income in the Company’s Unaudited Condensed Consolidated Statements of Income.

Interest rate lock commitments issued on residential mortgage loan commitments to be held for resale are also considered free-standing derivative instruments, and the interest rate exposure on these commitments is economically hedged primarily with forward contracts. Revaluation gains and losses from free-standing derivatives related to mortgage banking activity are recorded as a component of mortgage banking income in the Company's Unaudited Condensed Consolidated Statements of Income.

In conjunction with the sale of its Visa, Inc. Class B shares in 2009, the Company entered into a total return swap in which the Company will make or receive payments based on subsequent changes in the conversion rate of the Class B shares into Class A shares. This total return swap is accounted for as a free-standing derivative.

The Company offers its customers equity-linked CDs that have a return linked to individual equities and equity indices. Under appropriate accounting guidance, a CD that pays interest based on changes in an equity index is a hybrid instrument that requires separation into a host contract (the CD) and an embedded derivative contract (written equity call option). The Company has entered into an offsetting derivative contract in order to economically hedge the exposure related to the issuance of equity-linked CDs. Both the embedded derivative and derivative contract entered into by the Company are classified as free-standing derivative instruments that are recorded at fair value with offsetting gains and losses recognized within noninterest expense in the Company's Unaudited Condensed Consolidated Statements of Income.

The Company also enters into foreign currency contracts to hedge its exposure to fluctuations in foreign currency exchange rates due to its funding of commercial loans in foreign currencies.

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The net gains and losses recorded in the Company's Unaudited Condensed Consolidated Statements of Income from free-standing derivative instruments not designated as hedging instruments are summarized in the following table.



		Gain (Loss) for the
	Condensed Consolidated	Three Months Ended March 31,
	Statements of Income Caption	2017			2016
		(In Thousands)
Futures contracts	Mortgage banking income and corporate and correspondent investment sales	$	(3	)	$	(240	)
Option contracts related to mortgage servicing rights	Mortgage banking income	—			(105		)
Interest rate contracts:
Forward contracts related to residential mortgage loans held for sale	Mortgage banking income	(2,665		)	(1,455		)
Interest rate lock commitments	Mortgage banking income	785			822
Interest rate contracts for customers	Corporate and correspondent investment sales	6,796			3,540
Commodity contracts:
Commodity contracts for customers	Corporate and correspondent investment sales	—			(2		)
Equity contracts:
Purchased equity option related to equity-linked CDs	Other expense	3,630			5,291
Written equity option related to equity-linked CDs	Other expense	(3,134		)	(4,556		)
Foreign currency contracts:
Forward and swap contracts related to commercial loans	Other income	(6,958		)	(13,947		)
Spot contracts related to commercial loans	Other income	996			(1,108		)
Foreign currency exchange contracts for customers	Corporate and correspondent investment sales	2,350			431

Derivatives Credit and Market Risks

By using derivative instruments, the Company is exposed to credit and market risk. If the counterparty fails to perform, credit risk is equal to the extent of the Company’s fair value gain in a derivative. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty owes the Company and, therefore, creates a credit risk for the Company. When the fair value of a derivative instrument contract is negative, the Company owes the counterparty and, therefore, it has no credit risk. The Company minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically. Credit losses are also mitigated through collateral agreements and other contract provisions with derivative counterparties.

Market risk is the adverse effect that a change in interest rates or implied volatility rates has on the value of a financial instrument. The Company manages the market risk associated with interest rate contracts by establishing and monitoring limits as to the types and degree of risk that may be undertaken.

The Company’s derivatives activities are monitored by its Asset/Liability Committee as part of its risk-management oversight. The Company’s Asset/Liability Committee is responsible for mandating various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into the Company’s overall interest rate risk management and trading strategies.

Entering into interest rate swap agreements and options involves not only the risk of dealing with counterparties and their ability to meet the terms of the contracts but also interest rate risk associated with unmatched positions. At March 31, 2017, interest rate swap agreements and options classified as trading were substantially matched. The Company had credit risk of $268 million related to derivative instruments in the trading account portfolio, which does

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not take into consideration master netting arrangements or the value of the collateral. There were no credit losses associated with derivative instruments classified as trading for the three months ended March 31, 2017 and 2016. At March 31, 2017 and December 31, 2016, there was no material nonperforming derivative positions classified as trading.

The Company’s derivative positions designated as hedging instruments are primarily executed in the over-the-counter market. These positions at March 31, 2017 have credit risk of $32 million, which does not take into consideration master netting arrangements or the value of the collateral.

There were no credit losses associated with derivative instruments classified as nontrading for the three months ended March 31, 2017 and 2016. At March 31, 2017 and December 31, 2016, there were no nonperforming derivative positions classified as nontrading.

As of March 31, 2017 and December 31, 2016, the Company had recorded the right to reclaim cash collateral of $87 million and $103 million, respectively, within other assets on the Company’s Unaudited Condensed Consolidated Balance Sheets and had recorded the obligation to return cash collateral of $44 million and $37 million, respectively, within deposits on the Company’s Unaudited Condensed Consolidated Balance Sheets.

Contingent Features

Certain of the Company’s derivative instruments contain provisions that require the Company’s debt maintain a certain credit rating from each of the major credit rating agencies. If the Company’s debt were to fall below this rating, it would be in violation of these provisions, and the counterparties to the derivative instruments could demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on March 31, 2017 was $31 million for which the Company has collateral requirements of $31 million in the normal course of business. If the credit risk-related contingent features underlying these agreements had been triggered on March 31, 2017, the Company’s collateral requirements to its counterparties would require no additional increases. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a liability position on December 31, 2016 was $30 million for which the Company had collateral requirements of $29 million in the normal course of business. If the credit risk-related contingent features underlying these agreements had been triggered on December 31, 2016, the Company’s collateral requirements to its counterparties would have increased by $1 million.

Netting of Derivative Instruments

The Company is party to master netting arrangements with its financial institution counterparties for some of its derivative and hedging activities. The Company does not offset assets and liabilities under these master netting arrangements for financial statement presentation purposes. The master netting arrangements provide for single net settlement of all derivative instrument arrangements, as well as collateral, in the event of default, or termination of, any one contract with the respective counterparties. Cash collateral is usually posted by the counterparty with a net liability position in accordance with contract thresholds.

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The following table represents the Company’s total gross derivative instrument assets and liabilities subject to an enforceable master netting arrangement. The derivative instruments the Company has with its customers are not subject to an enforceable master netting arrangement.



	Gross Amounts Recognized		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amount Presented in the Condensed Consolidated Balance Sheets		Financial Instruments Collateral Received/Pledged (1)		Cash Collateral Received/ Pledged (1)		Net Amount
	(In Thousands)
March 31, 2017
Derivative financial assets:
Subject to a master netting arrangement	$	203,289	$	—	$	203,289	$	—	$	41,212	$	162,077
Not subject to a master netting arrangement	162,593		—		162,593		—		—		162,593
Total derivative financial assets	$	365,882	$	—	$	365,882	$	—	$	41,212	$	324,670

Derivative financial liabilities:
Subject to a master netting arrangement	$	220,530	$	—	$	220,530	$	8,384	$	86,569	$	125,577
Not subject to a master netting arrangement	104,505		—		104,505		—		—		104,505
Total derivative financial liabilities	$	325,035	$	—	$	325,035	$	8,384	$	86,569	$	230,082

December 31, 2016
Derivative financial assets:
Subject to a master netting arrangement	$	234,002	$	—	$	234,002	$	—	$	33,212	$	200,790
Not subject to a master netting arrangement	191,809		—		191,809		—		—		191,809
Total derivative financial assets	$	425,811	$	—	$	425,811	$	—	$	33,212	$	392,599

Derivative financial liabilities:
Subject to a master netting arrangement	$	248,669	$	—	$	248,669	$	9,685	$	102,603	$	136,381
Not subject to a master netting arrangement	96,665		—		96,665		—		—		96,665
Total derivative financial liabilities	$	345,334	$	—	$	345,334	$	9,685	$	102,603	$	233,046


(1)	The actual amount of collateral received/pledged is limited to the asset/liability balance and does not include excess collateral received/pledged. When excess collateral exists, the collateral shown in the table above has been allocated based on the percentage of the actual amount of collateral posted.

(7) Securities Financing Activities

Netting of Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase

The Company has various financial asset and liabilities that are subject to enforceable master netting agreements or similar agreements. The Company's derivatives that are subject to enforceable master netting agreements or similar transactions are discussed in Note 6, Derivatives and Hedging. The Company enters into agreements under which it purchases or sells securities subject to an obligation to resell or repurchase the same or similar securities. Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and recorded at the amounts at which the securities were purchased or sold plus accrued interest. The securities pledged as collateral are generally U.S. Treasury securities and other U.S. government agency securities and mortgage-backed securities.

Securities purchased under agreements to resell and securities sold under agreements to repurchase are governed by a MRA. Under the terms of the MRA, all transactions between the Company and the counterparty constitute a single business relationship such that in the event of default, the nondefaulting party is entitled to set off claims and apply property held by that party in respect of any transaction against obligations owed. Any payments, deliveries, or other transfers may be applied against each other and netted. These amounts are limited to the contract asset/liability balance,

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and accordingly, do not include excess collateral received or pledged. The Company offsets the assets and liabilities under netting arrangements for the balance sheet presentation of securities purchased under agreements to resell and securities sold under agreements to repurchase provided certain criteria are met that permit balance sheet netting.



	Gross Amounts Recognized		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amount Presented in the Condensed Consolidated Balance Sheets		Financial Instruments Collateral Received/Pledged (1)		Cash Collateral Received/ Pledged (1)		Net Amount
	(In Thousands)
March 31, 2017
Securities purchased under agreements to resell:
Subject to a master netting arrangement	$	2,888,149	$	2,746,902	$	141,247	$	141,247	$	—	$	—

Securities sold under agreements to repurchase:
Subject to a master netting arrangement	$	2,818,461	$	2,746,902	$	71,559	$	71,559	$	—	$	—

December 31, 2016
Securities purchased under agreements to resell:
Subject to a master netting arrangement	$	3,164,039	$	3,069,489	$	94,550	$	94,550	$	—	$	—

Securities sold under agreements to repurchase:
Subject to a master netting arrangement	$	3,095,655	$	3,069,488	$	26,167	$	26,167	$	—	$	—


(1)	The actual amount of collateral received/pledged is limited to the asset/liability balance and does not include excess collateral received/pledged. When excess collateral exists, the collateral shown in the table above has been allocated based on the percentage of the actual amount of collateral posted.

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Collateral Associated with Securities Financing Activities

Securities sold under agreements to repurchase are accounted for as secured borrowings. The following table presents the Company's related activity, by collateral type and remaining contractual maturity.



	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 days		30 - 90 days		Greater Than 90 days		Total
	(In Thousands)
March 31, 2017
Securities sold under agreements to repurchase:
U.S. Treasury and other U.S. government agencies	$	845,035	$	1,578,613	$	318,265	$	—	$	2,741,913
Mortgage-backed securities	—		—		76,548		—		76,548
Total	$	845,035	$	1,578,613	$	394,813	$	—	$	2,818,461

December 31, 2016
Securities sold under agreements to repurchase:
U.S. Treasury and other U.S. government agencies	$	1,408,736	$	806,526	$	798,089	$	—	$	3,013,351
Mortgage-backed securities	—		—		82,304		—		82,304
Total	$	1,408,736	$	806,526	$	880,393	$	—	$	3,095,655

In the event of a significant decline in fair value of the collateral pledged for the securities sold under agreements to repurchase, the Company would be required to provide additional collateral. The Company minimizes the risk by monitoring the liquidity and credit quality of the collateral, as well as the maturity profile of the transactions.

At March 31, 2017, the fair value of collateral received related to securities purchased under agreements to resell was $3.2 billion and the fair value of collateral pledged for securities sold under agreements to repurchase was $2.8 billion. At December 31, 2016, the fair value of collateral received related to securities purchased under agreements to resell was $3.1 billion and the fair value of collateral pledged for securities sold under agreements to repurchase was $3.1 billion.

(8) Commitments, Contingencies and Guarantees

Commitments to Extend Credit & Standby and Commercial Letters of Credit

The following represents the Company’s commitments to extend credit, standby letters of credit and commercial letters of credit:



	March 31, 2017		December 31, 2016
	(In Thousands)
Commitments to extend credit	$	26,965,029	$	27,070,935
Standby and commercial letters of credit	1,456,104		1,474,405

Commitments to extend credit are agreements to lend to customers 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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby and commercial letters of credit are commitments issued by the Company to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions, and expire in decreasing amounts with terms ranging from one to four years.

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The credit risk involved in issuing letters of credit and commitments is essentially the same as that involved in extending loan facilities to customers. The fair value of the letters of credit and commitments typically approximates the fee received from the customer for issuing such commitments. These fees are deferred and are recognized over the commitment period. At March 31, 2017 and December 31, 2016, the recorded amount of these deferred fees was $7 million and $8 million, respectively. The Company holds various assets as collateral supporting those commitments for which collateral is deemed necessary. At March 31, 2017, the maximum potential amount of future undiscounted payments the Company could be required to make under outstanding standby letters of credit was $1.5 billion. At March 31, 2017 and December 31, 2016, the Company had reserves related to letters of credit and unfunded commitments recorded in accrued expenses and other liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheet of $79 million and $77 million, respectively.

Loan Sale Recourse

The Company has potential recourse related to specific FNMA securitizations. At both March 31, 2017 and December 31, 2016, the amount of potential recourse was $19 million of which the Company had reserved $665 thousand and $681 thousand, respectively, which is recorded in accrued expenses and other liabilities on the Company's Unaudited Condensed Consolidated Balance Sheets for the respective periods.

The Company also issues standard representations and warranties related to mortgage loan sales to government-sponsored agencies. Although these agreements often do not specify limitations, the Company does not believe that any payments related to these representations and warranties would materially change the financial condition or results of operations of the Company. At both March 31, 2017 and December 31, 2016, the Company had $1 million of reserves in accrued expenses and other liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets related to potential losses from loans sold.

Loss Sharing Agreement

In connection with the Guaranty Bank acquisition, the Bank entered into loss sharing agreements with the FDIC that covered approximately $9.7 billion of loans and OREO, excluding the impact of purchase accounting adjustments. In accordance with the terms of the loss sharing agreements, the FDIC’s obligation to reimburse the Bank for losses with respect to the acquired loans and acquired OREO begins with the first dollar of incurred losses, as defined in the loss sharing agreements. The terms of the loss sharing agreements provide that the FDIC will reimburse the Bank for 80% of incurred losses up to $2.3 billion and 95% of incurred losses in excess of $2.3 billion. Gains and recoveries on covered assets offset incurred losses, or are paid to the FDIC, at the applicable loss share percentage at the time of recovery. The loss sharing agreements provide for FDIC loss sharing for five years for commercial loans and 10 years for single family residential loans. The loss sharing agreement for commercial loans expired in the fourth quarter of 2014.

The provisions of the loss sharing agreements may also require a payment by the Bank to the FDIC on October 15, 2019. On that date, the Bank is required to pay the FDIC 60% of the excess, if any, of (i) $457 million over (ii) the sum of (a) 25% of the total net amounts paid to the Bank under both of the loss share agreements plus (b) 20% of the deemed total cost to the Bank of administering the covered assets under the loss sharing agreements. The deemed total cost to the Bank of administering the covered assets is the sum of 2% of the average of the principal amount of covered assets based on the beginning and end of year balances for each of the 10 years during which the loss sharing agreements are in effect. At both March 31, 2017 and December 31, 2016, the Company estimated the potential amount of payment due to the FDIC in 2019, at the end of the loss sharing agreements, to be approximately $147 million. The ultimate settlement amount of this payment due to the FDIC is dependent upon the performance of the underlying covered assets, the passage of time and actual claims submitted to the FDIC.

The Company has chosen to net the amounts due from the FDIC and due to the FDIC into the FDIC indemnification liability. At March 31, 2017 and December 31, 2016, the FDIC indemnification liability was $135 million and $136 million, respectively, and was recorded in accrued expenses and other liabilities in the Company's Unaudited Condensed Consolidated Balance Sheets.

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Legal and Regulatory Proceedings

In the ordinary course of business, the Company is subject to legal proceedings, including claims, litigation, investigations and administrative proceedings, all of which are considered incidental to the normal conduct of business. The Company believes it has substantial defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to defend itself vigorously. Set forth below are descriptions of certain of the Company’s legal proceedings.

In February 2011, BBVA Securities, Inc. (“BSI”) was named as a defendant in a lawsuit filed in the United States District Court for the Northern District of California, The California Public Employees’ Retirement System v. BBVA Securities, Inc., et al., wherein the claims arise out of securities offerings in which Lehman Brothers was the issuer and BSI, among others, was an underwriter. The plaintiff alleges that Lehman Brothers made material misstatements in the offering materials, and that the underwriter defendants failed to conduct appropriate due diligence to discover the alleged misstatements. The plaintiff seeks unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In May 2013, BBVA Compass was named as a counterclaim defendant in a lawsuit filed in the United States District Court for the Southern District of California, BBVA Compass v. Morris Cerullo World Evangelism, wherein the defendant/counterclaim plaintiff alleges that BBVA Compass wrongfully failed to honor a standby letter of credit in the amount of $5.2 million. The defendant/counterclaim plaintiff seeks $5.2 million, plus other, unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In June 2013, BBVA Compass was named as a defendant in a lawsuit filed in the United States District Court of the Northern District of Alabama, Intellectual Ventures II, LLC v. BBVA Compass Bancshares, Inc. and BBVA Compass, wherein the plaintiff alleges that BBVA Compass is infringing five patents owned by the plaintiff and related to the security infrastructure for BBVA Compass’ online banking services. The plaintiff seeks unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In January 2016, BSI was named as a defendant in a lawsuit filed in the United States District Court for the Southern District of Texas, In re Plains All American Pipeline, L.P. Securities Litigation, wherein the plaintiffs challenge statements made in registration materials and prospectuses filed with the Securities and Exchange Commission in connection with eight securities offerings of stock and notes issued by Plains GP Holdings and Plains All American Pipeline and underwritten by BSI, among others. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In March 2016, BBVA Compass was named as a defendant in a lawsuit filed in the United States District Court of the Southern District of Texas, Lomix Limited Partnership, et al. v. BBVA Compass, wherein the plaintiffs (who are the borrower and guarantors of the underlying loan) allege that BBVA Compass wrongfully disclosed the guarantors’ personal financial information in connection with the sale of the loan to a third party. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In October 2016, BSI was named as a defendant in a lawsuit filed in the District Court of Harris County, Texas, and subsequently removed to the United States District Court for the Southern District of Texas, St. Lucie County Fire District Firefighters' Pension Trust, individually and on behalf of all others similarly situated v. Southwestern Energy Company, et al., wherein the plaintiffs allege that Southwestern Energy Company, its officers and directors, and the underwriting defendants (including BSI) made inaccurate and misleading statements in the registration statement and prospectus related to a securities offering. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

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In December 2016, BBVA Compass was named as a defendant in an adversary proceeding filed in the United States Bankruptcy Court for the Southern District of New York, In re: SunEdison, Inc., et al. // Official Committee of Unsecured Creditors v. BBVA Compass, et al., wherein the plaintiffs allege that the first-lien lenders (including BBVA Compass) exercised undue influence and control over SunEdison’s bankruptcy, that SunEdison improperly incurred secured debt through second-lien secured notes to the detriment of SunEdison’s unsecured creditors shortly before SunEdison filed its bankruptcy petition, and that the second-lien notes constitute avoidable fraudulent transfers under the Bankruptcy Code. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In December 2016, BBVA Compass was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Northern District of Alabama, Robert Hossfeld, individually and on behalf of all others similarly situated v. BBVA Compass Bancshares, Inc. and MSR Group, LLC, alleging violations of the Telephone Consumer Protection Act in the context of customer satisfaction survey calls to the cell phones of individuals who have not given, or who have withdrawn, consent to receive calls on their cell phones. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

The Company (including its subsidiaries) is or may become involved from time to time in information-gathering requests, reviews, investigations and proceedings (both formal and informal) by various governmental regulatory agencies, law enforcement authorities and self-regulatory bodies regarding the Company’s business. Such matters may result in material adverse consequences, including without limitation adverse judgments, settlements, fines, penalties, orders, injunctions, alterations in the Company’s business practices or other actions, and could result in additional expenses and collateral costs, including reputational damage, which could have a material adverse impact on the Company’s business, consolidated financial position, results of operations or cash flows.

The Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments. Where a loss is not probable or the amount of loss is not reasonably estimable, the Company does not accrue legal reserves. At March 31, 2017, the Company had accrued legal reserves in the amount of $3 million. Additionally, for those matters where a loss is reasonably possible and the amount of loss is reasonably estimable, the Company estimates the amount of losses that it could incur beyond the accrued legal reserves. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote if “the chance of the future event or events occurring is slight.” At March 31, 2017, there were no such matters where a loss was reasonably possible and reasonably estimable, creating reasonably possible losses beyond the accrued legal reserves.

While the outcome of legal proceedings and the timing of the ultimate resolution are inherently difficult to predict, based on information currently available, advice of counsel and available insurance coverage, the Company believes that it has established adequate legal reserves. Further, based upon available information, the Company is of the opinion that these legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial condition or results of operations. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters, if unfavorable, may be material to the Company’s results of operations for any particular period, depending, in part, upon the size of the loss or liability imposed and the operating results for the applicable period.

Income Tax Review

The Company is subject to review and examination from various tax authorities. The Company is currently under examination by a number of states, and has received notices of proposed adjustments related to state income taxes due for prior years. Management believes that adequate provisions for income taxes have been recorded.

(9) Fair Value of Financial Instruments

The Company applies the fair value accounting guidance required under ASC Topic 820 which establishes a framework for measuring fair value. This guidance defines fair value as the exchange price that would be received for

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an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within this fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows.


•	Level 1 – Fair value is based on quoted prices in an active market for identical assets or liabilities.


•	Level 2 – Fair value is based on quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

•

Level 3 – Fair value is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities would include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar pricing techniques based on the Company’s own assumptions about what market participants would use to price the asset or liability.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments under the fair value hierarchy, is set forth below. These valuation methodologies were applied to the Company’s financial assets and financial liabilities carried at fair value. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use observable market based parameters as inputs. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as other unobservable parameters. Any such valuation adjustments are applied consistently over time. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and, therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein.

Financial Instruments Measured at Fair Value on a Recurring Basis

Trading account assets and liabilities, securities available for sale, certain mortgage loans held for sale, derivative assets and liabilities, and mortgage servicing rights are recorded at fair value on a recurring basis. The following is a description of the valuation methodologies for these assets and liabilities.

Trading account assets and liabilities and investment securities available for sale – Trading account assets and liabilities and investment securities available for sale consist of U.S. Treasury securities and other U.S. government agency securities, mortgage-backed securities, collateralized mortgage obligations, debt obligations of state and political subdivisions, other debt and equity securities, and derivative contracts.

•

U.S. Treasury securities and other U.S. government agency securities are valued based on quoted market prices of identical assets on active exchanges (Level 1 measurements) or are valued based on a market approach using observable inputs such as benchmark yields, reported trades, broker/dealer quotes, benchmark securities, and bids/offers of government-sponsored enterprise securities (Level 2 measurements).

•

Mortgage-backed securities are primarily valued using market-based pricing matrices that are based on observable inputs including benchmark To Be Announced security prices, U.S. Treasury yields, U.S. dollar swap yields, and benchmark floating-rate indices. Mortgage-backed securities pricing may also give consideration to pool-specific data such as prepayment history and collateral characteristics. Valuations for mortgage-backed securities are therefore classified as Level 2 measurements.


•	Collateralized mortgage obligations are valued using market-based pricing matrices that are based on observable inputs including reported trades, bids, offers, dealer quotes, U.S. Treasury yields, U.S. dollar swap

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yields, market convention prepayment speeds, tranche-specific characteristics, prepayment history, and collateral characteristics. Fair value measurements for collateralized mortgage obligations are classified as Level 2.


•	Debt obligations of states and political subdivisions are primarily valued using market-based pricing matrices that are based on observable inputs including Municipal Securities Rulemaking Board reported trades, issuer spreads, material event notices, and benchmark yield curves. These valuations are Level 2 measurements.

•

Other debt and equity securities consist of mutual funds, foreign and corporate debt, and U.S. government agency equity securities. Mutual funds are valued based on quoted market prices of identical assets trading on active exchanges. These valuations are Level 1 measurements. Foreign and corporate debt valuations are based on information and assumptions that are observable in the market place. The valuations for these securities are therefore classified as Level 2. U.S. government agency equity securities are valued based on quoted market prices of identical assets trading on active exchanges. These valuations thus qualify as Level 1 measurements.

•

Other derivative assets and liabilities consist primarily of interest rate and commodity contracts. The Company’s interest rate contracts are valued utilizing Level 2 observable inputs (yield curves and volatilities) to determine a current market price for each interest rate contract. Commodity contracts are priced using raw market data, primarily in the form of quotes for fixed and basis swaps with monthly, quarterly, seasonal or calendar-year terms. Proprietary models provided by a third party are used to generate forward curves and volatility surfaces. As a result of the valuation process and observable inputs used, commodity contracts are classified as Level 2 measurements. To validate the reasonableness of these calculations, management compares the assumptions with market information.

•

Other trading assets primarily consist of interest-only strips which are valued by an independent third-party. The independent third-party values the assets on a loan-by-loan basis using a discounted cash flow analysis that employs prepayment assumptions, discount rate assumptions, and default curves. The prepayment assumptions are created from actual SBA pool prepayment history. The discount rates are derived from actual SBA loan secondary market transactions. The default curves are created using historical observable and unobservable inputs. As such, interest-only strips are classified as Level 3 measurements. The Company’s SBA department is responsible for ensuring the appropriate application of the valuation, capitalization, and amortization policies of the Company’s interest-only strips. The department performs independent, internal valuations of the interest-only strips on a quarterly basis, which are then reconciled to the third-party valuations to ensure their validity.

Loans held for sale – The Company has elected to apply the fair value option for single family real estate mortgage loans originated for resale in the secondary market. The election allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting. The Company has not elected the fair value option for other loans held for sale primarily because they are not economically hedged using derivative instruments.

The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale. Both the mortgage loans held for sale and the related forward contracts are classified as Level 2.

At both March 31, 2017 and December 31, 2016, no material loans held for sale for which the fair value option was elected were 90 days or more past due or were in nonaccrual. Interest income on mortgage loans held for sale is recognized based on contractual rates and is reflected in interest and fees on loans in the Company's Unaudited Condensed Consolidated Statements of Income. Net gains of $1.3 million and $1.9 million resulting from changes in fair value of these loans were recorded in noninterest income during the three months ended March 31, 2017 and 2016, respectively.

The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately $(2.7) million and $(1.5) million for the three months ended March 31, 2017 and 2016, respectively. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

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The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential mortgage loans measured at fair value.



	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference
	(In Thousands)
March 31, 2017
Residential mortgage loans held for sale	$	74,741	$	72,041	$	2,700
December 31, 2016
Residential mortgage loans held for sale	$	105,257	$	103,886	$	1,371

Derivative assets and liabilities – Derivative assets and liabilities are measured using models that primarily use market observable inputs, such as quoted security prices, and are accordingly classified as Level 2. The derivative assets and liabilities classified within Level 3 of the fair value hierarchy were comprised of interest rate lock commitments that are valued using third-party software that calculates fair market value considering current quoted TBA and other market based prices and then applies closing ratio assumptions based on software-produced pull through ratios that are generated using the Company’s historical fallout activity. Based upon this process, the fair value measurement obtained for these financial instruments is deemed a Level 3 classification. The Company's Secondary Marketing Committee is responsible for the appropriate application of the valuation policies and procedures surrounding the Company’s interest rate lock commitments. Policies established to govern mortgage pipeline risk management activities must be approved by the Company’s Asset Liability Committee on an annual basis.

Other assets - MSR – Other assets measured at fair value on a recurring basis and classified within Level 3 of the fair value hierarchy were comprised of MSRs that are valued through a discounted cash flow analysis using a third-party commercial valuation system. The MSR valuation takes into consideration the objective characteristics of the MSR portfolio, such as loan amount, note rate, service fee, loan term, and common industry assumptions, such as servicing costs, ancillary income, prepayment estimates, earning rates, cost of fund rates, option-adjusted spreads, etc. The Company’s portfolio-specific factors are also considered in calculating the fair value of MSRs to the extent one can reasonably assume a buyer would also incorporate these factors. Examples of such factors are geographical concentrations of the portfolio, liquidity consideration, or additional views of risk not inherently accounted for in prepayment assumptions. Product liquidity and these other risks are generally incorporated through adjustment of discount factors applied to forecasted cash flows. Based on this method of pricing MSRs, the fair value measurement obtained for these financial instruments is deemed a Level 3 classification. The value of the MSR is calculated by a third-party firm that specializes in the MSR market and valuation services. Additionally, the Company obtains a valuation from an independent party to compare for reasonableness. The Company’s Secondary Marketing Committee is responsible for ensuring the appropriate application of valuation, capitalization, and fair value decay policies for the MSR portfolio. The Committee meets at least monthly to review the MSR portfolio.

Other assets - SBIC – Other assets measured at fair value on a recurring basis and classified within Level 3 of the fair value hierarchy were comprised of SBIC investments initially valued based on transaction price. The SBIC investments are valued initially based upon transaction price. Valuation factors such as recent or proposed purchase or sale of debt or equity of the issuer, pricing by other dealers in similar securities, size of position held, liquidity of the market, and changes in economic conditions affecting the issuer, are used in the determination of estimated fair value. These SBIC investments are classified as Level 3 within the valuation hierarchy.

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The following tables summarize the financial assets and liabilities measured at fair value on a recurring basis.



			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	March 31, 2017		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
Recurring fair value measurements
Assets:
Trading account assets:
U.S. Treasury and other U.S. government agencies	$	2,614,008	$	2,614,008	$	—	$	—
Collateralized mortgage obligations	1,324		—		1,324		—
State and political subdivisions	460		—		460		—
Other debt securities	7,485		—		7,485		—
Interest rate contracts	244,525		—		244,525		—
Foreign exchange contracts	23,633		—		23,633		—
Other trading assets	819		—		—		819
Total trading account assets	2,892,254		2,614,008		277,427		819
Investment securities available for sale:
U.S. Treasury and other U.S. government agencies	2,967,385		1,883,291		1,084,094		—
Mortgage-backed securities	3,522,024		—		3,522,024		—
Collateralized mortgage obligations	4,934,143		—		4,934,143		—
States and political subdivisions	8,208		—		8,208		—
Other debt securities	14,061		14,061		—		—
Equity securities (1)	370		73		—		297
Total investment securities available for sale	11,446,191		1,897,425		9,548,469		297
Loans held for sale	74,741		—		74,741		—
Derivative assets:
Interest rate contracts	35,559		—		32,381		3,178
Equity contracts	60,829		—		60,829		—
Foreign exchange contracts	1,336		—		1,336		—
Total derivative assets	97,724		—		94,546		3,178
Other assets - MSR	50,776		—		—		50,776
Other assets - SBIC	22,553		—		—		22,553
Liabilities:
Trading account liabilities:
U.S. Treasury and other U.S. government agencies	$	2,584,514	$	2,581,472	$	3,042	$	—
Other debt securities	8,025		—		8,025		—
Interest rate contracts	193,258		—		193,258		—
Foreign exchange contracts	21,560		—		21,560		—
Total trading account liabilities	2,807,357		2,581,472		225,885		—
Derivative liabilities:
Interest rate contracts	48,925		—		48,924		1
Equity contracts	56,178		—		56,178		—
Foreign exchange contracts	3,169		—		3,169		—
Total derivative liabilities	108,272		—		108,271		1


(1)	Excludes $400 million of FHLB and Federal Reserve stock required to be owned by the Company at March 31, 2017. These securities are carried at par.

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			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
Recurring fair value measurements
Assets:
Trading account assets:
U.S. Treasury and other U.S. government agencies	$	2,820,797	$	2,820,797	$	—	$	—
State and political subdivisions	219		—		219		—
Other debt securities	4,120		—		4,120		—
Interest rate contracts	290,238		—		290,238		—
Foreign exchange contracts	28,367		—		28,367		—
Other trading assets	859		—		—		859
Total trading account assets	3,144,600		2,820,797		322,944		859
Investment securities available for sale:
U.S. Treasury and other U.S. government agencies	2,374,331		1,266,564		1,107,767		—
Mortgage-backed securities	3,763,338		—		3,763,338		—
Collateralized mortgage obligations	5,098,928		—		5,098,928		—
States and political subdivisions	8,641		—		8,641		—
Other debt securities	16,185		16,185		—		—
Equity securities (1)	380		87		—		293
Total investment securities available for sale	11,261,803		1,282,836		9,978,674		293
Loans held for sale	105,257		—		105,257		—
Derivative assets:
Interest rate contracts	46,133		—		43,709		2,424
Equity contracts	57,198		—		57,198		—
Foreign exchange contracts	3,875		—		3,875		—
Total derivative assets	107,206		—		104,782		2,424
Other assets - MSR	51,428		—		—		51,428
Other assets - SBIC	15,639		—		—		15,639
Liabilities:
Trading account liabilities:
U.S. Treasury and other U.S. government agencies	$	2,750,085	$	2,750,085	$	—	$	—
Other debt securities	2,892		—		2,892		—
Interest rate contracts	228,748		—		228,748		—
Foreign exchange contracts	26,317		—		26,317		—
Total trading account liabilities	3,008,042		2,750,085		257,957		—
Derivative liabilities:
Interest rate contracts	33,414		—		33,382		32
Equity contracts	53,044		—		53,044		—
Foreign exchange contracts	2,103		—		2,103		—
Total derivative liabilities	88,561		—		88,529		32


(1)	Excludes $403 million of FHLB and Federal Reserve stock required to be owned by the Company at December 31, 2016. These securities are carried at par.

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There were no transfers between Levels 1 or 2 of the fair value hierarchy for the three months ended March 31, 2017 and 2016. It is the Company’s policy to value any transfers between levels of the fair value hierarchy based on end of period fair values.

The following table reconciles the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three Months Ended March 31,	Other Trading Assets			Equity Securities		Interest Rate Contracts, net		Other Assets - MSR			Other Assets - SBIC
	(In Thousands)
Balance, December 31, 2015	$	1,117		$	253	$	2,874	$	44,541		$	—
Transfers into Level 3	—			—		—		—			—
Transfers out of Level 3	—			—		—		—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(46		)	—		822		(8,231		)	—
Included in other comprehensive income	—			—		—		—			—
Purchases, issuances, sales and settlements:
Purchases	—			—		—		—			—
Issuances	—			—		—		4,407			—
Sales	—			—		—		—			—
Settlements	—			—		—		—			—
Balance, March 31, 2016	$	1,071		$	253	$	3,696	$	40,717		$	—
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at March 31, 2016	$	(46	)	$	—	$	822	$	(8,231	)	$	—

Balance, December 31, 2016	$	859		$	293	$	2,392	$	51,428		$	15,639
Transfers into Level 3	—			—		—		—			—
Transfers out of Level 3	—			—		—		—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(40		)	—		785		(2,670		)	550
Included in other comprehensive income	—			—		—		—			—
Purchases, issuances, sales and settlements:
Purchases	—			4		—		—			6,364
Issuances	—			—		—		2,018			—
Sales	—			—		—		—			—
Settlements	—			—		—		—			—
Balance, March 31, 2017	$	819		$	297	$	3,177	$	50,776		$	22,553
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at March 31, 2017	$	(40	)	$	—	$	785	$	(2,670	)	$	550


(1)	Included in noninterest income in the Unaudited Condensed Consolidated Statements of Income.

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Assets Measured at Fair Value on a Nonrecurring Basis

Periodically, certain assets may be recorded at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets due to impairment. The following tables represent those assets that were subject to fair value adjustments during the three months ended March 31, 2017 and 2016 and still held as of the end of the period, and the related gains and losses from fair value adjustments on assets sold during the period as well as assets still held as of the end of the period.



			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Gains (Losses)
	March 31, 2017		(Level 1)		(Level 2)		(Level 3)		Three Months Ended March 31, 2017
	(In Thousands)
Nonrecurring fair value measurements
Assets:
Investment securities held to maturity	$	2,013	$	—	$	—	$	2,013	$	(242	)
Impaired loans (1)	3,510		—		—		3,510		15,921
OREO	25,113		—		—		25,113		(1,723		)

			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Gains (Losses)
	March 31, 2016		(Level 1)		(Level 2)		(Level 3)		Three Months Ended March 31, 2016
	(In Thousands)
Nonrecurring fair value measurements
Assets:
Impaired loans (1)	$	69,032	$	—	$	—	$	69,032	$	(15,408	)
OREO	17,877		—		—		17,877		(699		)


(1)	Total gains (losses) represent charge-offs on impaired loans for which adjustments are based on the appraised value of the collateral.

The following is a description of the methodologies applied for valuing these assets:

Investment securities held to maturity – Nonrecurring fair value adjustments on investment securities held to maturity reflect impairment write-downs which the Company believes are other than temporary. For analyzing these securities, the Company has retained a third party valuation firm. Impairment is determined through the use of cash flow models that estimate cash flows on the underlying mortgages using security-specific collateral and the transaction structure. The cash flow models incorporate the remaining cash flows which are adjusted for future expected credit losses. Future expected credit losses are determined by using various assumptions such as current default rates, prepayment rates, and loss severities. The Company develops these assumptions through the use of market data published by third party sources in addition to historical analysis which includes actual delinquency and default information through the current period. The expected cash flows are then discounted at the interest rate used to recognize interest income on the security to arrive at a present value amount. As the fair value assessments are derived using a discounted cash flow modeling approach, the nonrecurring fair value adjustments are classified as Level 3.

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Impaired Loans – Impaired loans measured at fair value on a non-recurring basis represent the carrying value of impaired loans for which adjustments are based on the appraised value of the collateral. Nonrecurring fair value adjustments to impaired loans reflect full or partial write-downs that are generally based on the fair value of the underlying collateral supporting the loan. Loans subjected to nonrecurring fair value adjustments based on the current estimated fair value of the collateral are classified as Level 3.

OREO – OREO is recorded on the Company’s Consolidated Balance Sheets at the lower of recorded balance or fair value, which is based on appraisals and third-party price opinions, less estimated costs to sell. The fair value is classified as Level 3.

The table below presents quantitative information about the significant unobservable inputs for material assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring and nonrecurring basis.



			Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at				Range of Unobservable Inputs
	March 31, 2017		Valuation Technique	Unobservable Input(s)	(Weighted Average)
	(In Thousands)
Recurring fair value measurements:
Other trading assets	$	819	Discounted cash flow	Default rate	10.2%
				Prepayment rate	5.8% - 11.0% (8.0%)
Interest rate contracts	3,177		Discounted cash flow	Closing ratios (pull-through)	18.6% - 99.1% (65.6%)
				Cap grids	0.2% - 2.2% (1.1%)
Other assets - MSRs	50,776		Discounted cash flow	Option adjusted spread	6.6% - 19.2% (8.7%)
				Constant prepayment rate or life speed	0.8% - 33.5% (6.6%)
				Cost to service	$65 - $4,000 ($76)
Other assets - SBIC investments	22,553		Transaction price	Transaction price	N/A
Nonrecurring fair value measurements:
Investment securities held to maturity	$	2,013	Discounted cash flow	Prepayment rate	5.1%
				Default rate	4.8%
				Loss severity	70.6%
Impaired loans	3,510		Appraised value	Appraised value	0.0% - 80.0% (26.7%)
OREO	25,113		Appraised value	Appraised value	8.0% (1)


(1)	Represents discount to appraised value for estimated costs to sell.

The following provides a description of the sensitivity of the valuation technique to changes in unobservable inputs for recurring fair value measurements.

Recurring Fair Value Measurements Using Significant Unobservable Inputs

Trading Account Assets – Interest-Only Strips

Significant unobservable inputs used in the valuation of the Company’s interest-only strips include default rates and prepayment assumptions. Significant increases in either of these inputs in isolation would result in significantly lower fair value measurements. Generally, a change in the assumption used for the probability of default is accompanied by a directionally opposite change in the assumption used for prepayment rates.

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Interest Rate Contracts - Interest Rate Lock Commitments

Significant unobservable inputs used in the valuation of interest rate contracts are pull-through and cap grids. Increases or decreases in the pull-through or cap grids will have a corresponding impact in the value of interest rate contracts.

Other Assets - MSRs

The significant unobservable inputs used in the fair value measurement of MSRs are option-adjusted spreads, constant prepayment rate or life speed, and cost to service assumptions. The impact of prepayments and changes in the option-adjusted spread are based on a variety of underlying inputs. Increases or decreases to the underlying cash flow inputs will have a corresponding impact on the value of the MSR asset. The impact of the costs to service assumption will have a directionally opposite change in the fair value of the MSR asset.

Other Assets - SBIC Investments

The significant unobservable inputs used in the fair value measurement of SBIC Investments are initially based upon transaction price. Increases or decreases in valuation factors such as recent or proposed purchase or sale of debt or equity of the issuer, pricing by other dealers in similar securities, size of position held, liquidity of the market will have a corresponding impact in the value of SBIC investments.

Fair Value of Financial Instruments

The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company’s financial instruments, excluding financial instruments measured at fair value on a recurring basis, are as follows:



	March 31, 2017
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In Thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	3,959,932	$	3,959,932	$	3,959,932	$	—	$	—
Investment securities held to maturity	1,158,785		1,142,694		—		—		1,142,694
Loans, net	58,871,661		56,219,932		—		—		56,219,932
Liabilities:
Deposits	$	67,529,638	$	67,603,537	$	—	$	67,603,537	$	—
FHLB and other borrowings	2,993,222		3,037,339		—		3,037,339		—
Federal funds purchased and securities sold under agreements to repurchase	71,559		71,559		—		71,559		—
Other short-term borrowings	50,000		50,000		—		50,000		—

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	December 31, 2016
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In Thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	3,251,786	$	3,251,786	$	3,251,786	$	—	$	—
Investment securities held to maturity	1,203,217		1,182,009		—		—		1,182,009
Loans, net	59,222,970		56,283,761		—		—		56,283,761
Liabilities:
Deposits	$	67,279,533	$	67,359,299	$	—	$	67,359,299	$	—
FHLB and other borrowings	3,001,551		3,001,836		—		3,001,836		—
Federal funds purchased and securities sold under agreements to repurchase	39,052		39,052		—		39,052		—
Other short-term borrowings	50,000		50,000		—		50,000		—

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments not carried at fair value:

Cash and cash equivalents: Cash and cash equivalents have maturities of three months or less. Accordingly, the carrying amount approximates fair value. Because these amounts generally relate to either currency or highly liquid assets, these are considered a Level 1 measurement.

Investment securities held to maturity: The fair values of securities held to maturity are estimated using a discounted cash flow approach. The discounted cash flow model uses inputs such as estimated prepayment speed, loss rates, and default rates. They are considered a Level 3 measurement as the valuation employs significant unobservable inputs.

Loans: Loans are presented net of the allowance for loan losses and are valued using discounted cash flows. The discount rates used to determine the present value of these loans are based on current market interest rates for loans with similar credit risk and term. They are considered a Level 3 measurement as the valuation employs significant unobservable inputs.

Deposits: The fair values of demand deposits are equal to the carrying amounts. Demand deposits include noninterest bearing demand deposits, savings accounts, NOW accounts and money market demand accounts. Discounted cash flows have been used to value fixed rate term deposits. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term. They are considered a Level 2 measurement as the valuation primarily employs observable inputs for similar instruments.

FHLB and other borrowings: The fair value of the Company’s fixed rate borrowings, which includes the Company’s Capital Securities, are estimated using discounted cash flows, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of the Company’s variable rate borrowings approximates fair value. As such, these borrowings are considered a Level 2 measurement as the valuation primarily employs observable inputs for similar instruments.

Federal fund purchased, securities sold under agreements to repurchase and short-term borrowings: The carrying amounts of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings approximates fair value. They are therefore considered a Level 2 measurement.

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(10) Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances arising from nonowner sources. The following summarizes the change in the components of other comprehensive income.



	Three Months Ended March 31,
	2017									2016
	Pretax			Tax Expense/ (Benefit)			After-tax			Pretax		Tax Expense/ (Benefit)		After-tax
	(In Thousands)
Other comprehensive income:
Unrealized holding gains arising during period from securities available for sale	$	42,751		$	15,818		$	26,933		$	107,725	$	39,461	$	68,264
Less: reclassification adjustment for net gains on sale of securities in net income	—			—			—			8,353		3,059		5,294
Net change in unrealized gains on securities available for sale	42,751			15,818			26,933			99,372		36,402		62,970
Change in unamortized net holding losses on investment securities held to maturity	1,058			392			666			835		306		529
Change in unamortized non-credit related impairment on investment securities held to maturity	354			131			223			351		129		222
Net change in unamortized holding losses on securities held to maturity	1,412			523			889			1,186		435		751
Unrealized holding gains (losses) arising during period from cash flow hedge instruments	(15,686		)	(5,820		)	(9,866		)	4,305		1,566		2,739
Change in defined benefit plans	(773		)	(288		)	(485		)	1,300		369		931
Other comprehensive income	$	27,704		$	10,233		$	17,471		$	106,163	$	38,772	$	67,391

Activity in accumulated other comprehensive income (loss), net of tax was as follows:



	Unrealized Gains (Losses) on Securities Available for Sale and Transferred to Held to Maturity			Accumulated Gains (Losses) on Cash Flow Hedging Instruments			Defined Benefit Plan Adjustment			Unamortized Impairment Losses on Investment Securities Held to Maturity			Total
	(In Thousands)
Balance, December 31, 2015	$	(56,326	)	$	(6,407	)	$	(29,166	)	$	(7,437	)	$	(99,336	)
Other comprehensive income before reclassifications	68,264			3,068			—			—			71,332
Amounts reclassified from accumulated other comprehensive income (loss)	(4,765		)	(329		)	931			222			(3,941		)
Net current period other comprehensive income	63,499			2,739			931			222			67,391
Balance, March 31, 2016	$	7,173		$	(3,668	)	$	(28,235	)	$	(7,215	)	$	(31,945	)

Balance, December 31, 2016	$	(119,562	)	$	(10,080	)	$	(32,028	)	$	(6,582	)	$	(168,252	)
Other comprehensive income (loss) before reclassifications	26,933			(6,285		)	—			—			20,648
Amounts reclassified from accumulated other comprehensive income (loss)	666			(3,581		)	(485		)	223			(3,177		)
Net current period other comprehensive income	27,599			(9,866		)	(485		)	223			17,471
Balance, March 31, 2017	$	(91,963	)	$	(19,946	)	$	(32,513	)	$	(6,359	)	$	(150,781	)

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The following table presents information on reclassifications out of accumulated other comprehensive income (loss).



Details About Accumulated Other Comprehensive Income (Loss) Components	Amounts Reclassified From Accumulated Other Comprehensive Income (Loss)(1)						Condensed Consolidated Statement of Income Caption
	Three Months Ended March 31,
	2017			2016
	(In Thousands)
Unrealized Gains (Losses) on Securities Available for Sale and Transferred to Held to Maturity	$	—		$	8,353		Investment securities gains, net
	(1,058		)	(835		)	Interest on investment securities held to maturity
	(1,058		)	7,518
	392			(2,753		)	Income tax (expense) benefit
	$	(666	)	$	4,765		Net of tax

Accumulated Gains (Losses) on Cash Flow Hedging Instruments	$	6,374		$	2,048		Interest and fees on loans
	(680		)	(1,529		)	Interest and fees on FHLB advances
	5,694			519
	(2,113		)	(190		)	Income tax expense
	$	3,581		$	329		Net of tax

Defined Benefit Plan Adjustment	$	773		$	(1,300	)	(2)
	(288		)	369			Income tax (expense) benefit
	$	485		$	(931	)	Net of tax

Unamortized Impairment Losses on Investment Securities Held to Maturity	$	(354	)	$	(351	)	Interest on investment securities held to maturity
	131			129			Income tax benefit
	$	(223	)	$	(222	)	Net of tax


(1)	Amounts in parentheses indicate debits to the consolidated statement of income.


(2)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 19, Benefit Plans, in the Notes to the December 31, 2016, Consolidated Financial Statements for additional details).

(11) Supplemental Disclosure for Statement of Cash Flows

The following table presents the Company’s supplemental disclosures for statement of cash flows.



	Three Months Ended March 31,
	2017		2016
	(In Thousands)
Supplemental disclosures of cash flow information:
Interest paid	$	103,006	$	108,970
Net income taxes paid	1,153		2,658
Supplemental schedule of noncash investing and financing activities:
Transfer of loans and loans held for sale to OREO	$	10,226	$	6,651
Transfer of loans to loans held for sale	—		764,022
Issuance of restricted stock, net of cancellations	—		(66		)

(12) Segment Information

The Company’s operating segments are based on the Company’s organizational structure. Each segment reflects the manner in which financial information is evaluated by management. The operating segment results include certain

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overhead allocations and intercompany transactions. All intercompany transactions have been eliminated to determine the consolidated balances. The Company operates primarily in the United States, and, accordingly, revenue and assets outside the United States are not material. There are no individual customers whose revenues exceeded 10% of consolidated revenue.

The following tables present the segment information for the Company’s segments.



	Three Months Ended March 31, 2017
	Consumer and Commercial Banking		Corporate and Investment Banking		Treasury		Corporate Support and Other			Consolidated
	(In Thousands)
Net interest income (expense)	$	508,884	$	35,345	$	14,268	$	(7,064	)	$	551,433
Allocated provision for loan losses	63,305		5,720		—		11,114			80,139
Noninterest income	190,376		49,360		1,888		3,063			244,687
Noninterest expense	473,326		38,760		6,308		30,918			549,312
Net income (loss) before income tax expense (benefit)	162,629		40,225		9,848		(46,033		)	166,669
Income tax expense (benefit)	56,920		14,079		3,446		(28,599		)	45,846
Net income (loss)	105,709		26,146		6,402		(17,434		)	120,823
Less: net income attributable to noncontrolling interests	23		—		416		4			443
Net income (loss) attributable to BBVA Compass Bancshares, Inc.	$	105,686	$	26,146	$	5,986	$	(17,438	)	$	120,380
Average assets	$	54,346,358	$	11,009,451	$	15,180,526	$	7,140,547		$	87,676,882



	Three Months Ended March 31, 2016
	Consumer and Commercial Banking		Corporate and Investment Banking			Treasury			Corporate Support and Other			Consolidated
	(In Thousands)
Net interest income (expense)	$	499,812	$	47,516		$	(5,140	)	$	(25,306	)	$	516,882
Allocated provision for loan losses	61,011		53,427			—			(1,193		)	113,245
Noninterest income	196,032		43,526			11,387			2,260			253,205
Noninterest expense	481,897		78,497			5,238			26,512			592,144
Net income (loss) before income tax expense (benefit)	152,936		(40,882		)	1,009			(48,365		)	64,698
Income tax expense (benefit)	53,527		(14,309		)	353			(14,140		)	25,431
Net income (loss)	99,409		(26,573		)	656			(34,225		)	39,267
Less: net income attributable to noncontrolling interests	105		—			423			—			528
Net income (loss) attributable to BBVA Compass Bancshares, Inc.	$	99,304	$	(26,573	)	$	233		$	(34,225	)	$	38,739
Average assets	$	54,581,856	$	14,464,503		$	16,283,929		$	6,974,818		$	92,305,106

The financial information presented was derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting policies that have been developed to reflect the underlying economics of the businesses. These policies address the methodologies applied and include policies related to funds transfer pricing, cost allocations and capital allocations.

Funds transfer pricing was used in the determination of net interest income earned primarily on loans and deposits. The method employed for funds transfer pricing is a matched funding concept whereby operating segments which are

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fund providers are credited and those that are fund users are charged based on maturity, prepayment and/or repricing characteristics applied on an instrument level. Costs for centrally managed operations are generally allocated to the operating segment based on the utilization of services provided or other appropriate indicators. Capital is allocated to the operating segments based upon the underlying risks in each business taking into account economic and regulatory capital standards.

The development and application of these methodologies is a dynamic process. Accordingly, prior period financials have been revised to reflect management accounting enhancements and changes in the Company's organizational structure. The 2016 segment information has been revised to conform to the 2017 presentation. In addition, unlike financial accounting, there is no authoritative literature for management accounting similar to U.S. GAAP. Consequently, reported results are not necessarily comparable to those presented by other financial institutions.

(13) Related Party Transactions

The Company enters into various transactions with BBVA that affect the Company’s business and operations. The following discloses the significant transactions between the Company and BBVA during 2017 and 2016.

The Company believes all of the transactions entered into between the Company and BBVA were transacted on terms that were no more or less beneficial to the Company than similar transactions entered into with unrelated market participants, including interest rates and transaction costs. The Company foresees executing similar transactions with BBVA in the future.

Derivatives

The Company has entered into various derivative contracts as noted below with BBVA as the upstream counterparty. The total notional amount of outstanding derivative contracts between the Company and BBVA are $5.5 billion and $5.2 billion as of March 31, 2017 and December 31, 2016, respectively. The net fair value of outstanding derivative contracts between the Company and BBVA are detailed below.



	March 31, 2017			December 31, 2016
	(In Thousands)
Derivative contracts:
Fair value hedges	$	(16,169	)	$	(14,225	)
Cash flow hedges	433			(380		)
Free-standing derivatives not designated as hedging instruments	(3,490		)	(14,326		)

Securities Purchased Under Agreements to Resell/ Securities Sold Under Agreements to Repurchase

The Company enters into agreements with BBVA as the counterparty under which it purchases/sells securities subject to an obligation to resell/repurchase the same or similar securities. The following represents the amount of securities purchased under agreement to resell and securities sold under agreement to repurchase where BBVA is the counterparty.



	March 31, 2017		December 31, 2016
	(In Thousands)
Securities purchased under agreements to resell	$	989	$	8,330
Securities sold under agreements to repurchase	69,860		23,397

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Borrowings

BSI, a wholly owned subsidiary of the Company, had a $420 million revolving note and cash subordination agreement with BBVA that was executed on March 16, 2012 with an original maturity date of March 16, 2018. On March 16, 2017, the agreement was amended to increase the available amount to $450 million and the maturity date was extended to March 16, 2023. BSI also has a $150 million line of credit with BBVA that was initiated on August 1, 2014. At both March 31, 2017 and December 31, 2016, there was $50 million outstanding on the line of credit agreement and no amount outstanding under the revolving note and cash subordination agreement, respectively. Interest expense related to these agreements was $367 thousand and $822 thousand for the three months ended March 31, 2017 and 2016, respectively, and are included in interest on other short-term borrowings within the Company's Unaudited Condensed Consolidated Statements of Income.

Service and Referral Agreements

The Company and its affiliates entered into or were subject to various service and referral agreements with BBVA and its affiliates. Each of the agreements was done in the ordinary course of business and on market terms. Income associated with these agreements was $6.0 million and $3.9 million for the three months ended March 31, 2017 and 2016, respectively, and is recorded as a component of noninterest income within the Company's Unaudited Condensed Consolidated Statements of Income. Expenses associated with these agreements was $5.8 million and $6.8 million for the three months ended March 31, 2017 and 2016, respectively, and is recorded as a component of noninterest expense within the Company's Unaudited Condensed Consolidated Statements of Income.

Series A Preferred Stock

BBVA is the sole holder of the Series A Preferred Stock that the Company issued in December 2015. At March 31, 2017, the carrying amount of the Series A Preferred Stock was approximately $229 million. During the three months ended March 31, 2017 and 2016, the Company paid $3.5 million and $3.2 million, respectively, of preferred stock dividends to BBVA.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Prior period financial information has been retrospectively adjusted to include the historical activity of the money transfer service subsidiaries acquired from BBVA Bancomer USA, Inc. in June 2016. See Note 2, Acquisition Activity, in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional disclosures.

Critical Accounting Policies

The accounting principles followed by the Company and the methods of applying these principles conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry. The Company’s critical accounting policies relate to (1) the allowance for loan losses, (2) fair value of financial instruments, and (3) goodwill impairment. These critical accounting policies require the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. The Company’s significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in detail in Note 1 in the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Additional disclosures regarding the effects of new accounting pronouncements are included in Note 1, Basis of Presentation, included herein.

Executive Overview

Financial Performance

Consolidated net income attributable to the Company for the three months ended March 31, 2017 was $120.4 million compared to $38.7 million earned during the three months ended March 31, 2016. The Company’s results of operations for the three months ended March 31, 2017 reflected higher net income before income tax expense primarily as a result of higher net interest income as well as lower provision for loan losses and noninterest expense.

Net interest income totaled $551.4 million for the three months ended March 31, 2017 compared to $516.9 million for the three months ended March 31, 2016. The net interest margin for the three months ended March 31, 2017 was 2.96%, compared to 2.61% for the three months ended March 31, 2016. Net interest income was positively impacted by higher market interest rates due to the impact of the Federal Reserve Board benchmark interest rate increases.

The provision for loan losses was $80.1 million for the three months ended March 31, 2017 compared to $113.2 million of provision for loan losses for the three months ended March 31, 2016. The decrease in provision for loan losses for the three months ended March 31, 2017 as compared to the same period in 2016 was primarily due to a decline in negative credit quality indicators in the energy portfolio during the three months ended March 31, 2017 when compared to the negative credit quality indicators stemming from downgrades in the energy portfolio that occurred during the three months ended March 31, 2016.

Net charge-offs for the three months ended March 31, 2017 totaled $84.3 million which represented a $30.8 million increase compared to $53.5 million for the three months ended March 31, 2016. The increase in net charge-offs for the three months ended March 31, 2017 as compared to the corresponding period in 2016 was primarily driven by a $21.4 million increase in commercial, financial and agricultural net charge-offs as well as an $8.1 million increase in consumer direct net charge-offs.

Noninterest income was $244.7 million, a decrease of $8.5 million compared to the three months ended March 31, 2016. The decrease in noninterest income was largely attributable to an $8.4 million decrease in investment securities gains as well as a $26.1 million decrease in other noninterest income, primarily as a result of a $16.1 million gain recognized in 2016 on the sale of loans not initially originated for sale in the secondary market. This was offset in part by a $4.7 million increase in investment banking and advisory fees, a $4.9 million increase in retail investment sales and a $6.3 million increase in mortgage banking.

Noninterest expense decreased $42.8 million to $549.3 million for the three months ended March 31, 2017 compared to $592.1 million for the three months ended March 31, 2016. The decrease was driven by a $35.9 million decrease

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in other noninterest expense due in part to lower levels of provisions for unfunded commitments during the three months ended March 31, 2017 compared to the three months ended March 31, 2016.

Income tax expense was $45.8 million for the three months ended March 31, 2017 compared to $25.4 million for the three months ended March 31, 2016. This resulted in an effective tax rate of 27.5% for 2017 and 39.3% for 2016. The decrease in the effective tax rate for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 was primarily driven by nondeductible expenses in 2016.

The Company's total assets at March 31, 2017 were $87.3 billion, a decrease of $229 million from December 31, 2016 levels. Total loans, excluding loans held for sale, were $59.7 billion at March 31, 2017, a decrease of $355 million or 0.6% from year-end December 31, 2016 levels. The decrease in loans was primarily driven by slight decreases in both commercial and consumer loans. Deposits increased $250 million or 0.4% compared to December 31, 2016, driven by a 3.0% increase in transaction accounts which was fueled by an increase in noninterest bearing deposits offset by a 10.1% decrease in time deposits.

Total shareholder's equity at March 31, 2017 was $12.9 billion, an increase of $135 million compared to December 31, 2016.

Capital

Under the Basel III transitional provisions, the Company's Tier1 and CET1 ratios were 12.12% and 11.77%, respectively, at March 31, 2017 compared to 11.85% and 11.49%, respectively, at December 31, 2016.

Liquidity

The Company’s sources of liquidity include customers’ interest-bearing and noninterest-bearing deposit accounts, loan principal and interest payments, investment securities, short-term investments and borrowings. As a bank holding company, the Parent’s primary source of liquidity is dividends from the Bank. Due to the net earnings restrictions on dividend distributions under Alabama law, the Bank was not permitted to pay any dividends at March 31, 2017 and December 31, 2016 without regulatory approval.

Any dividends paid by the Parent must be set forth as capital actions in the Company's capital plan and not objected to by the Federal Reserve Board.

At March 31, 2017, the Company was fully compliant with the liquidity coverage ratio rule. Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth.

Analysis of Results of Operations

Consolidated net income attributable to the Company totaled $120.4 million and $38.7 million for the three months ended March 31, 2017 and 2016, respectively. The Company’s results of operations for the three months ended March 31, 2017 reflected higher net income before income tax expense primarily as a result of higher net interest income and lower provision for loan losses and noninterest expense.

Net Interest Income and Net Interest Margin

Net interest income is the principal component of the Company’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates as well as changes in the volume and mix of earning assets and interest bearing liabilities can impact net interest income. The following discussion of net interest income is presented on a fully taxable equivalent basis, unless otherwise noted, to facilitate performance comparisons among various taxable and tax-exempt assets.

Three Months Ended March 31, 2017 and 2016

Net interest income totaled $551.4 million for the three months ended March 31, 2017 compared to $516.9 million for the three months ended March 31, 2016.

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Net interest income on a fully taxable equivalent basis totaled $571.4 million for the three months ended March 31, 2017 compared with $536.2 million for the three months ended March 31, 2016. Net interest income on a fully taxable equivalent basis increased $35.3 million in 2017 compared to 2016. The increase in net interest income was primarily the result of an increase in interest income on loans and investment securities as well as a decrease in interest expense on deposits for the three months ended March 31, 2017 compared to the same period in 2016.

Net interest margin was 2.96% for the three months ended March 31, 2017 compared to 2.61% for the three months ended March 31, 2016. The 35 basis point increase in net interest margin was primarily driven by the impact of higher benchmark interest rates.

The fully taxable equivalent yield for the three months ended March 31, 2017 for the loan portfolio was 3.98% compared to 3.73% for the same period in 2016. The 25 basis point increase was primarily driven by the impact of higher benchmark interest rates for the three months ended March 31, 2017 compared to the three months ended March 31, 2016.

The fully taxable equivalent yield on the investment securities portfolio was 2.01% for the three months ended March 31, 2017, compared to 1.81% for the three months ended March 31, 2016. The 20 basis point increase was a result of increases in market rates. Additionally, as rates have increased the amount of premium amortization required has decreased as actual and expected prepayments have decreased.

The yield on trading account securities increased to 1.53% for the three months ended March 31, 2017 compared to 1.46% for the three months ended March 31, 2016 primarily due to the impact of higher market interest rates.

The average rate paid on interest bearing deposits was 0.61% for the three months ended March 31, 2017 compared to 0.66% for the three months ended March 31, 2016. The decrease reflects the impact of the decline in the average balance of certificates and other time deposits.

The average rate paid on FHLB and other borrowings for the three months ended March 31, 2017 was 2.44% compared to 1.43% for the corresponding period in 2016. The 101 basis point increase was primarily driven by the impact of interest rate contracts hedging FHLB and other borrowings.

The average rate paid on other short-term borrowings for the three months ended March 31, 2017 increased to 1.51% compared to 1.39% for the three months ended March 31, 2016 due primarily to the impact of higher market interest rates.

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The following table sets forth the major components of net interest income and the related annualized yields and rates, as well as the variances between the periods caused by changes in interest rates versus changes in volumes. Changes attributable to the mix of assets and liabilities have been allocated proportionally between the changes due to yield/rate and the changes due to volume.

Table 1 Consolidated Average Balance and Yield/ Rate Analysis

	Three Months Ended March 31, 2017							Three Months Ended March 31, 2016
	Average Balance			Income/Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/Rate
	(Dollars in Thousands)
Assets:
Interest earning assets:
Loans (1) (2) (3)	60,326,849			591,704		3.98		62,195,963			577,222		3.73
Investment securities – AFS (tax exempt)(3)	7,152			156		8.85		13,283			250		7.57
Investment securities – AFS (taxable)	11,846,837			54,776		1.88		11,177,452			46,034		1.66
Total investment securities – AFS	11,853,989			54,932		1.88		11,190,735			46,284		1.66
Investment securities – HTM (tax exempt) (3)	994,647			8,401		3.43		1,085,545			8,722		3.23
Investment securities – HTM (taxable)	174,152			1,170		2.72		207,231			1,116		2.17
Total investment securities - HTM	1,168,799			9,571		3.32		1,292,776			9,838		3.06
Trading account securities (3)	2,730,386			10,298		1.53		3,944,776			14,322		1.46
Other (4) (5) (6)	2,326,469			9,262		1.61		3,973,261			4,366		0.44
Total earning assets	78,406,492			675,767		3.50		82,597,511			652,032		3.17
Noninterest earning assets:
Cash and due from banks (6)	1,031,212							1,133,596
Allowance for loan losses	(850,362		)					(784,632		)
Net unrealized (loss) gain on investment securities available for sale	(142,009		)					198
Other noninterest earning assets	9,231,549							9,358,433
Total assets	$	87,676,882						$	92,305,106
Liabilities:
Interest bearing liabilities:
Interest bearing demand deposits	$	8,190,873		6,131		0.30		$	7,085,934		3,942		0.22
Savings and money market accounts	25,218,935			22,301		0.36		25,775,565			26,743		0.42
Certificates and other time deposits	13,229,357			41,872		1.28		14,433,900			47,069		1.31
Foreign office deposits	—			—		—		127,071			61		0.19
Total interest bearing deposits	46,639,165			70,304		0.61		47,422,470			77,815		0.66
FHLB and other borrowings	3,167,805			19,068		2.44		5,064,803			18,012		1.43
Federal funds purchased and securities sold under agreements to repurchase (5)	42,855			4,897		46.34		800,243			6,157		3.09
Other short-term borrowings	2,707,802			10,086		1.51		4,025,428			13,896		1.39
Total interest bearing liabilities	52,557,627			104,355		0.81		57,312,944			115,880		0.81
Noninterest bearing deposits	20,577,690							20,057,143
Other noninterest bearing liabilities	1,688,907							2,207,049
Total liabilities	74,824,224							79,577,136
Shareholder’s equity	12,852,658							12,727,970
Total liabilities and shareholder’s equity	$	87,676,882						$	92,305,106
Net interest income/net interest spread				$	571,412	2.69	%				$	536,152	2.36	%
Net interest margin						2.96	%						2.61	%
Taxable equivalent adjustment				19,979							19,270
Net interest income				$	551,433						$	516,882


(1)	Loans include loans held for sale and nonaccrual loans.


(2)	Interest income includes loan fees for rate calculation purposes.


(3)	Yields are stated on a fully taxable equivalent basis assuming the tax rate in effect for each period presented.


(4)	Includes federal funds sold, securities purchased under agreements to resell, interest bearing deposits, and other earning assets.


(5)	Yield/rate reflects impact of balance sheet offsetting. See Note 7, Securities Financing Activities, in the notes to the financial statements.


(6)	Beginning in the fourth quarter of 2016, interest bearing deposits with the Federal Reserve are included in earning assets. In prior periods, these balances were included as noninterest earning assets within cash and due from banks. Prior periods have been reclassified to conform to current period presentation.

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Provision for Loan Losses

The provision for loan losses is the charge to earnings that management determines to be necessary to maintain the allowance for loan losses at a sufficient level reflecting management's estimate of probable incurred losses in the loan portfolio.

Three Months Ended March 31, 2017 and 2016

For the three months ended March 31, 2017, the Company recorded $80.1 million of provision for loan losses compared to $113.2 million of provision for loan losses for the three months ended March 31, 2016. The decrease in provision for loan losses for the three months ended March 31, 2017 as compared to the same period in 2016 was primarily due to a decline in negative credit quality indicators in the energy portfolio during the three months ended March 31, 2017 when compared to the negative credit quality indicators stemming from downgrades in the energy portfolio that occurred during the three months ended March 31, 2016.

The Company recorded net charge-offs of $84.3 million during the three months ended March 31, 2017 compared to $53.5 million during the corresponding period in 2016. Included in net-charge-offs for the three months ended March 31, 2017 was $36.3 million of net charge-offs related to energy loans compared to $14.2 million of charge-offs related to energy loans for the three months ended March 31, 2016. Net charge-offs were 0.57% (or 0.34% excluding net charge-offs on energy loans) of average loans for the three months ended March 31, 2017 compared to 0.35% (or 0.27% excluding net charge-offs on energy loans) of average loans for the three months ended March 31, 2016.

For further discussion and analysis of the allowance for loan losses, refer to the discussion of lending activities found later in this section. Also, refer to Note 4, Loans and Allowance for Loan Losses, in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional disclosures.

Noninterest Income

The following table presents the components of noninterest income.

Table 2 Noninterest Income

	Three Months Ended March 31,
	2017		2016
	(In Thousands)
Service charges on deposit accounts	$	55,168	$	51,425
Card and merchant processing fees	29,992		29,742
Investment banking and advisory fees	28,301		23,604
Retail investment sales	27,471		22,567
Money transfer income	25,197		24,425
Asset management fees	9,771		8,805
Corporate and correspondent investment sales	8,915		4,413
Mortgage banking	2,870		(3,434		)
Bank owned life insurance	4,169		4,416
Investment securities gains, net	—		8,353
Other	52,833		78,889
Total noninterest income	$	244,687	$	253,205

Three Months Ended March 31, 2017 and 2016

Noninterest income was $244.7 million for the three months ended March 31, 2017 compared to $253.2 million for the three months ended March 31, 2016. The decrease in noninterest income was primarily driven by decreases in investment securities gains and other noninterest income partially offset by increases in investment banking and advisory fees, retail investment sales and mortgage banking.

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Income from investment banking and advisory fees increased to $28.3 million for the three months ended March 31, 2017, compared to $23.6 million for the three months ended March 31, 2016 driven by an increase in volume in bond underwriting activity during the first quarter 2017 compared to the same period in 2016.

Retail investment sales income is comprised of mutual fund and annuity sales income and insurance sales fees. Income from retail investment sales increased to $27.5 million for the three months ended March 31, 2017 compared to $22.6 million for the three months ended March 31, 2016. Fixed annuity sales increased by approximately $2.3 million due to improved pricing on a number of fixed annuity products. Securities transaction fees also increased approximately $2.6 million due to favorable international markets.

Corporate and correspondent investment sales represents income generated through the sales of interest rate protection contracts to corporate customers and the sale of bonds and other services to the Company's correspondent banking clients. Income from corporate and correspondent investment sales increased to $8.9 million for the three months ended March 31, 2017 from $4.4 million for the corresponding period in 2016 due in part to a $5.1 million increase in income related to interest rate contracts and foreign currency exchange contracts which was partially offset by a $2.2 million decrease related to the valuation changes in U.S. Treasury securities held to hedge market movements in the MSR asset.

Mortgage banking for the three months ended March 31, 2017 was $2.9 million, an increase of $6.3 million compared to the three months ended March 31, 2016. Mortgage banking for the three months ended March 31, 2017 included $6.0 million of origination fees and gains on sales of mortgage loans as well as net losses of $3.3 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. Mortgage banking for the three months ended March 31, 2016 included $3.8 million of origination fees and gains on sales of mortgage loans as well as net losses of $7.0 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. The increase in mortgage banking for the three months ended March 31, 2017 compared to the corresponding period in 2016 was primarily driven by a decline in rates during the first quarter of 2016 which negatively impacted the valuations of mortgage loans held for sale, mortgage related derivatives, and MSRs. Additionally, pricing margins were higher during the first quarter of 2017 resulting in greater fee income.

Investment securities gains, net decreased by $8.4 million for the three months ended March 31, 2017 as there were no sales of AFS securities during the three months ended March 31, 2017. See "—Investment Securities" for more information related to the investment securities sales.

Other income is comprised of income recognized that does not typically fit into one of the other noninterest income categories and includes various fees associated with letters of credit, syndications, ATMs and foreign exchange. For the three months ended March 31, 2017, other income decreased by $26.1 million due to a $16.1 million gain recognized during 2016 from the sale of loans not initially originated for sale in the secondary market, and a $7.5 million residual value write down related to a commercial lease.

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Noninterest Expense

The following table presents the components of noninterest expense.

Table 3 Noninterest Expense

	Three Months Ended March 31,
	2017		2016
	(In Thousands)
Salaries, benefits and commissions	$	268,015	$	279,769
Equipment	61,630		60,441
Professional services	57,807		56,367
Net occupancy	42,101		39,272
Money transfer expense	16,324		15,600
Amortization of intangibles	2,525		4,093
Total securities impairment	242		—
Other	100,668		136,602
Total noninterest expense	$	549,312	$	592,144

Three Months Ended March 31, 2017 and 2016

Noninterest expense was $549.3 million for the three months ended March 31, 2017 a decrease of 42.8 million compared to $592.1 million for the three months ended March 31, 2016 driven by a decrease in other noninterest expense.

Other noninterest expense includes FDIC insurance, marketing, communications, postage, supplies, subscriptions, FDIC indemnification expense, provision for unfunded commitments and gains and losses on the sales and write-downs of OREO. Other noninterest expense decreased $35.9 million during the three months ended March 31, 2017 to $100.7 million compared to $136.6 million for the three months ended March 31, 2016. The decrease was primarily attributable to a $22.8 million decrease in the provision for unfunded commitments and letters of credit in 2017 compared to the corresponding period in 2016.

Income Tax Expense

Three Months Ended March 31, 2017 and 2016

The Company’s income tax expense totaled $45.8 million and $25.4 million for the three months ended March 31, 2017 and 2016, respectively. The effective tax rate was 27.5% for the three months ended March 31, 2017 and 39.3% for the three months ended March 31, 2016. The decrease in the effective tax rate for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 was primarily driven by nondeductible expenses in 2016.

Analysis of Financial Condition

A review of the Company’s major balance sheet categories is presented below.

Trading Account Assets

Trading account assets totaled $2.9 billion at March 31, 2017 compared to $3.1 billion December 31, 2016. The $252 million decrease in trading account assets was primarily attributable to a $207 million decrease in U.S. Treasury securities held by BSI, as well as a $46 million decrease in the fair value of interest contracts for customers.

Investment Securities

As of March 31, 2017, the securities portfolio included $11.8 billion in available for sale securities and $1.2 billion in held to maturity securities for a total investment portfolio of $13.0 billion, an increase of $137 million compared with December 31, 2016.

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During the three months ended March 31, 2017, the Company had no sales of securities classified as available for sale. During the three months ended March 31, 2016, the Company received proceeds of $561 million from the sale of U.S. Treasury securities and other U.S. government agency securities classified as available for sale which resulted in net gains of $8.4 million.

Lending Activities

The Company groups its loans into portfolio segments based on internal classifications reflecting the manner in which the allowance for loan losses is established and how credit risk is measured, monitored and reported. Commercial loans are comprised of commercial, financial and agricultural, real estate — construction, and commercial real estate–mortgage loans. Consumer loans are comprised of residential real — estate mortgage, equity lines of credit, equity loans, credit cards, consumer direct and consumer indirect loans. The Company also has a portfolio of covered loans that were acquired in the FDIC-assisted acquisition of certain assets and liabilities of Guaranty Bank.

The following table presents the composition of the loan portfolio.

Table 4 Loan Portfolio

	March 31, 2017		December 31, 2016
	(In Thousands)
Commercial loans:
Commercial, financial and agricultural	$	24,660,668	$	25,122,002
Real estate – construction	2,227,405		2,125,316
Commercial real estate – mortgage	11,398,821		11,210,660
Total commercial loans	$	38,286,894	$	38,457,978
Consumer loans:
Residential real estate – mortgage	$	13,117,776	$	13,259,994
Equity lines of credit	2,560,495		2,543,778
Equity loans	420,362		445,709
Credit card	570,311		604,881
Consumer direct	1,329,242		1,254,641
Consumer indirect	3,078,748		3,134,948
Total consumer loans	$	21,076,934	$	21,243,951
Covered loans	341,939		359,334
Total loans	$	59,705,767	$	60,061,263
Loans held for sale	74,741		161,849
Total loans and loans held for sale	$	59,780,508	$	60,223,112

Loans and loans held for sale, net of unearned income, totaled $59.8 billion at March 31, 2017, a decrease of $443 million from December 31, 2016.

See Note 4, Loans and Allowance for Loan Losses, and Note 5, Loan Sales and Servicing, in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional discussion.

Asset Quality

Nonperforming assets, which includes nonaccrual loans, nonaccrual loans held for sale, accruing loans 90 days past due, accruing TDRs 90 days past due, other real estate owned and other repossessed assets, totaled $927 million at March 31, 2017 a decrease of $84 million compared to $1.0 billion at December 31, 2016. The decrease in nonperforming assets was primarily due to a $95 million decrease in nonaccrual loans primarily driven by a $111 million decrease in energy nonaccrual loans. At March 31, 2017, energy nonaccrual loans were $275 million compared to $387 million at December 31, 2016. The decrease in energy nonaccrual loans was due in part to sales of nonperforming energy loans during the three months ended March 31, 2017. Excluding energy nonperforming loans, nonperforming assets totaled $652 million at March 31, 2017 compared to $625 million at December 31, 2016. As a percentage of total loans and loans held for sale, other real estate owned and other repossessed assets, nonperforming assets were 1.55% (or 1.15%

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excluding energy nonperforming loans) at March 31, 2017 compared with 1.68% (or 1.10% excluding energy nonperforming loans) at December 31, 2016.

The Company defines potential problem loans as commercial loans rated substandard or doubtful that do not meet the definition of nonaccrual, TDR or 90 days past due and still accruing. See Note 4, Loans and Allowance for Loan Losses, in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information on the Company’s credit grade categories, which are derived from standard regulatory rating definitions. The following table provides a summary of potential problem loans.

Table 5 Potential Problem Loans

	March 31, 2017		December 31, 2016
	(In Thousands)
Commercial, financial and agricultural	$	593,925	$	630,760
Real estate – construction	3,361		5,578
Commercial real estate – mortgage	52,353		57,108
	$	649,639	$	693,446

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The following table summarizes asset quality information and includes loans held for sale and purchased impaired loans.

Table 6 Asset Quality

	March 31, 2017		December 31, 2016
	(In Thousands)
Nonaccrual loans:
Commercial, financial and agricultural	$	540,407	$	596,454
Real estate – construction	1,028		1,239
Commercial real estate – mortgage	89,908		71,921
Residential real estate – mortgage	140,342		140,303
Equity lines of credit	32,675		33,453
Equity loans	12,626		13,635
Credit card	—		—
Consumer direct	637		789
Consumer indirect	7,955		5,926
Covered	410		730
Total nonaccrual loans	825,988		864,450
Nonaccrual loans held for sale	—		56,592
Total nonaccrual loans and loans held for sale	$	825,988	$	921,042
Accruing TDRs: (1)
Commercial, financial and agricultural	$	31,644	$	8,726
Real estate – construction	114		2,393
Commercial real estate – mortgage	4,821		4,860
Residential real estate – mortgage	58,867		59,893
Equity lines of credit	—		—
Equity loans	33,635		34,746
Credit card	—		—
Consumer direct	662		704
Consumer indirect	—		—
Covered	—		—
Total Accruing TDRs	129,743		111,322
Accruing TDRs classified as loans held for sale	—		—
Total Accruing TDRs (loans and loans held for sale)	$	129,743	$	111,322
Loans 90 days past due and accruing:
Commercial, financial and agricultural	$	4,405	$	2,891
Real estate – construction	3,640		2,007
Commercial real estate – mortgage	4,602		—
Residential real estate – mortgage	2,653		3,356
Equity lines of credit	1,478		2,950
Equity loans	376		467
Credit card	12,453		10,954
Consumer direct	4,874		4,482
Consumer indirect	7,463		7,197
Covered	23,673		27,238
Total loans 90 days past due and accruing	65,617		61,542
Loans held for sale 90 days past due and accruing	—		—
Total loans and loans held for sale 90 days past due and accruing	$	65,617	$	61,542
OREO	$	25,113	$	21,112
Other repossessed assets	$	9,540	$	7,587


(1)	TDR totals include accruing loans 90 days past due classified as TDR.

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Nonperforming assets, which include loans held for sale and purchased impaired loans, are detailed in the following table.

Table 7 Nonperforming Assets

	March 31, 2017		December 31, 2016
	(In Thousands)
Nonaccrual loans	$	825,988	$	921,042
Loans 90 days or more past due and accruing (1)	65,617		61,542
TDRs 90 days or more past due and accruing	1,185		589
Nonperforming loans	892,790		983,173
OREO	25,113		21,112
Other repossessed assets	9,540		7,587
Total nonperforming assets	$	927,443	$	1,011,872


(1)	Excludes loans classified as TDR.

Table 8 Asset Quality Ratios

	March 31, 2017		December 31, 2016
	(In Thousands)
Asset Quality Ratios:
Nonperforming loans and loans held for sale as a percentage of loans and loans held for sale (1)	1.49	%	1.63	%
Nonperforming assets as a percentage of total loans and loans held for sale, other real estate owned, and other repossessed assets (2)	1.55	%	1.68	%
Allowance for loan losses as a percentage of loans	1.40	%	1.40	%
Allowance for loan losses as a percentage of nonperforming loans (3)	93.43	%	90.47	%


(1)	Nonperforming loans include nonaccrual loans and loans held for sale (including nonaccrual loans classified as TDR), accruing loans 90 days past due and accruing TDRs 90 days past due.


(2)	Nonperforming assets include nonperforming loans, other real estate owned and other repossessed assets.


(3)	Nonperforming loans include nonaccrual loans (including nonaccrual loans classified as TDR), accruing loans 90 days past due and accruing TDRs 90 days past due.

The following table provides a rollforward of nonaccrual loans and loans held for sale, excluding covered loans.

Table 9 Rollforward of Nonaccrual Loans

	Three Months Ended March 31,
	2017			2016
	(In Thousands)
Balance at beginning of period,	$	920,312		$	406,911
Additions	163,417			497,717
Returns to accrual	(17,398		)	(8,987		)
Loan sales	(98,772		)	—
Payments and paydowns	(28,468		)	(5,340		)
Transfers to OREO	(11,325		)	(5,312		)
Charge-offs	(102,188		)	(66,648		)
Balance at end of period	$	825,578		$	818,341

When borrowers are experiencing financial difficulties, the Company, in order to assist the borrowers in repaying the principal and interest owed to the Company, may make certain modifications to the loan agreement. To facilitate this process, a concessionary modification that would not otherwise be considered may be granted resulting in a classification of the loan as a TDR. Within each of the Company’s loan classes, TDRs typically involve modification of the loan interest rate to a below market rate or an extension or deferment of the loan term. The financial effects of

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TDRs are reflected in the components that comprise the allowance for loan losses in either the amount of charge-offs or loan loss provision and period-end allowance levels. All TDRs are considered to be impaired loans. Refer to Note 4, Loans and Allowance for Loan Losses, in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

The following table provides a rollforward of TDR activity, excluding covered loans and loans held for sale.

Table 10 Rollforward of TDR Activity

	Three Months Ended March 31,
	2017			2016
	(In Thousands)
Balance at beginning period	$	213,868		$	227,817
New TDRs	84,684			8,862
Payments/Payoffs	(12,642		)	(37,663		)
Charge-offs	(3,520		)	(704		)
Loan sales	—			—
Transfer to OREO	(306		)	(151		)
Balance at end of period	$	282,084		$	198,161

The Company’s aggregate recorded investment in impaired loans modified through TDRs excluding covered loans increased to $282 million at March 31, 2017 from $214 million at December 31, 2016. Included in these amounts are $130 million at March 31, 2017 and $111 million at December 31, 2016 of accruing TDRs, excluding covered loans. Accruing TDRs are not considered nonperforming because they are performing in accordance with the restructured terms.

Allowance for Loan Losses

Management’s policy is to maintain the allowance for loan losses at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. See Note 4, Loans and Allowance for Loan Losses, in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional disclosures regarding the allowance for loan losses. The total allowance for loan losses decreased to $834 million at March 31, 2017, from $838 million at December 31, 2016. The ratio of the allowance for loan losses to total loans was 1.40% at both March 31, 2017 and December 31, 2016. Nonperforming loans were $893 million at March 31, 2017 compared to $983 million at December 31, 2016. The allowance attributable to individually impaired loans was $137 million at March 31, 2017 compared to $138 million at December 31, 2016. Loans individually evaluated for impairment may have no allowance recorded if the fair value of the collateral less costs to sell or the present value of the loan's expected future cash flows exceeds the recorded investment of the loan.

Net charge-offs were 0.57% of average loans for the three months ended March 31, 2017 compared to 0.35% of average loans for the three months ended March 31, 2016. The increase in net charge-offs for the three months ended March 31, 2017 as compared to the corresponding period in 2016 was driven in part by a $21.4 million increase in commercial, financial and agricultural net charge-offs as well as an $8.1 million increase in consumer direct net charge-offs. Commercial, financial and agricultural net charge-offs include $36.3 million of net charge-offs related to energy loans for the three months ended March 31, 2017 compared to $14.2 million of net charge-offs related to energy loans for the three months ended March 31, 2016.

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The following table sets forth information with respect to the Company’s loans, excluding loans held for sale, and the allowance for loan losses.

Table 11 Summary of Loan Loss Experience

	Three Months Ended March 31,
	2017			2016
	(Dollars in Thousands)
Average loans outstanding during the period	$	60,265,730		$	62,119,402
Allowance for loan losses, beginning of period	$	838,293		$	762,673
Charge-offs:
Commercial, financial and agricultural	42,908			19,806
Real estate – construction	9			241
Commercial real estate – mortgage	105			448
Residential real estate – mortgage	3,118			2,245
Equity lines of credit	1,926			3,128
Equity loans	1,294			828
Credit card	10,620			8,923
Consumer direct	18,400			9,808
Consumer indirect	23,808			21,222
Covered	—			249
Total charge-offs	102,188			66,898
Recoveries:
Commercial, financial and agricultural	3,497			1,749
Real estate – construction	66			543
Commercial real estate – mortgage	846			426
Residential real estate – mortgage	1,923			1,284
Equity lines of credit	760			913
Equity loans	446			222
Credit card	802			733
Consumer direct	1,582			1,097
Consumer indirect	7,909			6,453
Covered	31			—
Total recoveries	17,862			13,420
Net charge-offs	84,326			53,478
Total provision for loan losses	80,139			113,245
Allowance for loan losses, end of period	$	834,106		$	822,440
Net charge-offs to average loans	0.57		%	0.35		%

Concentrations

The following tables provide further details regarding the Company’s commercial, financial and agricultural, commercial real estate, residential real estate and consumer portfolio segments as of March 31, 2017 and December 31, 2016.

Commercial, Financial and Agricultural

In accordance with the Company's lending policy, each commercial loan undergoes a detailed underwriting process, which incorporates the Company's risk tolerance, credit policy and procedures. In addition, the Company has a graduated approval process which accounts for the quality, loan type and total exposure of the borrower. The Company has also adopted an internal exposure-based limit which is based on a variety of risk factors, including but not limited to the borrower industry.

The commercial, financial and agricultural portfolio segment totaled $24.7 billion at March 31, 2017, compared to $25.1 billion at December 31, 2016. This segment consists primarily of large national and international companies and small to mid-sized companies. This portfolio segment also contains owner occupied commercial real estate loans.

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Loans in this portfolio are generally underwritten individually and are secured with the assets of the company, and/or the personal guarantees of the business owners. The Company minimizes the risk associated with this portfolio segment by various means, including maintaining prudent advance rates, financial covenants, and obtaining personal guarantees from the principals of the borrower.

The following table provides details related to the commercial, financial, and agricultural portfolio segment.

Table 12 Commercial, Financial and Agricultural

	March 31, 2017								December 31, 2016
Industry	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Autos, Components and Durable Goods	$	659,404	$	17	$	—	$	—	$	616,304	$	40	$	—	$	57
Basic Materials	748,511		15,022		—		—		740,247		12,388		—		—
Capital Goods & Industrial Services	2,565,143		7,303		168		433		2,743,174		645		174		—
Construction & Infrastructure	570,710		35,777		22,979		3		584,864		33,992		29		—
Consumer & Healthcare	3,328,848		6,990		368		170		3,369,105		3,363		374		56
Energy	2,874,371		275,262		—		—		3,246,189		386,544		—		—
Financial Services	1,328,771		224		—		—		1,312,048		115		—		—
General Corporates	1,935,624		90,627		46		3,721		2,063,467		80,606		54		2,684
Institutions	2,702,244		1,486		7,872		78		2,517,455		1,650		7,868		74
Leisure	2,302,092		8,581		156		—		2,140,059		8,458		170		—
Retailers	2,675,453		27,770		—		—		2,558,574		30,460		—		—
Telecoms, Technology & Media	1,437,905		2,033		53		—		1,617,628		2,234		53		20
Transportation	787,748		44,689		—		—		842,487		11,384		—		—
Utilities	743,844		24,626		2		—		770,401		24,575		4		—
Total Commercial, Financial and Agricultural	$	24,660,668	$	540,407	$	31,644	$	4,405	$	25,122,002	$	596,454	$	8,726	$	2,891


(1)	December 31, 2016 data has been revised to conform to current period industry classifications, as the Company redefined industry classifications during the first quarter of 2017.

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The Company has been closely monitoring its energy sector lending portfolio which was negatively impacted by the lower level of oil prices which began in mid-2014. Total energy exposure, including unused commitments to extend credit and letters of credit was $7.9 billion and $8.1 billion at March 31, 2017 and December 31, 2016, respectively. As shown in Table 13, the Company's energy sector loan balances at March 31, 2017 were approximately $2.9 billion and represented 4.8% of the Company's total loans compared to $3.2 billion and 5.4% of the Company's total loans as of December 31, 2016. This amount is comprised of loans directly related to energy, such as exploration and production, pipeline transportation of natural gas, crude oil and other refined petroleum products, oil field services, and refining and support as detailed in the following table.

Table 13 Energy Portfolio

	March 31, 2017						December 31, 2016
	Recorded Investment		Total Commitment		Nonaccrual		Recorded Investment		Total Commitment		Nonaccrual
	(In Thousands)
Exploration and production	$	1,485,146	4,075,960		$	261,262	$	1,654,565	$	4,182,861	$	308,096
Midstream	1,070,490		3,163,821		11,298		1,199,844		3,230,513		11,298
Drilling oil and support services	193,863		398,824		2,393		263,770		467,908		66,811
Refineries and terminals	124,872		260,770		310		128,010		262,618		339
Other	—		—		—		—		—		—
Total energy portfolio	$	2,874,371	$	7,899,375	$	275,263	$	3,246,189	$	8,143,900	$	386,544



	March 31, 2017				December 31, 2016
	As a % of Energy Loans		As a % of Total Loans		As a % of Energy Loans		As a % of Total Loans
Exploration and production	51.7	%	2.5	%	51.0	%	2.8	%
Midstream	37.2		1.8		37.0		2.0
Drilling oil and support services	6.8		0.3		8.1		0.4
Refineries and terminals	4.3		0.2		3.9		0.2
Other	—		—		—		—
Total energy portfolio	100.0	%	4.8	%	100.0	%	5.4	%

The Company employs a variety of risk management strategies, including the use of concentration limits, underwriting standards and continuous monitoring. As of March 31, 2017, the Company has observed a decrease in total energy loans outstanding as well as a decrease in nonaccrual loans, as indicated in Table 13. The decrease in total exposure in the energy portfolio primarily reflected reduced borrowing bases resulting in a reduction in total commitments, while the decrease in recorded investment largely reflected energy customers taking actions to adjust their cash flows and reduce their levels of debt.

The overall level of loans rated special mention or lower, including loans classified as nonaccrual, in the energy portfolio at March 31, 2017 was 32.9%, comprised of 10.6% rated special mention and 22.3% rated substandard or lower. At December 31, 2016 the overall level of loans rated special mention or lower in the energy portfolio was 32.7%, comprised of 8.7% rated special mention and 24.0% rated substandard or lower.

Currently, the credit quality issues have mostly been isolated to the exploration and production subsector and the drilling oil and support services subsector, even though the latter represents a relatively small percentage of the portfolio. These subsectors are the subsectors most acutely impacted by pricing conditions. At March 31, 2017, approximately 81% of loans rated special mention or lower were in the exploration and production subsector. Within this subsector, many loans are secured and utilize borrowing base features linked to the physical commodity reserves and supported by engineering data. The borrowing bases are refreshed with updated information on a recurring basis. In the current

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pricing environment, the Company generally continues to see adequate collateral support of secured energy borrowers, including secured reserve based lines of credit for exploration and production borrowers. The Company's internal valuation methodologies involve independent engineering analysis of a borrower's reserve to calculate the present value of discounted cash flows that secure the loan. In doing so, the Company applies its oil and gas pricing policy, or when needed external market indices for oil and gas prices. Generally, the drilling oil and support services subsector also has a high risk for impact from the pricing environment since their operations are directly impacted by reduced spending by those in the exploration and production sector. However as noted in Table 13, the Company's exposure in this sector is limited.

For the three months ended March 31, 2017, charge-offs on energy loans were approximately $36.3 million compared to $14.2 million for the three months ended March 31, 2016. Charge-offs in this portfolio have remained low as the majority of classified energy portfolio loans remain well secured. However, if the current level of oil prices declines further, this energy-related portfolio may be subject to additional pressure on credit quality metrics including past due, criticized, and nonperforming loans, as well as net charge-offs. Through its ongoing portfolio credit quality assessment, the Company has and will continue to assess the impact to the allowance for loan losses and make adjustments as appropriate. As of March 31, 2017, the Company's allowance for loan losses attributable to the energy portfolio totaled approximately 3.5% of outstanding energy loans.

Commercial Real Estate

The commercial real estate portfolio segment includes the commercial real estate and real estate - construction loan portfolios. Commercial real estate loans totaled $11.4 billion and $11.2 billion at March 31, 2017 and December 31, 2016, respectively and real estate — construction loans totaled $2.2 billion at March 31, 2017, and $2.1 billion at December 31, 2016, respectively.

This portfolio segment consists primarily of extensions of credits to real estate developers and investors for the financing of land and buildings, whereby the repayment is generated from the sale of the real estate or the income generated by the real estate property. The Company attempts to minimize risk on commercial real estate properties by various means, including requiring collateral with values that exceed the loan amount, adequate cash flow to service the debt, and the personal guarantees of principals of the borrowers. In order to minimize risk on the construction portfolio, the Company has established an operations group outside of the lending staff which is responsible for loan disbursements during the construction process.

The following tables present the geographic distribution for the commercial real estate and real estate — construction portfolios.

Table 14 Commercial Real Estate

	March 31, 2017								December 31, 2016
State	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Alabama	$	437,493	$	2,677	$	2,496	$	—	$	493,199	$	1,853	$	2,513	$	—
Arizona	792,409		7,318		—		—		847,908		5,252		—		—
California	1,212,759		4,329		—		—		1,139,785		4,645		—		—
Colorado	448,896		6,468		—		—		436,640		6,902		—		—
Florida	994,912		8,616		127		—		912,874		7,262		134		—
New Mexico	165,667		5,877		131		4,602		174,911		6,354		132		—
Texas	3,484,665		47,830		1,138		—		3,576,090		33,043		1,152		—
Other	3,862,020		6,793		929		—		3,629,253		6,610		929		—
	$	11,398,821	$	89,908	$	4,821	$	4,602	$	11,210,660	$	71,921	$	4,860	$	—

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Table 15 Real Estate – Construction

	March 31, 2017								December 31, 2016
State	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Alabama	$	17,436	$	83	$	—	$	131	$	17,517	$	43	$	—	$	—
Arizona	116,209		—		—		1,208		94,191		—		—		—
California	263,142		—		—		—		246,094		—		—		—
Colorado	98,606		—		—		—		91,434		—		—		—
Florida	222,834		—		—		—		228,530		2		—		—
New Mexico	14,791		44		56		—		16,487		—		1,163		—
Texas	1,061,491		591		58		2,301		1,024,830		1,066		1,230		2,007
Other	432,896		310		—		—		406,233		128		—		—
	$	2,227,405	$	1,028	$	114	$	3,640	$	2,125,316	$	1,239	$	2,393	$	2,007

Residential Real Estate

The residential real estate portfolio includes residential real estate — mortgage loans, equity lines of credit and equity loans. The residential real estate portfolio primarily contains loans to individuals, which are secured by single-family residences. Loans of this type are generally smaller in size than commercial real estate loans and are geographically dispersed throughout the Company's market areas, with some guaranteed by government agencies or private mortgage insurers. Losses on residential real estate loans depend, to a large degree, on the level of interest rates, the unemployment rate, economic conditions and collateral values.

Residential real estate - mortgage loans totaled $13.1 billion and $13.3 billion at March 31, 2017 and December 31, 2016, respectively. Risks associated with residential real estate — mortgage loans are mitigated through rigorous underwriting procedures, collateral values established by independent appraisers and mortgage insurance. In addition, the collateral for this portfolio segment is concentrated in the Company's footprint as indicated in the table below.

Table 16 Residential Real Estate — Mortgage

	March 31, 2017								December 31, 2016
State	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Alabama	$	983,897	$	17,500	$	11,636	$	286	$	1,005,975	$	16,607	$	11,390	$	512
Arizona	1,251,701		9,272		9,400		329		1,270,521		11,831		9,901		412
California	2,910,191		13,036		3,175		71		2,929,393		16,258		2,164		429
Colorado	1,091,440		14,098		2,544		—		1,111,097		14,165		2,552		—
Florida	1,686,149		31,274		9,567		115		1,697,555		28,266		10,636		120
New Mexico	219,501		2,354		1,114		—		216,865		1,955		1,630		—
Texas	4,492,431		36,295		18,681		1,659		4,539,469		34,232		18,850		1,752
Other	482,466		16,513		2,750		193		489,119		16,989		2,770		131
	$	13,117,776	$	140,342	$	58,867	$	2,653	$	13,259,994	$	140,303	$	59,893	$	3,356

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The following table provides information related to refreshed FICO scores for the Company's residential real estate portfolio.

Table 17 Residential Real Estate - Mortgage

	March 31, 2017								December 31, 2016
FICO Score	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Below 621	$	674,883	$	90,220	$	16,250	$	1,676	$	664,660	$	91,262	$	14,831	$	2,111
621 – 680	1,234,695		20,989		15,655		611		1,279,658		21,507		16,854		825
681 – 720	1,994,951		7,648		12,535		66		1,980,276		6,288		13,921		37
Above 720	8,455,277		4,007		13,902		186		8,548,993		4,327		13,957		193
Unknown	757,970		17,478		525		114		786,407		16,919		330		190
	$	13,117,776	$	140,342	$	58,867	$	2,653	$	13,259,994	$	140,303	$	59,893	$	3,356

Equity lines of credit and equity loans totaled $3.0 billion at both March 31, 2017 and December 31, 2016. Losses in these portfolios generally track overall economic conditions. These loans are underwritten in accordance with the underwriting standards set forth in the Company's policy and procedures. The collateral for this portfolio segment is concentrated within the Company's footprint as indicated in the table below.

Table 18 Equity Loans and Lines

	March 31, 2017								December 31, 2016
State	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Alabama	$	557,763	$	8,475	$	11,180	$	400	$	566,990	$	8,380	$	11,338	$	932
Arizona	392,421		7,659		4,049		385		399,225		8,562		4,396		989
California	322,226		2,211		246		—		314,929		1,216		285		—
Colorado	190,069		3,886		1,396		—		192,517		3,802		1,388		86
Florida	379,931		8,711		7,400		285		382,853		9,195		7,375		583
New Mexico	52,673		1,658		588		59		53,491		2,087		600		—
Texas	1,050,170		11,232		8,374		645		1,040,395		12,309		8,997		704
Other	35,604		1,469		402		80		39,087		1,537		367		123
	$	2,980,857	$	45,301	$	33,635	$	1,854	$	2,989,487	$	47,088	$	34,746	$	3,417

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The following table provides information related to refreshed FICO scores for the Company's equity loans and lines.

Table 19 Equity Loans and Lines

	March 31, 2017								December 31, 2016
FICO Score	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Below 621	$	214,349	$	24,079	$	9,506	$	1,383	$	207,659	$	24,532	$	8,723	$	1,940
621 – 680	403,700		11,925		10,904		147		412,752		12,930		13,326		542
681 – 720	578,363		6,536		6,689		155		557,850		6,980		6,081		713
Above 720	1,771,682		2,576		6,353		147		1,798,151		2,466		6,430		222
Unknown	12,763		185		183		22		13,075		180		186		—
	$	2,980,857	$	45,301	$	33,635	$	1,854	$	2,989,487	$	47,088	$	34,746	$	3,417

Other Consumer

The Company also operates a consumer finance unit which purchases loan contracts for indirect automobile and other consumer financing. These loans are centrally underwritten using industry accepted tools and underwriting guidelines. The Company also originates credit card loans and other consumer direct loans that are centrally underwritten and sourced from the Company's branches or online. Total credit card, consumer direct and consumer indirect loans at March 31, 2017 were $5.0 billion, or 8.3% of the total loan portfolio compared to $5.0 billion, or 8.3% of the total loan portfolio at December 31, 2016.

Foreign Exposure

As of March 31, 2017, foreign exposure risk did not represent a significant concentration of the Company's total portfolio of loans and was substantially represented by borrowers domiciled in Mexico and foreign borrowers currently residing in the United States.

Funding Activities

Deposits are the primary source of funds for lending and investing activities and their cost is the largest category of interest expense. The Company also utilizes brokered deposits as a funding source in addition to customer deposits. Scheduled payments, as well as prepayments, and maturities from portfolios of loans and investment securities also provide a stable source of funds. FHLB advances, other secured borrowings, federal funds purchased, securities sold under agreements to repurchase and other short-term borrowed funds, as well as longer-term debt issued through the capital markets, all provide supplemental liquidity sources. The Company’s funding activities are monitored and governed through the Company’s asset/liability management process.

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At March 31, 2017, the Company's and the Bank's credit ratings were as follows:

Table 20 Credit Ratings

	As of March 31, 2017
	Standard & Poor’s	Moody’s	Fitch
BBVA Compass Bancshares, Inc.
Long-term debt rating	BBB+	Baa3	BBB+
Short-term debt rating	A-2	-	F2
Compass Bank
Long-term debt rating	BBB+	Baa3	BBB+
Long-term bank deposits (1)	N/A	A3	A-
Subordinated debt	BBB	Baa3	BBB-
Short-term debt rating	A-2	P-3	F2
Short-term deposit rating (2)	N/A	P-2	F2
Outlook	Stable	Stable	Stable

(1) S&P does not provide a rating for long-term bank deposits; therefore, the rating is N/A.

(2) S&P does not provide a short-term deposit rating; therefore, the rating is N/A.

The cost and availability of financing to the Company and the Bank are impacted by its credit ratings. A downgrade to the Company’s or Bank’s credit ratings could affect its ability to access the credit markets and increase its borrowing costs, thereby adversely impacting the Company’s financial condition and liquidity. Key factors in maintaining high credit ratings include a stable and diverse earnings stream, strong credit quality, strong capital ratios and diverse funding sources, in addition to disciplined liquidity monitoring procedures. See the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 for additional information.

A security rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal by the assigning rating agency. Each rating should be evaluated independently of any other rating.

Deposits

Total deposits increased by $250 million from December 31, 2016 to March 31, 2017. At March 31, 2017 and December 31, 2016, total deposits included $6.3 billion and $5.8 billion of brokered deposits, respectively. The following table presents the Company’s deposits segregated by major category:

Table 21 Composition of Deposits

	March 31, 2017				December 31, 2016
	Balance		% of Total		Balance		% of Total
	(Dollars in Thousands)
Noninterest-bearing demand deposits	$	21,476,890	31.8	%	$	20,332,792	30.2	%
Interest-bearing demand deposits	8,581,291		12.7		8,188,868		12.2
Savings and money market	25,397,264		37.6		25,330,003		37.6
Time deposits	12,074,193		17.9		13,427,870		20.0
Total deposits	$	67,529,638	100.0	%	$	67,279,533	100.0	%

Total deposits increased from December 31, 2016 to March 31, 2017 primarily due to growth in noninterest bearing demand deposits, interest-bearing demand deposits and savings and money market deposits primarily due to seasonality. Offsetting this increase was a decrease in time deposits driven by higher maturity levels of time deposits.

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Borrowed Funds

In addition to internal deposit generation, the Company also relies on borrowed funds as a supplemental source of funding. Borrowed funds consist of short-term borrowings, FHLB advances, subordinated debentures and other long-term borrowings.

Short-term borrowings are primarily in the form of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings.

The short-term borrowings table presents the distribution of the Company’s short-term borrowed funds and the corresponding weighted average interest rates. Also provided are the maximum outstanding amounts of borrowings, the average amounts of borrowings and the average interest rates at period-end.

Table 22 Short-Term Borrowings

	Maximum Outstanding at Any Month End		Average Balance		Average Interest Rate		Ending Balance		Average Interest Rate at Period End
	(Dollars in Thousands)
Balance at March 31, 2017
Federal funds purchased	$	—	$	304	—	%	$	—	—	%
Securities sold under agreements to repurchase	71,559		42,551		0.68		71,559		0.82
Other short-term borrowings	2,721,539		2,707,802		1.51		2,642,539		1.54
	$	2,793,098	$	2,750,657			$	2,714,098
Balance at December 31, 2016
Federal funds purchased	$	766,095	$	372,355	0.49	%	$	12,885	0.39	%
Securities sold under agreements to repurchase	148,291		79,625		0.49		26,167		0.55
Other short-term borrowings	4,497,354		3,778,752		1.44		2,802,977		1.68
	$	5,411,740	$	4,230,732			$	2,842,029

At both March 31, 2017 and December 31, 2016, FHLB and other borrowings were $3.0 billion, respectively. For the three months ended March 31, 2017, the Company had $1.2 billion of proceeds received from FHLB and other borrowings and repayments were approximately $1.2 billion.

Shareholder’s Equity

Total shareholder's equity was $12.9 billion at March 31, 2017 compared to $12.8 billion at December 31, 2016, an increase of $135 million. Shareholder's equity increased $120 million due to earnings attributable to the Company during the period offset by the payment of preferred dividends totaling $3.5 million.

Risk Management

In the normal course of business, the Company encounters inherent risk in its business activities. The Company’s risk management approach includes processes for identifying, assessing, managing, monitoring and reporting risks. Management has grouped the risks facing its operations into the following categories: credit risk, structural interest rate, market and liquidity risk, operational risk, strategic and business risk, cyber risk and reputational risk. Each of these risks is managed through the Company’s ERM program. The ERM program provides the structure and framework necessary to identify, measure, control and manage risk across the organization. ERM is the cornerstone for defining risk tolerance, identifying and monitoring key risk indicators, managing capital and integrating the Company’s capital planning process with on-going risk assessments and related stress testing for major risks.

Market Risk Management

The effective management of market risk is essential to achieving the Company’s strategic financial objectives. As a financial institution, the Company’s most significant market risk exposure is interest rate risk in its balance sheet;

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however, market risk also includes product liquidity risk, price risk and volatility risk in the Company’s lines of business. The primary objectives of market risk management are to minimize any adverse effect that changes in market risk factors may have on net interest income, and to offset the risk of price changes for certain assets recorded at fair value.

Interest Rate Market Risk

The Company’s net interest income and the fair value of its financial instruments are influenced by changes in the level of interest rates. The Company manages its exposure to fluctuations in interest rates through policies established by its Asset/Liability Committee. The Asset/Liability Committee meets regularly and has responsibility for approving asset/liability management policies, formulating strategies to improve balance sheet positioning and/or earnings and reviewing the interest rate sensitivity of the Company.

Management utilizes an interest rate simulation model to estimate the sensitivity of the Company’s net interest income to changes in interest rates. Such estimates are based upon a number of assumptions for each scenario, including the level of balance sheet growth, deposit repricing characteristics and the rate of prepayments.

The estimated impact on the Company’s net interest income sensitivity over a one-year time horizon at March 31, 2017, is shown in the table below. Such analysis assumes a gradual and sustained parallel shift in interest rates, expectations of balance sheet growth and composition and the Company’s estimate of how interest-bearing transaction accounts would reprice in each scenario using current yield curves at March 31, 2017.

Table 23 Net Interest Income Sensitivity

	Estimated % Change in Net Interest Income
	March 31, 2017
Rate Change
+ 200 basis points	8.26	%
+ 100 basis points	4.20
- 50 basis points	(1.96	)

The following table shows the effect that the indicated changes in interest rates would have on EVE. Inherent in this calculation are many assumptions used to project lifetime cash flows for every item on the balance sheet that may or may not be realized, such as deposit decay rates, prepayment speeds and spread assumptions. This measurement only values existing business without consideration of new business or potential management actions.

Table 24 Economic Value of Equity

	Estimated % Change in Economic Value of Equity
	March 31, 2017
Rate Change
+ 300 basis points	(5.46)	%
+ 200 basis points	(3.37	)
+ 100 basis points	(1.48	)
- 50 basis points	0.32

The Company is also subject to trading risk. The Company utilizes various tools to measure and manage price risk in its trading portfolios. In addition, the Board of Directors of the Company has established certain limits relative to positions and activities. The level of price risk exposure at any given point in time depends on the market environment and expectation of future price and market movements, and will vary from period to period.

Derivatives

The Company uses derivatives primarily to manage economic risks related to commercial loans, mortgage banking operations, long-term debt and other funding sources. The Company also uses derivatives to facilitate transactions on behalf of its clients. As of March 31, 2017, the Company had derivative financial instruments outstanding with notional amounts of $43.8 billion. The estimated net fair value of open contracts was in an asset position of $41 million at

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March 31, 2017. For additional information about derivatives, refer to Note 6, Derivatives and Hedging, in the Notes to the Unaudited Condensed Consolidated Financial Statements.

Liquidity Management

Liquidity is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the Company’s ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves.

The Company regularly assesses liquidity needs under various scenarios of market conditions, asset growth and changes in credit ratings. The assessment includes liquidity stress testing which measures various sources and uses of funds under the different scenarios. The assessment provides regular monitoring of unused borrowing capacity and available sources of contingent liquidity to prepare for unexpected liquidity needs and to cover unanticipated events that could affect liquidity.

The asset portion of the balance sheet provides liquidity primarily through unencumbered securities available for sale, loan principal and interest payments, maturities and prepayments of investment securities held to maturity and, to a lesser extent, sales of investment securities available for sale and trading account assets. Other short-term investments such as federal funds sold, and securities purchased under agreements to resell, are additional sources of liquidity.

The liability portion of the balance sheet provides liquidity through various customers’ interest-bearing and noninterest-bearing deposit accounts and through FHLB and other borrowings. Brokered deposits, federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings as well as excess borrowing capacity with the FHLB and access to the debt capital markets are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs.

In addition to the Company’s financial performance and condition, liquidity may be impacted by the Parent’s structure as a bank holding company that is a separate legal entity from the Bank. The Parent requires cash for various operating needs including payment of dividends to its shareholder, the servicing of debt, and the payment of general corporate expenses. The primary source of liquidity for the Parent is dividends paid by the Bank. Applicable federal and state statutes and regulations impose restrictions on the amount of dividends that may be paid by the Bank. In addition to the formal statutes and regulations, regulatory authorities also consider the adequacy of the Bank’s total capital in relation to its assets, deposits and other such items. Due to the net earnings restrictions on dividend distributions under Alabama law, the Bank was not permitted to pay dividends at March 31, 2017 or December 31, 2016 without regulatory approval. Appropriate limits and guidelines are in place to ensure the Parent has sufficient cash to meet operating expenses and other commitments without relying on subsidiaries or capital markets for funding. Any future dividends paid from the Parent must be set forth as capital actions in the Company's capital plans and not objected to by the Federal Reserve Board.

The Company’s ability to raise funding at competitive prices is affected by the rating agencies’ views of the Company’s credit quality, liquidity, capital and earnings. Management meets with the rating agencies on a routine basis to discuss the current outlook for the Company.

In 2014, the Federal Reserve Board, the OCC, and the FDIC approved a final rule implementing a minimum liquidity coverage ratio requirement for certain large bank holding companies, savings and loan holding companies and depository institutions, and a less stringent LCR requirement for other banking organizations, such as the Company, with $50 billion or more in total consolidated assets. The final rule imposes a monthly reporting requirement. As of January 2017, the LCR requirement was 100 percent. At March 31, 2017, the Company was fully compliant with the LCR requirements in effect for 2017. However, should the Company's cash position or investment mix change in the future, the Company's ability to meet the LCR requirement may be impacted.

Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth.

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Capital

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking regulators. Failure to meet minimum risk-based and leverage capital requirements can subject the Company and the Bank to a series of increasingly restrictive regulatory actions.

The following table sets forth the Company's U.S. Basel III regulatory capital ratios subject to transitional provisions at March 31, 2017 and December 31, 2016.

Table 25 Capital Ratios

	March 31, 2017			December 31, 2016
	(Dollars in Thousands)
Capital:
CET1 Capital	$	7,783,911		$	7,669,118
Tier 1 Capital	8,017,836			7,907,518
Total Capital	9,609,963			9,550,482
Ratios:
CET1 Risk-based Capital Ratio	11.77		%	11.49		%
Tier 1 Risk-based Capital Ratio	12.12			11.85
Total Risk-based Capital Ratio	14.53			14.31
Leverage Ratio	9.68			9.46

At March 31, 2017, the regulatory capital ratios of the Bank exceeded the “well-capitalized” standard for banks based on applicable U.S. regulatory capital requirements. The Company continually monitors these ratios to ensure that the Bank exceeds this standard.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Refer to “Market Risk Management” in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, herein.

Item 4. Controls and Procedures

Disclosure Controls and Procedures.

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.

Changes In Internal Control Over Financial Reporting.

There have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II OTHER INFORMATION


Item 1.	Legal Proceedings

See under “Legal and Regulatory Proceedings” in Note 8, Commitments, Contingencies and Guarantees, of the Notes to the Unaudited Condensed Consolidated Financial Statements.


Item 1A.	Risk Factors

Various risk and uncertainties could affect the Company's business. These risks are described elsewhere in this report and the Company's other filings with the SEC, including the Company's Annual Report on Form 10-K for the year-ended December 31, 2016.

There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year-ended December 31, 2016.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Omitted pursuant to General Instruction H of Form 10-Q.


Item 3.	Defaults Upon Senior Securities

Omitted pursuant to General Instruction H of Form 10-Q.


Item 4.	Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act

The Company discloses the following information pursuant to Section 13(r) of the Exchange Act, which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified executive orders, including activities not prohibited by U.S. law and conducted outside the United States by non-U.S. affiliates in compliance with local law. In order to comply with this requirement, the Company has requested relevant information from its affiliates globally.

The Company has not knowingly engaged in activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under the specified executive orders.

Because the Company is controlled by BBVA, a Spanish corporation, the Company's disclosure includes activities, transactions or dealings conducted outside the United States by non-U.S. affiliates of BBVA and its consolidated subsidiaries that are not controlled by the Company. The BBVA Group has the following activities, transactions and dealings with Iran requiring disclosure.

Legacy contractual obligations related to counter indemnities. Before 2007, the BBVA Group issued certain counter indemnities to its non-Iranian customers in Europe for various business activities relating to Iran in support of guarantees provided by Bank Melli, one of which remained outstanding during the three months ended March 31, 2017. For the three months ended March 31, 2017, no fees and/or commissions have been recorded in connection with these counter indemnities. In addition, during this period the BBVA Group incurred in cancellation expenses of $138.8 in respect of a counter guarantee which was cancelled on March 23, 2016. In accordance with Council Regulation (EU) Nr. 267/2012 of March 23, 2012, any payments of amounts due to Bank Melli under these counter indemnities were initially blocked and thereafter released upon authorization by the relevant Spanish authorities. The BBVA Group is committed to terminating the outstanding counter indemnity as soon as contractually possible and does not intend to enter into new business relationships involving Bank Melli.

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Iranian embassy-related activity. The BBVA Group maintains bank accounts in Spain for two employees of the Iranian embassy in Spain. The two employees are Spanish citizens, and one of them retired in 2015. Estimated gross revenues for the three months ended March 31, 2017, from embassy-related activity, which include fees and/or commissions, did not exceed $328. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure. The BBVA Group is committed to terminating these business relationships as soon as legally possible.

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Item 6.	Exhibits



Exhibit Number	Description of Documents

3.1	Restated Certificate of Formation of BBVA Compass Bancshares, Inc., (incorporated herein by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed with the Commission on April 13, 2015 File No. 0-55106 and as amended by the Certificate of Preferences and Rights of the Floating Non-Cumulative Perpetual Preferred Stock, Series A incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on December 3, 2015, File No. 0-55106).
3.2	Bylaws of BBVA Compass Bancshares, Inc. (incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement on Form 10 filed with the Commission on November 22, 2013, File No. 0-55106).
31.1	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1	Interactive Data File.

Certain instruments defining rights of holders of long-term debt of the Company and its subsidiaries constituting less than 10% of the Company’s total assets are not filed herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. At the SEC’s request, the Company agrees to furnish the SEC a copy of any such agreement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date: May 9, 2017	BBVA Compass Bancshares, Inc.
	By:	/s/ Kirk P. Pressley
		Name:	Kirk P. Pressley
		Title:	Senior Executive Vice President, Chief Financial Officer and Duly Authorized Officer

BBVA USA Bancshares, Inc. - FORM 10-Q - May 9, 2017

Attached files

BBVA USA Bancshares, Inc. Reports