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 ~~September~~June 30, ~~2017~~2020



¨	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~~USA 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)
	Not Applicable
(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

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 ~~October 31, 2017~~July 24, 2020
Common Stock (par value $0.01 per share)		~~222,950,751~~222,963,891 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.

TABLE OF CONTENTS



		Page

Part I	Financial Information
Item 1.	Financial Statements (Unaudited)	7
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019	7
	Condensed Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	8
	Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	9
	Condensed Consolidated Statements of Shareholder's Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	10
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	11
	Notes to the Unaudited Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6163
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	8893
Item 4.	Controls and Procedures	8893

Part II	Other Information
Item 1.	Legal Proceedings	9094
Item 1A.	Risk Factors	9094
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9095
Item 3.	Defaults Upon Senior Securities	9095
Item 4.	Mine Safety Disclosures	9095
Item 5.	Other Information	9095
Item 6.	Exhibits	9296
Signatures		9397

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
ASC 326	ASU 2016-13, Financial Instruments - Credit Losses
ASU	Accounting Standards Update
Basel III	Global regulatory framework developed by the Basel Committee on Banking Supervision
Bank	~~Compass Bank~~BBVA USA
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~~USA 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
FHC	Financial holding company
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
IHC	Top-tier U.S. intermediate holding company
Large FBO	Foreign Banking Organization with $100 billion or more in global total consolidated assets
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~~ OIS	~~Other-Than-Temporary Impairment~~


	Overnight Index Swap
Parent	BBVA ~~Compass~~USA 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
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
SOFR	Secured Overnight Financing Rate
S&P	Standard and Poor's Rating Services
Tailoring Rules	Rules adopted by the Federal Reserve Board on October 10, 2019 that adjust the thresholds at which certain enhanced prudential standards apply to bank holding companies and rules adopted jointly by the Federal Reserve Board, OCC and FDIC that adjust the thresholds at which certain capital and liquidity requirements apply to bank holding companies.
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.

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

~~weakness~~the COVID-19 pandemic may continue to have an adverse impact on the Company's business and financial results;

decline in ~~the~~ real estate ~~market, including the secondary residential mortgage market, which can affect, among other things,~~values or overall economic weakness could also have an adverse impact upon the value of ~~collateral securing mortgage loans, mortgage~~real estate or other assets which the Company owns as a result of foreclosing a loan ~~originations~~ and ~~delinquencies, and profits~~its ability to realize value on ~~sales of mortgage loans;~~such assets;

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

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

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;

ifa failure by the ~~Bank's CRA rating were~~Company to ~~decline, that could result~~effectively manage the risks the Company faces, including credit, operational and cyber security risks;

failure to control concentration risk such as loan type, industry segment, borrower type or location of the borrower or collateral;

changes in ~~certain restrictions on~~the creditworthiness of customers;

downgrades to the Company's ~~activities;~~credit ratings;

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

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

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

increased loan losses or impairment of goodwill;

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

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'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;~~

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~~Company's dependence on the accuracy and completeness of ~~the borrower or collateral;~~information about clients and counterparties;

changes in the ~~creditworthiness of customers;~~

~~increased loan losses~~Company's accounting policies or ~~impairment of goodwill and other intangibles;~~

~~potential changes~~ in ~~interchange fees;~~

~~negative public opinion,~~accounting standards which could ~~damage~~materially affect how the ~~Company's reputation~~Company reports financial results and ~~adversely impact business and revenues;~~condition;

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.~~strategies.

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.

PART I FINANCIAL INFORMATION


Item 1.	Financial Statements (Unaudited)

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

	September 30, 2017			December 31, 2016			June 30, 2020			December 31, 2019
	(In Thousands)						(In Thousands)
Assets:
Cash and due from banks	$	1,145,745		$	1,284,261		$	1,019,127		$	1,149,734
Interest bearing funds with the Federal Reserve	2,400,533			1,830,078
Federal funds sold, securities purchased under agreements to resell and interest bearing deposits	188,380			137,447			11,738,063			5,788,964
Cash and cash equivalents	3,734,658			3,251,786			12,757,190			6,938,698
Trading account assets	572,104			3,144,600			1,016,966			473,976
Investment securities available for sale	12,268,309			11,665,055
Investment securities held to maturity (fair value of $1,067,919 and $1,182,009 at September 30, 2017 and December 31, 2016, respectively)	1,077,372			1,203,217
Loans held for sale, (includes $77,783 and $105,257 measured at fair value for September 30, 2017 and December 31, 2016, respectively)	77,783			161,849
Debt securities available for sale							5,765,192			7,235,305
Debt securities held to maturity, net of allowance for debt securities held to maturity losses of $15,017 at June 30, 2020 (fair value of $9,078,298 and $6,921,158 at June 30, 2020 and December 31, 2019, respectively)							8,693,437			6,797,046
Loans held for sale, at fair value							245,851			112,058
Loans	60,315,204			60,061,263			68,241,500			63,946,857
Allowance for loan losses	(849,119		)	(838,293		)	(1,754,352		)	(920,993		)
Net loans	59,466,085			59,222,970			66,487,148			63,025,864
Premises and equipment, net	1,226,747			1,300,054			1,070,358			1,087,698
Bank owned life insurance	720,693			711,939			754,908			750,224
Goodwill	4,983,296			4,983,296			2,328,296			4,513,296
Other assets	1,556,613			1,435,187			3,148,270			2,669,182
Total assets	$	85,683,660		$	87,079,953		$	102,267,616		$	93,603,347
Liabilities:
Deposits:
Noninterest bearing	$	21,094,235		$	20,332,792		$	25,978,354		$	21,850,216
Interest bearing	46,119,332			46,946,741			59,448,060			53,135,067
Total deposits	67,213,567			67,279,533			85,426,414			74,985,283
FHLB and other borrowings	3,956,041			3,001,551			3,571,933			3,690,044
Federal funds purchased and securities sold under agreements to repurchase	44,761			39,052			249,481			173,028
Other short-term borrowings	327,539			2,802,977			1,619			—
Accrued expenses and other liabilities	1,025,849			1,206,133			1,747,380			1,368,403
Total liabilities	72,567,757			74,329,246			90,996,827			80,216,758
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 September 30, 2017 and December 31, 2016	229,475			229,475
Issued — 1,150 shares at both June 30, 2020 and December 31, 2019							229,475			229,475
Common stock — $0.01 par value:
Authorized — 300,000,000 shares
Issued — 222,950,751 shares at both September 30, 2017 and December 31, 2016	2,230			2,230
Issued — 222,963,891 shares at both June 30, 2020 and December 31, 2019							2,230			2,230
Surplus	14,912,412			14,985,673			14,035,607			14,043,727
Accumulated deficit	(1,920,184		)	(2,327,440		)	(3,430,135		)	(917,227		)
Accumulated other comprehensive loss	(137,583		)	(168,252		)
Total BBVA Compass Bancshares, Inc. shareholder’s equity	13,086,350			12,721,686
Accumulated other comprehensive income (loss)							404,165			(1,072		)
Total BBVA USA Bancshares, Inc. shareholder’s equity							11,241,342			13,357,133
Noncontrolling interests	29,553			29,021			29,447			29,456
Total shareholder’s equity	13,115,903			12,750,707			11,270,789			13,386,589
Total liabilities and shareholder’s equity	$	85,683,660		$	87,079,953		$	102,267,616		$	93,603,347

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016		2017		2016		2020			2019		2020			2019
	(In Thousands)								(In Thousands)
Interest income:
Interest and fees on loans	$	623,884	$	557,996	$	1,805,971	$	1,678,249	$	669,767		$	787,767	$	1,385,243		$	1,588,255
Interest on investment securities available for sale	53,930		48,382		164,398		131,021
Interest on investment securities held to maturity	6,994		6,675		20,454		20,229
Interest on federal funds sold, securities purchased under agreements to resell and interest bearing deposits	11,557		4,563		32,868		13,275
Interest on debt securities available for sale									18,805			45,125		17,313			98,647
Interest on debt securities held to maturity									39,800			33,313		80,902			62,808
Interest on trading account assets	6,247		12,926		26,349		40,659		1,157			601		2,279			1,140
Interest and dividends on other earning assets									14,016			35,823		56,191			58,791
Total interest income	702,612		630,542		2,050,040		1,883,433		743,545			902,629		1,541,928			1,809,641
Interest expense:
Interest on deposits	75,083		76,031		211,301		230,779		97,279			202,478		262,021			384,832
Interest on FHLB and other borrowings	29,904		21,315		71,422		58,919		21,936			34,300		43,112			71,926
Interest on federal funds purchased and securities sold under agreements to repurchase	4,623		4,934		16,462		16,525		12,274			6,002		34,932			9,749
Interest on other short-term borrowings	3,641		13,453		24,233		41,281		39			100		391			296
Total interest expense	113,251		115,733		323,418		347,504		131,528			242,880		340,456			466,803
Net interest income	589,361		514,809		1,726,622		1,535,929		612,017			659,749		1,201,472			1,342,838
Provision for loan losses	103,434		65,107		228,858		265,025
Net interest income after provision for loan losses	485,927		449,702		1,497,764		1,270,904
Total provision for credit losses									539,459			155,018		896,450			337,310
Net interest income after provision for credit losses									72,558			504,731		305,022			1,005,528
Noninterest income:
Service charges on deposit accounts	55,953		55,047		166,040		158,393		44,233			61,731		105,764			120,639
Card and merchant processing fees	32,297		31,256		94,749		92,507		43,416			50,355		93,507			96,357
Retail investment sales	26,817		30,137		82,876		79,689
Investment banking and advisory fees	30,500		34,385		78,744		86,324		45,061			20,758		71,792			39,615
Investment services sales fees									24,971			31,333		59,378			58,029
Money transfer income	24,881		25,058		77,408		75,960		25,461			25,272		50,009			47,253
Mortgage banking									23,868			5,870		41,319			10,807
Corporate and correspondent investment sales									18,855			5,607		29,572			12,499
Asset management fees	10,336		8,778		30,162		25,969		11,560			11,867		23,464			22,634
Corporate and correspondent investment sales	5,145		6,974		26,249		21,490
Mortgage banking	3,450		8,242		9,636		5,410
Bank owned life insurance	4,322		4,170		12,711		13,041		5,094			4,803		9,719			9,387
Investment securities gains, net	3,033		—		3,033		30,037		3,477			—		22,616			8,958
Other	61,060		59,718		167,198		206,396		26,358			66,685		99,456			115,863
Total noninterest income	257,794		263,765		748,806		795,216		272,354			284,281		606,596			542,041
Noninterest expense:
Salaries, benefits and commissions	279,384		279,132		835,825		836,067		251,697			296,303		561,833			589,019
Professional services									78,100			73,784		148,320			137,680
Equipment	60,656		59,697		184,691		179,646		64,752			62,638		129,433			128,032
Professional services	64,775		63,628		187,422		178,396
Net occupancy	42,227		41,610		125,568		120,881		41,585			40,116		81,428			81,057
Money transfer expense	15,938		16,680		50,069		50,048		17,958			17,290		35,094			32,268
Amortization of intangibles	2,525		4,093		7,575		12,280
Securities impairment:
Other-than-temporary impairment	—		—		242		281
Less: non-credit portion recognized in other comprehensive income	—		—		—		151
Total securities impairment	—		—		242		130
Goodwill impairment									—			—		2,185,000			—
Other	108,457		91,431		304,367		312,004		125,358			108,183		247,402			212,231
Total noninterest expense	573,962		556,271		1,695,759		1,689,452		579,450			598,314		3,388,510			1,180,287
Net income before income tax expense	169,759		157,196		550,811		376,668
Income tax expense	39,308		36,845		142,097		94,548
Net income	130,451		120,351		408,714		282,120
Net (loss) income before income tax (benefit) expense									(234,538		)	190,698		(2,476,892		)	367,282
Income tax (benefit) expense									(110,101		)	30,512		(115,170		)	66,115
Net (loss) income									(124,437		)	160,186		(2,361,722		)	301,167
Less: net income attributable to noncontrolling interests	584		523		1,458		1,569		472			599		973			1,155
Net income attributable to BBVA Compass Bancshares, Inc.	129,867		119,828		407,256		280,551
Net (loss) income attributable to BBVA USA Bancshares, Inc.									(124,909		)	159,587		(2,362,695		)	300,012
Less: preferred stock dividends	3,786		3,476		11,034		10,148		3,965			4,725		8,120			9,210
Net income attributable to common shareholder	$	126,081	$	116,352	$	396,222	$	270,403
Net (loss) income attributable to common shareholder									$	(128,874	)	$	154,862	$	(2,370,815	)	$	290,802

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In Thousands)
Net income $ 130,451
$ 120,351
$ 408,714
$ 282,120
Other comprehensive income, net of tax:
Net unrealized holding (losses) gains arising during period from securities available for sale (646 ) (26,076 ) 38,919
65,592
Less: reclassification adjustment for net gains on sale of securities available for sale in net income 1,911
—
1,911
19,035
Net change in net unrealized holding (losses) gains on securities available for sale (2,557 ) (26,076 ) 37,008
46,557
Change in unamortized net holding losses on investment securities held to maturity 999
1,168
2,540
2,924
Less: non-credit related impairment on investment securities held to maturity —
—
—
96
Change in unamortized non-credit related impairment on investment securities held to maturity 251
225
778
648
Net change in unamortized holding losses on securities held to maturity 1,250
1,393
3,318
3,476
Unrealized holding gains (losses) arising during period from cash flow hedge instruments 855
(1,461 ) (9,172 ) 1,728
Change in defined benefit plans —
—
(485 ) 931
Other comprehensive (loss) income, net of tax (452 ) (26,144 ) 30,669
52,692
Comprehensive income 129,999
94,207
439,383
334,812
Less: comprehensive income attributable to noncontrolling interests 584
523
1,458
1,569
Comprehensive income attributable to BBVA Compass Bancshares, Inc. $ 129,415
$ 93,684
$ 437,925
$ 333,243

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
	(In Thousands)
Net (loss) income	$	(124,437	)	$	160,186	$	(2,361,722	)	$	301,167
Other comprehensive income, net of tax:
Net unrealized gains arising during period from debt securities available for sale	31,715			85,704		131,414			137,404
Less: reclassification adjustment for net gains on sale of debt securities available for sale in net income	2,648			—		17,220			6,834
Net change in net unrealized holding gains on debt securities available for sale	29,067			85,704		114,194			130,570
Change in unamortized net holding gains on debt securities held to maturity	1,705			1,939		3,280			3,682
Less: non-credit related impairment on debt securities held to maturity	—			82		—			82
Change in unamortized non-credit related impairment on debt securities held to maturity	121			132		239			500
Net change in unamortized holding gains on debt securities held to maturity	1,826			1,989		3,519			4,100
Unrealized holding gains arising during period from cash flow hedge instruments	10,933			73,950		285,770			98,003
Change in defined benefit plans	—			—		1,754			3,119
Other comprehensive income, net of tax	41,826			161,643		405,237			235,792
Comprehensive (loss) income	(82,611		)	321,829		(1,956,485		)	536,959
Less: comprehensive income attributable to noncontrolling interests	472			599		973			1,155
Comprehensive (loss) income attributable to BBVA USA Bancshares, Inc.	$	(83,083	)	$	321,230	$	(1,957,458	)	$	535,804

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (Unaudited)
BBVA USA BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (Unaudited)																				BBVA USA 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			Preferred Stock		Common Stock		Surplus			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non-Controlling Interests			Total Shareholder’s Equity
	(In Thousands)																			(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	—		—		—			280,551			—			1,569			282,120
Other comprehensive income, net of tax	—		—		—			—			52,692			—			52,692
Preferred stock dividends	—		—		(10,148		)	—			—			(1,037		)	(11,185		)
Common stock dividends	—		—		(60,000		)	—			—			—			(60,000		)
Dividend to BBVA Bancomer USA, Inc.	—		—		(69,151		)	—			—			—			(69,151		)
Capital contribution	—		—		—			—			—			36			36
Vesting of restricted stock	—		—		(1,527		)	—			—			—			(1,527		)
Restricted stock retained to cover taxes	—		—		(545		)	—			—			—			(545		)
Restricted stock tax deficiency	—		—		(468		)	—			—			—			(468		)
Amortization of stock-based deferred compensation	—		—		2,509			—			—			—			2,509
Balance, September 30, 2016	$	229,475	$	2,230	$	15,020,937		$	(2,416,402	)	$	(46,644	)	$	29,594		$	12,819,190

Balance, December 31, 2016	$	229,475	$	2,230	$	14,985,673		$	(2,327,440	)	$	(168,252	)	$	29,021		$	12,750,707
Three Months Ended June 30,
Balance, March 31, 2019																				$	229,475	$	2,230	$	14,542,166		$	(927,877	)	$	(148,135	)	$	29,678		$	13,727,537
Net income	—		—		—			407,256			—			1,458			408,714			—		—		—			159,587			—			599			160,186
Other comprehensive income, net of tax	—		—		—			—			30,669			—			30,669			—		—		—			—			161,643			—			161,643
Preferred stock dividends	—		—		(11,034		)	—			—			(1,037		)	(12,071		)	—		—		(4,725		)	—			—			(1,037		)	(5,762		)
Common stock dividends	—		—		(60,000		)	—			—			—			(60,000		)	—		—		(170,000		)	—			—			—			(170,000		)
Capital contribution	—		—		—			—			—			111			111			—		—		—			—			—			33			33
Vesting of restricted stock	—		—		(1,538		)	—			—			—			(1,538		)	—		—		(2,914		)	—			—			—			(2,914		)
Restricted stock retained to cover taxes	—		—		(689		)	—			—			—			(689		)
Balance, September 30, 2017	$	229,475	$	2,230	$	14,912,412		$	(1,920,184	)	$	(137,583	)	$	29,553		$	13,115,903
Balance, June 30, 2019																				$	229,475	$	2,230	$	14,364,527		$	(768,290	)	$	13,508		$	29,273		$	13,870,723

Balance, March 31, 2020																				$	229,475	$	2,230	$	14,039,572		$	(3,305,226	)	$	362,339		$	29,964		$	11,358,354
Net (loss) income																				—		—		—			(124,909		)	—			472			(124,437		)
Other comprehensive income, net of tax																				—		—		—			—			41,826			—			41,826
Preferred stock dividends																				—		—		(3,965		)	—			—			(1,037		)	(5,002		)
Capital contribution																				—		—		—			—			—			48			48
Balance, June 30, 2020																				$	229,475	$	2,230	$	14,035,607		$	(3,430,135	)	$	404,165		$	29,447		$	11,270,789



	Preferred Stock		Common Stock		Surplus			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non-Controlling Interests			Total Shareholder’s Equity
	(In Thousands)
Six Months Ended June 30,
Balance, December 31, 2018	$	229,475	$	2,230	$	14,545,849		$	(1,107,198	)	$	(186,848	)	$	29,021		$	13,512,529
Cumulative effect adjustment related to ASU adoptions (1)	—		—		—			38,896			(35,436		)	—			3,460
Balance, January 1, 2019	$	229,475	$	2,230	$	14,545,849		$	(1,068,302	)	$	(222,284	)	$	29,021		$	13,515,989
Net income	—		—		—			300,012			—			1,155			301,167
Other comprehensive income, net of tax	—		—		—			—			235,792			—			235,792
Issuance of common stock	—		—		802			—			—			—			802
Preferred stock dividends	—		—		(9,210		)	—			—			(1,037		)	(10,247		)
Common stock dividends	—		—		(170,000		)	—			—			—			(170,000		)
Capital contribution	—		—		—			—			—			134			134
Vesting of restricted stock	—		—		(2,914		)	—			—			—			(2,914		)
Balance, June 30, 2019	$	229,475	$	2,230	$	14,364,527		$	(768,290	)	$	13,508		$	29,273		$	13,870,723

Balance, December 31, 2019	$	229,475	$	2,230	$	14,043,727		$	(917,227	)	$	(1,072	)	$	29,456		$	13,386,589
Cumulative effect adjustment related to ASC 326 adoption	—		—		—			(150,213		)	—			—			(150,213		)
Balance, January 1, 2020	$	229,475	$	2,230	$	14,043,727		$	(1,067,440	)	$	(1,072	)	$	29,456		$	13,236,376
Net (loss) income	—		—		—			(2,362,695		)	—			973			(2,361,722		)
Other comprehensive income, net of tax	—		—		—			—			405,237			—			405,237
Preferred stock dividends	—		—		(8,120		)	—			—			(1,037		)	(9,157		)
Capital contribution	—		—		—			—			—			55			55
Balance, June 30, 2020	$	229,475	$	2,230	$	14,035,607		$	(3,430,135	)	$	404,165		$	29,447		$	11,270,789


(1)	Related to the Company's adoption of ASU 2016-02, ASU 2017-12 and ASU 2018-02 on January 1, 2019.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2017 2016
(In Thousands)
Operating Activities:
Net income $ 408,714
$ 282,120
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 222,467
221,975
Securities impairment 242
130
Amortization of intangibles 7,575
12,280
Accretion of discount, loan fees and purchase market adjustments, net (11,346 ) (17,191 )
Net change in FDIC indemnification liability 22
4,180
Gain on termination of FDIC shared loss agreement (1,779 ) —
Provision for loan losses 228,858
265,025
Amortization of stock based compensation —
2,509
Net change in trading account assets 119,641
(369,690 )
Net change in trading account liabilities (66,800 ) 210,554
Net change in loans held for sale 27,645
(27,468 )
Deferred tax expense (benefit) 31,200
(22,596 )
Investment securities gains, net (3,033 ) (30,037 )
Loss on sale of premises and equipment 2,468
5,019
Gain on sale of loans —
(15,551 )
Net loss (gain) on sale of other real estate and other assets 1,606
(406 )
Increase in other assets (195,868 ) (260,823 )
Increase in other liabilities 7,059
68,043
Net cash provided by operating activities 778,671
328,073
Investing Activities:
Proceeds from sales of investment securities available for sale 210,906
1,785,313
Proceeds from prepayments, maturities and calls of investment securities available for sale 2,082,636
1,629,841
Purchases of investment securities available for sale (2,902,214 ) (3,848,779 )
Proceeds from prepayments, maturities and calls of investment securities held to maturity 137,480
114,689
Purchases of investment securities held to maturity (6,233 ) (27,104 )
Proceeds from sales of trading securities 2,762,293
729,218
Purchases of trading securities (309,438 ) (272,857 )
Net change in loan portfolio (604,297 ) (66,962 )
Proceeds from sales of loans 175,088
1,022,579
Purchase of premises and equipment (81,590 ) (112,419 )
Proceeds from sale of premises and equipment 2,064
6,311
(Payments to) reimbursements from FDIC for covered assets (2,832 ) 878
Net cash paid to the FDIC for termination of shared loss agreement (131,603 ) —
Proceeds from sales of other real estate owned 22,650
21,145
Net cash provided by investing activities 1,354,910
981,853
Financing Activities:
Net (decrease) increase in demand deposits, NOW accounts and savings accounts (119,583 ) 1,380,456
Net increase in time deposits 44,704
215,262
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 5,709
(584,581 )
Net decrease in other short-term borrowings (2,475,438 ) (441,421 )
Proceeds from FHLB and other borrowings 9,245,563
1,250,000
Repayment of FHLB and other borrowings (8,277,477 ) (3,057,407 )
Capital contribution for non-controlling interest 111
36
Vesting of restricted stock (1,538 ) (1,527 )
Restricted stock grants retained to cover taxes (689 ) (545 )
Dividend paid to BBVA Bancomer USA, Inc. —
(69,151 )
Common dividends paid (60,000 ) (60,000 )
Preferred dividends paid (12,071 ) (11,185 )
Net cash used in financing activities (1,650,709 ) (1,380,063 )
Net increase (decrease) in cash and cash equivalents 482,872
(70,137 )
Cash and cash equivalents at beginning of year 3,251,786
4,496,828
Cash and cash equivalents at end of period $ 3,734,658
$ 4,426,691

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

	Six Months Ended June 30,
	2020			2019
	(In Thousands)
Operating Activities:
Net (loss) income	$	(2,361,722	)	$	301,167
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	188,487			127,357
Goodwill impairment	2,185,000			—
Securities impairment	—			113
Amortization (accretion) of discount, loan fees and purchase market adjustments, net	59,375			(16,671		)
Provision for credit losses	896,450			337,310
Net change in trading account assets	(542,990		)	(202,442		)
Net change in trading account liabilities	109,110			(25,954		)
Originations and purchases of mortgage loans held for sale	(653,742		)	(322,161		)
Sale of mortgage loans held for sale	546,222			313,034
Deferred tax benefit	(154,493		)	(10,957		)
Investment securities gains, net	(22,616		)	(8,958		)
Net gain on sale of premises and equipment	(768		)	(4,382		)
Gain on sale of loans	—			(922		)
Gain on sale of mortgage loans held for sale	(26,273		)	(12,644		)
Net (gain) loss on sale of other real estate and other assets	(71		)	985
Increase in other assets	(8,808		)	(130,642		)
Increase in other liabilities	343,118			85,566
Net cash provided by operating activities	556,279			429,799
Investing Activities:
Proceeds from sales of debt securities available for sale	863,712			1,446,776
Proceeds from prepayments, maturities and calls of debt securities available for sale	2,270,565			2,366,797
Purchases of debt securities available for sale	(1,554,435		)	(1,691,741		)
Proceeds from prepayments, maturities and calls of debt securities held to maturity	417,039			153,060
Purchases of debt securities held to maturity	(2,362,209		)	(2,182,708		)
Proceeds from sales of equity securities	79,481			165,497
Purchases of equity securities	(885		)	(175,561		)
Net change in loan portfolio	(4,595,129		)	289,420
Proceeds from sales of loans	—			1,342,479
Purchases of premises and equipment	(71,889		)	(61,010		)
Proceeds from sales of premises and equipment	1,762			8,271
Proceeds from settlement of BOLI policies	5,053			450
Cash payments for premiums of BOLI policies	—			(17		)
Proceeds from sales of other real estate owned	11,423			16,295
Net cash (used in) provided by investing activities	(4,935,512		)	1,678,008
Financing Activities:
Net increase in total deposits	10,445,442			427,990
Net increase in federal funds purchased and securities sold under agreements to repurchase	76,453			89,464
Net increase in other short-term borrowings	1,619			2,067
Proceeds from FHLB and other borrowings	1,000			3,840,000
Repayment of FHLB and other borrowings	(228,880		)	(3,840,110		)
Capital contribution for non-controlling interest	55			134
Vesting of restricted stock	—			(2,914		)
Issuance of common stock	—			802
Common dividends paid	—			(170,000		)
Preferred dividends paid	(9,157		)	(10,247		)
Net cash provided by financing activities	10,286,532			337,186
Net increase in cash, cash equivalents and restricted cash	5,907,299			2,444,993
Cash, cash equivalents and restricted cash at beginning of year	7,156,689			3,501,380
Cash, cash equivalents and restricted cash at end of period	$	13,063,988		$	5,946,373

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

BBVA ~~COMPASS~~USA 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~~USA 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 and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2017.~~2020. 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.~~2019.

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~~credit losses and goodwill ~~impairment, fair value measurements and income taxes.~~impairment. Actual results could differ from those estimates. The extent to which the COVID-19 pandemic impacts the results of operations and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted.

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. 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 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 and will be subject to expanded disclosure requirements upon adoption. The Company's implementation efforts include the identification of

revenue within the scope of the guidance, as well as the evaluation of revenue contracts. While the Company has not yet identified any material changes in the timing of revenue recognition, the Company's review is ongoing and continues to evaluate the presentation of certain contract costs (whether presented gross or offset against noninterest income).

~~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~~changes the impairment model for ~~AFS~~most financial assets, and will require the use of an “expected credit loss” model for financial instruments measured at amortized cost and certain other instruments. This model applies to receivables, loans, held-to-maturity debt securities, and ~~provides for a simplified accounting~~off-balance sheet credit exposures. This model ~~for~~requires entities to estimate the lifetime expected credit loss on such instruments and record an allowance that represents the portion of the amortized cost basis that the entity does not expect to collect. This allowance is deducted from the financial asset’s amortized cost basis to present the net amount expected to be collected. The new expected credit loss model also applies to purchased financial assets with credit deterioration, ~~since their origination.~~ superseding current accounting guidance for such assets.

The ~~amendments~~amended guidance also amends the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss, and also eliminating the option for management to consider the length of time a security has been in an unrealized loss position as a factor in concluding whether or not a credit loss exists. The amended model states that an entity will recognize an allowance for credit losses on available-for-sale debt securities, instead of a direct reduction of the amortized cost basis of the investment, as required under current guidance. As a result, entities recognize improvements to estimated credit losses on available-for-sale debt securities immediately in earnings as opposed to in interest income over time. There are also additional disclosure requirements included 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.guidance.

~~Statement of Cash Flows~~

In ~~August 2016,~~November 2018, the FASB issued ASU ~~2016-15,~~ ~~Statement of Cash Flows - Classification of Certain Cash Receipts~~2018-19 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,~~April, May 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,~~2019 and February 2020, the FASB issued ASU ~~2016-18,~~2019-04, ASU 2019-05, ASU 2019-11, and ASU 2020-02 respectively, which made minor clarifications to the guidance in ASU 2016-13.

The Company’s implementation process included loss model development, data sourcing and validation, development of governance processes, development of a qualitative framework, documentation and governance surrounding economic forecast for credit loss purposes, evaluation of technical accounting topics, updates to allowance policies and methodology documentation, development of reporting processes and related internal controls.

The Company adopted this ASU, as amended on January 1, 2020 using a modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under this ASU, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net of tax increase to accumulated deficit of $150.2 million as of January 1, 2020 for the cumulative effect of adopting this ASU.

The Company adopted this ASU using the prospective transition approach for debt securities for which other-than -temporary impairment has been recognized prior to January 1, 2020. As a result, the amortized cost basis remained the same before and after the effective date of this ASU. The effective interest rate on these debt securities was not changed. Amounts previously recognized in accumulated other comprehensive income as of January 1, 2020 related to improvements in cash flows expected to be collected will be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2020 will be recorded in earnings when received.

The amended guidance in this ASU eliminates the current accounting model for purchased-credit-impaired loans, but requires an allowance to be recognized for purchased-credit-deteriorated assets (those that have experienced more-than-insignificant deterioration in credit quality since origination). The Company had no impact from purchased-credit-deteriorated assets upon adoption.

The following table illustrates the impact of ASC 326.



	January 1, 2020
	As Reported Under ASC 326		Pre-ASC Adoption		Impact of ASC 326 Adoption
	(In Thousands)
Assets:
Allowance for credit losses on debt securities held to maturity	$	1,847	$	—	$	1,847
Allowance for credit losses on loans	1,105,924		920,993		184,931

Liabilities:
Allowance for credit losses on letters of credit and unfunded commitments	76,946		66,955		9,991

The Company did not record a material allowance with respect to HTM and AFS securities as the portfolios consist primarily of U.S. Treasury and agency-backed securities that inherently have minimal credit risk.

See Note ~~Statement of Cash Flows~~2, Debt Securities Available for Sale and Debt Securities Held to Maturity, and Note 3, Loans and Allowance for Loan Losses, for the required disclosures in accordance with this ASU.

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - ~~Restricted Cash~~Changes to the Disclosure Requirements for Fair Value Measurements. The amendments in this ASU ~~require that a statement of cash flows explain~~modified the ~~change during the period~~disclosure requirements for fair value measurements in ~~the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.~~Topic 820, Fair Value Measurements. The ~~amendments in~~Company adopted 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 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.1, 2020. The adoption of this standard isdid not ~~expected to~~ have a material impact on the financial condition or results of ~~operations~~operation of the Company. See Note 9, Fair Value Measurements, for the modified disclosure in accordance with this ASU.

~~Premium Amortization on Purchased Callable Debt Securities~~

Internal-Use Software

In ~~March 2017,~~August 2018, the FASB issued ASU ~~2017-08,~~2018-15, ~~Receivables - Nonrefundable Fees and Other~~Customer's Accounting for Implementation Costs ~~(Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.~~ Incurred in a Cloud Computing ArrangementThat is a Service Contract. The amendments in this ASU ~~reduce~~align the ~~amortization period~~requirements for ~~certain callable debt securities carried at~~capitalizing implementation costs incurred in a ~~premium~~hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software 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~~hosting arrangements that include an internal-use software license. The Company adopted 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.on January 1, 2020. The adoption of this standard isdid not ~~expected to~~ have a material impact on the financial condition or results of ~~operations~~operation of the Company.

~~Derivatives and Hedging~~

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities.~~ The amendments in this ASU better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. 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 Company is currently assessing this pronouncement and the impact of adoption.

(2) ~~Investment~~Debt Securities Available for Sale and ~~Investment~~Debt Securities Held to Maturity

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

September 30, 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 $ 3,704,848
$ 5,243
$ 30,401
$ 3,679,690
Mortgage-backed securities 3,051,728
18,256
31,667
3,038,317
Collateralized mortgage obligations 5,171,868
4,663
76,490
5,100,041
States and political subdivisions 2,276
118
—
2,394
Other 17,739
96
87
17,748
Equity securities 430,032
87
—
430,119
Total $ 12,378,491
$ 28,463
$ 138,645
$ 12,268,309
Investment securities held to maturity:
Collateralized mortgage obligations $ 69,098
$ 4,232
$ 3,634
$ 69,696
Asset-backed securities 10,409
2,011
768
11,652
States and political subdivisions 936,353
5,103
15,054
926,402
Other 61,512
306
1,649
60,169
Total $ 1,077,372
$ 11,652
$ 21,105
$ 1,067,919



	June 30, 2020
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(In Thousands)
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	$	2,176,754	$	56,764	$	15,780	$	2,217,738
Agency mortgage-backed securities	1,062,592		35,382		1,229		1,096,745
Agency collateralized mortgage obligations	2,391,399		59,210		614		2,449,995
States and political subdivisions	687		27		—		714
Total	$	5,631,432	$	151,383	$	17,623	$	5,765,192
Debt securities held to maturity:
U.S. Treasury and other U.S. government agencies	$	1,289,447	$	127,581	$	—	$	1,417,028
Collateralized mortgage obligations:
Agency	6,800,461		237,246		—		7,037,707
Non-agency	33,825		5,876		823		38,878
Asset-backed securities and other	48,903		1,321		5,465		44,759
States and political subdivisions (1)	535,818		15,574		11,466		539,926
Total	$	8,708,454	$	387,598	$	17,754	$	9,078,298


(1)	The Company recorded an allowance of $15 million, at June 30, 2020, related to state and political subdivisions, which is not included in the table above.

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~~ ~~$430 million~~ ~~and~~ ~~$403 million~~ ~~at September 30, 2017 and~~ ~~December 31, 2016, respectively, of FHLB and Federal Reserve stock carried at par.~~



	December 31, 2019
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(In Thousands)
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	$	3,145,331	$	16,888	$	34,694	$	3,127,525
Agency mortgage-backed securities	1,322,432		12,444		9,019		1,325,857
Agency collateralized mortgage obligations	2,783,003		7,744		9,622		2,781,125
States and political subdivisions	757		41		—		798
Total	$	7,251,523	$	37,117	$	53,335	$	7,235,305
Debt securities held to maturity:
U.S. Treasury and other U.S. government agencies	$	1,287,049	$	53,399	$	—	$	1,340,448
Collateralized mortgage obligations:
Agency	4,846,862		82,105		16,568		4,912,399
Non-agency	37,705		5,923		1,154		42,474
Asset-backed securities and other	52,355		1,266		2,017		51,604
States and political subdivisions	573,075		8,652		7,494		574,233
Total	$	6,797,046	$	151,345	$	27,233	$	6,921,158

The investments held within the states and political subdivision caption of ~~investment~~debt 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.

As noted in Note 1, Basis of Presentation, the Company adopted ASC 326 on January 1, 2020, which had an immaterial impact on the Company's available for sale debt securities and held to maturity debt securities.

The Company records its HTM debt securities at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as AFS when they might be sold before they mature. The Company records its AFS debt securities at fair value with unrealized holding gains and losses reported in other comprehensive income.

The Company measures expected credit losses on held to maturity debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The majority of the Company's HTM debt securities portfolio consists of U.S. government entities and agencies which are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies and inherently have minimal risk of nonpayment and therefore has applied a zero credit loss assumption for these securities.

Under the revised guidance of ASC 326, if the fair value of a security falls below the amortized cost basis, the security will be evaluated to determine if any of the decline in value is attributable to credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security, and adverse conditions specially related to the security, among other factors. If it is determined that a credit loss exists then an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. If the credit subsequently improves, the allowance is reversed. When the Company intends to sell an impaired AFS debt security or it is more likely than not that the security will be required to be sold prior to recovering the amortized cost basis, the security's amortized cost basis is written down to fair value through income.

A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. The Company has elected to not measure an allowance on its accrued interest receivable as a result of the timely reversal of interest receivable deemed uncollectible. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.

The following tables disclose the fair value and the gross unrealized losses of the Company’s available for sale ~~securities and held to maturity~~debt securities that were in a loss position at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~.2019, for which an allowance for credit losses has not been recorded at June 30, 2020. This information is aggregated by investment category and the length of time the individual securities have been in an unrealized loss position.

September 30, 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 $ 1,754,139
$ 10,074
$ 1,048,956
$ 20,327
$ 2,803,095
$ 30,401
Mortgage-backed securities 833,667
7,391
1,200,390
24,276
2,034,057
31,667
Collateralized mortgage obligations 1,364,631
7,317
3,068,922
69,173
4,433,553
76,490
Other 3,897
29
1,064
58
4,961
87
Total $ 3,956,334
$ 24,811
$ 5,319,332
$ 113,834
$ 9,275,666
$ 138,645

Investment securities held to maturity:
Collateralized mortgage obligations $ 11,479
$ 860
$ 36,588
$ 2,774
$ 48,067
$ 3,634
Asset-backed securities —
—
6,767
768
6,767
768
States and political subdivisions 427,317
10,710
156,604
4,344
583,921
15,054
Other 14,847
61
21,089
1,588
35,936
1,649
Total $ 453,643
$ 11,631
$ 221,048
$ 9,474
$ 674,691
$ 21,105



	June 30, 2020
	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)
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	$	255,351	$	72	$	364,068	$	15,708	$	619,419	$	15,780
Agency mortgage-backed securities	14,155		74		75,365		1,155		89,520		1,229
Agency collateralized mortgage obligations	10,090		39		305,362		575		315,452		614
Total	$	279,596	$	185	$	744,795	$	17,438	$	1,024,391	$	17,623

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



	December 31, 2019
	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)
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	$	59,496	$	208	$	819,360	$	34,486	$	878,856	$	34,694
Agency mortgage-backed securities	245,191		851		592,312		8,168		837,503		9,019
Agency collateralized mortgage obligations	880,485		4,768		579,679		4,854		1,460,164		9,622
Total	$	1,185,172	$	5,827	$	1,991,351	$	47,508	$	3,176,523	$	53,335

As indicated in the previous tables, at ~~September~~June 30, ~~2017,~~2020, the Company held ~~certain investment~~debt securities in unrealized loss positions. The Company has not recognized the unrealized losses into income for its securities because they are all backed by the U.S. government or government agencies and management does not intend to sell ~~these securities nor~~and it is ~~it more-likely-than-not-that it~~likely that management will not be required to sell these securities before their anticipated ~~recovery.~~recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The fair value is expected to recover as the securities approach maturity.

The following table presents the activity in the allowance for debt securities held to maturity losses.



	Held to Maturity Debt Securities
	(In Thousands)
Three months ended June 30, 2020
Allowance for debt securities held to maturity losses:
Balance at beginning of period	$	1,892
Impact of adopting ASC 326	—
Provision for credit losses	13,125
Securities charged off	—
Recoveries	—
Balance at end of period	$	15,017

Six Months Ended June 30, 2020
Allowance for debt securities held to maturity losses:
Balance at beginning of period	$	—
Impact of adopting ASC 326	1,847
Provision for credit losses	13,170
Securities charged off	—
Recoveries	—
Balance at end of period	$	15,017

The Company regularly evaluates each ~~available for sale and~~ held to maturity debt security infor credit losses on a quarterly basis. The Company has not recorded a provision for credit loss ~~position for OTTI. In~~related to its ~~evaluation,~~agency securities because they are all backed by the U.S. government or government agencies and have been deemed to have zero expected credit loss as of June 30, 2020. These securities are evaluated quarterly to determine if they still qualify as a zero credit loss security. The Company has non-agency securities that have unrealized losses at June 30, 2020. The Company considers such factors as ~~the length of time and~~ the extent to which the fair value has been below cost and 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~~issuer.

The Company ~~will have to sell the security before its fair value recovers. Activity related to~~monitors the credit ~~loss component~~quality 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~~its HTM debt securities ~~available for sale or held to maturity portfolios, presented in the preceding tables, represents an OTTI at either September 30, 2017 or~~ ~~December 31, 2016, other than those noted below.~~

through credit ratings. The following table ~~discloses activity related to credit losses for~~presents the amortized cost of HTM debt securities, ~~where a portion~~as of ~~the OTTI was recognized in other comprehensive income.~~June 30, 2020, aggregated by credit quality indicator.

Three Months Ended
September 30, Nine Months Ended
September 30,
2017
2016 2017 2016
(In Thousands)
Balance at beginning of period $ 22,824
$ 22,582
$ 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 —
—
—
130
Balance at end of period $ 22,824
$ 22,582
$ 22,824
$ 22,582

For both the three months ended September 30, 2017 and 2016, there was no OTTI recognized on held to maturity securities. For the nine months ended September 30, 2017 and 2016, there was $242 thousand and $130 thousand, respectively, of OTTI recognized on held to maturity securities. The investment securities primarily impacted by credit impairment are held to maturity non-agency collateralized mortgage obligations.



	June 30, 2020
			Range of Ratings
	AAA		AA+ / A -		BBB+ / B-		CCC+ / C		D		NR		Total
	(In Thousands)
Debt securities held to maturity:
U.S. Treasury and other U.S. government agencies	$	1,289,447	$	—	$	—	$	—	$	—	$	—	$	1,289,447
Collateralized mortgage obligations:
Agency	6,800,461		—		—		—		—		—		6,800,461
Non-agency	66		9,201		11,576		5,932		2,968		4,082		33,825
Asset-backed securities and other	—		47,904		293		706		—		—		48,903
States and political subdivisions	—		332,314		203,504		—		—		—		535,818
	$	8,089,974	$	389,419	$	215,373	$	6,638	$	2,968	$	4,082	$	8,708,454

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


September 30, 2017	Amortized Cost		Fair Value
June 30, 2020					Amortized Cost		Fair Value
	(In Thousands)				(In Thousands)
Investment securities available for sale:
Debt securities available for sale:
Maturing within one year	$	150,384	$	150,356	$	325,189	$	325,784
Maturing after one but within five years	1,283,937		1,279,279		1,393,467		1,446,864
Maturing after five but within ten years	1,347,306		1,342,532		20,904		21,824
Maturing after ten years	943,236		927,665		437,881		423,980
	3,724,863		3,699,832		2,177,441		2,218,452
Mortgage-backed securities and collateralized mortgage obligations	8,223,596		8,138,358		3,453,991		3,546,740
Equity securities	430,032		430,119
Total	$	12,378,491	$	12,268,309	$	5,631,432	$	5,765,192

Investment securities held to maturity:
Debt securities held to maturity:
Maturing within one year	$	101,445	$	101,473	$	25,500	$	25,497
Maturing after one but within five years	192,870		192,122		1,430,336		1,556,878
Maturing after five but within ten years	225,282		222,099		254,879		257,822
Maturing after ten years	488,677		482,529		163,453		161,516
	1,008,274		998,223		1,874,168		2,001,713
Collateralized mortgage obligations	69,098		69,696		6,834,286		7,076,585
Total	$	1,077,372	$	1,067,919	$	8,708,454	$	9,078,298

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
	(In Thousands)								(In Thousands)
Gross gains	$	3,033	$	—	$	3,033	$	30,037	$	3,477	$	—	$	22,616	$	8,958
Gross losses	—		—		—		—		—		—		—		—
Net realized gains	$	3,033	$	—	$	3,033	$	30,037	$	3,477	$	—	$	22,616	$	8,958

(3) Loans and Allowance for Loan Losses

Loans

Loans that management has the intent and ability to hold for the forseeable future or until maturity or pay-off are considered held-for-investment. Loans are stated at amortized cost, net of the allowance for loan losses. Amortized cost, or the recorded investment, is the principal balance outstanding, adjusted for charge-offs, deferred loan fees and direct costs on originated loans and unamortized premiums or discounts on purchased loans. Accrued interest receivable is reported in other assets on the Company’s Unaudited Condensed Consolidated Balance Sheets. Interest income is accrued on the principal balance outstanding and is recognized on the interest method. Loan fees, net of direct costs and unamortized premiums and discounts are deferred and amortized as an adjustment to the yield of the related loan over the term of the loan and are included as a noncash adjustment in the net cash provided by operating activities in the Company’s Unaudited Condensed Consolidated Statement of Cash Flows.

The Company has elected to not measure an allowance on its accrued interest receivable as a result of the timely reversal of interest receivable deemed uncollectible. It is the general policy of the Company to stop accruing interest income and apply subsequent interest payments as principal reductions when any commercial, industrial, commercial real estate or construction loan is 90 days or more past due as to principal or interest and/or the ultimate collection of either is in doubt, unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Accrual of interest income on consumer loans, including residential real estate loans, is generally suspended when any payment of principal or interest is more than 90 days delinquent or when foreclosure proceedings

have been initiated or repossession of the underlying collateral has occurred. When a loan is placed on a nonaccrual status, any interest previously accrued but not collected is reversed against current interest income unless the fair value of the collateral for the loan is sufficient to cover the accrued interest.

In general, a loan is returned to accrual status when none of its principal and interest is due and unpaid and the Company expects repayments of the remaining contractual principal and interest or when it is determined to be well secured and in the process of collection. Charge-offs on commercial loans are recognized when available information confirms that some or all of the balance is uncollectible. Consumer loans are subject to mandatory charge-off at a specified delinquency date consistent with regulatory guidelines. In general, charge-offs on consumer loans are recognized at the earlier of the month of liquidation or the month the loan becomes 120 days past due; residential loan deficiencies are charged off in the month the loan becomes 180 days past due; and credit card loans are charged off before the end of the month when the loan becomes 180 days past due with the related interest accrued but not collected reversed against current income. The Company determines past due or delinquency status of a loan based on contractual payment terms.

Troubled Debt Restructurings

A loan is accounted for as a TDR if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. A TDR typically involves a modification of terms such as establishment of a below market interest rate, a reduction in the principal amount of the loan, a reduction of accrued interest or an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan with similar risk. The Company’s policy for measuring the allowance for credit losses on TDRs, including TDRs that have defaulted, is consistent with its policy for other loans held for investment. The Company’s policy for returning nonaccrual TDRs to accrual status is consistent with its return to accrual policy for all other loans.

Allowance for Loan Losses

The allowance for loan losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management uses discounted cash flows, default probabilities and loss severities to calculate the allowance for loan losses.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, gross domestic product, or other relevant factors. The Company has internally developed a macroeconomic forecast which projects over a four-year reasonable and supportable forecast period. Management may change the horizon of the forecast in response to changes in portfolio composition or performance as well as changes in the economic environment. After the forecast period, the Company reverts to long run historical average default probabilities and loss severities using a linear model with a variable reversion speed determined on a portfolio basis, for those portfolios with sufficient history.

Economic Forecast: Management selects economic variables it believes to be most relevant based on the composition of the loan portfolio and customer base, including forecasted levels of employment, gross domestic product, real estate price indices, interest rates and corporate bond spreads. The Company uses an internally formulated and approved single baseline economic scenario for the collective estimation. However, management will assess the uncertainty associated with the baseline scenario in each period, and may make adjustments based on alternative scenarios applied through the qualitative framework.

Determining the Contractual Term: Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless management has a reasonable expectation at the reporting date that a troubled debt restructuring

will be executed with an individual borrower. While the Company does have contracts with extension or renewal options included, the vast majority are considered unconditionally cancellable.

The Company monitors the entire loan portfolio so that risks in the portfolio can be identified on a timely basis and an appropriate allowance maintained. Loan review procedures, including loan grading, periodic credit rescoring and trend analysis of portfolio performance, are utilized by the Company in order to ensure that potential problem loans are identified. Management’s involvement continues throughout the process and includes participation in the work-out process and recovery activity. These formalized procedures are monitored internally and by regulatory agencies. The allowance for credit losses is measured on a collective basis when similar risk characteristics exist. The Company has identified the following portfolio segments: commercial, financial and agricultural; commercial real estate; residential real estate; and consumer. Commercial loans utilize internal risk grades aligned with regulatory classifications to assess risks. Consumer loans utilize credit scoring models as the basis for assessing risk of consumer borrowers. The Company estimates the present value of cash shortfalls resulting from the sum of the marginal losses occurring in each time period, on an annual basis, over the remaining life of the loan. The marginal losses are derived from the projection of principal balance, inclusive of principal cash flow and prepayment schedules, and parameters reflecting the severity of losses (LGD) in the case of default that is given by the marginal probability of default (Marginal PD) for each period of the portfolio’s lifetime. The Company also includes the considerations of a forecasted macroeconomic scenario by adjusting the PDs and LGDs applied, with econometric models dependent on the aforementioned correlated macroeconomic variables included in the forecasted scenarios.

The allowance for credit losses on loans that do not share similar risk characteristics are estimated on an individual basis. Individual evaluations are typically performed for nonaccrual loans and certain accruing loans, based on dollar thresholds. These loans receive specific reserves allocated based on the present value of the loan's expected future cash flows, discounted at the loan's original effective rate, except where foreclosure or liquidation is probable or when the cash flows are predominately dependent on the value of the collateral. In these circumstances, impairment is measured based upon the fair value less cost to sell of the collateral.

The Company adjusts the loss estimates described above when it is determined that expected credit losses may not have been captured in the loss estimates. To adjust the loss estimates, the Company considers qualitative factors such as changes in risk profile/composition; current economic and business conditions and uncertainty of outlook, potentially including alternative economic scenarios; limitations in the data or models used in the collective estimation; credit risk management practices; and other external/environmental factors.

In order to estimate an allowance for credit losses on letters of credit and unfunded commitments, the Company uses a process consistent with that used in developing the allowance for loan losses. The Company estimates future fundings of current, noncancellable, unfunded commitments based on historical funding experience of these commitments before default and adjusted based on historical cancellations. Allowance for loan loss factors, which are based on product and loan grade, and are consistent with the factors used for loans, are applied to these funding estimates and discounted to the present value to arrive at the reserve balance. The allowance for credit losses on letters of credit and unfunded commitments is recognized in accrued expenses and other liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets with changes recognized within noninterest expense in the Company’s Unaudited Condensed Consolidated Statements of Income. See Note 8, Commitments, Contingencies and Guarantees for additional information.

The following table presents the composition of the loan portfolio.

September 30, 2017 December 31, 2016
(In Thousands)
Commercial loans:
Commercial, financial and agricultural $ 25,091,942
$ 25,122,002
Real estate – construction 2,247,144
2,125,316
Commercial real estate – mortgage 11,342,378
11,210,660
Total commercial loans 38,681,464
38,457,978
Consumer loans:
Residential real estate – mortgage 13,398,503
13,259,994
Equity lines of credit 2,617,312
2,543,778
Equity loans 383,376
445,709
Credit card 590,975
604,881
Consumer direct 1,604,396
1,254,641
Consumer indirect 3,039,178
3,134,948
Total consumer loans 21,633,740
21,243,951
Covered loans (1) —
359,334
Total loans $ 60,315,204
$ 60,061,263

~~(1)~~

Covered loans represent loans acquired from the FDIC subject to loss sharing agreements. 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. In July 2017, the Company entered into an agreement with the FDIC to terminate the Company's single family residential loss share agreement ahead of the contractual maturity. Loans no longer covered under a loss share agreement were reclassified to their appropriate loan type.



	June 30, 2020		December 31, 2019
	(In Thousands)
Commercial loans:
Commercial, financial and agricultural	$	28,782,124	$	24,432,238
Real estate – construction	2,298,470		2,028,682
Commercial real estate – mortgage	13,800,669		13,861,478
Total commercial loans	44,881,263		40,322,398
Consumer loans:
Residential real estate – mortgage	13,429,139		13,533,954
Equity lines of credit	2,516,834		2,592,680
Equity loans	209,980		244,968
Credit card	965,572		1,002,365
Consumer direct	2,134,108		2,338,142
Consumer indirect	4,104,604		3,912,350
Total consumer loans	23,360,237		23,624,459
Total loans	$	68,241,500	$	63,946,857

Accrued interest receivable totaling $229 million and $205 million at June 30, 2020 and December 31, 2019, respectively, was reported in other assets on the Company's Unaudited Condensed Balance Sheets and is excluded from the related footnote disclosures.

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			Commercial, Financial and Agricultural			Commercial Real Estate (1)			Residential Real Estate (2)			Consumer (3)			Total
	(In Thousands)																		(In Thousands)
Three months ended September 30, 2017
Three months ended June 30, 2020																			Three months ended June 30, 2020
Allowance for loan losses:
Beginning balance																			$	547,985		$	108,233		$	152,935		$	541,919		$	1,351,072
Provision for loan losses																			238,565			128,276			30,136			129,357			526,334
Loans charged-off																			(30,970		)	(9,053		)	(1,095		)	(97,893		)	(139,011		)
Loan recoveries																			1,932			419			1,509			12,097			15,957
Net (charge-offs) recoveries																			(29,038		)	(8,634		)	414			(85,796		)	(123,054		)
Ending balance																			$	757,512		$	227,875		$	183,485		$	585,480		$	1,754,352
Three months ended June 30, 2019																			Three months ended June 30, 2019
Allowance for loan losses:
Beginning balance																			$	447,752		$	118,536		$	102,689		$	297,045		$	966,022
Provision (credit) for loan losses																			54,218			(1,166		)	(250		)	102,216			155,018
Loans charged-off																			(49,325		)	(112		)	(4,679		)	(110,755		)	(164,871		)
Loan recoveries																			3,409			528			2,591			14,963			21,491
Net (charge-offs) recoveries																			(45,916		)	416			(2,088		)	(95,792		)	(143,380		)
Ending balance																			$	456,054		$	117,786		$	100,351		$	303,469		$	977,660

Six Months Ended June 30, 2020																			Six Months Ended June 30, 2020
Allowance for loan losses:
Beginning balance, prior to adoption of ASC 326																			$	408,197		$	118,633		$	99,089		$	295,074		$	920,993
Impact of adopting ASC 326																			18,389			(35,034		)	47,390			154,186			184,931
Beginning balance, after adoption of ASC 326																			426,586			83,599			146,479			449,260			1,105,924
Provision for loan losses																			378,978			152,824			37,168			314,310			883,280
Loan charge-offs																			(55,177		)	(9,140		)	(3,094		)	(213,759		)	(281,170		)
Loan recoveries																			7,125			592			2,932			35,669			46,318
Net charge-offs																			(48,052		)	(8,548		)	(162		)	(178,090		)	(234,852		)
Ending balance																			$	757,512		$	227,875		$	183,485		$	585,480		$	1,754,352
Six Months Ended June 30, 2019																			Six Months Ended June 30, 2019
Allowance for loan losses:
Beginning balance	$	427,654		$	116,819		$	108,095		$	164,384		$	—		$	816,952		$	393,315		$	112,437		$	101,929		$	277,561		$	885,242
Provision for loan losses	20,513			10,633			8,411			63,877			—			103,434			113,398			3,496			1,933			218,483			337,310
Loan charge-offs	(21,320		)	(7,913		)	(4,290		)	(55,102		)	—			(88,625		)	(58,828		)	(137		)	(9,691		)	(223,628		)	(292,284		)
Loan recoveries	6,625			235			2,401			8,097			—			17,358			8,169			1,990			6,180			31,053			47,392
Net (charge-offs) recoveries	(14,695		)	(7,678		)	(1,889		)	(47,005		)	—			(71,267		)	(50,659		)	1,853			(3,511		)	(192,575		)	(244,892		)
Ending balance	$	433,472		$	119,774		$	114,617		$	181,256		$	—		$	849,119		$	456,054		$	117,786		$	100,351		$	303,469		$	977,660
Three months ended September 30, 2016
Allowance for loan losses:
Beginning balance	$	499,398		$	114,311		$	119,076		$	110,266		$	—		$	843,051
Provision for loan losses	20,533			54			528			43,992			—			65,107
Loan charge-offs	(13,702		)	(104		)	(4,608		)	(46,472		)	—			(64,886		)
Loan recoveries	4,766			682			3,429			9,931			—			18,808
Net (charge-offs) recoveries	(8,936		)	578			(1,179		)	(36,541		)	—			(46,078		)
Ending balance	$	510,995		$	114,943		$	118,425		$	117,717		$	—		$	862,080

Nine Months Ended September 30, 2017
Allowance for loan losses:
Beginning balance	$	458,580		$	116,937		$	119,484		$	143,292		$	—		$	838,293
Provision (credit) for loan losses	49,045			7,534			2,639			169,671			(31		)	228,858
Loan charge-offs	(91,943		)	(8,927		)	(16,242		)	(160,261		)	—			(277,373		)
Loan recoveries	17,790			4,230			8,736			28,554			31			59,341
Net (charge-offs) recoveries	(74,153		)	(4,697		)	(7,506		)	(131,707		)	31			(218,032		)
Ending balance	$	433,472		$	119,774		$	114,617		$	181,256		$	—		$	849,119
Nine Months Ended September 30, 2016
Allowance for loan losses:
Beginning balance	$	402,113		$	122,068		$	132,104		$	104,948		$	1,440		$	762,673
Provision (credit) for loan losses	167,648			(7,393		)	(7,412		)	112,058			124			265,025
Loan charge-offs	(66,541		)	(3,555		)	(15,072		)	(125,607		)	(1,565		)	(212,340		)
Loan recoveries	7,775			3,823			8,805			26,318			1			46,722
Net (charge-offs) recoveries	(58,766		)	268			(6,267		)	(99,289		)	(1,564		)	(165,618		)
Ending balance	$	510,995		$	114,943		$	118,425		$	117,717		$	—		$	862,080


(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.

For the three months ended June 30, 2020, the increase in the allowance for loan losses was primarily driven by the deteriorating economic outlook resulting from the COVID-19 pandemic. For the six months ended June 30, 2020, the increase in the allowance for loan losses was primarily driven by the deteriorating economic outlook resulting from the COVID-19 pandemic as well as the impact of declining oil prices.

The table below provides a summary of the allowance for loan losses and related loan balances by ~~portfolio.~~portfolio at December 31, 2019.


	Commercial, Financial and Agricultural		Commercial Real Estate (1)		Residential Real Estate (2)		Consumer (3)		Covered		Total		Commercial, Financial and Agricultural		Commercial Real Estate (1)		Residential Real Estate (2)		Consumer (3)		Total
	(In Thousands)												(In Thousands)
September 30, 2017
December 31, 2019
Ending balance of allowance attributable to loans:	Ending balance of allowance attributable to loans:												Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	67,280	$	9,723	$	28,989	$	2,260	$	—	$	108,252	$	88,164	$	13,255	$	22,775	$	2,638	$	126,832
Collectively evaluated for impairment	366,192		110,051		85,628		178,996		—		740,867		320,033		105,378		76,314		292,436		794,161
Total allowance for loan losses	$	433,472	$	119,774	$	114,617	$	181,256	$	—	$	849,119	$	408,197	$	118,633	$	99,089	$	295,074	$	920,993
Ending balance of loans:	Ending balance of loans:												Ending balance of loans:
Individually evaluated for impairment	$	302,285	$	82,905	$	170,608	$	3,862	$	—	$	559,660	$	238,653	$	78,301	$	155,728	$	13,362	$	486,044
Collectively evaluated for impairment	24,789,657		13,506,617		16,228,583		5,230,687		—		59,755,544		24,193,585		15,811,859		16,215,874		7,239,495		63,460,813
Total loans	$	25,091,942	$	13,589,522	$	16,399,191	$	5,234,549	$	—	$	60,315,204	$	24,432,238	$	15,890,160	$	16,371,602	$	7,252,857	$	63,946,857

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
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	24,402,534		13,291,718		16,063,143		4,991,428		359,334		59,108,157
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.

The following ~~tables present~~table presents information on nonaccrual loans, by loan class at June 30, 2020.



	June 30, 2020
	Nonaccrual		Nonaccrual With No Recorded Allowance
	(In Thousands)
Commercial, financial and agricultural	$	389,615	$	100,678
Real estate – construction	13,317		5,836
Commercial real estate – mortgage	117,213		35,591
Residential real estate – mortgage	169,387		—
Equity lines of credit	34,915		—
Equity loans	8,457		—
Credit card	—		—
Consumer direct	7,624		—
Consumer indirect	24,216		—
Total loans	$	764,744	$	142,105

The following table presents information on individually evaluated impaired loans, by loan ~~class.~~class at December 31, 2019.


	September 30, 2017												December 31, 2019
	Individually Evaluated Impaired Loans With No Recorded Allowance						Individually Evaluated Impaired Loans With a Recorded Allowance						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		Recorded Investment		Unpaid Principal Balance		Allowance		Recorded Investment		Unpaid Principal Balance		Allowance
	(In Thousands)												(In Thousands)
Commercial, financial and agricultural	$	124,830	$	134,543	$	—	$	177,455	$	218,610	$	67,280	$	51,203	$	52,991	$	—	$	187,450	$	249,486	$	88,164
Real estate – construction	4,593		4,593		—		215		262		196		—		—		—		5,972		5,979		850
Commercial real estate – mortgage	33,979		35,189		—		44,118		51,622		9,527		46,232		51,286		—		26,097		27,757		12,405
Residential real estate – mortgage	—		—		—		113,464		113,464		9,743		—		—		—		111,623		111,623		8,974
Equity lines of credit	—		—		—		20,385		20,389		14,919		—		—		—		15,466		15,472		10,896
Equity loans	—		—		—		36,759		37,451		4,327		—		—		—		28,639		29,488		2,905
Credit card	—		—		—		—		—		—		—		—		—		—		—		—
Consumer direct	—		—		—		2,591		2,591		1,074		—		—		—		11,601		13,596		1,903
Consumer indirect	—		—		—		1,271		1,271		1,186		—		—		—		1,761		1,761		735
Total loans	$	163,402	$	174,325	$	—	$	396,258	$	445,660	$	108,252	$	97,435	$	104,277	$	—	$	388,609	$	455,162	$	126,832

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

The following tables present information on individually ~~evaluated~~ impaired loans, by loan ~~class.~~class for the three and six months ended June 30, 2019.

Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(In Thousands)
Commercial, financial and agricultural $ 348,075
$ 191
$ 769,719
$ 401
Real estate – construction 4,230
2
634
2
Commercial real estate – mortgage 83,568
232
36,874
255
Residential real estate – mortgage 115,267
671
110,262
666
Equity lines of credit 20,845
219
26,231
246
Equity loans 37,085
323
43,292
375
Credit card —
—
—
—
Consumer direct 2,599
11
803
7
Consumer indirect 1,355
2
2,505
3
Total loans $ 613,024
$ 1,651
$ 990,320
$ 1,955

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(In Thousands)
Commercial, financial and agricultural $ 472,639
$ 743
$ 575,038
$ 1,033
Real estate – construction 1,811
6
2,118
6
Commercial real estate – mortgage 69,304
852
46,073
932
Residential real estate – mortgage 115,622
1,986
109,020
1,953
Equity lines of credit 22,151
671
27,170
790
Equity loans 38,711
997
44,629
1,123
Credit card —
—
—
—
Consumer direct 1,320
22
854
22
Consumer indirect 1,706
8
2,152
9
Total loans $ 723,264
$ 5,285
$ 807,054
$ 5,868

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.



	Three Months Ended June 30, 2019
	Average Recorded Investment		Interest Income Recognized
	(In Thousands)
Commercial, financial and agricultural	$	399,492	$	574
Real estate – construction	590		2
Commercial real estate – mortgage	79,700		251
Residential real estate – mortgage	106,521		681
Equity lines of credit	15,041		176
Equity loans	30,533		272
Credit card	—		—
Consumer direct	6,457		63
Consumer indirect	273		—
Total loans	$	638,607	$	2,019

	Six Months Ended June 30, 2019
	Average Recorded Investment		Interest Income Recognized
	(In Thousands)
Commercial, financial and agricultural	$	406,690	$	1,537
Real estate – construction	362		4
Commercial real estate – mortgage	81,282		466
Residential real estate – mortgage	106,459		1,330
Equity lines of credit	15,149		350
Equity loans	31,125		548
Credit card	—		—
Consumer direct	6,008		131
Consumer indirect	318		—
Total loans	$	647,393	$	4,366

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.

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						Commercial
	September 30, 2017						June 30, 2020
	Commercial, Financial and Agricultural		Real Estate - Construction		Commercial Real Estate - Mortgage		Recorded Investment of Term Loans by Origination Year
	(In Thousands)						2020		2019		2018		2017		2016		Prior		Recorded Investment of Revolving Loans		Recorded Investment of Revolving Loans Converted to Term Loans		Total
							(In Thousands)
Commercial, financial and agricultural
Pass	$	23,705,231	$	2,208,525	$	11,054,754	$	4,885,031	$	3,182,335	$	2,785,698	$	3,126,622	$	1,140,397	$	3,665,786	$	8,537,527	$	—	$	27,323,396
Special Mention	514,233		35,017		111,720		51,404		29,911		68,896		54,338		27,733		59,289		382,043		—		673,614
Substandard	746,719		3,602		158,623		24,328		21,184		50,549		61,368		34,089		88,868		407,157		—		687,543
Doubtful	125,759		—		17,281		—		—		32,903		26,379		8,126		14,825		15,338		—		97,571
	$	25,091,942	$	2,247,144	$	11,342,378
Total commercial, financial and agricultural							$	4,960,763	$	3,233,430	$	2,938,046	$	3,268,707	$	1,210,345	$	3,828,768	$	9,342,065	$	—	$	28,782,124
Real estate - construction
Pass							$	150,917	$	692,674	$	717,347	$	352,777	$	103,543	$	75,952	$	161,493	$	—	$	2,254,703
Special Mention							—		—		—		18,151		1,465		435		—		—		20,051
Substandard							—		6,369		7,051		—		5,837		4,459		—		—		23,716
Doubtful							—		—		—		—		—		—		—		—		—
Total real estate - construction							$	150,917	$	699,043	$	724,398	$	370,928	$	110,845	$	80,846	$	161,493	$	—	$	2,298,470
Commercial real estate - mortgage
Pass							$	1,108,103	$	3,136,415	$	3,703,741	$	1,680,709	$	1,015,858	$	2,498,388	$	221,141	$	—	$	13,364,355
Special Mention							2,876		28,016		111,415		4,195		25,716		37,442		—		—		209,660
Substandard							580		571		11,962		62,244		23,497		114,916		9,892		—		223,662
Doubtful							—		—		—		—		—		2,992		—		—		2,992
Total commercial real estate - mortgage							$	1,111,559	$	3,165,002	$	3,827,118	$	1,747,148	$	1,065,071	$	2,653,738	$	231,033	$	—	$	13,800,669


	December 31, 2016						December 31, 2019
	Commercial, Financial and Agricultural		Real Estate - Construction		Commercial Real Estate - Mortgage		Commercial, Financial and Agricultural		Real Estate - Construction		Commercial Real Estate - Mortgage
	(In Thousands)						(In Thousands)
Pass	$	23,142,975	$	2,055,483	$	10,898,877	$	23,319,645	$	1,979,310	$	13,547,273
Special Mention	758,417		60,826		187,182		543,928		67		168,679
Substandard	1,081,439		9,007		106,183		488,813		49,305		134,420
Doubtful	139,171		—		18,418		79,852		—		11,106
	$	25,122,002	$	2,125,316	$	11,210,660	$	24,432,238	$	2,028,682	$	13,861,478


	Consumer												Consumer
	September 30, 2017												June 30, 2020
	Residential Real Estate – Mortgage		Equity Lines of Credit		Equity Loans		Credit Card		Consumer Direct		Consumer Indirect		Recorded Investment of Term Loans by Origination Year
	(In Thousands)												2020		2019		2018		2017		2016		Prior		Recorded Investment of Revolving Loans		Recorded Investment of Revolving Loans Converted to Term Loans		Total
													(In Thousands)
Residential real estate - mortgage
Performing	$	13,219,631	$	2,580,717	$	371,092	$	580,283	$	1,596,441	$	3,021,453	$	1,778,398	$	2,378,147	$	1,187,383	$	1,246,869	$	1,378,435	$	5,277,052	$	—	$	—	$	13,246,284
Nonperforming	178,872		36,595		12,284		10,692		7,955		17,725		245		1,807		7,075		15,817		12,638		145,273		—		—		182,855
	$	13,398,503	$	2,617,312	$	383,376	$	590,975	$	1,604,396	$	3,039,178
Total residential real estate - mortgage													$	1,778,643	$	2,379,954	$	1,194,458	$	1,262,686	$	1,391,073	$	5,422,325	$	—	$	—	$	13,429,139
Equity lines of credit
Performing													$	—	$	—	$	—	$	—	$	—	$	—	$	2,474,784	$	3,580	$	2,478,364
Nonperforming													—		—		—		—		—		—		38,282		188		38,470
Total equity lines of credit													$	—	$	—	$	—	$	—	$	—	$	—	$	2,513,066	$	3,768	$	2,516,834
Equity loans
Performing													$	4,046	$	14,382	$	11,636	$	5,168	$	4,271	$	161,777	$	—	$	—	$	201,280
Nonperforming													12		—		435		150		—		8,103		—		—		8,700
Total equity loans													$	4,058	$	14,382	$	12,071	$	5,318	$	4,271	$	169,880	$	—	$	—	$	209,980
Credit card
Performing													$	—	$	—	$	—	$	—	$	—	$	—	$	943,438	$	—	$	943,438
Nonperforming													—		—		—		—		—		—		22,134		—		22,134
Total credit card													$	—	$	—	$	—	$	—	$	—	$	—	$	965,572	$	—	$	965,572
Consumer direct
Performing													$	370,822	$	598,543	$	495,109	$	140,862	$	65,830	$	25,664	$	418,031	$	—	$	2,114,861
Nonperforming													189		4,541		9,628		2,222		703		200		1,764		—		19,247
Total consumer direct													$	371,011	$	603,084	$	504,737	$	143,084	$	66,533	$	25,864	$	419,795	$	—	$	2,134,108
Consumer indirect
Performing													$	1,009,190	$	1,400,428	$	978,630	$	411,198	$	136,449	$	138,327	$	—	$	—	$	4,074,222
Nonperforming													541		4,933		10,653		6,838		3,920		3,497		—		—		30,382
Total consumer indirect													$	1,009,731	$	1,405,361	$	989,283	$	418,036	$	140,369	$	141,824	$	—	$	—	$	4,104,604


	December 31, 2016												December 31, 2019
	Residential Real Estate -Mortgage		Equity Lines of Credit		Equity Loans		Credit Card		Consumer Direct		Consumer Indirect		Residential Real Estate -Mortgage		Equity Lines of Credit		Equity Loans		Credit Card		Consumer Direct		Consumer Indirect
	(In Thousands)												(In Thousands)
Performing	$	13,115,936	$	2,507,375	$	431,417	$	593,927	$	1,249,370	$	3,121,825	$	13,381,709	$	2,553,000	$	236,122	$	979,569	$	2,313,082	$	3,870,839
Nonperforming	144,058		36,403		14,292		10,954		5,271		13,123		152,245		39,680		8,846		22,796		25,060		41,511
	$	13,259,994	$	2,543,778	$	445,709	$	604,881	$	1,254,641	$	3,134,948	$	13,533,954	$	2,592,680	$	244,968	$	1,002,365	$	2,338,142	$	3,912,350

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


	September 30, 2017																June 30, 2020
	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		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Nonaccrual		Accruing TDRs		Total Past Due, Nonaccrual or TDR		Not Past Due, Nonaccrual or TDR		Total
	(In Thousands)																(In Thousands)
Commercial, financial and agricultural	$	51,581	$	6,351	$	6,072	$	324,071	$	1,259	$	389,334	$	24,702,608	$	25,091,942	$	51,207	$	5,130	$	8,450	$	389,615	$	1,866	$	456,268	$	28,325,856	$	28,782,124
Real estate – construction	661		94		2,955		1,877		106		5,693		2,241,451		2,247,144		12,907		—		532		13,317		64		26,820		2,271,650		2,298,470
Commercial real estate – mortgage	21,324		1,089		3,686		108,040		4,645		138,784		11,203,594		11,342,378		8,592		2,190		415		117,213		1,876		130,286		13,670,383		13,800,669
Residential real estate – mortgage	57,582		32,606		2,558		175,490		59,086		327,322		13,071,181		13,398,503		70,252		22,495		13,140		169,387		54,289		329,563		13,099,576		13,429,139
Equity lines of credit	11,118		4,824		2,179		34,416		237		52,774		2,564,538		2,617,312		8,461		8,162		3,555		34,915		—		55,093		2,461,741		2,516,834
Equity loans	3,470		1,798		840		11,305		30,574		47,987		335,389		383,376		1,311		692		148		8,457		21,280		31,888		178,092		209,980
Credit card	6,832		4,777		10,692		—		—		22,301		568,674		590,975		6,668		7,286		22,134		—		—		36,088		929,484		965,572
Consumer direct	17,563		6,796		5,209		2,746		577		32,891		1,571,505		1,604,396		19,927		10,923		11,623		7,624		16,836		66,933		2,067,175		2,134,108
Consumer indirect	81,534		23,070		8,858		8,867		—		122,329		2,916,849		3,039,178		32,519		11,162		6,166		24,216		—		74,063		4,030,541		4,104,604
Total loans	$	251,665	$	81,405	$	43,049	$	666,812	$	96,484	$	1,139,415	$	59,175,789	$	60,315,204	$	211,844	$	68,040	$	66,163	$	764,744	$	96,211	$	1,207,002	$	67,034,498	$	68,241,500

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.~~



	December 31, 2019
	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	$	29,273	$	16,462	$	6,692	$	268,288	$	1,456	$	322,171	$	24,110,067	$	24,432,238
Real estate – construction	7,603		2		571		8,041		72		16,289		2,012,393		2,028,682
Commercial real estate – mortgage	5,325		5,458		6,576		98,077		3,414		118,850		13,742,628		13,861,478
Residential real estate – mortgage	72,571		21,909		4,641		147,337		57,165		303,623		13,230,331		13,533,954
Equity lines of credit	15,766		6,581		1,567		38,113		—		62,027		2,530,653		2,592,680
Equity loans	2,856		1,028		195		8,651		23,770		36,500		208,468		244,968
Credit card	11,275		9,214		22,796		—		—		43,285		959,080		1,002,365
Consumer direct	33,658		20,703		18,358		6,555		12,438		91,712		2,246,430		2,338,142
Consumer indirect	83,966		28,430		9,730		31,781		—		153,907		3,758,443		3,912,350
Total loans	$	262,293	$	109,787	$	71,126	$	606,843	$	98,315	$	1,148,364	$	62,798,493	$	63,946,857

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.

In response to the COVID-19 pandemic, beginning in March 2020, the Company began providing financial hardship relief in the form of payment deferrals and forbearances to consumer and commercial customers across a wide array of lending products, as well as the suspension of vehicle repossessions and home foreclosures. The payment deferrals and forbearances generally cover periods of three to six months. In most cases as allowed under the CARES Act, these offers are not classified as TDRs and do not result in loans being placed on nonaccrual status. For loans that receive a payment deferral or forbearance under these hardship relief programs, the Company continues to accrue interest and recognize interest income during the period of the deferral. Depending on the terms of each program, all or a portion of this accrued interest may be paid directly by the borrower (either during the relief period, at the end of the relief period or at maturity of the loan). For certain programs, the maturity date of the loan may also be extended by the

number of payments deferred. Interest income will continue to be recognized at the original contractual interest rate unless that rate is concurrently modified upon entering the relief program (in which case, the modified rate would be used to recognize interest). At June 30, 2020, the Company had granted loan deferrals on approximately 63 thousand loans with an amortized cost of $7.2 billion. Deferred principal and interest balances at June 30, 2020 were $129.7 million and $77.1 million, respectively.

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 ~~September~~June 30, ~~2017,~~ ~~$3.3~~2020, $4.3 million of TDR

modifications included an interest rate concession and ~~$102.3~~$25.5 million of TDR modifications resulted from modifications to the loan’s structure. During the three months ended ~~September~~June 30, ~~2016, $1.2~~2019, $4.8 million of TDR modifications included an interest rate concession and ~~$36.5~~$17.0 million of TDR modifications resulted from modifications to the loan’s structure. During the ~~nine~~six months ended ~~September~~June 30, ~~2017, $5.2~~2020, $9.5 million of TDR modifications included an interest rate concession and ~~$212.5~~$69.1 million of TDR modifications resulted from modifications to the loan’s structure. During the ~~nine~~six months ended ~~September~~June 30, ~~2016, $4.2~~2019, $9.5 million of TDR modifications included an interest rate concession and ~~$49.8~~$32.8 million of TDR modifications resulted from modifications to the loan’s structure.

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


	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Three Months Ended June 30, 2020			Three Months Ended June 30, 2019
	Number of Contracts	Post-Modification Outstanding Recorded Investment		Number of Contracts	Post-Modification Outstanding Recorded Investment		Number of Contracts	Post-Modification Outstanding Recorded Investment		Number of Contracts	Post-Modification Outstanding Recorded Investment
	(Dollars in Thousands)						(Dollars in Thousands)
Commercial, financial and agricultural	11	$	103,223	4	$	31,676	1	$	24,477	3	$	15,349
Real estate – construction	—	—		1	112		—	—		—	—
Commercial real estate – mortgage	—	—		—	—		1	557		4	2,523
Residential real estate – mortgage	9	1,665		21	2,868		7	978		16	1,818
Equity lines of credit	7	368		30	1,468		7	363		2	94
Equity loans	10	342		6	635		1	58		3	231
Credit card	—	—		—	—		—	—		—	—
Consumer direct	—	—		2	15		45	3,349		55	1,796
Consumer indirect	1	5		56	917		—	—		—	—
Covered loans	—	—		—	—

							Six Months Ended June 30, 2020			Six Months Ended June 30, 2019
							Number of Contracts	Post-Modification Outstanding Recorded Investment		Number of Contracts	Post-Modification Outstanding Recorded Investment
							(Dollars in Thousands)
Commercial, financial and agricultural							11	$	65,715	6	$	26,919
Real estate – construction							—	—		—	—
Commercial real estate – mortgage							3	2,297		4	2,523
Residential real estate – mortgage							15	1,822		36	7,051
Equity lines of credit							8	399		2	94
Equity loans							2	250		7	407
Credit card							—	—		—	—
Consumer direct							134	8,111		68	5,315
Consumer indirect							—	—		—	—

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Number of Contracts Post-Modification Outstanding Recorded Investment Number of Contracts Post-Modification Outstanding Recorded Investment
(Dollars in Thousands)
Commercial, financial and agricultural 24
$ 205,387
9
$ 32,026
Real estate – construction —
—
2
3,504
Commercial real estate – mortgage 2
502
5
1,431
Residential real estate – mortgage 44
8,763
59
10,654
Equity lines of credit 34
1,708
66
3,237
Equity loans 26
1,031
15
1,129
Credit card —
—
—
—
Consumer direct —
—
3
24
Consumer indirect 14
209
119
1,999
Covered loans 2
103
—
—

~~Charge-offs and changes~~The impact to the allowance for loan losses related to modifications classified as TDRs was approximately $(108) thousand and $7.9 million for the three months ended June 30, 2020 and June 30, 2019, respectively. The impact to the

allowance for loan losses related to modifications classified as TDRs were ~~approximately $20.3~~$5.2 million and ~~$26.1~~$11.6 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2020 and June 30, 2019, respectively. ~~For the three and nine months ended September 30, 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.

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


	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Three Months Ended June 30, 2020			Three Months Ended June 30, 2019
	Number of Contracts	Recorded Investment at Default		Number of Contracts	Recorded Investment at Default		Number of Contracts	Recorded Investment at Default		Number of Contracts	Recorded Investment at Default
	(Dollars in Thousands)						(Dollars in Thousands)
Commercial, financial and agricultural	—	$	—	—	$	—	—	$	—	—	$	—
Real estate – construction	—	—		—	—		—	—		—	—
Commercial real estate – mortgage	—	—		—	—		—	—		—	—
Residential real estate – mortgage	—	—		—	—		1	98		1	221
Equity lines of credit	—	—		8	204		1	65		—	—
Equity loans	—	—		1	42		—	—		—	—
Credit card	—	—		—	—		—	—		—	—
Consumer direct	—	—		—	—		1	18		1	1,995
Consumer indirect	—	—		1	13		—	—		—	—
Covered loans	—	—		—	—

							Six Months Ended June 30, 2020			Six Months Ended June 30, 2019
							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							2	182		1	221
Equity lines of credit							1	65		—	—
Equity loans							—	—		2	151
Credit card							—	—		—	—
Consumer direct							5	235		3	2,010
Consumer indirect							—	—		—	—

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 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 —
—
8
204
Equity loans 2
51
1
42
Credit card —
—
—
—
Consumer direct —
—
—
—
Consumer indirect 1
22
2
32
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,~~At June 30, 2020 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 September 30, 2017 and~~ December 31, ~~2016~~,2019, there were ~~$8.0~~$41.3 million and ~~$12.6~~$43.8 million,, respectively, of commitments to lend additional funds to borrowers whose terms have been modified in a TDR.

Foreclosure Proceedings

OREO totaled $15 million and $22 million ~~and $21 million~~ at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. OREO included ~~$16~~$8 million and ~~$18~~$14 million of foreclosed residential real estate properties at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were ~~$59~~$40 million and ~~$48~~$57 million, respectively, of ~~residential real estate~~ loans secured by residential real estate properties for which formal foreclosure proceedings were in process.

(4) Loan Sales and Servicing

Loans held for sale were ~~$78~~$246 million and ~~$162~~$112 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016, respectively.~~

~~Loans held for sale at September 30, 2017,~~2019, respectively, and 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 September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
	(In Thousands)								(In Thousands)
Loans transferred from held for investment to held for sale	$	—	$	—	$	—	$	764,022	$	—	$	—	$	—	$	1,196,883
Charge-offs on loans recognized at transfer from held for investment to held for sale	—		—		—		—		—		—		—		—
Loans and loans held for sale sold	—		121,745		175,088		1,007,096		—		936,624		—		1,081,298

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
	(In Thousands)								(In Thousands)
Residential real estate loans originated for sale in the secondary market sold (1)	$	164,075	$	199,073	$	496,891	$	482,860	$	316,119	$	180,668	$	519,949	$	300,390
Net gains recognized on sales of residential real estate loans originated for sale in the secondary market (2)	7,322		9,024		19,178		21,705		17,498		7,509		26,273		12,644
Servicing fees recognized (2)									2,568		2,632		5,176		5,304


(1)	~~Includes~~The Company has retained servicing responsibilities for all loans sold that were originated for sale ~~where~~in the ~~Company retained servicing responsibilities.~~secondary market.


(2)	~~Net gains were recorded in~~Recorded as a component of 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 September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In Thousands)
Residential real estate mortgage loans sold with retained servicing $ 164,075
$ 199,073
$ 496,891
$ 798,756
Servicing fees recognized (1) 6,173
6,710
19,083
19,376


~~(1)~~	~~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.


	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Recorded balance of residential real estate mortgage loans sold with retained servicing (1)	$	4,652,024	$	4,684,899	$	4,479,225	$	4,534,202
MSRs (2)	48,550		51,428		29,035		42,022


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


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

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 September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
	(In Thousands)												(In Thousands)
Carrying value, at beginning of period	$	49,398		$	36,496		$	51,428		$	44,541		$	31,232		$	47,545		$	42,022		$	51,539
Additions	1,729			1,933			5,328			7,583			2,739			1,646			4,410			2,705
Increase (decrease) in fair value:
Due to changes in valuation inputs or assumptions	721			3,250			(100		)	(5,391		)	(2,674		)	(4,691		)	(12,814		)	(7,034		)
Due to other changes in fair value (1)	(3,298		)	(2,652		)	(8,106		)	(7,706		)	(2,262		)	(2,534		)	(4,583		)	(5,244		)
Carrying value, at end of period	$	48,550		$	39,027		$	48,550		$	39,027		$	29,035		$	41,966		$	29,035		$	41,966


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

See Note 8,9, Fair Value ~~of Financial Instruments,~~Measurements, for additional disclosures related to the assumptions and estimates used in determining fair value of MSRs.

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, 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:


	September 30, 2017			December 31, 2016			June 30, 2020			December 31, 2019
	(Dollars in Thousands)						(Dollars in Thousands)
Fair value of MSRs	$	48,550		$	51,428		$	29,035		$	42,022
Composition of residential loans serviced for others:
Fixed rate mortgage loans	97.4		%	97.3		%	98.3		%	98.1		%
Adjustable rate mortgage loans	2.6			2.7			1.7			1.9
Total	100.0		%	100.0		%	100.0		%	100.0		%
Weighted average life (in years)	6.1			6.5			3.4			4.6
Prepayment speed:	11.3		%	15.7		%	21.1		%	16.9		%
Effect on fair value of a 10% increase	$	(1,531	)	$	(1,646	)	$	(2,058	)	$	(2,906	)
Effect on fair value of a 20% increase	(2,970		)	(3,184		)	(3,891		)	(5,043		)
Weighted average option adjusted spread:	8.2		%	8.1		%	6.2		%	6.4		%
Effect on fair value of a 10% increase	$	(1,720	)	$	(1,758	)	$	(560	)	$	(1,159	)
Effect on fair value of a 20% increase	(3,315		)	(3,402		)	(1,098		)	(1,812		)

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.

(5) Goodwill

A summary of the activity related to the Company’s goodwill follows.



	(In Thousands)
Balance, at December 31, 2018
Goodwill	$	9,835,400
Accumulated impairment losses	(4,852,104		)
Goodwill, net at December 31, 2018	4,983,296
Impairment losses	(470,000		)
Balance, at December 31, 2019
Goodwill	9,835,400
Accumulated impairment losses	(5,322,104		)
Goodwill, net at December 31, 2019	4,513,296
Impairment losses	(2,185,000		)
Balance, at June 30, 2020
Goodwill	9,835,400
Accumulated impairment losses	(7,507,104		)
Goodwill, net at June 30, 2020	$	2,328,296

Goodwill is allocated to each of the Company's segments (each a reporting unit: Commercial Banking and Wealth, Retail Banking, and Corporate and Investment Banking).

At June 30, 2020 and December 31, 2019, the goodwill, net of accumulated impairment losses, attributable to each of the Company’s three identified reporting units is as follows:



	June 30, 2020		December 31, 2019
	(In Thousands)
Commercial Banking and Wealth	$	1,930,830	$	2,659,830
Retail Banking	135,660		1,427,660
Corporate and Investment Banking	261,806		425,806

Through June 30, 2020, the Company had recognized accumulated goodwill impairment losses of $3.2 billion, $2.7 billion, and $883 million within the Commercial Banking and Wealth, Retail Banking, and Corporate and Investment Banking reporting units, respectively. In addition, the Company has previously recognized $784 million of accumulated goodwill impairment losses from reporting units that no longer have a goodwill balance.

In accordance with the applicable accounting guidance, the Company performs annual tests to identify potential impairment of goodwill. The tests are required to be performed annually and more frequently if events or circumstances indicate a potential impairment may exist. The Company compares the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

The estimated fair value of the reporting unit is determined using a blend of both income and market approaches.

The Company completed its annual goodwill impairment test as of October 31, 2019. Additionally, on a quarterly basis, the Company evaluates whether a triggering event has occurred. During the three months ended March 31, 2020, the Company performed an interim impairment test due to the impact of COVID-19 pandemic on the economic environment. The interim impairment test indicated a goodwill impairment of $164 million within the Corporate and Investment Banking reporting unit, $729 million within the Commercial Banking and Wealth reporting unit, and $1.3 billion within the Retail Banking reporting unit resulting in the Company recording a goodwill impairment charge of $2.2 billion for the three months ended March 31, 2020. The primary causes of the goodwill impairment were economic and industry conditions, volatility in the market capitalization of U.S. banks, and management's downward revisions

to financial projections that resulted in the fair value of the reporting units being less than the carrying value of the reporting units.

At June 30, 2020, the Company assessed events and circumstances as it related to the continued impact of COVID-19 on the Company during the three months ended June 30, 2020, including: recent operating performance compared to revised financial projections, market conditions, regulatory actions and assessment, change in the business climate, company-specific factors, and trends in the banking industry. After assessing the indicators noted above, the Company determined that it was not more likely than not that the fair value of each reporting unit had declined below their carrying value as of June 30, 2020. Therefore, the Company determined that a test of goodwill impairment was not required for each of the reporting units for the June 30, 2020 interim period. The Company will continue to monitor for indicators of impairment throughout 2020 as the impact of the COVID-19 pandemic is highly uncertain and cannot be predicted.

(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 Company has made an accounting policy decision not to 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,~~2019, for additional information on the Company's accounting policies related to derivative instruments and hedging activities. For derivatives cleared through central clearing houses the variation margin payments made are legally characterized as settlements of the derivatives. As a result, these variation margin payments are netted against the fair value of the respective derivative contracts in the balance sheet and related disclosures and there is no fair value presented for these contracts. 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.


	September 30, 2017 (4)						December 31, 2016						June 30, 2020						December 31, 2019
			Fair Value						Fair Value						Fair Value						Fair Value
	Notional Amount		Derivative Assets (1)		Derivative Liabilities (2)		Notional Amount		Derivative Assets (1)		Derivative Liabilities (2)		Notional Amount		Derivative Assets (1)		Derivative Liabilities (2)		Notional Amount		Derivative Assets (1)		Derivative Liabilities (2)
	(In Thousands)												(In Thousands)
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate swaps related to long-term debt	$	2,473,950	$	24,296	$	14,323	$	2,123,950	$	38,890	$	14,226	$	3,496,086	$	12,993	$	841	$	3,623,950	$	10,633	$	354
Total fair value hedges			24,296		14,323				38,890		14,226				12,993		841				10,633		354
Cash flow hedges:
Interest rate contracts:
Swaps related to commercial loans	9,175,000		45		24,178		7,625,000		2,340		11,570		10,000,000		—		—		10,000,000		—		—
Swaps related to FHLB advances	120,000		—		5,950		120,000		—		7,093		120,000		—		3,802		120,000		—		2,864
Foreign currency contracts:
Forwards related to currency fluctuations	1,543		340		—		3,618		—		380		2,341		—		303		2,597		102		—
Total cash flow hedges			385		30,128				2,340		19,043				—		4,105				102		2,864
Total derivatives designated as hedging instruments			$	24,681	$	44,451			$	41,230	$	33,269			$	12,993	$	4,946			$	10,735	$	3,218

Free-standing derivatives not designated as hedging instruments:	Free-standing derivatives not designated as hedging instruments:												Free-standing derivatives not designated as hedging instruments:
Interest rate contracts:
Forward contracts related to held for sale mortgages	$	173,500	$	180	$	199	$	251,500	$	2,479	$	493	$	781,547	$	471	$	3,941	$	289,990	$	148	$	514
Option contracts related to mortgage servicing rights	45,000		77		—		—		—		—		—		—		—		60,000		38		—
Interest rate lock commitments	144,240		2,924		1		150,616		2,424		32		646,831		20,743		—		146,941		3,088		—
Equity contracts:
Purchased equity option related to equity-linked CDs	815,307		42,415		—		833,763		57,198		—		77,866		1,868		—		152,130		4,460		—
Written equity option related to equity-linked CDs	730,504		—		38,351		770,632		—		53,044		64,318		—		1,555		128,620		—		3,765
Foreign exchange contracts:
Forwards and swaps related to commercial loans	404,986		2,215		1,874		424,155		3,741		1,723		470,982		1,523		4,283		443,493		167		3,872
Spots related to commercial loans	31,680		62		—		54,599		134		—		14,060		—		25		48,626		7		68
Swap associated with sale of Visa, Inc. Class B shares	92,139		—		2,303		68,308		—		1,708		166,507		—		6,466		161,904		—		5,904
Futures contracts (3)	795,000		—		—		104,000		—		—		2,330,000		—		—		2,110,000		—		—
Trading account assets and liabilities:
Interest rate contracts for customers	30,771,530		224,561		174,414		28,000,014		290,238		228,748		41,433,070		789,245		177,644		35,503,973		313,573		97,881
Foreign exchange contracts for customers	1,039,862		15,696		13,851		870,084		28,367		26,317		1,301,664		51,097		48,406		1,039,507		22,766		20,678
Total trading account assets and liabilities			240,257		188,265				318,605		255,065				840,342		226,050				336,339		118,559
Total free-standing derivative instruments not designated as hedging instruments			$	288,130	$	230,993			$	384,581	$	312,065			$	864,947	$	242,320			$	344,247	$	132,682


(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~~. 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.

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 and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~,2019, related to hedged firm commitments no longer qualifying as a fair value hedge. At ~~September~~June 30, ~~2017,~~2020, the fair value hedges had a weighted average expected remaining term of ~~4.2~~3.0 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 September 30, Nine Months Ended September 30,
Statements of Income Caption 2017 2016 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 $ (6,637 ) $ (20,209 ) $ (14,691 ) $ 45,101
Hedged long term debt Interest on FHLB and other borrowings 6,614
19,246
14,532
(39,978 )
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 7,690
10,489
24,239
31,834

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 $202 thousand and $229 thousand of cash flow hedging losses recognized because of hedge ineffectiveness for the three and nine months ended September 30, 2017, respectively, and there was~~were no ~~material cash flow hedging gains or losses recognized because of hedge ineffectiveness for the three and nine months ended September 30, 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 and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~.2019.

At ~~September~~June 30, ~~2017,~~2020, cash flow hedges not terminated had a net fair value of ~~$(29.7)~~$(4) million and a weighted average life of ~~1.2~~2.7 years. Net ~~losses~~gains of ~~$42.0~~$172.1 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 ~~3.8~~3.9 years.

The following table presents the effect of hedging 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
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(In Thousands)
Interest rate and foreign currency exchange contracts:
Net change in amount recognized in other comprehensive income $ 855
$ (1,461 ) $ (9,172 ) $ 1,728
Amount reclassified from accumulated other comprehensive income (loss) into net income (2,835 ) 702
5,043
1,678
Amount of ineffectiveness recognized in net income 202
—
229
—



	Interest Income			Interest Expense
	Interest and fees on loans			Interest on FHLB and other borrowings
	(In Thousands)
Three Months Ended June 30, 2020
Total amounts presented in the unaudited condensed consolidated statements of income	$	669,767		$	21,936

Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements and amortization on derivatives	$	—		$	6,294
Recognized on derivatives	—			7,061
Recognized on hedged items	—			(8,462		)
Net income (expense) recognized on fair value hedges	$	—		$	4,893

Gain (losses) on cash flow hedging relationships: (1)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income (2)	$	33,833		$	(590	)
Net income (expense) recognized on cash flow hedges	$	33,833		$	(590	)

Three Months Ended June 30, 2019
Total amounts presented in the unaudited condensed consolidated statements of income	$	787,767		$	34,300

Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements and amortization on derivatives	$	—		$	(1,708	)
Recognized on derivatives	—			42,912
Recognized on hedged items	—			(40,868		)
Net income (expense) recognized on fair value hedges	$	—		$	336

Gain (losses) on cash flow hedging relationships: (1)
Interest rate contracts:
Realized losses reclassified from AOCI into net income (2)	$	(1,260	)	$	(161	)
Net income (expense) recognized on cash flow hedges	$	(1,260	)	$	(161	)


(1)	See Note 10, Comprehensive Income, for gain or loss recognized for cash flow hedges in accumulated other comprehensive income.


(2)	Pre-tax



	Interest Income			Interest Expense
	Interest and fees on loans			Interest on FHLB and other borrowings
	(In Thousands)
Six Months Ended June 30, 2020
Total amounts presented in the unaudited condensed consolidated statements of income	$	1,385,243		$	43,112

Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements and amortization on derivatives	$	—		$	9,659
Recognized on derivatives	—			113,005
Recognized on hedged items	—			(107,633		)
Net income (expense) recognized on fair value hedges	$	—		$	15,031

Gain (losses) on cash flow hedging relationships: (1)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income (2)	$	39,292		$	(1,009	)
Net income (expense) recognized on cash flow hedges	$	39,292		$	(1,009	)

Six Months Ended June 30, 2019
Total amounts presented in the unaudited condensed consolidated statements of income	$	1,588,255		$	71,926

Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements and amortization on derivatives	$	—		$	(4,056	)
Recognized on derivatives	—			66,946
Recognized on hedged items	—			(63,511		)
Net income (expense) recognized on fair value hedges	$	—		$	(621	)

Gain (losses) on cash flow hedging relationships: (1)
Interest rate contracts:
Realized losses reclassified from AOCI into net income (2)	$	(2,470	)	$	(330	)
Net income (expense) recognized on cash flow hedges	$	(2,470	)	$	(330	)


(1)	See Note 10, Comprehensive Income, for gain or loss recognized for cash flow hedges in accumulated other comprehensive income.


(2)	Pre-tax

The following tables present the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities on the Company's Unaudited Condensed Consolidated Balance Sheets in fair value hedging relationships.



	June 30, 2020
			Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Liabilities
	Carrying Amount of Hedged Liabilities		Hedged Items Currently Designated		Hedged Items No Longer Designated
	(In Thousands)
FHLB and other borrowings	$	3,258,201	$	132,676	$	1,280



	December 31, 2019
			Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Liabilities
	Carrying Amount of Hedged Liabilities		Hedged Items Currently Designated		Hedged Items No Longer Designated
	(In Thousands)
FHLB and other borrowings	$	3,483,177	$	25,092	$	1,883

Derivatives Not Designated As Hedges

Derivatives not designated as hedges include those that are entered into as either economic hedges to facilitate client needs or as part of the Company’s overall risk management strategy. 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 holds a portfolio of futures, forwards and interest rate lock commitments as well as options related to its equity-linked CDs to mitigate its economic risk exposure. 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~~See Note 13, Derivatives and Hedging, in the ~~trading account is~~Notes 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~~the December 31, 2019, Consolidated Financial Statements for a description 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~~Company's derivatives not designated 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.~~hedges.

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													Gain (Loss) for the
	Condensed Consolidated	Three Months Ended September 30,						Nine Months Ended September 30,						Condensed Consolidated	Three Months Ended June 30,						Six Months Ended June 30,
	Statements of Income Caption	2017			2016			2017			2016			Statements of Income Caption	2020			2019			2020			2019
		(In Thousands)													(In Thousands)
Futures contracts	Mortgage banking income and corporate and correspondent investment sales	$	(18	)	$	86		$	(1	)	$	(229	)	Mortgage banking income and corporate and correspondent investment sales	$	41		$	(800	)	$	(752	)	$	(1,379	)
Interest rate contracts:
Interest rate lock commitments														Mortgage banking income	8,333			689			17,655			1,835
Option contracts related to mortgage servicing rights														Mortgage banking income	—			734			1,528			1,028
Forward contracts related to residential mortgage loans held for sale	Mortgage banking income	(46		)	1,094			(2,005		)	(2,027		)	Mortgage banking income	2,803			40			(3,104		)	(49		)
Option contracts related to mortgage servicing rights	Mortgage banking income	(253		)	—			(391		)	(264		)
Interest rate lock commitments	Mortgage banking income	(262		)	(162		)	531			1,655
Interest rate contracts for customers	Corporate and correspondent investment sales	5,979			5,371			21,318			14,780			Corporate and correspondent investment sales	14,687			2,664			18,824			6,092
Commodity contracts:
Commodity contracts for customers	Corporate and correspondent investment sales	—			(1		)	—			(6		)
Equity contracts:
Purchased equity option related to equity-linked CDs	Other expense	(8,921		)	(3,716		)	(14,783		)	1,782			Other expense	(704		)	(3,992		)	(2,592		)	(5,009		)
Written equity option related to equity-linked CDs	Other expense	8,643			3,625			14,692			(672		)	Other expense	586			3,531			2,210			4,527
Foreign currency contracts:
Forward and swap contracts related to commercial loans	Other income	(13,107		)	(1,517		)	(36,373		)	(5,173		)	Other income	(14,790		)	(999		)	11,191			1,697
Spot contracts related to commercial loans	Other income	1,620			1,471			4,175			91			Other income	2,053			700			2,824			198
Foreign currency exchange contracts for customers	Corporate and correspondent investment sales	2,709			1,305			7,770			2,954			Corporate and correspondent investment sales	3,923			3,611			8,624			7,462

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~~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 ~~September~~June 30, ~~2017,~~2020, interest rate swap agreements and options classified as trading were substantially matched. The Company had credit risk of ~~$240~~$840 million related to derivative instruments in the trading account portfolio, 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 trading for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017. There were $2.6 million~~2020 and ~~$2.5 million of net credit losses associated with derivative instruments classified as trading for the three and nine months ended September~~2019. At June 30, ~~2016, respectively. At September 30, 2017~~2020 and December 31, ~~2016,~~2019, there were 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 ~~September~~June 30, ~~2017,~~2020, have credit risk of ~~$25~~$13 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 and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~.2019. At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, there were no nonperforming derivative positions classified as nontrading.

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, the Company had recorded the right to reclaim cash collateral of ~~$108~~$242 million and ~~$103~~$150 million,, respectively, within other assets on the Company’s Unaudited Condensed Consolidated Balance Sheets and had recorded the obligation to return cash collateral of ~~$55~~$19 million and ~~$37~~$12 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 ~~September~~June 30, ~~2017,~~2020, was ~~$30~~$87 million for which the Company has collateral requirements of ~~$29~~$85 million in the normal course of business. If the credit risk-related contingent features underlying these agreements had been triggered on ~~September~~June 30, ~~2017,~~2020, the Company’s collateral requirements to its counterparties would ~~require an additional~~ increase of ~~$1 million~~.by $2 million. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a liability position on December 31, ~~2016~~,2019, was ~~$30~~$47 million for which the Company had collateral requirements of ~~$29~~$45 million in the normal course of business. If the credit risk-related contingent features underlying these agreements had been triggered on December 31, ~~2016~~,2019, the Company’s collateral requirements to its counterparties would have increased by ~~$1 million~~.$2 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 with respect to, 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.

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		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)												(In Thousands)
September 30, 2017
June 30, 2020
Derivative financial assets:
Subject to a master netting arrangement	$	160,210	$	—	$	160,210	$	—	$	29,699	$	130,511	$	57,329	$	—	$	57,329	$	—	$	2,631	$	54,698
Not subject to a master netting arrangement	152,601		—		152,601		—		—		152,601		820,611		—		820,611		—		—		820,611
Total derivative financial assets	$	312,811	$	—	$	312,811	$	—	$	29,699	$	283,112	$	877,940	$	—	$	877,940	$	—	$	2,631	$	875,309

Derivative financial liabilities:
Subject to a master netting arrangement	$	196,021	$	—	$	196,021	$	3,264	$	107,463	$	85,294	$	207,914	$	—	$	207,914	$	—	$	207,914	$	—
Not subject to a master netting arrangement	79,423		—		79,423		—		—		79,423		39,352		—		39,352		—		—		39,352
Total derivative financial liabilities	$	275,444	$	—	$	275,444	$	3,264	$	107,463	$	164,717	$	247,266	$	—	$	247,266	$	—	$	207,914	$	39,352

December 31, 2016
December 31, 2019
Derivative financial assets:
Subject to a master netting arrangement	$	234,002	$	—	$	234,002	$	—	$	33,212	$	200,790	$	41,390	$	—	$	41,390	$	—	$	5,860	$	35,530
Not subject to a master netting arrangement	191,809		—		191,809		—		—		191,809		313,592		—		313,592		—		—		313,592
Total derivative financial assets	$	425,811	$	—	$	425,811	$	—	$	33,212	$	392,599	$	354,982	$	—	$	354,982	$	—	$	5,860	$	349,122

Derivative financial liabilities:
Subject to a master netting arrangement	$	248,669	$	—	$	248,669	$	9,685	$	102,603	$	136,381	$	94,979	$	—	$	94,979	$	—	$	94,979	$	—
Not subject to a master netting arrangement	96,665		—		96,665		—		—		96,665		40,921		—		40,921		—		—		40,921
Total derivative financial liabilities	$	345,334	$	—	$	345,334	$	9,685	$	102,603	$	233,046	$	135,900	$	—	$	135,900	$	—	$	94,979	$	40,921


(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.

(67) Securities Financing Activities

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

The Company has various financial ~~asset~~assets 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 5,6, 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,

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		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)												(In Thousands)
September 30, 2017 (2)
June 30, 2020
Securities purchased under agreements to resell:	Securities purchased under agreements to resell:												Securities purchased under agreements to resell:
Subject to a master netting arrangement	$	484,445	$	343,325	$	141,120	$	141,120	$	—	$	—	$	4,246,839	$	4,079,370	$	167,469	$	167,469	$	—	$	—

Securities sold under agreements to repurchase:	Securities sold under agreements to repurchase:												Securities sold under agreements to repurchase:
Subject to a master netting arrangement	$	388,086	$	343,325	$	44,761	$	44,761	$	—	$	—	$	4,328,851	$	4,079,370	$	249,481	$	249,481	$	—	$	—

December 31, 2016 (2)
December 31, 2019
Securities purchased under agreements to resell:	Securities purchased under agreements to resell:												Securities purchased under agreements to resell:
Subject to a master netting arrangement	$	3,164,039	$	3,069,489	$	94,550	$	94,550	$	—	$	—	$	656,504	$	477,590	$	178,914	$	178,914	$	—	$	—

Securities sold under agreements to repurchase:	Securities sold under agreements to repurchase:												Securities sold under agreements to repurchase:
Subject to a master netting arrangement	$	3,095,655	$	3,069,488	$	26,167	$	26,167	$	—	$	—	$	650,618	$	477,590	$	173,028	$	173,028	$	—	$	—


(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.


~~(2)~~	The decrease in gross amounts recognized from December 31, 2016 to September 30, 2017, relates to a reduction in securities purchased under agreements to resell and securities sold under agreements to repurchase held by BSI.

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											Remaining Contractual Maturity of the Agreements
		Overnight and Continuous		Up to 30 days		30 - 90 days		Greater Than 90 days		Total			Overnight and Continuous		Up to 30 days		30 - 90 days		Greater Than 90 days		Total
		(In Thousands)											(In Thousands)
September 30, 2017
June 30, 2020
Securities sold under agreements to repurchase:	Securities sold under agreements to repurchase:											Securities sold under agreements to repurchase:
U.S. Treasury and other U.S. government agencies		$	275,860	$	—	$	44,761	$	—	$	320,621		$	1,610,392	$	1,870,709	$	211,000	$	636,750	$	4,328,851
Mortgage-backed securities		—		—		67,465		—		67,465			—		—		—		—		—
Total		$	275,860	$	—	$	112,226	$	—	$	388,086	��	$	1,610,392	$	1,870,709	$	211,000	$	636,750	$	4,328,851

December 31, 2016
December 31, 2019
Securities sold under agreements to repurchase:	Securities sold under agreements to repurchase:											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		$	321,310	$	—	$	—	$	305,750	$	627,060
Mortgage-backed securities		—		—		82,304		—		82,304			—		—		23,558		—		23,558
Total		$	1,408,736	$	806,526	$	880,393	$	—	$	3,095,655		$	321,310	$	—	$	23,558	$	305,750	$	650,618

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 ~~September~~June 30, ~~2017,~~2020, the fair value of collateral received related to securities purchased under agreements to resell was ~~$552~~$4.2 billion and the fair value of collateral pledged for securities sold under agreements to repurchase was $4.6 billion. At December 31, 2019, the fair value of collateral received related to securities purchased under agreements to resell

was $648 million and the fair value of collateral pledged for securities sold under agreements to repurchase was ~~$392~~$644 million. 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.

~~(7)~~(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:


	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Commitments to extend credit	$	27,548,488	$	27,070,935	$	26,651,013	$	27,725,965
Standby and commercial letters of credit	1,383,185		1,474,405		1,004,801		996,830

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.

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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the recorded amount of these deferred fees was $7$9 million and $8$7 million, respectively. The Company holds various assets as collateral supporting those commitments for which collateral is deemed necessary. At ~~September~~June 30, ~~2017,~~2020, the maximum potential amount of future undiscounted payments the Company could be required to make under outstanding standby letters of credit was ~~$1.4~~$1.0 billion. At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company had ~~reserves~~allowance for credit losses 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 ~~$81~~$137 million and ~~$77~~$67 million, respectively. See Note 1, Basis of Presentation, for discussion of the impact of the adoption of ASC 326 on the allowance for credit losses related to letters of credit and unfunded commitments.

Loan Sale Recourse

The Company has potential recourse related to specific FNMA securitizations. At both ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the amount of potential recourse was ~~$19~~$18 million of which the Company had reserved ~~$766~~$693 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 September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company had $1$2.8 million and $1.2 million, respectively, 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. 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 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.

On July 12, 2017, the Company entered into an agreement with the FDIC to terminate the Company's loss share agreement ahead of the contractual maturity. Under the terms of the agreement, the Company made a net payment of $132 million to the FDIC in July as consideration for early termination of the shared-loss agreement and settlement of the FDIC indemnification liability. The termination resulted in a $1.8 million gain for the three and nine months ended September 30, 2017 which was recorded in other noninterest income in the Company's Unaudited Condensed Consolidated Statements of Income.

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 June 2013, Compass Bank (“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 2014, ~~BBVA Compass~~the Bank was named as a defendant in a lawsuit filed in the District Court of Dallas County, Texas, David Bagwell, individually and as Trustee of the David S. Bagwell Trust, ~~v. BBVA Compass, et al.~~, wherein the plaintiff alleges that BBVA Compass wrongfully sold his loan to a third party after representing it would not do so. 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 putative class action 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~~USA, et al., wherein the plaintiffs (who are the ~~borrower~~borrowers and guarantors of the underlying ~~loan)~~loans) allege that BBVA ~~Compass~~USA wrongfully ~~disclosed the guarantors’ personal financial information in connection with the sale of the loan~~sold their loans to a third ~~party.~~party after representing that it would not do so. The plaintiffs seek unspecified monetary relief. Following trial in December 2017, the jury rendered a verdict in favor of the plaintiffs totaling $98 million. On June 27, 2018, the court entered a judgment in favor of the plaintiffs in the amount of $96 million, which includes prejudgment interest. The Bank has appealed and will vigorously contest the judgment on appeal. 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 putative class action 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.

The Company and the Bank have been named in two proceedings involving David L. Powell: one that was filed in January 2017 with the Federal Conciliation and Arbitration Labor Board of Mexico City, Mexico, David Lannon Powell Finneran v. BBVA USA Bancshares, Inc., et al., and one that was filed in April 2018 in the United States District Court for the Northern District of Texas, David L. Powell, et al. v. BBVA USA. Powell alleges discrimination and wrongful termination in both proceedings, and seeks 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~~March 2019, the Company and its subsidiary, Simple Finance Technology Corp., were named as defendants in a ~~defendant in an adversary proceeding~~putative class action lawsuit filed in the United States ~~Bankruptcy~~District Court for the ~~Southern~~Northern District of ~~New York,~~California, ~~In re: SunEdison,~~Amitahbo Chattopadhyay v. BBVA USA Bancshares, Inc., et ~~al. // Official Committee~~al. Plaintiff claims that Simple and the Company only permit United States citizens to open Simple accounts (which are exclusively originated through online channels). Plaintiff has recently amended the complaint and now also takes issue with BBVA USA’s practice of ~~Unsecured Creditors v. BBVA Compass, et al., wherein~~directing non-citizen applicants to complete the ~~plaintiffs allege~~online account origination processes in a physical branch location. Plaintiff alleges that ~~the first-lien lenders (including BBVA Compass) exercised undue influence~~these practices constitute alienage discrimination and ~~control over SunEdison’s bankruptcy,~~violations of California's Unruh Act. The Company believes that ~~SunEdison improperly incurred secured debt through second-lien secured notes~~there are substantial defenses to ~~the detriment of SunEdison’s unsecured creditors shortly before SunEdison filed its bankruptcy petition,~~these claims and that the second-lien notes constitute avoidable fraudulent transfers under the Bankruptcy Code. The plaintiffs seek unspecified monetary relief. The parties reached a settlement that was approved by the Bankruptcy Court on July 25, 2017. The settlement will be fully consummated on or before November 15, 2017.intends to defend them vigorously.

In ~~December 2016, BBVA Compass~~July 2019, the Company 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~~Ferguson v. BBVA ~~Compass~~USA Bancshares, Inc. ~~and MSR Group, LLC~~, ~~alleging violations~~wherein the plaintiffs allege certain investment options within the Company’s employee retirement plan violate provisions 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.ERISA. The plaintiffs seek unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In April 2020, the Bank was named in a putative class action lawsuit filed in the District Court of Bexar County, Texas styled Zamora-Orduna Realty Group LLC v. BBVA USA, wherein plaintiffs allege the Bank tortiously failed to process certain loan requests submitted in connection with the federal Paycheck Protection Program. The plaintiffs seek an amount not less than $10 million along with other demands for unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In ~~August 2017, BSI~~April 2020, BBVA USA was named as a defendant in a ~~putative class action~~ lawsuit filed in the United States District Court for the Eastern District of ~~Connecticut,~~Texas, Marshall Division originally styled ~~Ontario Teachers’ Pension Plan Board, individually and on behalf of all others similarly situated~~Estech Systems, Inc. v. ~~Teva Pharmaceutical Industries Ltd., et al.~~BBVA USA Bancshares, Inc., ~~wherein~~alleging that BBVA USA has violated intellectual property rights owned by the ~~plaintiffs allege~~plaintiff in connection with various patents regarding voice-over-internet protocols (VoIP). The plaintiff alleges that Teva Pharmaceutical Industries Ltd. (“Teva”), its officers and directors, and the underwriting defendants (including BSI) made inaccurate and misleading statements in the offering materials related to Teva’s role in an alleged conspiracy to inflate the market pricesBBVA USA’s use of certain ~~generic drug products.~~phone systems and technologies violate its claimed patent rights. The ~~plaintiffs seek~~plaintiff seeks unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In ~~August 2017,~~June 2020, BBVA ~~Compass~~USA was named as a defendant in a ~~lawsuit filed in the United States District Court for the Northern District of Texas,~~ ~~United States of America ex rel. Edward Hendrickson v. BBVA Compass, et al.~~, alleging that the defendant banks, including BBVA Compass, violated the federal False Claims Act by accepting federal agency benefit payments into the accounts of deceased customers. Hendrickson seeks unspecified monetary relief on behalf of the United States government. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

~~In September 2017, BBVA Compass was named as a defendant in~~ putative class action lawsuit filed in the United States District Court for the ~~Northern~~Southern District of ~~Illinois,~~California styled ~~Lara Bellissimo, individually and on behalf of similarly situated individuals~~Sarah Hill v. BBVA ~~Compass~~USA, ~~alleging violations~~challenging BBVA USA’s assessment of ~~the Telephone Consumer Protection Act in the context of calls to the cell phones of individuals who were not the individuals that provided the phone numbers to BBVA Compass.~~certain overdraft fees. 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 a probable loss is not reasonably estimable, the Company does not accrue legal reserves. At ~~September~~June 30, ~~2017,~~2020, the Company had accrued legal reserves in the amount of $2$24 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~~“remote" if “the chance of the future event or events occurring is slight.” ~~At September 30, 2017, there were no such~~For a limited number of legal matters ~~where~~in which the Company is involved, the Company is able to estimate a ~~loss was reasonably possible and reasonably estimable, creating~~range of reasonably possible losses ~~beyond~~in excess of related reserves, if any. Management currently estimates these losses to range from $0 to approximately $76 million. This estimated range of reasonably possible losses is based on information available at June 30, 2020. The matters underlying the ~~accrued legal reserves.~~estimated range will change from time to time, and the actual results may vary significantly from this estimate. Those matters for which an estimate is not possible are not included within this estimated range; therefore, this estimated range does not represent the Company’s maximum loss exposure.

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.

~~(8)~~(9) Fair Value ~~of Financial Instruments~~Measurements

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 an asset or paid to transfer a liabilitySee Note 19, Fair Value Measurements, 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 significantNotes 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~~December 31, 2019, Consolidated Financial Statements 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 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.

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 September 30, 2017 and December 31, 2016, no 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 or (losses) of $98 thousand and $(478) thousand resulting from changes in fair value of these loans were recorded in noninterest income during the three months ended September 30, 2017 and 2016, respectively. Net gains of $1.2 million and $2.1 million resulting from changes in fair value of these loans were recorded in noninterest income during the nine months ended September 30, 2017 and 2016, respectively.

The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately $(46) thousand and $1.1 million for the three months ended September 30, 2017 and 2016, respectively. The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately $(2.0) million for both the nine months ended September 30, 2017 and 2016. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

~~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)
September 30, 2017
Residential mortgage loans held for sale $ 77,783
$ 75,192
$ 2,591
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~~ ~~– A component of other assets~~ measured at fair value on a recurring ~~basis~~ and classified within Level 3 of the fair value hierarchy are 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~~ – A component of other assets measured at fair value on a recurring basis and classified within Level 3 of the fair value hierarchy are 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.~~

non-recurring basis.

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 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		Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	September 30, 2017		(Level 1)		(Level 2)		(Level 3)		June 30, 2020		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)								(In Thousands)
Recurring fair value measurements
Assets:
Trading account assets:
U.S. Treasury and other U.S. government agencies	$	330,919	$	330,919	$	—	$	—	$	176,614	$	176,614	$	—	$	—
State and political subdivisions	297		—		297		—		10		—		10		—
Other debt securities	68		—		68		—
Interest rate contracts	224,561		—		224,561		—		789,245		—		789,245		—
Foreign exchange contracts	15,696		—		15,696		—		51,097		—		51,097		—
Other trading assets	563		—		—		563
Total trading account assets	572,104		330,919		240,622		563		1,016,966		176,614		840,352		—
Investment securities available for sale:
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	3,679,690		2,669,033		1,010,657		—		2,217,738		1,730,483		487,255		—
Mortgage-backed securities	3,038,317		—		3,038,317		—		1,096,745		—		1,096,745		—
Collateralized mortgage obligations	5,100,041		—		5,100,041		—		2,449,995		—		2,449,995		—
States and political subdivisions	2,394		—		2,394		—		714		—		714		—
Other debt securities	17,748		17,748		—		—
Equity securities (1)	440		89		—		351
Total investment securities available for sale	11,838,630		2,686,870		9,151,409		351
Total debt securities available for sale									5,765,192		1,730,483		4,034,709		—
Loans held for sale	77,783		—		77,783		—		245,851		—		245,851		—
Derivative assets:
Interest rate contracts	27,522		77		24,521		2,924		34,207		—		13,464		20,743
Equity contracts	42,415		—		42,415		—		1,868		—		1,868		—
Foreign exchange contracts	2,617		—		2,617		—		1,523		—		1,523		—
Total derivative assets	72,554		77		69,553		2,924		37,598		—		16,855		20,743
Other assets - MSR	48,550		—		—		48,550
Other assets - SBIC	32,745		—		—		32,745
Other assets:
Equity securities									18,890		18,890		—		—
MSR									29,035		—		—		29,035
SBIC									152,784		—		—		152,784
Liabilities:
Trading account liabilities:
U.S. Treasury and other U.S. government agencies	$	327,539	$	327,539	$	—	$	—	$	1,619	$	1,619	$	—	$	—
Interest rate contracts	174,414		—		174,414		—		177,644		—		177,644		—
Foreign exchange contracts	13,851		—		13,851		—		48,406		—		48,406		—
Total trading account liabilities	515,804		327,539		188,265		—		227,669		1,619		226,050		—
Derivative liabilities:
Interest rate contracts	44,651		—		44,650		1		8,584		—		8,584		—
Equity contracts	38,351		—		38,351		—		1,555		—		1,555		—
Foreign exchange contracts	1,874		—		1,874		—		4,611		—		4,611		—
Total derivative liabilities	84,876		—		84,875		1		14,750		—		14,750		—


~~(1)~~	~~Excludes $430 million of FHLB and Federal Reserve stock required to be owned by the Company at September 30, 2017. These securities are carried at par.~~


			Fair Value Measurements at the End of the Reporting Period Using								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		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)		December 31, 2019		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)								(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	$	—	$	—	$	137,637	$	137,637	$	—	$	—
State and political subdivisions	219		—		219		—
Other debt securities	4,120		—		4,120		—
Interest rate contracts	290,238		—		290,238		—		313,573		—		313,573		—
Foreign exchange contracts	28,367		—		28,367		—		22,766		—		22,766		—
Other trading assets	859		—		—		859
Total trading account assets	3,144,600		2,820,797		322,944		859		473,976		137,637		336,339		—
Investment securities available for sale:
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	2,374,331		1,266,564		1,107,767		—		3,127,525		2,598,471		529,054		—
Mortgage-backed securities	3,763,338		—		3,763,338		—		1,325,857		—		1,325,857		—
Collateralized mortgage obligations	5,098,928		—		5,098,928		—		2,781,125		—		2,781,125		—
States and political subdivisions	8,641		—		8,641		—		798		—		798		—
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
Total debt securities available for sale									7,235,305		2,598,471		4,636,834		—
Loans held for sale	105,257		—		105,257		—		112,058		—		112,058		—
Derivative assets:
Interest rate contracts	46,133		—		43,709		2,424		13,907		38		10,781		3,088
Equity contracts	57,198		—		57,198		—		4,460		—		4,460		—
Foreign exchange contracts	3,875		—		3,875		—		276		—		276		—
Total derivative assets	107,206		—		104,782		2,424		18,643		38		15,517		3,088
Other assets - MSR	51,428		—		—		51,428
Other assets - SBIC	15,639		—		—		15,639
Other assets:
Equity securities									19,038		19,038		—		—
MSR									42,022		—		—		42,022
SBIC									119,475		—		—		119,475
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		—		$	97,881	$	—	$	97,881	$	—
Foreign exchange contracts	26,317		—		26,317		—		20,678		—		20,678		—
Total trading account liabilities	3,008,042		2,750,085		257,957		—		118,559		—		118,559		—
Derivative liabilities:
Interest rate contracts	33,414		—		33,382		32		3,732		—		3,732		—
Equity contracts	53,044		—		53,044		—		3,765		—		3,765		—
Foreign exchange contracts	2,103		—		2,103		—		3,940		—		3,940		—
Total derivative liabilities	88,561		—		88,529		32		11,437		—		11,437		—


~~(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.~~

There were no transfers between Levels 1 or 2 of the fair value hierarchy for the three and nine months ended September 30, 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~~tables reconcile 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)														Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three Months Ended September 30,	Other Trading Assets			Equity Securities			Interest Rate Contracts, net			Other Assets - MSR			Other Assets - SBIC
Three Months Ended June 30,															Interest Rate Contracts, net		Other Assets - MSR			Other Assets - SBIC
	(In Thousands)														(In Thousands)
Balance, June 30, 2016	$	1,031		$	294		$	4,691		$	36,496		$	—
Balance, March 31, 2019															$	3,158	$	47,545		$	93,343
Transfers into Level 3	—			—			—			—			—		—		—			—
Transfers out of Level 3	—			—			—			—			—		—		—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(47		)	—			(162		)	598			—		689		(7,225		)	6,514
Included in other comprehensive income	—			—			—			—			—		—		—			—
Purchases, issuances, sales and settlements:
Purchases	—						—			—			—		—		—			2,208
Issuances	—			—			—			1,933			—		—		1,646			—
Sales	—			(1		)	—			—			—		—		—			—
Settlements	—			—			—			—			—		—		—			—
Balance, September 30, 2016	$	984		$	293		$	4,529		$	39,027		$	—
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2016	$	(47	)	$	—		$	(162	)	$	598		$	—
Balance, June 30, 2019															$	3,847	$	41,966		$	102,065
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at June 30, 2019															$	689	$	(7,225	)	$	6,514

Balance, June 30, 2017	$	778		$	353		$	3,185		$	49,398		$	22,572
Balance, March 31, 2020															$	12,410	$	31,232		$	156,400
Transfers into Level 3	—			—			—			—			—		—		—			—
Transfers out of Level 3	—			—			—			—			—		—		—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(215		)	—			(262		)	(2,577		)	—		8,333		(4,936		)	(5,116		)
Included in other comprehensive income	—			—			—			—			—		—		—			—
Purchases, issuances, sales and settlements:
Purchases	—			—			—			—			10,173		—		—			1,500
Issuances	—			—			—			1,729			—		—		2,739			—
Sales	—			(2		)	—			—			—		—		—			—
Settlements	—			—			—			—			—		—		—			—
Balance, September 30, 2017	$	563		$	351		$	2,923		$	48,550		$	32,745
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2017	$	(215	)	$	—		$	(262	)	$	(2,577	)	$	—
Balance, June 30, 2020															$	20,743	$	29,035		$	152,784
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at June 30, 2020															$	8,333	$	(4,936	)	$	(5,116	)


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


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)													Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Nine Months Ended September 30,	Other Trading Assets			Equity Securities			Interest Rate Contracts, net		Other Assets - MSR			Other Assets - SBIC
Six Months Ended June 30,														Interest Rate Contracts, net		Other Assets - MSR			Other Assets - SBIC
	(In Thousands)													(In Thousands)
Balance, December 31, 2015	$	1,117		$	253		$	2,874	$	44,541		$	—
Balance, December 31, 2018														$	2,012	$	51,539		$	80,074
Transfers into Level 3	—			—			—		—			—		—		—			—
Transfers out of Level 3	—			—			—		—			—		—		—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(133		)	—			1,655		(13,097		)	—		1,835		(12,278		)	14,071
Included in other comprehensive income	—			—			—		—			—		—		—			—
Purchases, issuances, sales and settlements:
Purchases	—			41			—		—			—		—		—			7,920
Issuances	—			—			—		7,583			—		—		2,705			—
Sales	—			(1		)	—		—			—		—		—			—
Settlements	—			—			—		—			—		—		—			—
Balance, September 30, 2016	$	984		$	293		$	4,529	$	39,027		$	—
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2016	$	(133	)	$	—		$	1,655	$	(13,097	)	$	—
Balance, June 30, 2019														$	3,847	$	41,966		$	102,065
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at June 30, 2019														$	1,835	$	(12,278	)	$	14,071

Balance, December 31, 2016	$	859		$	293		$	2,392	$	51,428		$	15,639
Balance, December 31, 2019														$	3,088	$	42,022		$	119,475
Transfers into Level 3	—			—			—		—			—		—		—			—
Transfers out of Level 3	—			—			—		—			—		—		—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(296		)	—			531		(8,206		)	550		17,655		(17,397		)	10,767
Included in other comprehensive income	—			—			—		—			—		—		—			—
Purchases, issuances, sales and settlements:
Purchases	—			60			—		—			16,556		—		—			22,542
Issuances	—			—			—		5,328			—		—		4,410			—
Sales	—			(2		)	—		—			—		—		—			—
Settlements	—			—			—		—			—		—		—			—
Balance, September 30, 2017	$	563		$	351		$	2,923	$	48,550		$	32,745
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2017	$	(296	)	$	—		$	531	$	(8,206	)	$	550
Balance, June 30, 2020														$	20,743	$	29,035		$	152,784
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at June 30, 2020														$	17,655	$	(17,397	)	$	10,767


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

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 and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, 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 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)						Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Gains (Losses)
	September 30, 2017		(Level 1)		(Level 2)		(Level 3)		Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017			June 30, 2020		(Level 1)		(Level 2)		(Level 3)		Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
	(In Thousands)														(In Thousands)
Nonrecurring fair value measurements	Nonrecurring fair value measurements														Nonrecurring fair value measurements
Assets:
Investment securities held to maturity	$	1,863	$	—	$	—	$	1,863	$	—		$	(242	)
Impaired loans (1)	44,434		—		—		44,434		(12,389		)	(49,894		)
OREO	22,012		—		—		22,012		(1,845		)	(4,640		)	$	14,871	$	—	$	—	$	14,871	$	(201	)	$	(908	)

			Fair Value Measurements at the End of the Reporting Period Using														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)						Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Gains (Losses)
	September 30, 2016		(Level 1)		(Level 2)		(Level 3)		Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016			June 30, 2019		(Level 1)		(Level 2)		(Level 3)		Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
	(In Thousands)														(In Thousands)
Nonrecurring fair value measurements	Nonrecurring fair value measurements														Nonrecurring fair value measurements
Assets:
Investment securities held to maturity	$	2,595	$	—	$	—	$	2,595	$	—		$	(130	)
Debt securities held to maturity															$	1,072	$	—	$	—	$	1,072	$	(113	)	$	(113	)
Impaired loans (1)	71,806		—		—		71,806		(9,202		)	(55,922		)	3,404		—		—		3,404		(41,482		)	(43,525		)
OREO	21,670		—		—		21,670		(458		)	(2,777		)	15,302		$	—	—		15,302		(786		)	(2,759		)


(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.

~~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~~tables below ~~presents quantitative~~present 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

Fair Value at

Range of Unobservable Inputs

September 30, 2017

Valuation Technique

Unobservable Input(s)

(Weighted Average)

June 30, 2020

Valuation Technique

Unobservable Input(s)

(Weighted Average)

(In Thousands)

Recurring fair value measurements:

Other trading assets

563

Discounted cash flow

Default rate

10.2%

Prepayment rate

5.8% - 11.0% (8.0%)

Interest rate contracts, net

2,923

Discounted cash flow

Closing ratios (pull-through)

20.5% - 99.5% (70.7%)

20,743

Discounted cash flow

Closing ratios (pull-through)

6.2% - 99.9% (64.2%)

Cap grids

0.5% - 2.2% (0.9%)

Cap grids

-0.1% - 2.1% (0.9%)

Other assets - MSRs

48,550

Discounted cash flow

Option adjusted spread

4.6% - 17.2% (8.2%)

29,035

Discounted cash flow

Option adjusted spread

6.0% - 8.3% (6.2%)

Constant prepayment rate or life speed

1.2% - 51.9% (9.4%)

Constant prepayment rate or life speed

0.0% - 82.3% (20.9%)

Cost to service

$65 - $4,000 ($80)

Cost to service

$65 - $4,000 ($105)

Other assets - SBIC investments

32,745

Transaction price

N/A

152,784

Transaction price

N/A

Nonrecurring fair value measurements:

Investment securities held to maturity

1,863

Discounted cash flow

Prepayment rate

5.1%

Default rate

4.8%

Loss severity

70.6%

Impaired loans

44,434

Appraised value

0.0% - 100.0% (29.0%)

OREO

22,012

Appraised value

8.0% (1)

14,871

Appraised value

8.0% (1)


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

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at

Range of Unobservable Inputs

Fair Value at

Range of Unobservable Inputs

December 31, 2016

Valuation Technique

Unobservable Input(s)

(Weighted Average)

December 31, 2019

Valuation Technique

Unobservable Input(s)

(Weighted Average)

(In Thousands)

Recurring fair value measurements:

Other trading assets

859

Discounted cash flow

Default rate

10.1%

Prepayment rate

6.2% - 11.1% (8.2%)

Interest rate contracts, net

2,392

Discounted cash flow

Closing ratios (pull-through)

18.6% - 99.1% (68.5%)

3,088

Discounted cash flow

Closing ratios (pull-through)

16.8% - 100.0% (60.1%)

Cap grids

0.1% - 2.3% (1.1%)

Cap grids

0.5% - 2.5% (0.9%)

Other assets - MSRs

51,428

Discounted cash flow

Option adjusted spread

6.1% - 18.6% (8.1%)

42,022

Discounted cash flow

Option adjusted spread

6.0% - 9.0% (6.4%)

Constant prepayment rate or life speed

1.3% - 62.0% (15.7%)

Constant prepayment rate or life speed

0.0% - 80.0% (14.6%)

Cost to service

$65 - $4,000 ($79)

Cost to service

$65 - $4,000 ($90)

Other assets - SBIC investments

15,639

Transaction price

N/A

119,475

Transaction price

N/A

Nonrecurring fair value measurements:

Investment securities held to maturity

2,550

Discounted cash flow

Prepayment rate

10.9%

Debt securities held to maturity

2,177

Discounted cash flow

Prepayment rate

13.7% - 14.7% (14.2%)

Default rate

9.2%

Default rate

3.1% - 4.9% (4.0%)

Loss severity

63.7%

Loss severity

50.3% - 61.9% (56.1%)

Impaired loans

59,807

Appraised value

0.0% - 80.0% (31.9%)

484

Appraised value

0.0% - 70.0% (9.7%)

OREO

21,112

Appraised value

8.0% (1)

21,583

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.

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:


	September 30, 2017										June 30, 2020
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In Thousands)										(In Thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	3,734,658	$	3,734,658	$	3,734,658	$	—	$	—	$	12,757,190	$	12,757,190	$	12,757,190	$	—	$	—
Investment securities held to maturity	1,077,372		1,067,919		—		—		1,067,919
Loans, net	59,466,085		56,701,917		—		—		56,701,917
Debt securities held to maturity											8,708,454		9,078,298		1,417,028		7,037,707		623,563
Loans											68,241,500		68,102,442		—		—		68,102,442
Liabilities:
Deposits	$	67,213,567	$	67,260,405	$	—	$	67,260,405	$	—	$	85,426,414	$	85,468,012	$	—	$	85,468,012	$	—
FHLB and other borrowings	3,956,041		4,005,971		—		4,005,971		—		3,571,933		3,421,476		—		3,421,476		—
Federal funds purchased and securities sold under agreements to repurchase	44,761		44,761		—		44,761		—		249,481		249,481		—		249,481		—


	December 31, 2016										December 31, 2019
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In Thousands)										(In Thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	3,251,786	$	3,251,786	$	3,251,786	$	—	$	—	$	6,938,698	$	6,938,698	$	6,938,698	$	—	$	—
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
Debt securities held to maturity											6,797,046		6,921,158		1,340,448		4,912,399		668,311
Loans											63,946,857		60,869,662		—		—		60,869,662
Liabilities:
Deposits	$	67,279,533	$	67,359,299	$	—	$	67,359,299	$	—	$	74,985,283	$	75,024,350	$	—	$	75,024,350	$	—
FHLB and other borrowings	3,001,551		3,001,836		—		3,001,836		—		3,690,044		3,721,949		—		3,721,949		—
Federal funds purchased and securities sold under agreements to repurchase	39,052		39,052		—		39,052		—		173,028		173,028		—		173,028		—
Other short-term borrowings	50,000		50,000		—		50,000		—

Fair Value Option

The ~~following methods and assumptions were used by the~~ Company ~~in estimating~~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 ~~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~~changes in fair values of ~~securities~~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 ~~to maturity~~for sale primarily because they are ~~estimated~~not economically hedged using ~~a discounted cash flow approach. The discounted cash flow model uses inputs such as estimated prepayment speed, loss~~derivative instruments.

At both June 30, 2020 and December 31, 2019, no 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 ~~default rates. They are considered a Level 3 measurement as~~is reflected in interest and fees on loans in the ~~valuation employs significant unobservable inputs.~~

~~Loans: Loans are presented net~~Company's Unaudited Condensed Consolidated Statements of ~~the allowance for loan losses~~Income. Net gains (losses) of $6.2 million and ~~are valued using discounted cash flows. The discount rates used to determine the present~~$423 thousand resulting from changes in fair value of these loans ~~are based on current market interest rates for loans with similar credit risk~~were recorded in noninterest income during the three months ended June 30, 2020 and ~~term. They are considered a Level 3 measurement as the valuation employs significant unobservable inputs.~~

~~Deposits: The fair values~~2019, respectively. Net gains (losses) of ~~demand deposits are equal to the carrying amounts. Demand deposits include noninterest bearing demand deposits, savings accounts, NOW accounts~~$8.8 million 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~~$668 thousand resulting from changes in fair value of these loans were recorded in noninterest income during the ~~Company’s fixed rate borrowings, which includes~~six months ended June 30, 2020 and 2019, respectively.

The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately $2.8 million and $40 thousand for the ~~Company’s Capital Securities, are estimated using discounted cash flows, based on~~three months ended June 30, 2020 and 2019, respectively, and $(3.1) million and $(49) thousand for the ~~Company’s current incremental borrowing rates~~six months ended June 30, 2020 and 2019, respectively. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for ~~similar types of borrowing arrangements. The carrying amount of the Company’s variable rate borrowings approximates~~residential mortgage loans measured at 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.



	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference
	(In Thousands)
June 30, 2020
Residential mortgage loans held for sale	$	245,851	$	233,340	$	12,511
December 31, 2019
Residential mortgage loans held for sale	$	112,058	$	108,345	$	3,713

~~(9)~~(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 September 30,
2017 2016
Pretax Tax Expense/ (Benefit) After-tax Pretax Tax Expense/ (Benefit) After-tax
(In Thousands)
Other comprehensive income:
Unrealized holding losses arising during period from securities available for sale $ (1,025 ) $ (379 ) $ (646 ) $ (41,149 ) $ (15,073 ) $ (26,076 )
Less: reclassification adjustment for net gains on sale of securities in net income 3,033
1,122
1,911
—
—
—
Net change in unrealized losses on securities available for sale (4,058 ) (1,501 ) (2,557 ) (41,149 ) (15,073 ) (26,076 )
Change in unamortized net holding losses on investment securities held to maturity 1,586
587
999
1,844
676
1,168
Change in unamortized non-credit related impairment on investment securities held to maturity 399
148
251
354
129
225
Net change in unamortized holding losses on securities held to maturity 1,985
735
1,250
2,198
805
1,393
Unrealized holding gains (losses) arising during period from cash flow hedge instruments 1,367
512
855
(2,303 ) (842 ) (1,461 )
Change in defined benefit plans —
—
—
—
—
—
Other comprehensive loss $ (706 ) $ (254 ) $ (452 ) $ (41,254 ) $ (15,110 ) $ (26,144 )

Nine Months Ended September 30,
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 $ 61,774
$ 22,855
$ 38,919
$ 103,507
$ 37,915
$ 65,592
Less: reclassification adjustment for net gains on sale of securities in net income 3,033
1,122
1,911
30,037
11,002
19,035
Net change in unrealized gains on securities available for sale 58,741
21,733
37,008
73,470
26,913
46,557
Change in unamortized net holding losses on investment securities held to maturity 4,032
1,492
2,540
4,615
1,691
2,924
Less: non-credit related impairment on investment securities held to maturity —
—
—
151
55
96
Change in unamortized non-credit related impairment on investment securities held to maturity 1,236
458
778
1,021
373
648
Net change in unamortized holding losses on securities held to maturity 5,268
1,950
3,318
5,485
2,009
3,476
Unrealized holding (losses) gains arising during period from cash flow hedge instruments (14,581 ) (5,409 ) (9,172 ) 2,734
1,006
1,728
Change in defined benefit plans (773 ) (288 ) (485 ) 1,300
369
931
Other comprehensive income $ 48,655
$ 17,986
$ 30,669
$ 82,989
$ 30,297
$ 52,692



	Three Months Ended June 30,
	2020						2019
	Pretax		Tax Expense/ (Benefit)		After-tax		Pretax		Tax Expense/ (Benefit)		After-tax
	(In Thousands)
Other comprehensive income:
Unrealized holding gains arising during period from debt securities available for sale	$	41,651	$	9,936	$	31,715	$	112,339	$	26,635	$	85,704
Less: reclassification adjustment for net gains on sale of debt securities in net income	3,477		829		2,648		—		—		—
Net change in unrealized gains on debt securities available for sale	38,174		9,107		29,067		112,339		26,635		85,704
Change in unamortized net holding gains on debt securities held to maturity	2,240		535		1,705		2,542		603		1,939
Less: non-credit related impairment on debt securities held to maturity	—		—		—		108		26		82
Change in unamortized non-credit related impairment on debt securities held to maturity	160		39		121		174		42		132
Net change in unamortized holding gains on debt securities held to maturity	2,400		574		1,826		2,608		619		1,989
Unrealized holding gains arising during period from cash flow hedge instruments	14,358		3,425		10,933		96,932		22,982		73,950
Change in defined benefit plans	—		—		—		—		—		—
Other comprehensive income	$	54,932	$	13,106	$	41,826	$	211,879	$	50,236	$	161,643


	Six Months Ended June 30,
	2020						2019
	Pretax		Tax Expense/ (Benefit)		After-tax		Pretax		Tax Expense/ (Benefit)		After-tax
	(In Thousands)
Other comprehensive income:
Unrealized holding gains arising during period from debt securities available for sale	$	172,594	$	41,180	$	131,414	$	180,107	$	42,703	$	137,404
Less: reclassification adjustment for net gains on sale of debt securities in net income	22,616		5,396		17,220		8,958		2,124		6,834
Net change in unrealized gains on debt securities available for sale	149,978		35,784		114,194		171,149		40,579		130,570
Change in unamortized net holding losses on debt securities held to maturity	4,309		1,029		3,280		4,826		1,144		3,682
Less: non-credit related impairment on debt securities held to maturity	—		—		—		108		26		82
Change in unamortized non-credit related impairment on debt securities held to maturity	315		76		239		656		156		500
Net change in unamortized holding gains on debt securities held to maturity	4,624		1,105		3,519		5,374		1,274		4,100
Unrealized holding gains arising during period from cash flow hedge instruments	375,321		89,551		285,770		128,450		30,447		98,003
Change in defined benefit plans	2,301		547		1,754		4,089		970		3,119
Other comprehensive income	$	532,224	$	126,987	$	405,237	$	309,062	$	73,270	$	235,792

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			Unrealized Gains (Losses) on Debt 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 Debt Securities Held to Maturity			Total
	(In Thousands)															(In Thousands)
Balance, December 31, 2015	$	(56,326	)	$	(6,407	)	$	(29,166	)	$	(7,437	)	$	(99,336	)
Balance, December 31, 2018																$	(158,433	)	$	6,175		$	(29,495	)	$	(5,095	)	$	(186,848	)
Cumulative effect of adoption of ASUs (1)																(25,844		)	(1,040		)	(7,351		)	(1,201		)	(35,436		)
																$	(184,277	)	$	5,135		$	(36,846	)	$	(6,296	)	$	(222,284	)
Other comprehensive income (loss) before reclassifications	65,592			2,787			—			(96		)	68,283			137,404			95,867			—			(82		)	233,189
Amounts reclassified from accumulated other comprehensive income (loss)	(16,111		)	(1,059		)	931			648			(15,591		)	(3,152		)	2,136			3,119			500			2,603
Net current period other comprehensive income	49,481			1,728			931			552			52,692			134,252			98,003			3,119			418			235,792
Balance, September 30, 2016	$	(6,845	)	$	(4,679	)	$	(28,235	)	$	(6,885	)	$	(46,644	)
Balance, June 30, 2019																$	(50,025	)	$	103,138		$	(33,727	)	$	(5,878	)	$	13,508

Balance, December 31, 2016	$	(119,562	)	$	(10,080	)	$	(32,028	)	$	(6,582	)	$	(168,252	)
Other comprehensive income (loss) before reclassifications	38,919			(6,000		)	—			—			32,919
Amounts reclassified from accumulated other comprehensive income (loss)	629			(3,172		)	(485		)	778			(2,250		)
Net current period other comprehensive income (loss)	39,548			(9,172		)	(485		)	778			30,669
Balance, September 30, 2017	$	(80,014	)	$	(19,252	)	$	(32,513	)	$	(5,804	)	$	(137,583	)
Balance, December 31, 2019																$	(40,080	)	$	91,445		$	(46,666	)	$	(5,771	)	$	(1,072	)
Other comprehensive income before reclassifications																131,414			314,919			—			—			446,333
Amounts reclassified from accumulated other comprehensive (loss) income																(13,940		)	(29,149		)	1,754			239			(41,096		)
Net current period other comprehensive income																117,474			285,770			1,754			239			405,237
Balance, June 30, 2020																$	77,394		$	377,215		$	(44,912	)	$	(5,532	)	$	404,165


(1)	Related to the Company's adoption of ASU 2017-12 and ASU 2018-02 on January 1, 2019.

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	Amounts Reclassified From Accumulated Other Comprehensive Income (Loss)(1)												Condensed Consolidated Statements of Income Caption
	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016				2020			2019			2020			2019
	(In Thousands)													(In Thousands)
Unrealized Gains (Losses) on Securities Available for Sale and Transferred to Held to Maturity	$	3,033		$	—		$	3,033		$	30,037		Investment securities gains, net
Unrealized Gains (Losses) on Debt Securities Available for Sale and Transferred to Held to Maturity														$	3,477		$	—		$	22,616		$	8,958		Investment securities gains, net
	(1,586		)	(1,844		)	(4,032		)	(4,615		)	Interest on investment securities held to maturity	(2,240		)	(2,542		)	(4,309		)	(4,826		)	Interest on debt securities held to maturity
	1,447			(1,844		)	(999		)	25,422				1,237			(2,542		)	18,307			4,132
	(535		)	676			370			(9,311		)	Income tax (expense) benefit	(294		)	603			(4,367		)	(980		)	Income tax (expense) benefit
	$	912		$	(1,168	)	$	(629	)	$	16,111		Net of tax	$	943		$	(1,939	)	$	13,940		$	3,152		Net of tax

Accumulated Gains (Losses) on Cash Flow Hedging Instruments	$	(2,258	)	$	1,654		$	6,920		$	5,587		Interest and fees on loans	$	33,833		$	(1,260	)	$	39,292		$	(2,470	)	Interest and fees on loans
	(577		)	(952		)	(1,877		)	(3,909		)	Interest and fees on FHLB advances	(590		)	(161		)	(1,009		)	(330		)	Interest on FHLB and other borrowings
	(2,835		)	702			5,043			1,678				33,243			(1,421		)	38,283			(2,800		)
	1,054			(260		)	(1,871		)	(619		)	Income tax (expense) benefit	(7,932		)	337			(9,134		)	664			Income tax (expense) benefit
	$	(1,781	)	$	442		$	3,172		$	1,059		Net of tax	$	25,311		$	(1,084	)	$	29,149		$	(2,136	)	Net of tax

Defined Benefit Plan Adjustment	$	—		$	—		$	773		$	(1,300	)	(2)	$	—		$	—		$	(2,301	)	$	(4,089	)	(2)
	—			—			(288		)	369			Income tax (expense) benefit	—			—			547			970			Income tax benefit
	$	—		$	—		$	485		$	(931	)	Net of tax	$	—		$	—		$	(1,754	)	$	(3,119	)	Net of tax

Unamortized Impairment Losses on Investment Securities Held to Maturity	$	(399	)	$	(354	)	$	(1,236	)	$	(1,021	)	Interest on investment securities held to maturity
Unamortized Impairment Losses on Debt Securities Held to Maturity														$	(160	)	$	(174	)	$	(315	)	$	(656	)	Interest on debt securities held to maturity
	148			129			458			373			Income tax benefit	39			42			76			156			Income tax benefit
	$	(251	)	$	(225	)	$	(778	)	$	(648	)	Net of tax	$	(121	)	$	(132	)	$	(239	)	$	(500	)	Net of tax


(1)	Amounts in parentheses indicate debits to the Unaudited Condensed Consolidated ~~Statement~~Statements of Income.


(2)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note ~~19,~~17, Benefit Plans, in the Notes to the December 31, ~~2016,~~2019, Consolidated Financial Statements for additional details).

~~(10)~~(11) Supplemental Disclosure for Statement of Cash Flows

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


	Nine Months Ended September 30,				Six Months Ended June 30,
	2017		2016		2020		2019
	(In Thousands)				(In Thousands)
Supplemental disclosures of cash flow information:
Interest paid	$	331,062	$	339,345	$	384,843	$	464,281
Net income taxes paid	109,460		94,808		33,904		68,758
Supplemental schedule of noncash investing and financing activities:
Operating cash flows from operating leases					25,212		26,993
Operating cash flows from finance leases					275		313
Financing cash flows from finance leases					836		779

Supplemental schedule of noncash activities:
Transfer of loans and loans held for sale to OREO	$	25,156	$	21,547	$	5,735	$	15,713
Transfer of loans to loans held for sale	—		764,022		—		1,196,883
Issuance of restricted stock, net of cancellations	—		1,083
Right-of-use assets obtained in exchange for lease obligations- operating leases					24,800		24,717

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s Unaudited Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Company's Unaudited Condensed Consolidated Statements of Cash Flows.



	Six Months Ended June 30,
	2020		2019
	(In Thousands)
Cash and cash equivalents	$	12,757,190	$	5,801,161
Restricted cash in other assets	306,798		145,212
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	13,063,988	$	5,946,373

Restricted cash primarily represents cash collateral related to the Company's derivatives as well as amounts restricted for regulatory purposes related to BSI and BBVA Transfer Holdings, Inc. Restricted cash is included in other assets on the Company’s Unaudited Condensed Consolidated Balance Sheets.

(1112) 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 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 attributable revenues ~~exceeded~~ exceed 10% of consolidated revenue.

In August 2017, the Company announced a reorganization of its line of business structure that will divide the existing Consumer and Commercial Banking segment into a retail line of business and a commercial line of business. This will change the Company's segment reporting structure during the fourth quarter of 2017.

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

Three Months Ended September 30, 2017
Consumer and Commercial Banking Corporate and Investment Banking Treasury Corporate Support and Other Consolidated
(In Thousands)
Net interest income $ 526,201
$ 43,645
$ 648
$ 18,867
$ 589,361
Allocated provision for loan losses 110,642
(11,708 ) —
4,500
103,434
Noninterest income 199,589
56,231
4,745
(2,771 ) 257,794
Noninterest expense 480,684
43,496
6,340
43,442
573,962
Net income (loss) before income tax expense (benefit) 134,464
68,088
(947 ) (31,846 ) 169,759
Income tax expense (benefit) 47,063
23,831
(331 ) (31,255 ) 39,308
Net income 87,401
44,257
(616 ) (591 ) 130,451
Less: net income (loss) attributable to noncontrolling interests 176
—
414
(6 ) 584
Net income (loss) attributable to BBVA Compass Bancshares, Inc. $ 87,225
$ 44,257
$ (1,030 ) $ (585 ) $ 129,867
Average assets $ 54,661,908
$ 9,869,664
$ 15,686,910
$ 7,081,497
$ 87,299,979

Three Months Ended September 30, 2016
Consumer and Commercial Banking Corporate and Investment Banking Treasury Corporate Support and Other Consolidated
(In Thousands)
Net interest income (expense) $ 519,774
$ 33,785
$ (4,250 ) $ (34,500 ) $ 514,809
Allocated provision for loan losses 52,358
18,208
—
(5,459 ) 65,107
Noninterest income 198,967
54,168
7,960
2,670
263,765
Noninterest expense 476,569
34,939
5,101
39,662
556,271
Net income (loss) before income tax expense (benefit) 189,814
34,806
(1,391 ) (66,033 ) 157,196
Income tax expense (benefit) 66,435
12,182
(487 ) (41,285 ) 36,845
Net income (loss) 123,379
22,624
(904 ) (24,748 ) 120,351
Less: net income (loss) attributable to noncontrolling interests 107
—
420
(4 ) 523
Net income (loss) attributable to BBVA Compass Bancshares, Inc. $ 123,272
$ 22,624
$ (1,324 ) $ (24,744 ) $ 119,828
Average assets $ 54,398,207
$ 13,006,089
$ 16,462,880
$ 7,033,163
$ 90,900,339



	Three Months Ended June 30, 2020
	Commercial Banking and Wealth			Retail Banking			Corporate and Investment Banking		Treasury		Corporate Support and Other			Consolidated
	(In Thousands)
Net interest income	$	223,884		$	230,551		$	25,412	$	40,411	$	91,759		$	612,017
Allocated provision for credit losses	170,749			178,355			14,457		1,958		173,940			539,459
Noninterest income	59,137			114,247			70,177		6,191		22,602			272,354
Noninterest expense	175,329			296,430			40,436		5,655		61,600			579,450
Net (loss) income before income tax expense (benefit)	(63,057		)	(129,987		)	40,696		38,989		(121,179		)	(234,538		)
Income tax (benefit) expense	(13,242		)	(27,297		)	8,546		8,187		(86,295		)	(110,101		)
Net (loss) income	(49,815		)	(102,690		)	32,150		30,802		(34,884		)	(124,437		)
Less: net income (loss) attributable to noncontrolling interests	(55		)	—			—		394		133			472
Net (loss) income attributable to BBVA USA Bancshares, Inc.	$	(49,760	)	$	(102,690	)	$	32,150	$	30,408	$	(35,017	)	$	(124,909	)
Average assets	$	44,982,771		$	18,588,273		$	10,420,105	$	24,538,397	$	5,674,516		$	104,204,062


	Nine Months Ended September 30, 2017											Three Months Ended June 30, 2019
	Consumer and Commercial Banking		Corporate and Investment Banking		Treasury		Corporate Support and Other			Consolidated		Commercial Banking and Wealth		Retail Banking		Corporate and Investment Banking			Treasury			Corporate Support and Other			Consolidated
	(In Thousands)											(In Thousands)
Net interest income	$	1,561,941	$	117,401	$	22,791	$	24,489		$	1,726,622
Allocated provision for loan losses	205,484		16,311		—		7,063			228,858
Net interest income (expense)												$	292,655	$	326,298	$	32,430		$	(18,782	)	$	27,148		$	659,749
Allocated provision (credit) for loan losses												78,678		56,272		(675		)	(1,012		)	21,755			155,018
Noninterest income	584,516		151,166		8,380		4,744			748,806		63,148		121,905		39,711			2,659			56,858			284,281
Noninterest expense	1,443,457		111,675		18,983		121,644			1,695,759		158,652		306,413		39,183			4,416			89,650			598,314
Net income (loss) before income tax expense (benefit)	497,516		140,581		12,188		(99,474		)	550,811		118,473		85,518		33,633			(19,527		)	(27,399		)	190,698
Income tax expense (benefit)	174,131		49,203		4,266		(85,503		)	142,097		24,879		17,959		7,063			(4,101		)	(15,288		)	30,512
Net income (loss)	323,385		91,378		7,922		(13,971		)	408,714		93,594		67,559		26,570			(15,426		)	(12,111		)	160,186
Less: net income (loss) attributable to noncontrolling interests	216		—		1,250		(8		)	1,458
Net income (loss) attributable to BBVA Compass Bancshares, Inc.	$	323,169	$	91,378	$	6,672	$	(13,963	)	$	407,256
Less: net income attributable to noncontrolling interests												166		—		—			402			31			599
Net income (loss) attributable to BBVA USA Bancshares, Inc.												$	93,428	$	67,559	$	26,570		$	(15,828	)	$	(12,142	)	$	159,587
Average assets	$	54,446,725	$	10,555,362	$	15,375,036	$	7,105,233		$	87,482,356	$	39,950,464	$	18,866,251	$	7,245,328		$	18,997,865		$	8,392,931		$	93,452,839


	Nine Months Ended September 30, 2016												Six Months Ended June 30, 2020
	Consumer and Commercial Banking		Corporate and Investment Banking		Treasury			Corporate Support and Other			Consolidated		Commercial Banking and Wealth		Retail Banking			Corporate and Investment Banking			Treasury		Corporate Support and Other			Consolidated
	(In Thousands)												(In Thousands)
Net interest income (expense)	$	1,536,010	$	122,946	$	(26,176	)	$	(96,851	)	$	1,535,929
Allocated provision for loan losses	167,559		87,729		—			9,737			265,025
Net interest income													$	490,722	$	525,560		$	56,191		$	3,984	$	125,015		$	1,201,472
Allocated provision for credit losses													212,933		245,084			107,428			1,721		329,284			896,450
Noninterest income	592,323		146,492		47,407			8,994			795,216		127,672		244,951			110,312			32,392		91,269			606,596
Noninterest expense	1,423,397		144,993		15,289			105,773			1,689,452		349,430		601,687			101,831			9,701		2,325,861			3,388,510
Net income (loss) before income tax expense (benefit)	537,377		36,716		5,942			(203,367		)	376,668		56,031		(76,260		)	(42,756		)	24,954		(2,438,861		)	(2,476,892		)
Income tax expense (benefit)	188,082		12,851		2,079			(108,464		)	94,548		11,545		(15,803		)	(8,979		)	5,240		(107,173		)	(115,170		)
Net income (loss)	349,295		23,865		3,863			(94,903		)	282,120		44,486		(60,457		)	(33,777		)	19,714		(2,331,688		)	(2,361,722		)
Less: net income (loss) attributable to noncontrolling interests	306		—		1,271			(8		)	1,569
Net income (loss) attributable to BBVA Compass Bancshares, Inc.	$	348,989	$	23,865	$	2,592		$	(94,895	)	$	280,551
Less: net income attributable to noncontrolling interests													61		—			—			789		123			973
Net income (loss) attributable to BBVA USA Bancshares, Inc.													$	44,425	$	(60,457	)	$	(33,777	)	$	18,925	$	(2,331,811	)	$	(2,362,695	)
Average assets	$	54,603,369	$	13,879,094	$	16,395,875		$	7,000,089		$	91,878,427	$	43,080,319	$	18,642,753		$	9,351,070		$	22,396,303	$	6,809,642		$	100,280,087



	Six Months Ended June 30, 2019
	Commercial Banking and Wealth		Retail Banking		Corporate and Investment Banking		Treasury			Corporate Support and Other			Consolidated
	(In Thousands)
Net interest income (expense)	$	607,990	$	675,674	$	66,248	$	(38,806	)	$	31,732		$	1,342,838
Allocated provision (credit) for loan losses	136,117		159,676		25,255		(638		)	16,900			337,310
Noninterest income	120,522		233,823		76,228		15,145			96,323			542,041
Noninterest expense	326,115		604,336		79,062		10,004			160,770			1,180,287
Net income (loss) before income tax expense (benefit)	266,280		145,485		38,159		(33,027		)	(49,615		)	367,282
Income tax expense (benefit)	55,919		30,552		8,013		(6,936		)	(21,433		)	66,115
Net income (loss)	210,361		114,933		30,146		(26,091		)	(28,182		)	301,167
Less: net income attributable to noncontrolling interests	262		—		—		807			86			1,155
Net income (loss) attributable to BBVA USA Bancshares, Inc.	$	210,099	$	114,933	$	30,146	$	(26,898	)	$	(28,268	)	$	300,012
Average assets	$	40,170,674	$	18,899,297	$	7,727,096	$	18,110,961		$	8,312,620		$	93,220,648

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~~lines of business which are 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. Provision for loan losses is allocated to each segment based on internal management accounting policies for the allowance for loan losses and the related provision which differs from the policies for consolidated purposes. The difference between the consolidated provision for credit losses and the segments' provision for credit losses is reflected in Corporate Support and Other and reflects a current year revision in policy. Costs for centrally managed operations are generally allocated to the ~~operating segment~~lines of business based on the utilization of services provided or other appropriate indicators. Revenue is recorded in the business segment responsible for the related product or service. Fee sharing is recorded to allocate portions of such revenue to other business segments involved in selling to, or providing services to, customers. Results of operations for the business segments reflect these fee sharing allocations. Capital is allocated to the ~~operating segments~~lines of business based upon the underlying risks in each business ~~taking into account~~considering economic and regulatory capital standards.

The development and application of these methodologies is a dynamic process. Accordingly, prior period ~~financials~~financial results have been revised to reflect management accounting enhancements and changes in the Company's organizational structure due to the transfer of certain customer relationships within its large middle market customer group from the Consumer and Commercial Banking segment to the Corporate and Investment Banking segment that occurred during the fourth quarter of 2016.structure. The ~~2016~~2019 segment information has been revised to conform to the ~~2017~~2020 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 towith those presented by other financial institutions.

~~(12)~~(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~~2020 and ~~2016~~2019.

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 ~~$5.6~~$3.6 billion and ~~$5.2~~$3.4 billion as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. The net fair value of outstanding derivative contracts between the Company and BBVA are detailed below.


	September 30, 2017			December 31, 2016			June 30, 2020			December 31, 2019
	(In Thousands)						(In Thousands)
Derivative contracts:
Fair value hedges	$	(8,898	)	$	(14,225	)	$	(841	)	$	(354	)
Cash flow hedges	340			(380		)	(303		)	102
Free-standing derivatives not designated as hedging instruments	(1,379		)	(14,326		)	(58,352		)	(9,688		)

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.


	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Securities purchased under agreements to resell	$	—	$	8,330	$	142,886	$	178,914
Securities sold under agreements to repurchase	44,761		23,397		29,731		16,596

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. On March 16, 2017, BSI ~~also has a $150 million line of credit~~entered into an uncommitted demand facility agreement with BBVA ~~that was initiated on August 1, 2014.~~for a revolving loan facility up to $1 billion to be used for trade settlement purposes. BSI has not drawn against this facility in 2020. At ~~September~~both June 30, ~~2017~~2020 and December 31, 2019 there was no amount outstanding under the ~~line of credit agreement~~revolving note and ~~$50 million outstanding at December 31, 2016. At both September 30, 2017 and December 31, 2016 there was no amount outstanding under the~~ cash subordination agreement. ~~Interest~~There was $4 thousand in interest expense related to these agreements ~~was $25 thousand and $1.1 million~~ for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016, respectively,~~no interest expense for the three months ended June 30, 2019 and are included in interest on other short-term borrowings within the Company's Unaudited Condensed Consolidated Statements of Income. Interest expense related to these agreements was ~~$917~~$59 thousand and ~~$2.7 million~~$25 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~

2019, 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 ~~$13.2~~$4.4 million and ~~$6.5~~$7.5 million for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, 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 ~~$8.7~~$15.4 million and ~~$6.6~~$8.0 million for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and is recorded as a component of noninterest expense within the Company's Unaudited Condensed Consolidated Statements of Income. Income associated with these agreements was ~~$27.1~~$8.5 million and ~~$9.3~~$11.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, 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 ~~$21.3~~$25.3 million and ~~$19.2~~$16.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, 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 ~~September~~both June 30, ~~2017~~,2020 and December 31, 2019, the carrying amount of the Series A Preferred Stock was approximately ~~$229 million~~.$229 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the Company paid ~~$11.0~~$8.1 million and ~~$10.1~~$9.2 million, respectively, of preferred stock dividends to BBVA.

Loan Sales to Related Parties

During the six months ended June 30, 2019, the Company transferred to loans held for sale and subsequently sold $1.2 billion of commercial loans to BBVA, S.A. New York Branch. The Company recognized a gain on the sale of these loans of $778 thousand.


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

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.~~2019. Additional disclosures regarding the effects of new accounting pronouncements are included in Note 1, Basis of Presentation, in the Notes to the Unaudited Condensed Consolidated Financial Statements, included herein.

Executive Overview

Financial Performance

Consolidated net (loss) income attributable to the Company for the three months ended ~~September~~June 30, ~~2017~~2020 was ~~$129.9~~$(124.9) million compared to ~~$119.8~~$159.6 million earned during the three months ended ~~September~~June 30, ~~2016.~~2019. The Company’s results of operations for the three months ended ~~September~~June 30, ~~2017,~~2020, reflected ~~higher net income before income tax expense primarily as a result of higher~~lower net interest income, higher provision for credit losses, lower noninterest expense offset by lower noninterest income and ~~the impact of~~ higher ~~provision for loan losses and noninterest expense.~~income tax benefit.

Net interest income totaled ~~$589.4~~$612.0 million for the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$514.8~~$659.7 million for the three months ended ~~September~~June 30, ~~2016.~~2019. Net interest income for the three months ended June 30, 2020 was impacted by the decrease in the Federal Reserve Board benchmark interest rates during the second half of 2019 and in March of 2020. The net interest margin for the three months ended ~~September~~June 30, ~~2017~~2020 was ~~3.13%~~2.66%, compared to ~~2.62%~~3.24% for the three months ended ~~September~~June 30, ~~2016. Net interest income was positively impacted by higher interest rates due to~~2019.

For the ~~impact~~three months ended June 30, 2020, the Company recorded $539.5 million of ~~the Federal Reserve Board benchmark interest rate increases.~~

~~The~~ provision for ~~loan~~credit losses ~~was $103.4~~compared to $155.0 million for the three months ended ~~September~~June 30, ~~2017~~2019. For the three months ended June 30, 2020, provision for credit losses was comprised of $526.3 million of provision for loan losses and $13.1 million of provision for HTM security losses.

For the three months ended June 30, 2020, the Company recorded $526.3 million of provision for loan losses compared to ~~$65.1~~$155.0 million offor the three months ended June 30, 2019. The increase in provision for loan losses for the three months ended ~~September~~June 30, ~~2016. The~~2020 reflected an increase in ~~provision for loan~~expected losses over the life of the portfolio. The primary drivers of this increase was ~~primarily due to $60 million of additional allowance for loan losses related to~~ the ~~estimated~~ impact of ~~Hurricanes Harvey and Irma~~the COVID-19 pandemic on economic conditions which impacted the ~~loan portfolio during~~Company's economic forecast for the three months ended ~~September~~June 30, ~~2017 offset in part by a reduction in provision expense associated with improvements in credit quality indicators in the energy portfolio during the three months ended September 30, 2017.~~2020.

Net charge-offs for the three months ended ~~September~~June 30, ~~2017~~2020 totaled ~~$71.3~~$123.1 million ~~which represented a $25.2 million increase~~ compared to ~~$46.1~~$143.4 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in net charge-offs for the three months ended ~~September~~June 30, ~~2017~~2020, as compared to the corresponding period in ~~2016~~2019, was primarily driven by a ~~$5.8~~$16.9 million ~~increase~~decrease in commercial, financial and agricultural net charge-offs and a $14.9 million decrease in consumer direct net charge-offs offset by an ~~$8.1~~$8.6 million increase in commercial real ~~estate - mortgage~~estate-mortgage net charge-offs and a ~~$5.4~~$3.7 million increase in ~~consumer direct~~credit card net charge-offs.

Noninterest income ~~was $257.8~~decreased to $272.4 million ~~a decrease of $6.0 million compared to~~for the three months ended ~~September~~June 30, ~~2016.~~2020 compared to $284.3 million for the three months ended June 30, 2019. The primary drivers of the decrease ~~in noninterest income~~ was ~~largely attributable to~~ a ~~$4.8~~$17.5 million decrease in ~~mortgage banking, as well as~~service charges on deposit accounts, a ~~$3.9~~$6.9 million decrease in card and merchant processing fees, a $6.4 million decrease in investment services sales fees, and a $40.3 million decrease in other noninterest income due to a $32.9 million decrease in valuation adjustments on SBIC investments offset by a $24.3 million increase in investment banking and advisory fees, a $13.2 million increase in corporate and correspondent investment sales, an $18.0 million increase in mortgage banking income, and a ~~$3.3 million decrease in retail investment sales offset by a $3.0~~$3.5 million increase in investment securities ~~gains~~gains.

Noninterest expense ~~increased $17.7~~decreased $18.9 million to ~~$574.0~~$579.5 million for the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$556.3~~$598.3 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease was driven by a ~~$17.0~~$44.6 million decrease in salaries, benefits and commissions offset by a $17.2 million increase in other noninterest expense ~~due,~~primarily attributable to an increase in ~~part, to higher levels of provisions~~provision for unfunded ~~commitments and higher levels of business development expense.~~

commitments.

Income tax (benefit) expense was ~~$39.3~~$(110.1) million for the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$36.8~~$30.5 million for the three months ended ~~September~~June 30, ~~2016.~~2019. This resulted in an effective tax rate of ~~23.2%~~46.9% for ~~2017~~the three months ended June 30, 2020 and ~~23.4%~~16.0% for ~~2016.~~three months ended June 30, 2019. The tax rate was primarily impacted by the Company's revision of estimated loss before taxes for the three months ended June 30, 2020.

The Company's total assets at ~~September~~June 30, ~~2017~~2020 were ~~$85.7~~$102.3 billion, ~~a decrease~~an increase of ~~$1.4~~$8.7 billion from December 31, ~~2016~~2019 levels. ~~The primary driver of the change in total assets was the $2.6 billion decrease in trading account assets due to a decrease in U.S. Treasury securities held by BSI.~~ Total loans, excluding loans held for sale, were ~~$60.3~~$68.2 billion at ~~September~~June 30, ~~2017,~~2020, an increase of ~~$254 million~~$4.3 billion or ~~0.4%~~6.7% from year-end December 31, ~~2016~~2019 levels. The increase ~~in loans~~ was primarily driven by ~~increases in both~~$3.1 billion of SBA PPP loans that the Company has facilitated to assist its commercial ~~and consumer loans.~~customers during the COVID-19 pandemic. Deposits ~~decreased $66 million~~increased $10.4 billion or ~~0.1%~~13.9% compared to December 31, ~~2016.~~2019.

Total shareholder's equity at ~~September~~June 30, ~~2017~~2020 was ~~$13.1~~$11.3 billion, ~~an increase~~a decrease of ~~$365 million~~$2.1 billion compared to December 31, ~~2016.~~2019.

The COVID-19 pandemic has caused and continues to cause significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. The pandemic has resulted in temporary closures of many businesses and the institution of social distancing and shelter in place requirements in many states and communities, which has increased unemployment levels and caused extreme volatility in the financial markets. As further discussed in “Analysis of Results of Operations,” during the current quarter, the Company observed the impact of the pandemic on its business. The reduction in interest rates, economic forecast uncertainty that negatively impacted the provision for credit losses had the most immediate, negative impacts on the Company’s current quarter performance. Though the Company is unable to estimate the extent of the impact, the continuing pandemic and related global economic crisis will adversely impact the Company’s future operating results.

COVID-19 Pandemic Government Responses and Regulatory Developments

Government Response to COVID-19

Congress, the Federal Reserve Board and the other U.S. state and federal financial regulatory agencies have taken actions to mitigate disruptions to economic activity and financial stability resulting from COVID-19. The descriptions below summarize certain significant government actions taken in response to the COVID-19 pandemic. The descriptions are qualified in their entirety by reference to the particular statutory or regulatory provisions or government programs summarized.

The CARES Act

The CARES Act was signed into law on March 27, 2020, and has subsequently been amended several times. Among other provisions, the CARES Act includes funding for the Small Business Administration to expand lending, relief from certain U.S. GAAP requirements to allow COVID-19-related loan modifications to not be categorized as troubled debt restructurings and a range of incentives to encourage deferment, forbearance or modification of consumer credit and mortgage contracts. One of the key CARES Act programs is the Paycheck Protection Program, which temporarily expands the Small Business Administration’s business loan guarantee program through August 8, 2020. Paycheck Protection Program loans are available to a broader range of entities than ordinary Small Business Administration loans, require six-month deferral of principal and interest repayment, and the loan may be forgiven in an amount equal to payroll costs and certain other expenses during either an eight-week or twenty four-week covered period.

The CARES Act contains additional protections for homeowners and renters of properties with federally backed mortgages, including a 60-day moratorium on the initiation of foreclosure proceedings beginning on March 18, 2020 and a 120-day moratorium on initiating eviction proceedings effective March 27, 2020. Borrowers of federally backed mortgages have the right under the CARES Act to request up to 360 days of forbearance on their mortgage payments if they experience financial hardship directly or indirectly due to the coronavirus-related public health emergency. Fannie Mae and Freddie Mac have independently extended their moratorium on foreclosures and evictions for single family federally backed mortgages until at least August 31, 2020.

Also pursuant to the CARES Act, the U.S. Treasury has the authority to provide loans, guarantees and other investments in support of eligible businesses, states and municipalities affected by the economic effects of COVID-19 pandemic. Some of these funds have been used to support the several Federal Reserve Board programs and facilities described below or additional programs or facilities that are established by the Federal Reserve Board under its Section 13(3) authority and meeting certain criteria.

Federal Reserve Board Actions

The Federal Reserve Board has taken a range of actions to support the flow of credit to households and businesses. For example, on March 15, 2020, the Federal Reserve Board reduced the target range for the federal funds rate to 0 to 0.25% and announced that it would increase its holdings of U.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. The Federal Reserve Board has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as of March 26, 2020.

In addition, the Federal Reserve Board has established, or has taken steps to establish, a range of facilities and programs to support the U.S. economy and U.S. marketplace participants in response to economic disruptions associated with COVID-19 pandemic. Through these facilities and programs, the Federal Reserve Board, relying on its authority under Section 13(3) of the Federal Reserve Act, has taken steps to directly or indirectly purchase assets from, or make loans to, U.S. companies, financial institutions, municipalities and other market participants.

Federal Reserve Board facilities and programs established, or in the process of being established, include:

a Paycheck Protection Program Liquidity Facility to provide financing to related to Paycheck Protection Program loans made by banks;

three Main Street Loan Facilities to purchase loan participations, under specified conditions, from banks lending to small and medium U.S. businesses;

a Primary Dealer Credit Facility to provide liquidity to primary dealers through a secured lending facility;

a Commercial Paper Funding Facility to purchase the commercial paper of certain U.S. issuers;

a Primary Market Corporate Credit Facility to purchase corporate bonds directly from, or make loans directly, to eligible participants;

a Secondary Market Corporate Credit Facility to purchase corporate bonds trading in secondary markets, including from exchange-traded funds, that were issued by eligible participants;

a Term Asset-Backed Securities Loan Facility to make loans secured by asset-backed securities;

a Municipal Liquidity Facility to purchased bonds directly from U.S. state, city and county issuers; and

a Money Market Mutual Fund Liquidity Facility to purchase certain assets from, or make loans to, financial institutions providing financing to eligible money market mutual funds.

These facilities and programs are in various stages of development, and the Company and the Bank are participating in some of these facilities and programs and may participate in others, including as an agent or intermediary on behalf of clients or customers or in an advisory capacity.

Regulatory Considerations

Revisions to Definition of Eligible Retained Income

The U.S. banking agencies have adopted an interim final rule altering the definition of eligible retained income in their respective capital rules. Under the new rule, eligible retained income is the greater of a firm’s (i) net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and (ii) average net income over the preceding four quarters. This definition applies with respect to all of the Company’s capital requirements. The interim final rule became effective March 20, 2020.

Regulatory Effects of the CARES Act

In addition to authorizing several programs to provide loans, guarantees and other investments in support of eligible organizations, states and municipalities affected by the economic effects of the COVID-19 pandemic, the CARES Act also includes several measures that temporarily adjust existing laws or regulations. These include providing the FDIC with additional authority to guarantee the deposits of solvent insured depository institutions held in noninterest-bearing business transaction accounts to a maximum amount specified by the FDIC, reinstating the FDIC’s Temporary Liquidity Guarantee Authority to guarantee debt obligations of solvent insured depository institutions or depository institution holding companies and temporarily allowing the Treasury to fully guarantee money market mutual funds. The CARES Act also provides financial institutions with the option to suspend GAAP requirements for coronavirus-related loan modifications that would otherwise constitute troubled debt restructurings and further requires the federal banking agencies to defer to financial institutions’ determinations in making such suspensions.

Volcker Rule

In June 2020, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule’ restrictions on ownership interests in and relationships with covered funds. Among other things, these amendments permit banking entities to have relationships with and offer additional financial services to additional types of funds and investment vehicles. These requirements are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Capital ~~and Regulatory~~

Under the Basel III ~~transitional provisions,~~final rule, the Company's Tier1 and CET1 ratios were ~~12.42%~~12.51% and ~~12.07%~~12.18%, respectively, at ~~September~~June 30, ~~2017~~2020 compared to ~~11.85%~~12.83% and ~~11.49%~~12.49%, respectively, at December 31, ~~2016.~~2019.

~~On August 1, 2017, BBVA received notification that~~The Company has elected the ~~Federal Reserve Board determined that~~‘five-year transition’ for the ASC 326 accounting standard from the banking agencies’ interim final rule announced on March 27, 2020. This five-year transition election allows banking organizations to defer certain effects of the ASC 326 accounting standard on their regulatory capital. Specifically, this interim final rule allows for 25% of the cumulative increase in the allowance for credit losses since the adoption of ASC 326 and 100% of the day-one impact of ASC 326 adoption to be deferred for a two-year period. This two-year period will be followed by ~~BBVA~~a three-year transition period to ~~become an FHC was effective as~~phase-in the impact of ~~August 1, 2017.~~the deferred amounts on regulatory capital.

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 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 must obtain regulatory approval prior to paying any dividends.

~~During 2017, the Parent paid common dividends of $60.0 million to its sole shareholder, BBVA.~~ Any dividends paid by the Parent must be set forth as capital actions in the Company's capital plan and ~~not objected to by~~must be made in accordance with the relevant banking law and Federal Reserve ~~Board.~~Board regulations and policy. The Company has paid no common dividends to BBVA during 2020.

At ~~September~~June 30, ~~2017,~~2020, the ~~Company~~Company's LCR was 144%, which would have been fully compliant with the ~~liquidity coverage ratio rule.~~ LCR requirements if the LCR requirements applied to the Company.

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

~~Impact of Hurricanes Harvey and Irma~~Recently Issued Accounting Standards Not Yet Adopted

~~During~~Income Taxes

In December 2019, the ~~third quarter of 2017,~~FASB issued ASU 2019-12, Simplifying the Company's geographic footprint was impacted by Hurricanes Harvey and Irma. Hurricane Harvey struck the coast of Texas in August 2017 and caused significant flood and wind damage to the cities close to the Gulf Coast. In September 2017, Hurricane Irma struck south Florida and then continued inland impacting parts of Georgia and South Carolina and causing significant flood and wind damage.

At September 30, 2017, the Company has identified approximately $11.9 billion of outstanding loans, consisting of approximately $5.9 billion of consumer loans and $6.0 billion of commercial loans, in the most significantly impacted areas. As part of its ongoing evaluation process, the Company has identified loans where the mailing address or collateral were located within FEMA designated disaster zip codes, surveyed borrowers in the impacted areas, and evaluated applicable insurance coverage. At September 30, 2017 based on this initial evaluation, the Company has recorded approximately $60 million in additional allowanceAccounting for ~~loan losses related to its best estimate of hurricane-related losses~~Income Taxes. The amendments in this ~~portion~~ASU simplify the accounting for income taxes. This ASU is effective for fiscal years beginning after December 15, 2020, and for interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that the adoption of ~~its loan portfolio.~~

~~The amount~~this standard will have on the financial condition and results of operations of the allowance for loan losses related to the Hurricanes Harvey and Irma impacted loan portfolio may change in the future as additional or different information affecting customers in these areas is obtained. Additionally, the impacted loan portfolio may be subject to additional pressure on credit quality metrics including past due, criticized, and nonperforming loans, as well as net charge-offs.

The Company had nine branches that sustained significant damage due to hurricanes. At September 30, 2017, the Company has recognized approximately $2.2 million in expenses related to property damage not covered by insurance.Company.

~~Additionally,~~Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform- Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional guidance for a limited period of time to ease the ~~three months ended September 30, 2017,~~potential burden in accounting for or recognizing the ~~Company has recognized approximately $1.5 million~~effects of ~~expense associated with relief efforts~~reference rate reform on financial reporting. The amendments in this ASU provide optional expedients and ~~commitments made~~exceptions for applying generally accepted accounting principles to ~~employees~~contracts, hedging relationships, and other ~~charitable organizations.~~transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

This ASU is effective as of March 12, 2020 through December 31, 2022. The Company is currently assessing the impact of applying the elections in this ASU on the financial condition and results of operations of the Company.

Analysis of Results of Operations

Consolidated net (loss) income attributable to the Company totaled ~~$129.9~~$(124.9) million and ~~$119.8~~$159.6 million for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The Company’s results of operations for the three months ended ~~September~~June 30, ~~2017,~~2020, reflected ~~higher net income before income tax expense primarily as a result of higher~~lower net interest income, higher provision for credit losses, lower noninterest expense offset by lower noninterest income and ~~the impact of~~ higher ~~provision for loan losses and noninterest expense.~~income tax benefit.

Consolidated net (loss) income attributable to the Company totaled ~~$407.3 million~~$(2.4) billion and ~~$280.6~~$300.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The Company’s results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, reflected ~~higher net income before income tax expense primarily as a result of higher~~lower net interest income, ~~and lower~~higher provision for loan losses, ~~and~~higher noninterest ~~expense.~~expense, which includes $2.2 billion of goodwill impairment, offset by higher noninterest income.

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 ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

Net interest income on a fully taxable equivalent basis totaled ~~$611.3~~$623.2 million for the three months ended ~~September~~June 30, ~~2017, an increase~~2020, a decrease of ~~$76.6~~$49.6 million compared with ~~$534.7~~$672.8 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in net interest income was primarily the result of ~~an increase~~a decrease in interest income on loans and ~~investment~~AFS debt securities ~~as well as a decrease~~offset by decreases in interest expense on interest bearing deposits and FHLB and other ~~short-term~~ borrowings.

Net interest margin was ~~3.13%~~2.66% for the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~2.62%~~3.24% for the three months ended ~~September~~June 30, ~~2016.~~2019. The 5158 basis point ~~increase~~decrease in net interest margin was primarily driven by the impact of ~~higher~~the decrease in the Federal Reserve Board benchmark interest ~~rates.~~rates during the second half of 2019 and in March of 2020.

The fully taxable equivalent yield for the three months ended ~~September~~June 30, ~~2017, for~~2020, on the loan portfolio was ~~4.23%~~3.95% compared to ~~3.74%~~5.01% for the same period in ~~2016.~~2019. The 49106 basis point ~~increase~~decrease was primarily driven by the ~~impact~~timing of ~~higher interest rates.~~the Federal Reserve Board's decrease of benchmark rates during the second half of 2019 and in March of 2020.

The fully taxable equivalent yield on the investment securities portfolio was ~~1.89%~~1.71% for the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~1.83%~~2.33% for the three months ended ~~September~~June 30, ~~2016.~~2019. The ~~6 basis point increase~~decrease was a result of ~~increases in interest rates. Additionally, as~~lower interest 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 1.77% for~~during the three months ended ~~September~~June 30, ~~2017~~2020 as compared to ~~1.41% for~~rates during the three months ended ~~September~~June 30, ~~2016, primarily due to the impact of higher interest rates.~~2019.

The average rate paid on interest bearing deposits was ~~0.67%~~0.66% for the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~0.64%~~1.55% for the three months ended ~~September~~June 30, ~~2016.~~2019 and reflects the impact of lower funding costs on interest bearing deposit offerings including savings, money market and CD products.

The average rate paid on FHLB and other borrowings for the three months ended ~~September~~June 30, ~~2017~~2020 was ~~2.35%~~2.47% compared to ~~2.06%~~3.42% for the corresponding period in ~~2016. The 29 basis point increase was primarily driven by the impact of higher rate FHLB advances as well as the impact of the $750 million issuance of unsecured senior notes in June 2017.~~2019.

The average rate paid on other short-term borrowings for the three months ended September 30, 2017 decreased to 1.04% compared to 1.43% for the three months ended September 30, 2016, due primarily to the impact of the decrease in the average balance of other short-term borrowings.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

Net interest income totaled ~~$1.7~~$1.2 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$1.5~~$1.3 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019.

Net interest income on a fully taxable equivalent basis totaled ~~$1.8~~$1.2 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared ~~with $1.6~~to $1.4 billion ~~for~~ the ~~nine~~six months ended ~~September~~June 30, 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 and other-short term borrowings.2019.

Net interest margin was ~~3.07%~~2.73% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~2.60%~~3.33% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The 4760 basis point ~~increase~~decrease in net interest margin was primarily driven by the ~~impact~~timing of ~~higher interest rates.~~the Federal Reserve Board's decrease of benchmark rates during the second half of 2019 and in March of 2020.

The fully taxable equivalent yield for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, for the loan portfolio was ~~4.13%~~4.22% compared to ~~3.73%~~5.02% for the same period in ~~2016.~~2019. The 4080 basis point ~~increase~~decrease was primarily driven by the impact of higher interest ~~rates.~~rates during the first half of 2019 as the Federal Reserve Board did not lower benchmark rates until the second half of 2019 and in March 2020.

The fully taxable equivalent yield on the investment securities portfolio was ~~1.96%~~1.44% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~1.71%~~2.39% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The 2595 basis point ~~increase~~decrease was a result of ~~increases in interest rates. Additionally, as~~lower interest rates ~~have increased~~for the ~~amount~~six months ended June 30, 2020 compared to the six months ended June 30, 2019 as well as higher levels of premium amortization ~~required has decreased~~ as actual and expected prepayments ~~have decreased.~~

The yield on trading account securities increased to 1.58% for the nine months ended September 30, 2017 compared to 1.43% for the nine months ended September 30, 2016 primarily due to the impact of higher interest rates.increased.

The average rate paid on interest bearing deposits was ~~0.62%~~0.93% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~0.65%~~1.49% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019 and reflects the impact of lower funding costs on interest bearing deposit offerings including savings, money market and CD products.

The average rate paid on FHLB and other borrowings for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020 was ~~2.32%~~2.37% compared to ~~1.73%~~3.49% for the corresponding period in ~~2016.~~2019. The 59112 basis point ~~increase~~decrease was primarily driven by the impact of ~~interest~~lower rate ~~contracts hedging~~ FHLB ~~and other borrowings.~~

~~The average rate paid~~advances as well as the impact of fair value hedges on other ~~short-term borrowings for the nine months ended September 30, 2017 increased to 1.45% compared to 1.41% for the nine months ended September 30, 2016.~~borrowings.

The following table sets forth the major components of net interest income and the related annualized yields and rates.

Table 1 Consolidated Average Balance and Yield/ Rate Analysis	Table 1 Consolidated Average Balance and Yield/ Rate Analysis														Table 1 Consolidated Average Balance and Yield/ Rate Analysis

	Three Months Ended September 30, 2017							Three Months Ended September 30, 2016							Three Months Ended June 30, 2020							Three Months Ended June 30, 2019
	Average Balance			Income/Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/Rate		Average Balance			Income/Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/Rate
	(Dollars in Thousands)														(Dollars in Thousands)
Assets:
Interest earning assets:
Loans (1) (2) (3)	$	60,271,504		$	642,670	4.23	%	$	61,060,433		$	574,748	3.74	%	$	69,256,412		$	680,157	3.95	%	$	64,056,915		$	799,680	5.01	%
Investment securities – AFS (tax exempt)(3)	1,399			24		6.81		9,569			195		8.11
Investment securities – AFS (taxable)	12,315,872			53,915		1.74		11,363,752			48,255		1.69
Total investment securities – AFS	12,317,271			53,939		1.74		11,373,321			48,450		1.69
Investment securities – HTM (tax exempt) (3)	963,089			8,867		3.65		1,059,610			8,672		3.26
Investment securities – HTM (taxable)	159,804			1,221		3.03		189,672			1,029		2.16
Total investment securities - HTM	1,122,893			10,088		3.56		1,249,282			9,701		3.09
Debt securities – AFS															5,780,912			18,805		1.31		8,983,280			45,125		2.01
Debt securities – HTM (tax exempt) (3)															529,208			3,989		3.03		628,991			5,503		3.51
Debt securities – HTM (taxable)															7,678,090			36,646		1.92		4,115,593			28,955		2.82
Total debt securities - HTM															8,207,298			40,635		1.99		4,744,584			34,458		2.91
Trading account securities (3)	1,396,429			6,247		1.77		3,637,782			12,927		1.41		244,272			1,157		1.91		83,307			601		2.89
Other (4) (5) (6)	2,313,287			11,557		1.98		3,718,225			4,563		0.49
Other (4) (5)															10,636,422			14,016		0.53		5,387,203			35,823		2.67
Total earning assets	77,421,384			724,501		3.71		81,039,043			650,389		3.19		94,125,316			754,770		3.23		83,255,289			915,687		4.41
Noninterest earning assets:
Cash and due from banks (6)	1,038,203							1,301,649
Allowance for loan losses	(821,227		)					(848,067		)
Net unrealized (loss) gain on investment securities available for sale	(76,457		)					25,595
Cash and due from banks															1,093,575							828,499
Allowance for credit losses															(1,375,912		)					(974,772		)
Net unrealized gain (loss) on investment securities available for sale															121,811							(102,830		)
Other noninterest earning assets	9,738,076							9,382,119							10,239,272							10,446,653
Total assets	$	87,299,979						$	90,900,339						$	104,204,062						$	93,452,839
Liabilities:
Interest bearing liabilities:
Interest bearing demand deposits	$	7,557,010		6,819		0.36		$	6,824,519		4,077		0.24		$	14,153,639		13,430		0.38		$	9,304,889		26,536		1.14
Savings and money market accounts	24,551,131			27,962		0.45		25,663,079			24,395		0.38		35,742,490			43,943		0.49		27,643,291			88,203		1.28
Certificates and other time deposits	12,408,794			40,302		1.29		14,670,360			47,507		1.29		9,425,849			39,906		1.70		15,452,630			87,739		2.28
Foreign office deposits	—			—		—		106,219			52		0.19
Total interest bearing deposits	44,516,935			75,083		0.67		47,264,177			76,031		0.64		59,321,978			97,279		0.66		52,400,810			202,478		1.55
FHLB and other borrowings	5,053,340			29,904		2.35		4,121,742			21,315		2.06		3,567,010			21,936		2.47		4,026,581			34,300		3.42
Federal funds purchased and securities sold under agreements to repurchase (5)	52,034			4,623		35.25		232,451			4,934		8.44		1,192,030			12,274		4.14		466,926			6,002		5.16
Other short-term borrowings	1,386,329			3,641		1.04		3,737,212			13,453		1.43		12,588			39		1.25		7,402			100		5.42
Total interest bearing liabilities	51,008,638			113,251		0.88		55,355,582			115,733		0.83		64,093,606			131,528		0.83		56,901,719			242,880		1.71
Noninterest bearing deposits	21,072,789							20,715,562							24,225,740							20,286,244
Other noninterest bearing liabilities	2,087,637							2,018,455							4,351,709							2,482,865
Total liabilities	74,169,064							78,089,599							92,671,055							79,670,828
Shareholder’s equity	13,130,915							12,810,740							11,533,007							13,782,011
Total liabilities and shareholder’s equity	$	87,299,979						$	90,900,339						$	104,204,062						$	93,452,839
Net interest income/net interest spread				$	611,250	2.83	%				$	534,656	2.36	%				$	623,242	2.40	%				$	672,807	2.70	%
Net interest margin						3.13	%						2.62	%						2.66	%						3.24	%
Taxable equivalent adjustment				21,889							19,847							11,225							13,058
Net interest income				$	589,361						$	514,809						$	612,017						$	659,749


(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 6,7, 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. Previous to this change, 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.

Table 1 Consolidated Average Balance and Yield/ Rate Analysis	Table 1 Consolidated Average Balance and Yield/ Rate Analysis														Table 1 Consolidated Average Balance and Yield/ Rate Analysis

	Nine Months Ended September 30, 2017							Nine Months Ended September 30, 2016							Six Months Ended June 30, 2020							Six Months Ended June 30, 2019
	Average Balance			Income/Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/Rate		Average Balance			Income/Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/Rate
	(Dollars in Thousands)														(Dollars in Thousands)
Assets:
Interest earning assets:
Loans (1) (2) (3)	$	60,166,823		$	1,859,740	4.13	%	$	61,867,590		$	1,727,822	3.73	%	$	67,065,753		$	1,406,689	4.22	%	$	64,765,717		$	1,612,095	5.02	%
Investment securities – AFS (tax exempt)(3)	4,014			243		8.09		11,483			668		7.77
Investment securities – AFS (taxable)	12,078,924			164,240		1.82		11,246,517			130,585		1.55
Total investment securities – AFS	12,082,938			164,483		1.82		11,258,000			131,253		1.56
Investment securities – HTM (tax exempt) (3)	974,886			26,264		3.60		1,070,547			25,977		3.24
Investment securities – HTM (taxable)	167,008			3,356		2.69		198,614			3,316		2.23
Total investment securities - HTM	1,141,894			29,620		3.47		1,269,161			29,293		3.08
Debt securities – AFS															6,225,236			17,313		0.56		9,450,246			98,647		2.11
Debt securities – HTM (tax exempt) (3)															535,581			8,679		3.26		643,868			11,594		3.63
Debt securities – HTM (taxable)															7,164,151			74,036		2.08		3,747,532			53,629		2.89
Total debt securities - HTM															7,699,732			82,715		2.16		4,391,400			65,223		3.00
Trading account securities (3)	2,235,621			26,352		1.58		3,786,156			40,661		1.43		205,671			2,279		2.23		82,434			1,140		2.79
Other (4) (5) (6)	2,402,511			32,868		1.83		3,849,093			13,275		0.46
Other (4) (5)															9,102,705			56,191		1.24		4,284,880			58,791		2.77
Total earning assets	78,029,787			2,113,063		3.62		82,030,000			1,942,304		3.16		90,299,097			1,565,187		3.49		82,974,677			1,835,896		4.46
Noninterest earning assets:
Cash and due from banks (6)	918,124							1,274,687
Allowance for loan losses	(835,915		)					(823,372		)
Net unrealized (loss) gain on investment securities available for sale	(102,461		)					15,061
Cash and due from banks															815,768							1,059,514
Allowance for credit losses															(1,220,331		)					(942,398		)
Net unrealized gain (loss) on investment securities available for sale															76,720							(145,133		)
Other noninterest earning assets	9,472,821							9,382,051							10,308,833							10,273,988
Total assets	$	87,482,356						$	91,878,427						$	100,280,087						$	93,220,648
Liabilities:
Interest bearing liabilities:
Interest bearing demand deposits	$	7,863,401		19,211		0.33		$	6,912,147		11,867		0.23		$	12,926,063		37,981		0.59		$	8,997,002		46,882		1.05
Savings and money market accounts	24,826,554			72,643		0.39		25,861,764			75,896		0.39		33,860,391			128,735		0.76		27,432,104			165,112		1.21
Certificates and other time deposits	12,554,506			119,447		1.27		14,652,400			142,856		1.30		10,168,696			95,305		1.88		15,782,736			172,838		2.21
Foreign office deposits	—			—		—		108,444			160		0.20
Total interest bearing deposits	45,244,461			211,301		0.62		47,534,755			230,779		0.65		56,955,150			262,021		0.93		52,211,842			384,832		1.49
FHLB and other borrowings	4,115,511			71,422		2.32		4,543,350			58,919		1.73		3,651,605			43,112		2.37		4,157,923			71,926		3.49
Federal funds purchased and securities sold under agreements to repurchase (5)	64,676			16,462		34.03		569,772			16,525		3.87		1,321,766			34,932		5.31		439,577			9,749		4.47
Other short-term borrowings	2,239,427			24,233		1.45		3,912,069			41,281		1.41		16,312			391		4.82		17,702			296		3.37
Total interest bearing liabilities	51,664,075			323,418		0.84		56,559,946			347,504		0.82		61,944,833			340,456		1.11		56,827,044			466,803		1.66
Noninterest bearing deposits	20,922,150							20,432,380							22,259,622							20,234,941
Other noninterest bearing liabilities	1,899,015							2,122,640							3,558,821							2,446,939
Total liabilities	74,485,240							79,114,966							87,763,276							79,508,924
Shareholder’s equity	12,997,116							12,763,461							12,516,811							13,711,724
Total liabilities and shareholder’s equity	$	87,482,356						$	91,878,427						$	100,280,087						$	93,220,648
Net interest income/net interest spread				$	1,789,645	2.78	%				$	1,594,800	2.34	%				$	1,224,731	2.38	%				$	1,369,093	2.80	%
Net interest margin						3.07	%						2.60	%						2.73	%						3.33	%
Taxable equivalent adjustment				63,023							58,871							23,259							26,255
Net interest income				$	1,726,622						$	1,535,929						$	1,201,472						$	1,342,838


(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 6,7, 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. Previous to this change, 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.

Provision for ~~Loan~~Credit Losses

The provision for ~~loan~~credit losses is the charge to earnings that management determines to be necessary to maintain the allowance for ~~loan~~credit losses at a sufficient level reflecting management's estimate of ~~probable incurred~~expected losses inover the ~~loan~~life of the portfolio. The Company adopted ASC 326 effective January 1, 2020, and recorded a net of tax increase to accumulated deficit of $150.2 million as of January 1, 2020 for the cumulative effect of adopting ASC 326.

Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

For the three months ended ~~September~~June 30, ~~2017,~~2020, the Company recorded ~~$103.4~~$539.5 million of provision for credit losses compared to $155.0 million for the three months ended June 30, 2019. For the three months ended June 30, 2020, provision for credit losses was comprised of $526.3 million of provision for loan losses and $13.1 million of provision for HTM security losses.

For the three months ended June 30, 2020, the Company recorded $526.3 million of provision for loan losses compared to ~~$65.1~~$155.0 million offor the three months ended June 30, 2019. The increase in provision for loan losses for the three months ended ~~September~~June 30, ~~2016. The~~2020 reflected an increase in ~~provision for loan~~expected losses over the life of the portfolio. The primary drivers of this increase was ~~primarily due to $60 million of additional allowance for loan losses related to~~ the ~~estimated~~ impact of ~~Hurricanes Harvey and Irma~~the COVID-19 pandemic on economic conditions which impacted the ~~loan portfolio during~~Company's economic forecast. During the three months ended ~~September~~June 30, ~~2017 offset in part by~~2020, economic conditions continued to deteriorate due to the impact of the COVID-19 health crisis. As a ~~reduction in provision expense associated~~result, economic projections for the gross domestic product declined dramatically and unemployment levels increased significantly with ~~improvements in credit quality indicators in~~information related to the ~~energy portfolio during~~evolving impacts of the ~~three months ended September 30, 2017.~~COVID-19 health crisis.

The Company recorded net charge-offs of ~~$71.3~~$123.1 million during the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$46.1~~$143.4 million during the corresponding period in ~~2016.~~2019. The ~~increase~~decrease in net charge-offs for the three months ended ~~September~~June 30, ~~2017~~2020, as compared to the corresponding period in ~~2016~~2019, was primarily driven ~~in part~~ by ~~an $8.1~~a $16.9 million ~~increase in commercial real estate-mortgage net charge-offs, a $5.8 million increase~~decrease in commercial, financial and agricultural net charge-offs and a ~~$5.4~~$14.9 million ~~increase~~decrease in consumer direct net ~~charge-offs. Included~~charge-offs offset by an $8.6 million increase in ~~net-charge-offs for the three months ended September 30, 2017 was $127 thousand of~~commercial real estate-mortgage net charge-offs ~~related to energy loans compared to $8.5~~and a $3.7 million ~~of charge-offs related to energy loans for the three months ended September 30, 2016.~~ increase in credit card net charge-offs.

Net charge-offs were ~~0.47% (or 0.49% excluding net charge-offs on energy loans)~~0.72% of average loans for the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~0.30% (or 0.26% excluding net charge-offs on energy loans)~~0.90% of average loans for the three months ended ~~September~~June 30, ~~2016.~~2019.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, the Company recorded ~~$228.9~~$896.5 million of provision for credit losses compared to $337.3 million for the six months ended June 30, 2019. For the six months ended June 30, 2020, provision for credit losses was comprised of $883.3 million of provision for loan losses and $13.2 million of provision for HTM security losses.

For the six months ended June 30, 2020, the Company recorded $883.3 million of provision for loan losses compared to ~~$265.0~~$337.3 million ~~of provision for loan losses~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The ~~decrease~~increase in provision for loan losses reflected an increase in expected losses over the life of the portfolio. The primary drivers of this increase was ~~primarily~~the impact of the COVID-19 pandemic on economic conditions which impacted the Company's economic forecast. During the six months ended June 30, 2020, economic conditions continued to deteriorate due to ~~improvements in credit quality indicators~~the impact of the COVID-19 health crisis. As a result, economic projections for the gross domestic product declined dramatically and unemployment levels increased significantly with information related to the evolving impacts of the COVID-19 health crisis. Additionally, provision for loan losses was impacted by the higher reserves in the energy portfolio ~~during the nine months ended September 30, 2017, when compared~~due to the ~~negative credit quality indicators stemming from downgrades~~decrease in the energy portfolio that occurred during the nine months ended September 30, 2016 offset by the impact of $60 million of additional allowance for loan losses related to the estimated impact of Hurricanes Harvey and Irma on the loan portfolio during the nine months ended September 30, 2017.oil prices.

The Company recorded net charge-offs of ~~$218.0~~$234.9 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$165.6~~$244.9 million during the corresponding period in ~~2016.~~2019. The ~~increase~~decrease in net charge-offs for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the corresponding period in ~~2016~~2019 was driven in part by a ~~$15.4~~$17.0 million decrease in consumer direct net charge-offs and a $5.4 million decrease in consumer indirect net charge-offs offset by an $8.6 million increase in commercial ~~financial and agricultural~~real estate - mortgage net charge-offs ~~as well as~~and a ~~$20.5~~$7.9 million increase in ~~consumer direct~~credit card net charge-offs. Included in net-charge-offs for the nine months ended September 30, 2017 was $56.7 million of net charge-offs related to energy loans compared to $49.4 million of charge-offs related to energy loans for the nine months ended September 30, 2016.

Net charge-offs were ~~0.48% (or 0.38% excluding net charge-offs on energy loans)~~0.71% of average loans for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~0.36% (or 0.27% excluding net charge-offs on energy loans)~~0.77% of average loans for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019.

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 3, 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	Table 2 Noninterest Income								Table 2 Noninterest Income

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
	(In Thousands)								(In Thousands)
Service charges on deposit accounts	$	55,953	$	55,047	$	166,040	$	158,393	$	44,233	$	61,731	$	105,764	$	120,639
Card and merchant processing fees	32,297		31,256		94,749		92,507		43,416		50,355		93,507		96,357
Retail investment sales	26,817		30,137		82,876		79,689
Investment banking and advisory fees	30,500		34,385		78,744		86,324		45,061		20,758		71,792		39,615
Investment services sales fees									24,971		31,333		59,378		58,029
Money transfer income	24,881		25,058		77,408		75,960		25,461		25,272		50,009		47,253
Mortgage banking									23,868		5,870		41,319		10,807
Corporate and correspondent investment sales									18,855		5,607		29,572		12,499
Asset management fees	10,336		8,778		30,162		25,969		11,560		11,867		23,464		22,634
Corporate and correspondent investment sales	5,145		6,974		26,249		21,490
Mortgage banking	3,450		8,242		9,636		5,410
Bank owned life insurance	4,322		4,170		12,711		13,041		5,094		4,803		9,719		9,387
Investment securities gains, net	3,033		—		3,033		30,037		3,477		—		22,616		8,958
Other	61,060		59,718		167,198		206,396		26,358		66,685		99,456		115,863
Total noninterest income	$	257,794	$	263,765	$	748,806	$	795,216	$	272,354	$	284,281	$	606,596	$	542,041

Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

Noninterest income was ~~$257.8~~$272.4 million for the three months ended ~~September~~June 30, ~~2017,~~2020, compared to ~~$263.8~~$284.3 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The decrease in noninterest income was primarily driven by decreases in ~~retail~~service charges on deposit accounts, card and merchant processing fees, investment services sales fees and other noninterest income offset by increases in investment banking and advisory fees, ~~and~~ mortgage banking ~~partially offset~~income, corporate and correspondent investment sales and investment securities gains.

Service charges on deposit accounts represent the Company's largest category of noninterest revenue. Service charges on deposit accounts decreased to $44.2 million for the three months ended June 30, 2020, compared to $61.7 million for the three months ended June 30, 2019 driven by a general decline in consumer spending activity associated with the COVID-19 pandemic as well the bank implementing fee waivers to offer relief for those customers impacted by the COVID-19 pandemic.

Card and merchant processing fees represent income related to customers’ utilization of their debit and credit cards, as well as interchange income and merchants’ discounts. Income from card and merchant processing fees decreased to $43.4 million for the three months ended June 30, 2020, compared to $50.4 million for the three months ended June 30, 2019, the decrease was primarily driven by a general decline in consumer spending activity associated with the COVID-19 pandemic.

Investment banking and advisory fees primarily represent income from BSI. Income from investment banking and advisory fees increased to $45.1 million for the three months ended June 30, 2020, compared to $20.8 million for the three months ended June 30, 2019. The primary driver of this increase was an increase in ~~investment securities gains.~~debt capital markets activity during the three months ended June 30, 2020 compared to the same period in 2019.

~~Retail investment~~Investment services sales fees is comprised of mutual ~~funds~~fund and annuity sales income and insurance sales fees. Income from ~~retail~~ investment services sales fees decreased to ~~$26.8~~$25.0 million for the three months ended ~~September~~June 30, ~~2017,~~2020, compared to ~~$30.1~~$31.3 million for the three months ended ~~September~~June 30, ~~2016,~~2019. The primary contributors to this decrease were a $1.2 million decrease in securities transaction fees, a $2.8 million decrease in annuity sales fees, and a $2.5 million

decrease in life and disability insurance fees which reflected a decrease in investment service products due to ~~a decrease~~the impact of ~~$4.5~~the COVID-19 pandemic.

Mortgage banking is comprised of servicing income, guarantee fees and gains on sales of mortgage loans as well as fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. Mortgage banking income increased $18.0 million in fixed annuity income, partially offset by an increase of $1.1 million in variable annuity income. The improved market conditions caused a shift in demand from fixed annuities towards variable annuities.

~~Income from investment banking and advisory fees decreased~~for three months ended June 30, 2020 compared to ~~$30.5 million for~~ the three months ended ~~September~~June 30, ~~2017, compared to $34.4 million for the three months ended September 30, 2016,~~2019. The increase in mortgage banking income was primarily due ~~to a decrease in the volume of bond underwriting activity during the third quarter 2017 compared to the same period in 2016.~~

Asset management fees are fees generated from money management transactions executed with the Company through trusts, higher net worth customers and other long-term clients. Asset management fees for the three months ended September 30, 2017, increased to $10.3 million, from $8.8 million for the three months ended September 30, 2016, due primarily to an increase of $14.9 million in ~~assets under management compared to the same period~~fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs as well as $3.9 million increase in ~~2016.~~gains on sale of mortgage loans driven by increased production and sales income as lower market interest rates drove increased applications.

Corporate and correspondent investment sales ~~represents~~represent 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 ~~decreased~~increased to ~~$5.1~~$18.9 million for the three months ended ~~September~~June 30, ~~2017, compared to $7.0~~2020 from $5.6 million for the three months ended ~~September~~June 30, ~~2016, due to a decrease~~2019. The primary driver of the increase was an increase in ~~bond trading during the three months ended September 30, 2017.~~

Mortgage banking for the three months ended September 30, 2017 was $3.5 million, a decrease of $4.8 million compared to the three months ended September 30, 2016. Mortgage banking for the three months ended September 30, 2017, included $6.5 million of origination fees and gainsvaluation adjustments on interest rate contracts as well as an increase in sales of mortgage loans partially offset by net losses of $2.7 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. Mortgage banking for the three months ended September 30, 2016, included $7.2 million of origination fees

and gains on sales of mortgage loans and gains of $986 thousand related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. The decrease in mortgage banking for the three months ended September 30, 2017, compared to the corresponding period in 2016 was primarily driven by a slight decline in rates during the third quarter of 2017 which negatively impacted the valuations of mortgage loans held for sale, mortgage related derivatives, and MSRs. In addition, mortgage production volume decreased during the three months ended September 30, 2017, compared to the corresponding period in 2016.interest rate contracts.

Investment securities gains, net ~~increased by $3.0~~were $3.5 million for the three months ended ~~September~~June 30, ~~2017, due to the sale of AFS securities during the three months ended September 30, 2017.~~2020. See, ~~"—Investment Securities"~~“—Debt Securities” for more information related to the ~~investment securities sales.~~

~~Nine Months Ended September 30, 2017 and 2016~~

Noninterest income was $748.8 million for the nine months ended September 30, 2017, compared to $795.2 million for the nine months ended September 30, 2016. The decrease in noninterest income was primarily driven by decreases in investment securities gains, investment banking and advisory fees and other noninterest income partially offset by increases in asset management fees, corporate and correspondent investment sales and mortgage banking.

Asset management fees for the nine months ended September 30, 2017 was $30.2 million, compared to $26.0 million the nine months ended September 30, 2016, due primarily to an increase in assets under management compared to the same period in 2016.

Income from corporate and correspondent investment sales increased to $26.2 million for the nine months ended September 30, 2017, from $21.5 million for the corresponding period in 2016. The $4.8 million increase was due in part to income related to an increase in interest rate contracts and foreign currency exchange contracts.

Mortgage banking for the nine months ended September 30, 2017 was $9.6 million, an increase of $4.2 million compared to the nine months ended September 30, 2016. Mortgage banking for the nine months ended September 30, 2017, included $18.3 million of origination fees and gains on sales of mortgage loans partially offset by net losses of $8.5 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. Mortgage banking for the nine months ended September 30, 2016, included $17.2 million of origination fees and gains on sales of mortgage loans partially offset by net losses of $11.9 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. The increase in mortgage banking for the nine months ended September 30, 2017, compared to the corresponding period in 2016 was primarily driven by a decline in rates during 2016, which negatively impacted the valuations of mortgage loans held for sale, mortgage related derivatives, and MSRs.

Investment securities gains, net decreased to $3.0 million for the nine months ended September 30, 2017, compared to $30.0 million in the nine months ended September 30, 2017. See "—Investment Securities" for more information related to the investmentdebt 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~~ATMS and foreign exchange. ~~For~~Other noninterest income decreased to $26.4 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2020, compared to $66.7 million for the three months ended June 30, 2019, was primarily due to a $32.9 million decrease in fair value adjustments on the SBIC investments.

Six Months Ended June 30, 2020 and 2019

Noninterest income was $606.6 million for the six months ended June 30, 2020, compared to $542.0 million for the six months ended June 30, 2019. The increase in noninterest income was primarily driven by increases in investment banking and advisory fees, mortgage banking, corporate and correspondent investment sales and investment securities gains partially offset by decreases in service charges on deposit accounts and other noninterest income.

Service charges on deposit accounts decreased to $105.8 million for the six months ended June 30, 2020, compared to $120.6 million for the six months ended June 30, 2019 driven by a general decline in consumer spending activity associated with the COVID-19 pandemic as well the bank implementing fee waivers to offer relief for those customers impacted by the COVID-19 pandemic.

Income from investment banking and advisory fees increased to $71.8 million for the six months ended June 30, 2020, compared to $39.6 million for the six months ended June 30, 2019. The increase was driven primarily by an increase in underwriting activity during the six months ended June 30, 2020 compared to the same period in 2019.

Income from corporate and correspondent investment sales increased to $29.6 million for the six months ended June 30, 2020, compared to $12.5 million for the six months ended June 30, 2019, primarily driven by an increase in customer interest rate income due to an increase in interest rate contract sales as well as valuation adjustments on interest rate contracts for the six months ended June 30, 2020 compared to the same period in 2019.

Mortgage banking for the six months ended June 30, 2020 was $41.3 million, an increase of $30.5 million compared to the six months ended June 30, 2019. The increase in mortgage banking income was driven by an increase of $20.9 million in fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs as well as $7.0 million increase in gains on sale of mortgage loans driven by increased production and sales income as lower market interest rates drove increased applications.

Investment securities gains, net were $22.6 million for the six months ended June 30, 2020 compared to $9.0 million for the six months ended June 30, 2019. See, “—Debt Securities” for more information related to the debt securities sales.

Other noninterest income decreased ~~by $39.2~~to $99.5 million for the six months ended June 30, 2020, compared to $115.9 million for the six months ended June 30, 2019, due in part to a ~~$17.7~~$10.6 million ~~residual value write down related to a commercial lease~~decrease in syndication fees and a ~~$16.1~~$3.0 million ~~gain recognized during 2016 from the sale of loans not initially originated for sale~~decrease in service and referral income with BBVA and its affiliates offset by an $8.8 million increase in the ~~secondary market.~~value of the SBIC investments.

Noninterest Expense

The following table presents the components of noninterest expense.

Table 3 Noninterest Expense	Table 3 Noninterest Expense								Table 3 Noninterest Expense

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
	(In Thousands)								(In Thousands)
Salaries, benefits and commissions	$	279,384	$	279,132	$	835,825	$	836,067	$	251,697	$	296,303	$	561,833	$	589,019
Professional services									78,100		73,784		148,320		137,680
Equipment	60,656		59,697		184,691		179,646		64,752		62,638		129,433		128,032
Professional services	64,775		63,628		187,422		178,396
Net occupancy	42,227		41,610		125,568		120,881		41,585		40,116		81,428		81,057
Money transfer expense	15,938		16,680		50,069		50,048		17,958		17,290		35,094		32,268
Amortization of intangibles	2,525		4,093		7,575		12,280
Total securities impairment	—		—		242		130
Goodwill impairment									—		—		2,185,000		—
Other	108,457		91,431		304,367		312,004		125,358		108,183		247,402		212,231
Total noninterest expense	$	573,962	$	556,271	$	1,695,759	$	1,689,452	$	579,450	$	598,314	$	3,388,510	$	1,180,287

Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

Noninterest expense was ~~$574.0~~$579.5 million for the three months ended ~~September~~June 30, ~~2017, an increase~~2020, a slight decrease of ~~$17.7~~$18.9 million compared to ~~$556.3~~$598.3 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in noninterest expense was primarily driven by ~~higher levels of~~decreases in salaries, benefits and commissions, partially offset by an increase in other noninterest expense.

Salaries, benefits and commissions expense ~~offset,~~is comprised of salaries and wages in ~~part, by a decrease in amortization~~addition to other employee benefit costs and represents the largest components of ~~intangibles.~~

~~Amortization~~noninterest expense. Salaries, benefits and commissions expense decreased ~~by $1.6~~to $251.7 million during the three months ended June 30, 2020, compared to $296.3 million for the three months ended ~~September~~June 30, ~~2017, due~~2019, related to ~~the~~ lower ~~level of intangible assets at September 30, 2017, compared to the same period in 2016.~~incentives.

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 increased ~~$17.0~~$17.2 million during the three months ended ~~September~~June 30, ~~2017,~~2020, to ~~$108.5~~$125.4 million compared to ~~$91.4~~$108.2 million for the three months ended ~~September~~June 30, ~~2016. The increase was~~2019 primarily attributable to a ~~$9.5~~$37.5 million increase in ~~the~~ provision for unfunded commitments which was partially offset by decreases of $7.6 million in marketing expenses, $5.1 million in item processing fees, $4.5 million in travel expenses and ~~letters of credit~~$4.3 million in ~~2017~~business development.

Six Months Ended June 30, 2020 and 2019

Noninterest expense increased $2.2 billion to $3.4 billion for the six months ended June 30, 2020, compared to the ~~corresponding period~~six months ended June 30, 2019. Noninterest expense increased primarily due to goodwill impairment offset in ~~2016 as well as a $3.3~~part by decreases in salaries, benefits and commissions.

Salaries, benefits and commissions expense decreased to $561.8 million ~~increase in business development expenses in 2017~~during the six months ended June 30, 2020, compared to $589.0 million for the ~~corresponding period in 2016.~~

~~Nine Months Ended September 30, 2017 and 2016~~

~~Noninterest expense was $1.7 billion for both the nine~~six months ended ~~September~~June 30, ~~2017 and 2016.~~2019, related to lower incentives.

Professional services expense represents fees incurred for the various support functions, which includes legal, consulting, outsourcing and other professional related fees. Professional services increased ~~$9.0 million~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, to ~~$187.4~~$148.3 million compared to ~~$178.4~~$137.7 million for the corresponding period in ~~2016~~2019 primarily due to ~~increases of $5.0 million, $4.5 million and $3.6 million related to contractor services, consulting and bankcard fees, respectively, which were partially offset by~~ a ~~decrease of $6.4 million related to credit card processing.~~

Other noninterest expense decreased $7.6 million during the nine months ended September 30, 2017, to $304.4 million compared to $312.0 million for the nine months ended September 30, 2016. The decrease was primarily attributable to an $11.1 million decrease in the provision for unfunded commitments and letters of credit in 2017 compared to the corresponding period in 2016 offset in part by a $6.7$5.6 million increase in ~~marketing expense~~outsourcing and professional services paid to BBVA and a $2.1 million increase in ~~2017~~bankcard fees.

Goodwill impairment was $2.2 billion for the six months ended June 30, 2020, compared to no goodwill impairment during the ~~corresponding period~~six months ended June 30, 2019. Refer to "—Goodwill" and Note 5, Goodwill, in ~~2016.~~the Notes to the Unaudited Condensed Consolidated Financial Statements.

Income Tax Expense

Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

The Company’s income tax (benefit) expense totaled ~~$39.3~~$(110.1) million and ~~$36.8~~$30.5 million for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The effective tax rate was ~~23.2%~~46.9% for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~23.4%~~16.0% for the three months ended ~~September~~June 30, ~~2016.~~2019.The tax rate was primarily impacted by the Company's higher loss before income tax for the three months ended June 30, 2020.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

The Company’s income tax (benefit) expense totaled ~~$142.1~~$(115.2) million and ~~$94.5~~$66.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The effective tax rate was ~~25.8%~~4.6% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~25.1%~~18.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The tax rate for the six months ended June 30, 2020 was primarily impacted by an unfavorable permanent difference related to goodwill impairment for the six months ended June 30, 2020.

Analysis of Financial Condition

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

Federal Funds Sold, Securities Purchased Under Agreements to Resell and Interest Bearing Deposits

Federal funds sold, securities purchased under agreements to resell and interest bearing deposits totaled $11.7 billion at June 30, 2020, compared to $5.8 billion December 31, 2019. The increase was primarily driven by a $5.9 billion increase in interest bearing deposits with the Federal Reserve.

Trading Account Assets

Trading account assets totaled ~~$572~~$1.0 billion at June 30, 2020, compared to $474 million at ~~September 30, 2017, compared to $3.1 billion~~ December 31, ~~2016.~~2019. The ~~$2.6 billion decrease~~increase in trading account assets ~~was~~ primarily ~~attributable~~related to ~~a $2.5 billion decrease~~increases in ~~U.S. Treasury securities held by BSI.~~the fair value of interest rate derivative contracts for customers.

~~Investment~~Debt Securities

~~As of September~~At June 30, ~~2017,~~2020, the securities portfolio included ~~$12.3~~$5.8 billion in available for sale debt securities and ~~$1.1~~$8.7 billion in held to maturity debt securities for a total ~~investment~~debt securities portfolio of ~~$13.3~~$14.5 billion, an increase of ~~$477~~$441 million compared with December 31, ~~2016.~~2019.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, the Company received proceeds of ~~$210.9~~$863.7 million ~~from~~related to the sale of U.S. Treasury securities and ~~other U.S. government agencies~~agency collateralized mortgage obligations securities classified as available for sale which resulted in a net ~~gains~~gain of ~~$3.0~~$22.6 million. ~~During the nine months ended September 30, 2016, the~~The Company ~~received proceeds~~also purchased approximately $2.4 billion of ~~$1.8 billion from the sale of U.S. Treasury and other U.S. government agencies securities~~agency collateralized mortgage obligations that were classified as ~~available for sale which resulted in net gains of $30.0 million.~~held to maturity.

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 had a portfolio of covered loans that were acquired in the 2009 FDIC-assisted acquisition of certain assets and liabilities of Guaranty Bank. Covered loans represent loans acquired from the FDIC subject to loss sharing agreements. 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. In July 2017, the Company entered into an agreement with the FDIC to terminate the Company's single family residential loss share agreement ahead of the contractual maturity.

The following table presents the composition of the loan portfolio.

Table 4 Loan Portfolio	Table 4 Loan Portfolio				Table 4 Loan Portfolio

	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Commercial loans:
Commercial, financial and agricultural	$	25,091,942	$	25,122,002	$	28,782,124	$	24,432,238
Real estate – construction	2,247,144		2,125,316		2,298,470		2,028,682
Commercial real estate – mortgage	11,342,378		11,210,660		13,800,669		13,861,478
Total commercial loans	$	38,681,464	$	38,457,978	$	44,881,263	$	40,322,398
Consumer loans:
Residential real estate – mortgage	$	13,398,503	$	13,259,994	$	13,429,139	$	13,533,954
Equity lines of credit	2,617,312		2,543,778		2,516,834		2,592,680
Equity loans	383,376		445,709		209,980		244,968
Credit card	590,975		604,881		965,572		1,002,365
Consumer direct	1,604,396		1,254,641		2,134,108		2,338,142
Consumer indirect	3,039,178		3,134,948		4,104,604		3,912,350
Total consumer loans	$	21,633,740	$	21,243,951	$	23,360,237	$	23,624,459
Covered loans	—		359,334
Total loans	$	60,315,204	$	60,061,263	$	68,241,500	$	63,946,857
Loans held for sale	77,783		161,849		245,851		112,058
Total loans and loans held for sale	$	60,392,987	$	60,223,112	$	68,487,351	$	64,058,915

Loans and loans held for sale, net of unearned income, totaled ~~$60.4~~$68.5 billion at ~~September~~June 30, ~~2017,~~2020, an increase of ~~$170 million~~$4.4 billion from December 31, ~~2016.~~2019. The increase was primarily due to the impact of $3.1 billion of SBA Paycheck Protection Program loans, which are primarily categorized in the commercial, financial and agricultural category in the table above, that the Company has facilitated to assist its commercial customers during the COVID-19 pandemic as well as reflecting an increase in line of credit draws as companies responded to liquidity needs during the COVID-19 pandemic.

See Note 3, Loans and Allowance for Loan Losses, and Note 4, 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~~foreclosed real estate ~~owned~~ and other repossessed assets, totaled ~~$744~~$855 million at ~~September~~June 30, ~~2017, a decrease~~2020, an increase of ~~$268~~$145 million, compared to ~~$1.0 billion~~$710 million at December 31, ~~2016.~~2019. The ~~decrease~~increase in nonperforming assets was primarily ~~due to a $254 million decrease in nonaccrual loans~~ driven by a ~~$206~~$121.3 million ~~decrease~~increase in ~~energy nonaccrual loans. At September 30, 2017, energy~~commercial, financial and agricultural nonaccrual loans, ~~were $181 million compared to $387 million at December 31, 2016. The decrease~~primarily in the energy nonaccrual loans was due in part to sales of nonperforming energy loans during the nine months ended September 30, 2017. Excluding energy nonperforming loans, nonperforming assets totaled $563 million at September 30, 2017 compared to $625 million at December 31, 2016.sector. As a percentage of total loans and loans held for sale, ~~other~~foreclosed real estate ~~owned~~ and other repossessed assets, nonperforming assets were ~~1.23% (or 0.98% excluding energy nonperforming loans)~~1.25% at ~~September~~June 30, ~~2017~~2020 compared with ~~1.68% (or 1.10% excluding energy nonperforming loans)~~1.11% at December 31, ~~2016.~~

2019.

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 3, 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	Table 5 Potential Problem Loans				Table 5 Potential Problem Loans

	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Commercial, financial and agricultural	$	558,549	$	630,760	$	397,107	$	312,125
Real estate – construction	3,114		5,578		9,865		13,099
Commercial real estate – mortgage	68,964		57,108		108,576		78,428
	$	630,627	$	693,446	$	515,548	$	403,652

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

Table 6 Asset Quality	Table 6 Asset Quality				Table 6 Asset Quality

	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Nonaccrual loans:
Commercial, financial and agricultural	$	324,071	$	596,454	$	389,615	$	268,288
Real estate – construction	1,877		1,239		13,317		8,041
Commercial real estate – mortgage	108,040		71,921		117,213		98,077
Residential real estate – mortgage	175,490		140,303		169,387		147,337
Equity lines of credit	34,416		33,453		34,915		38,113
Equity loans	11,305		13,635		8,457		8,651
Credit card	—		—		—		—
Consumer direct	2,746		789		7,624		6,555
Consumer indirect	8,867		5,926		24,216		31,781
Covered	—		730
Total nonaccrual loans	666,812		864,450		764,744		606,843
Nonaccrual loans held for sale	—		56,592		—		—
Total nonaccrual loans and loans held for sale	$	666,812	$	921,042	$	764,744	$	606,843
Accruing TDRs: (1)
Commercial, financial and agricultural	$	1,259	$	8,726	$	1,866	$	1,456
Real estate – construction	106		2,393		64		72
Commercial real estate – mortgage	4,645		4,860		1,876		3,414
Residential real estate – mortgage	59,086		59,893		54,289		57,165
Equity lines of credit	237		—		—		—
Equity loans	30,574		34,746		21,280		23,770
Credit card	—		—		—		—
Consumer direct	577		704		16,836		12,438
Consumer indirect	—		—		—		—
Covered	—		—
Total Accruing TDRs	96,484		111,322		96,211		98,315
Accruing TDRs classified as loans held for sale	—		—		—		—
Total Accruing TDRs (loans and loans held for sale)	$	96,484	$	111,322	$	96,211	$	98,315
Loans 90 days past due and accruing:
Commercial, financial and agricultural	$	6,072	$	2,891	$	8,450	$	6,692
Real estate – construction	2,955		2,007		532		571
Commercial real estate – mortgage	3,686		—		415		6,576
Residential real estate – mortgage	2,558		3,356		13,140		4,641
Equity lines of credit	2,179		2,950		3,555		1,567
Equity loans	840		467		148		195
Credit card	10,692		10,954		22,134		22,796
Consumer direct	5,209		4,482		11,623		18,358
Consumer indirect	8,858		7,197		6,166		9,730
Covered	—		27,238
Total loans 90 days past due and accruing	43,049		61,542		66,163		71,126
Loans held for sale 90 days past due and accruing	—		—		—		—
Total loans and loans held for sale 90 days past due and accruing	$	43,049	$	61,542	$	66,163	$	71,126
OREO	$	22,012	$	21,112
Foreclosed real estate					$	14,871	$	20,833
Other repossessed assets	$	11,443	$	7,587	$	8,599	$	10,930


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

Nonperforming assets, which include loans held for sale, are detailed in the following ~~table.~~tables.

Table 7 Nonperforming Assets	Table 7 Nonperforming Assets				Table 7 Nonperforming Assets

	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Nonaccrual loans	$	666,812	$	921,042	$	764,744	$	606,843
Loans 90 days or more past due and accruing (1)	43,049		61,542		66,163		71,126
TDRs 90 days or more past due and accruing	963		589		423		414
Nonperforming loans	710,824		983,173		831,330		678,383
OREO	22,012		21,112
Foreclosed real estate					14,871		20,833
Other repossessed assets	11,443		7,587		8,599		10,930
Total nonperforming assets	$	744,279	$	1,011,872	$	854,800	$	710,146


(1)	Excludes loans classified as TDR.

Table 8 Asset Quality Ratios	Table 8 Asset Quality Ratios				Table 8 Asset Quality Ratios

	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
Asset Quality Ratios:
Nonperforming loans and loans held for sale as a percentage of loans and loans held for sale (1)	1.18	%	1.63	%	1.21	%	1.06	%
Nonperforming assets as a percentage of total loans and loans held for sale, other real estate owned, and other repossessed assets (2)	1.23		1.68
Nonperforming assets as a percentage of total loans and loans held for sale, foreclosed real estate, and other repossessed assets (2)					1.25		1.11
Allowance for loan losses as a percentage of loans	1.41		1.40		2.57		1.44
Allowance for loan losses as a percentage of nonperforming loans (3)	119.46		90.47		211.03		135.76


(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~~foreclosed 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.~~sale.

Table 9 Rollforward of Nonaccrual Loans	Table 9 Rollforward of Nonaccrual Loans						Table 9 Rollforward of Nonaccrual Loans

	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2020			2019
	(In Thousands)						(In Thousands)
Balance at beginning of period,	$	920,312		$	406,911		$	606,843		$	751,486
Additions	487,329			1,270,646			436,982			407,941
Returns to accrual	(49,458		)	(43,492		)	(45,339		)	(67,014		)
Loan sales	(98,797		)	(104,372		)	—			—
Payments and paydowns	(290,722		)	(216,754		)	(146,265		)	(90,366		)
Transfers to OREO	(24,480		)	(16,415		)
Transfers to foreclosed real estate							(5,825		)	(12,175		)
Charge-offs	(277,372		)	(210,775		)	(81,652		)	(257,176		)
Balance at end of period	$	666,812		$	1,085,749		$	764,744		$	732,696

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 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

3, 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	Table 10 Rollforward of TDR Activity						Table 10 Rollforward of TDR Activity

	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2020			2019
	(In Thousands)						(In Thousands)
Balance at beginning period	$	213,868		$	227,817		$	215,481		$	311,442
New TDRs	217,600			54,004			78,594			42,309
Payments/Payoffs	(123,460		)	(58,990		)	(43,944		)	(78,429		)
Charge-offs	(4,526		)	(1,428		)	(3,596		)	(27,510		)
Transfer to OREO	(448		)	(615		)
Transfers to foreclosed real estate							—			—
Balance at end of period	$	303,034		$	220,788		$	246,535		$	247,812

The Company’s aggregate recorded investment in ~~impaired~~ loans modified through TDRs ~~excluding covered loans~~ was ~~$303~~$247 million at ~~September~~June 30, ~~2017~~2020 compared to ~~$214~~$215 million at December 31, ~~2016. The increase in TDRs was due to an increase in commercial, financial and agricultural TDRs, primarily associated with energy loans.~~2019. Included in these amounts are $96 million at ~~September~~June 30, ~~2017~~2020 and ~~$111~~$98 million at December 31, ~~2016~~2019 of accruing ~~TDRs, excluding covered loans.~~TDRs. Accruing TDRs are not considered nonperforming because they are performing in accordance with the restructured terms.

In response to the COVID-19 pandemic, beginning in March 2020 the Company began providing financial hardship relief in the form of payment deferrals and forbearances to consumer and commercial customers across a wide array of lending products, as well as the suspension of vehicle repossessions and home foreclosures. The payment deferrals and forbearances are currently expected to cover periods of three to six months. In most cases, if the loans have been restructured for COVID-19 related hardships and meet certain criteria under the CARES Act they are not classified as TDRs and do not result in loans being placed on nonaccrual status. At June 30, 2020, the Company had granted loan deferrals on approximately 63 thousand loans with an amortized cost of $7.2 billion. Deferred principal and interest balances at June 30, 2020 were $129.7 million and $77.1 million, respectively.

Allowance for Loan Losses

Management’s policy is to maintain the allowance for loan losses at a level sufficient to absorb ~~estimated probable incurred~~expected losses inover the life of the loan portfolio. The Company adopted ASC 326 effective January 1, 2020. See Note 3, 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 increased to ~~$849 million~~$1.8 billion at ~~September~~June 30, ~~2017,~~2020, from ~~$838~~$921 million at December 31, ~~2016.~~ 2019. The Company adopted ASC 326 effective January 1, 2020, and recorded a $184.9 million increase to its allowance for loan losses that was reflected as an adjustment to shareholder's equity, net of taxes. The increase was largely attributable to the residential real estate and consumer loan portfolios, given the longer asset duration associated with these portfolios.

The increase in the allowance for loan losses during the six months ended June 30, 2020, reflected an increase in expected losses over the life of the loan portfolio. The most significant driver of this increase is attributable to the recognition of the COVID-19 pandemic through an update to the reasonable and supportable macroeconomic forecast included in the baseline calculation, which most significantly impacted the commercial loan portfolios, but also drove increases in the consumer loan portfolio. The macroeconomic forecast utilized as of June 30, 2020, represented the best information available at the end of the reporting period, and included the following considerations:

Significant deterioration from economic scenarios considered as of March 31, 2020, particularly impacting GDP and unemployment.

Very steep economic contraction in the second quarter of 2020, with a recovery starting in the third quarter of 2020.

Very substantial increase in unemployment with a peak during the second quarter of 2020 and subsequent hiring rebound.

Significant and lingering negative impact on commercial real estate prices. Aggregate commercial real estate projections are also lower in the short term, but are projected to rebound more quickly than in the prior forecast scenario.

Further, due to the level of uncertainty related to the economic outlook, a more conservative downside economic scenario was included as part of the qualitative framework adjustments at March 31, 2020. However, as the macroeconomic forecast used in the June 30, 2020 baseline scenario deteriorated to a level worse than the downside economic scenario, the downside economic scenario consideration was removed from the qualitative framework adjustments as of June 30, 2020. This was offset by an increase in the adjustment to reflect the impact of the macroeconomic scenarios on loan portfolios without econometric models.

An additional driver of the increase in the allowance for loan losses is the recognition of the decline in oil prices on the energy portfolio. Management recognized a qualitative factor adjustment at March 31, 2020, separately from the baseline scenario considerations as oil prices are not a significant driver of the econometric models used in the baseline allowance calculation. This qualitative factor adjustment remained in place as of June 30, 20202, due to concerns around continued volatility in oil prices.

The ratio of the allowance for loan losses to total loans was ~~1.41%~~2.57% at ~~September~~June 30, ~~2017~~2020 compared to ~~1.40%~~1.44% at December 31, ~~2016.~~2019. Nonperforming loans were ~~$711~~$831 million at ~~September~~June 30, ~~2017~~2020 compared to ~~$983~~$678 million at December 31, 2016. The allowance attributable to individually impaired loans was $108 million at September 30, 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.2019.

Net charge-offs were ~~0.47%~~0.72% of average loans for the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~0.30%~~0.90% of average loans for the three months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in net charge-offs for the three months ended ~~September~~June 30, ~~2017~~2020, as compared to the corresponding period in ~~2016~~2019, was primarily driven ~~in part~~ by ~~an $8.1~~a $16.9 million ~~increase in commercial real estate-mortgage net charge-offs, a $5.8 million increase~~decrease in commercial, financial and agricultural net charge-offs and a ~~$5.4~~$14.9 million ~~increase~~decrease in consumer direct net ~~charge-offs. Commercial, financial and agricultural~~charge-offs offset by an $8.6 million increase in commercial real estate-mortgage net charge-offs ~~include $127 thousand of~~and a $3.7 million increase in credit card net ~~charge-offs related to energy loans for the three months ended September 30, 2017 compared to $8.5 million of net charge-offs related to energy loans for the three months ended September 30, 2016.~~charge-offs.

Net charge-offs were ~~0.48%~~0.71% of average loans for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~0.36%~~0.77% of average loans for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in net charge-offs for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the corresponding period in ~~2016~~2019 was driven in part by a ~~$15.4~~$17.0 million decrease in consumer direct net charge-offs and a $5.4 million decrease in consumer indirect net charge-offs offset by an $8.6 million increase in commercial ~~financial and agricultural~~real estate - mortgage net charge-offs ~~as well as~~and a ~~$20.5~~$7.9 million increase in ~~consumer direct~~credit card net charge-offs. Commercial, financial and agricultural net charge-offs include $56.7 million of net charge-offs related to energy loans for the nine months ended September 30, 2017 compared to $49.4 million of net charge-offs related to energy loans for the nine months ended September 30, 2016.

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	Table 11 Summary of Loan Loss Experience												Table 11 Summary of Loan Loss Experience

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
	(Dollars in Thousands)												(Dollars in Thousands)
Average loans outstanding during the period	$	60,215,551		$	60,977,920		$	60,111,031		$	61,786,243		$	69,142,017		$	63,581,887		$	66,967,070		$	64,479,237
Allowance for loan losses, beginning of period	$	816,952		$	843,051		$	838,293		$	762,673
Allowance for loan losses, beginning of period, prior to adoption of ASC 326													1,351,072			966,022			$	920,993		$	885,242
Impact of adopting ASC 326													—			—			184,931			—
Allowance for loan losses, beginning of period, after adoption of ASC 326													1,351,072			966,022			1,105,924			885,242
Charge-offs:
Commercial, financial and agricultural	21,320			13,702			91,943			66,541			30,970			49,325			55,177			58,828
Real estate – construction	—			21			82			306			—			—			27			19
Commercial real estate – mortgage	7,913			83			8,845			3,249			9,053			112			9,113			118
Residential real estate – mortgage	2,587			2,043			8,769			6,148			651			2,199			1,115			3,645
Equity lines of credit	1,314			2,141			5,054			7,259			419			1,581			1,574			4,819
Equity loans	389			424			2,419			1,665			25			899			405			1,227
Credit card	11,333			9,171			33,479			27,000			22,058			18,166			43,488			35,108
Consumer direct	19,940			13,975			57,030			34,524			46,985			62,716			105,916			121,847
Consumer indirect	23,829			23,326			69,752			64,083			28,850			29,873			64,355			66,673
Covered	—			—			—			1,565
Total charge-offs	88,625			64,886			277,373			212,340			139,011			164,871			281,170			292,284
Recoveries:
Commercial, financial and agricultural	6,625			4,766			17,790			7,775			1,932			3,409			7,125			8,169
Real estate – construction	29			227			965			1,908			36			477			76			1,906
Commercial real estate – mortgage	206			455			3,265			1,915			383			51			516			84
Residential real estate – mortgage	870			1,483			4,453			4,156			469			676			1,105			1,193
Equity lines of credit	1,135			1,540			2,914			3,589			895			1,210			1,514			3,873
Equity loans	396			406			1,369			1,060			145			705			313			1,114
Credit card	742			711			2,392			2,223			1,951			1,730			3,864			3,429
Consumer direct	1,659			1,091			5,032			3,005			4,714			5,574			11,919			10,831
Consumer indirect	5,696			8,129			21,130			21,090			5,432			7,659			19,886			16,793
Covered	—			—			31			1
Total recoveries	17,358			18,808			59,341			46,722			15,957			21,491			46,318			47,392
Net charge-offs	71,267			46,078			218,032			165,618			123,054			143,380			234,852			244,892
Total provision for loan losses	103,434			65,107			228,858			265,025			526,334			155,018			883,280			337,310
Allowance for loan losses, end of period	$	849,119		$	862,080		$	849,119		$	862,080		$	1,754,352		$	977,660		$	1,754,352		$	977,660
Net charge-offs to average loans	0.47		%	0.30		%	0.48		%	0.36		%	0.72		%	0.90		%	0.71		%	0.77		%

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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

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 ~~$25.1~~$28.8 billion at ~~both September~~June 30, ~~2017 and~~2020 compared to $24.4 billion at December 31, ~~2016.~~2019. 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. 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	Table 12 Commercial, Financial and Agricultural																	Table 12 Commercial, Financial and Agricultural

		September 30, 2017								December 31, 2016 (1)									June 30, 2020								December 31, 2019
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			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)																	(In Thousands)
Autos, Components and Durable Goods		$	488,240	$	26	$	—	$	—	$	579,864	$	40	$	—	$	57		$	2,041,939	$	26,516	$	—	$	9	$	2,139,178	$	47,261	$	—	$	8
Basic Materials		637,602		56		—		—		740,247		12,388		—		—			501,725		944		—		11		526,485		1,342		—		—
Capital Goods & Industrial Services		2,722,652		9,054		149		188		2,580,976		645		174		—			2,648,368		51,110		1,033		—		1,987,046		23,736		96		4
Construction & Infrastructure		605,639		39,609		11		—		550,282		33,992		29		—
Consumer & Healthcare		3,348,282		9,822		902		357		3,169,897		3,363		374		56
Construction & Construction Materials																			831,678		40,604		—		—		653,157		45,243		—		—
Consumer																			662,034		2,850		—		1,628		641,289		1,540		—		—
Healthcare																			3,214,501		5,097		306		1,238		2,747,248		24,989		314		—
Energy		2,952,237		181,005		—		—		3,246,189		386,544		—		—			3,024,592		208,356		—		—		2,905,791		69,042		—		—
Financial Services		1,107,967		69		—		—		1,234,469		115		—		—			1,224,665		17,408		—		—		1,009,533		23,427		—		1,615
General Corporates		1,568,970		5,611		28		4,540		2,145,350		80,606		54		2,684			2,133,942		15,680		—		3,353		1,726,318		16,883		475		5,065
Institutions		2,717,842		1,897		—		—		2,368,603		1,650		7,868		74			3,466,085		367		—		—		3,166,048		400		—		—
Leisure		2,354,338		10,219		120		—		2,013,522		8,458		170		—
Leisure and Consumer Services																			3,911,332		11,619		310		—		2,777,440		6,957		335		—
Real Estate		951,810		505		—		—		1,045,810		—		—		—			1,782,012		—		—		—		1,490,985		—		—		—
Retail & Wholesale Trade		2,694,278		6,706		49		681		2,407,291		30,460		—		—
Retail																			513,250		4,352		217		—		483,988		1,869		236		—
Telecoms, Technology & Media		1,493,008		3,480		—		306		1,521,981		2,234		53		20			1,230,170		2,190		—		—		909,476		2,558		—		—
Transportation		867,528		36,846		—		—		792,672		11,384		—		—			1,075,329		2,522		—		2,211		903,034		3,041		—		—
Utilities		581,549		19,166		—		—		724,849		24,575		4		—			520,502		—		—		—		365,222		—		—		—
Total Commercial, Financial and Agricultural		$	25,091,942	$	324,071	$	1,259	$	6,072	$	25,122,002	$	596,454	$	8,726	$	2,891		$	28,782,124	$	389,615	$	1,866	$	8,450	$	24,432,238	$	268,288	$	1,456	$	6,692


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

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 $7.7 billion and $8.1 billion at September 30, 2017 and December 31, 2016, respectively. As shown in Table 13, the Company's energy sector loan balances at September 30, 2017, were approximately $3.0 billion and represented 4.9% 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
September 30, 2017 December 31, 2016
Recorded Investment Total Commitment Nonaccrual Recorded Investment Total Commitment Nonaccrual
(In Thousands)
Exploration and production $ 1,630,303
4,080,635
$ 178,449
$ 1,654,565
$ 4,182,861
$ 308,096
Midstream 976,845
3,011,822
—
1,199,844
3,230,513
11,298
Drilling oil and support services 179,636
373,389
2,350
263,770
467,908
66,811
Refineries and terminals 165,453
266,081
205
128,010
262,618
339
Other —
—
—
—
—
—
Total energy portfolio $ 2,952,237
$ 7,731,927
$ 181,004
$ 3,246,189
$ 8,143,900
$ 386,544

September 30, 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 55.2 % 2.7 % 51.0 % 2.8 %
Midstream 33.1
1.6
37.0
2.0
Drilling oil and support services 6.1
0.3
8.1
0.4
Refineries and terminals 5.6
0.3
3.9
0.2
Other —
—
—
—
Total energy portfolio 100.0 % 4.9 % 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 September 30, 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 reflects reduced borrowing bases resulting in a reduction in total commitments, while the decrease in recorded investment largely reflects 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 September 30, 2017 was 23.8%, comprised of 6.7% rated special mention and 17.1% 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. 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. 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 its 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 and nine months ended September 30, 2017, charge-offs on energy loans were approximately $127 thousand and $56.7 million, respectively, compared to $8.5 million and $49.4 million, respectively, for the three and nine months ended September 30, 2016. If oil prices resume their decline, 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 September 30, 2017, the Company's allowance for loan losses attributable to the energy portfolio totaled approximately 2.7% 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 ~~$11.3~~$13.8 billion and ~~$11.2~~$13.9 billion at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, and real estate — construction loans totaled ~~$2.2~~$2.3 billion and $2.0 billion at ~~September~~June 30, ~~2017~~2020 and ~~$2.1 billion at~~ December 31, ~~2016.~~2019, 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
Table 13 Commercial Real Estate																	Table 13 Commercial Real Estate

	September 30, 2017								December 31, 2016									June 30, 2020								December 31, 2019
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			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)																	(In Thousands)
Alabama	$	406,441	$	7,849	$	2,411	$	—	$	493,199	$	1,853	$	2,513	$	—		$	429,782	$	4,280	$	29	$	—	$	419,063	$	4,377	$	2,048	$	—
Arizona	795,651		7,452		—		—		847,908		5,252		—		—			1,046,587		4,841		—		—		1,074,395		22,549		—		—
California	1,376,528		2,319		—		—		1,139,785		4,645		—		—			1,928,360		—		—		28		1,992,085		—		—		28
Colorado	429,081		6,311		—		—		436,640		6,902		—		—			787,931		6,371		—		—		694,691		6,463		—		—
Florida	1,079,177		6,783		110		—		912,874		7,262		134		—			1,205,274		10,620		7		—		1,299,336		11,047		27		—
New Mexico	215,969		8,415		128		—		174,911		6,354		132		—			97,386		3,687		—		—		100,845		3,952		—		—
Texas	3,505,312		41,642		1,088		3,686		3,576,090		33,043		1,152		—			3,951,800		64,249		1,016		387		3,802,306		36,278		495		4,168
Other	3,534,219		27,269		908		—		3,629,253		6,610		929		—			4,353,549		23,165		824		—		4,478,757		13,411		844		2,380
	$	11,342,378	$	108,040	$	4,645	$	3,686	$	11,210,660	$	71,921	$	4,860	$	—		$	13,800,669	$	117,213	$	1,876	$	415	$	13,861,478	$	98,077	$	3,414	$	6,576

Table 15 Real Estate – Construction
Table 14 Real Estate – Construction																	Table 14 Real Estate – Construction

	September 30, 2017								December 31, 2016									June 30, 2020								December 31, 2019
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			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)																	(In Thousands)
Alabama	$	37,745	$	84	$	—	$	133	$	17,517	$	43	$	—	$	—		$	74,484	$	—	$	—	$	12	$	70,800	$	90	$	—	$	115
Arizona	135,506		—		—		1,224		94,191		—		—		—			208,322		5,836		—		—		158,027		—		—		—
California	265,854		—		—		756		246,094		—		—		—			385,127		394		—		—		281,690		—		—		—
Colorado	80,691		—		—		—		91,434		—		—		—			104,536		—		—		—		94,260		473		—		—
Florida	229,085		—		—		—		228,530		2		—		—			168,131		6		—		—		167,346		905		—		—
New Mexico	10,947		—		53		—		16,487		—		1,163		—			25,742		207		13		—		18,000		242		15		—
Texas	1,079,470		1,468		53		842		1,024,830		1,066		1,230		2,007			733,751		6,468		51		520		747,651		5,926		57		456
Other	407,846		325		—		—		406,233		128		—		—			598,377		406		—		—		490,908		405		—		—
	$	2,247,144	$	1,877	$	106	$	2,955	$	2,125,316	$	1,239	$	2,393	$	2,007		$	2,298,470	$	13,317	$	64	$	532	$	2,028,682	$	8,041	$	72	$	571

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 $13.4 billion at June 30, 2020 and ~~$13.3~~$13.5 billion at ~~September 30, 2017 and~~ December 31, ~~2016, respectively.~~2019. 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
Table 15 Residential Real Estate — Mortgage																	Table 15 Residential Real Estate — Mortgage

	September 30, 2017								December 31, 2016									June 30, 2020								December 31, 2019
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			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)																	(In Thousands)
Alabama	$	980,473	$	19,071	$	12,484	$	183	$	1,005,975	$	16,607	$	11,390	$	512		$	876,197	$	20,589	$	10,049	$	1,889	$	913,683	$	21,891	$	11,208	$	1,557
Arizona	1,279,565		12,644		8,697		227		1,270,521		11,831		9,901		412			1,395,690		13,469		7,373		711		1,380,589		12,111		7,645		609
California	3,004,957		16,369		3,098		63		2,929,393		16,258		2,164		429			3,498,912		26,305		3,630		1,628		3,441,689		17,941		3,383		—
Colorado	1,139,609		18,532		2,710		—		1,111,097		14,165		2,552		—			1,083,643		5,128		2,181		170		1,144,260		4,141		2,327		144
Florida	1,701,821		38,227		9,493		289		1,697,555		28,266		10,636		120			1,490,636		38,162		9,589		445		1,511,146		32,740		10,051		247
New Mexico	222,332		3,292		1,616		110		216,865		1,955		1,630		—			204,356		3,501		1,227		385		215,835		3,802		1,249		424
Texas	4,586,976		49,581		17,488		1,522		4,539,469		34,232		18,850		1,752			4,514,896		47,374		18,473		7,828		4,534,481		43,048		19,394		1,660
Other	482,770		17,774		3,500		164		489,119		16,989		2,770		131			364,809		14,859		1,767		84		392,271		11,663		1,908		—
	$	13,398,503	$	175,490	$	59,086	$	2,558	$	13,259,994	$	140,303	$	59,893	$	3,356		$	13,429,139	$	169,387	$	54,289	$	13,140	$	13,533,954	$	147,337	$	57,165	$	4,641

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

Table 17 Residential Real Estate - Mortgage
Table 16 Residential Real Estate - Mortgage																	Table 16 Residential Real Estate - Mortgage

	September 30, 2017								December 31, 2016									June 30, 2020								December 31, 2019
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			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)																	(In Thousands)
Below 621	$	698,415	$	110,588	$	14,386	$	1,110	$	664,660	$	91,262	$	14,831	$	2,111		$	677,427	$	109,646	$	17,840	$	8,003	$	707,778	$	96,107	$	22,804	$	3,736
621 – 680	1,237,705		26,086		20,278		244		1,279,658		21,507		16,854		825			1,034,011		23,853		12,476		2,943		1,074,497		23,950		10,570		114
681 – 720	1,931,767		9,274		10,439		98		1,980,276		6,288		13,921		37			1,623,976		14,280		7,836		820		1,704,801		9,197		7,305		144
Above 720	8,780,212		4,411		13,464		831		8,548,993		4,327		13,957		193			9,580,653		12,070		15,763		—		9,490,067		11,000		15,922		290
Unknown	750,404		25,131		519		275		786,407		16,919		330		190			513,072		9,538		374		1,374		556,811		7,083		564		357
	$	13,398,503	$	175,490	$	59,086	$	2,558	$	13,259,994	$	140,303	$	59,893	$	3,356		$	13,429,139	$	169,387	$	54,289	$	13,140	$	13,533,954	$	147,337	$	57,165	$	4,641

Equity lines of credit and equity loans totaled ~~$3.0~~$2.7 billion and $2.8 billion at ~~both September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019, respectively. 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
Table 17 Equity Loans and Lines																	Table 17 Equity Loans and Lines

	September 30, 2017								December 31, 2016									June 30, 2020								December 31, 2019
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			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)																	(In Thousands)
Alabama	$	550,451	$	10,477	$	9,157	$	509	$	566,990	$	8,380	$	11,338	$	932		$	431,130	$	9,807	$	6,585	$	758	$	452,102	$	10,096	$	7,437	$	341
Arizona	381,562		7,929		3,724		665		399,225		8,562		4,396		989			283,144		6,187		3,395		401		311,875		5,475		3,674		22
California	338,114		823		379		70		314,929		1,216		285		—			387,780		2,215		89		123		399,494		2,528		187		165
Colorado	191,161		3,497		1,477		18		192,517		3,802		1,388		86			156,598		2,535		644		100		167,594		2,729		738		176
Florida	371,592		9,037		6,516		346		382,853		9,195		7,375		583			279,178		6,522		4,065		516		295,552		7,298		4,827		121
New Mexico	53,128		1,539		652		—		53,491		2,087		600		—			43,462		1,488		500		—		45,440		1,704		505		11
Texas	1,078,023		11,461		8,492		1,327		1,040,395		12,309		8,997		704			1,122,364		13,605		5,654		1,700		1,138,289		15,104		6,050		914
Other	36,657		958		414		84		39,087		1,537		367		123			23,158		1,013		348		105		27,302		1,830		352		12
	$	3,000,688	$	45,721	$	30,811	$	3,019	$	2,989,487	$	47,088	$	34,746	$	3,417		$	2,726,814	$	43,372	$	21,280	$	3,703	$	2,837,648	$	46,764	$	23,770	$	1,762

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

Table 19 Equity Loans and Lines
Table 18 Equity Loans and Lines																	Table 18 Equity Loans and Lines

	September 30, 2017								December 31, 2016									June 30, 2020								December 31, 2019
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			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)																	(In Thousands)
Below 621	$	218,316	$	21,825	$	7,654	$	2,543	$	207,659	$	24,532	$	8,723	$	1,940		$	202,049	$	23,543	$	7,045	$	2,481	$	200,509	$	27,098	$	6,262	$	1,232
621 – 680	387,696		12,003		11,875		221		412,752		12,930		13,326		542			339,233		10,056		4,782		685		355,324		9,207		7,314		290
681 – 720	544,717		7,971		4,542		85		557,850		6,980		6,081		713			448,382		5,479		3,215		151		484,077		6,324		3,683		139
Above 720	1,838,787		3,762		6,666		170		1,798,151		2,466		6,430		222			1,731,603		4,242		6,181		385		1,790,879		4,095		6,511		101
Unknown	11,172		160		74		—		13,075		180		186		—			5,547		52		57		1		6,859		40		—		—
	$	3,000,688	$	45,721	$	30,811	$	3,019	$	2,989,487	$	47,088	$	34,746	$	3,417		$	2,726,814	$	43,372	$	21,280	$	3,703	$	2,837,648	$	46,764	$	23,770	$	1,762

Other Consumer

The Company centrally underwrites and sources from the Company's branches or online, credit card loans and other consumer direct loans. Total consumer direct loans were $2.1 billion and $2.3 billion at June 30, 2020 and December 31, 2019, respectively. Total credit cards were $1.0 billion at both June 30, 2020 and December 31, 2019.

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 underwriting guidelines and industry accepted tools. Total consumer indirect loans were $4.1 billion and $3.9 billion at June 30, 2020 and December 31, 2019, respectively.

The ~~Company also originates credit card loans and other consumer direct loans that are centrally underwritten and sourced from~~following tables provide information related to refreshed FICO scores for the Company's ~~branches or online. Total credit card,~~ consumer direct and consumer indirect ~~loans at September 30, 2017 were $5.2 billion, or 8.7% of the total loan portfolio compared to $5.0 billion, or 8.3% of the total loan portfolio at December 31, 2016.~~loans.

Table 19 Consumer Direct

	June 30, 2020								December 31, 2019
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	$	192,692	$	4,863	$	974	$	10,193	$	225,736	$	4,258	$	1,433	$	17,228
621 – 680	408,068		1,760		2,798		269		450,532		1,259		2,858		359
681 – 720	453,563		731		2,922		43		516,706		693		5,150		123
Above 720	1,019,422		270		10,142		65		1,076,436		345		2,997		84
Unknown	60,363		—		—		1,053		68,732		—		—		564
	$	2,134,108	$	7,624	$	16,836	$	11,623	$	2,338,142	$	6,555	$	12,438	$	18,358

Table 20 Consumer Indirect

	June 30, 2020								December 31, 2019
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	$	717,691	$	20,115	$	—	$	5,764	$	817,071	$	27,600	$	—	$	9,100
621 – 680	985,679		2,954		—		298		1,006,409		2,969		—		408
681 – 720	773,972		509		—		10		728,580		621		—		157
Above 720	1,624,848		638		—		94		1,358,098		591		—		65
Unknown	2,414		—		—		—		2,192		—		—		—
	$	4,104,604	$	24,216	$	—	$	6,166	$	3,912,350	$	31,781	$	—	$	9,730

Foreign Exposure

As of ~~September~~June 30, ~~2017,~~2020, 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.

Goodwill

Goodwill totaled $2.3 billion and $4.5 billion at June 30, 2020 and December 31, 2019, respectively, and is allocated to each of the Company’s reporting units, the level at which goodwill is tested for impairment on an annual basis or more often if events and circumstances indicate impairment may exist. At June 30, 2020 the goodwill, net of accumulated impairment losses, attributable to each of the Company’s three identified reporting units is as follows: Commercial Banking and Wealth - $1.9 billion, Retail Banking - $136 million, and Corporate and Investment Banking - $262 million.

A test of goodwill for impairment consists of comparing the fair value of each reporting unit with its carrying amount, including goodwill. The carrying value of equity for each reporting unit is determined from an allocation based upon risk weighted assets. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

The Company evaluates each reporting unit's goodwill for impairment on an annual basis as of October 31, or more often if events or circumstances indicate that there may be impairment. Adverse changes in the economic environment, declining operations, or other factors could result in a decline in the implied fair value of goodwill. At March 31, 2020, the Company assessed the indicators of goodwill impairment as it related to the impact of COVID-19 on the Company including: recent operating performance, market conditions, regulatory actions and assessment, change in the business climate, company-specific factors, and trends in the banking industry. Based on the assessment of these indicators, interim quantitative testing of goodwill was required for all of the Company's reporting units as of March 31, 2020. The results of this test indicated $2.2 billion of goodwill impairment related to the following reporting units: Corporate and Investment Banking - $164 million, Commercial Banking and Wealth - $729 million, and Retail Banking - $1.3 billion. The primary causes of the goodwill impairment were the volatility in the market capitalization of U.S. banks along with revised management projections based on the current economic and industry conditions. These factors resulted in the fair value of the reporting units being less than the reporting unit's carrying value.

At June 30, 2020, the Company assessed events and circumstances as it related to the continued impact of COVID-19 on the Company during the three months ended June 30, 2020, including: recent operating performance, market conditions, regulatory actions and assessment, change in the business climate, company-specific factors, and trends in the banking industry. After assessing the indicators noted above, the Company determined that it was not more likely than not that the fair value of each reporting unit had declined below their carrying value as of June 30, 2020. Therefore, the Company determined that a test of goodwill impairment was not required for each of the reporting units for the June 30, 2020 interim period. The Company will continue to monitor for indicators of impairment throughout 2020.

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.

~~At September 30, 2017, the~~The Company's and the Bank's credit ratings at June 30, 2020 were as follows:

Table 2021 Credit Ratings

	As of ~~September~~June 30, ~~2017~~2020
	Standard & Poor’s	Moody’s	Fitch
BBVA ~~Compass~~USA Bancshares, Inc.
Long-term debt rating	BBB+	~~Baa3~~Baa2	~~BBB+~~BBB
Short-term debt rating	A-2	-—	F2
~~Compass Bank~~BBVA USA
Long-term debt rating	BBB+	~~Baa3~~Baa2	~~BBB+~~BBB
Long-term bank deposits (1)	N/A	A3A2	A-BBB+
Subordinated debt	BBB	~~Baa3~~Baa2	BBB-
Short-term debt rating	A-2	~~P-3~~P-2	F2
Short-term deposit rating ~~(2)~~(1)	N/A	~~P-2~~P-1	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,~~2019, for additional information.

A ~~security~~credit 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 ~~decreased~~increased by ~~$66 million~~$10.4 billion from December 31, ~~2016~~2019 to ~~September~~June 30, ~~2017.~~2020. At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, total deposits included ~~$8.4~~$3.8 billion and ~~$5.8~~$4.7 billion, respectively, of brokered ~~deposits, respectively.~~deposits. The following table presents the Company’s deposits segregated by major category:

Table 21 Composition of Deposits
Table 22 Composition of Deposits									Table 22 Composition of Deposits

	September 30, 2017				December 31, 2016				June 30, 2020				December 31, 2019
	Balance		% of Total		Balance		% of Total		Balance		% of Total		Balance		% of Total
	(Dollars in Thousands)								(Dollars in Thousands)
Noninterest-bearing demand deposits	$	21,094,235	31.4	%	$	20,332,792	30.2	%	$	25,978,354	30.4	%	$	21,850,216	29.1	%
Interest-bearing demand deposits	7,945,902		11.8		8,188,868		12.2		14,527,189		17.0		10,031,622		13.4
Savings and money market	24,691,943		36.7		25,330,003		37.6		36,777,050		43.1		31,050,016		41.4
Time deposits	13,481,487		20.1		13,427,870		20.0		8,143,821		9.5		12,053,429		16.1
Total deposits	$	67,213,567	100.0	%	$	67,279,533	100.0	%	$	85,426,414	100.0	%	$	74,985,283	100.0	%

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
Table 23 Short-Term Borrowings											Table 23 Short-Term Borrowings

	Maximum Outstanding at Any Month End		Average Balance		Average Interest Rate		Ending Balance		Average Interest Rate at Period End		Maximum Outstanding at Any Month End		Average Balance		Average Interest Rate		Ending Balance		Average Interest Rate at Period End
	(Dollars in Thousands)										(Dollars in Thousands)
Balance at September 30, 2017
Balance at June 30, 2020
Securities sold under agreements to repurchase (1)											$	1,050,182	$	1,321,766	0.18	%	$	249,481	0.70	%
Other short-term borrowings											14,951		16,312		4.82		1,619		0.54
											$	1,065,133	$	1,338,078			$	251,100
Balance at December 31, 2019
Federal funds purchased	$	—	$	373	0.36	%	$	—	0.53	%	$	5,060	$	746	1.50	%	$	—	—	%
Securities sold under agreements to repurchase (1)	114,361		64,303		0.93		44,761		0.84		1,198,822		857,176		0.22		173,028		1.70
Other short-term borrowings	2,721,539		2,239,427		1.45		327,539		0.68		69,446		14,963		3.79		—		—
	$	2,835,900	$	2,304,103			$	372,300			$	1,273,328	$	872,885			$	173,028
Balance at December 31, 2016
Federal funds purchased	$	766,095	$	372,355	0.49	%	$	12,885	0.39	%
Securities sold under agreements to repurchase (1)	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


(1)	Average interest rate does not reflect impact of balance sheet offsetting. See Note 6,7, Securities Financing Activities, in the Notes to the Unaudited Condensed Consolidated Financial Statements.

~~Total short-term borrowings decreased to $372 million at September 30, 2017 from $2.8 billion at December 31, 2016 due to a reduction in U.S. Treasury short positions held by BSI.~~

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, FHLB and other borrowings were ~~$4.0~~$3.6 billion and ~~$3.0~~$3.7 billion, respectively. ~~In June 2017, the Bank issued under its Global Bank Note Program $750 million aggregate principal amount of its 2.875% unsecured senior notes due 2022.~~

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, the Company had ~~$9.2 billion~~$1.0 million of proceeds received from FHLB and other borrowings and repayments were approximately ~~$8.3 billion.~~$228.9 million.

Shareholder’s Equity

Total shareholder's equity was ~~$13.1~~$11.3 billion at ~~September~~June 30, ~~2017,~~2020, compared to ~~$12.8~~$13.4 billion at December 31, ~~2016, an increase~~2019, a decrease of ~~$365 million.~~$2.1 billion. Shareholder's equity ~~increased $407 million~~decreased $2.4 billion due to ~~earnings~~losses attributable to the Company during the period offset, in part, by increases of $405 million in accumulated other comprehensive income largely attributable to a decrease in unrealized losses on available for sale securities and cash flow hedging instruments. Additionally, the ~~payment~~impact of ~~preferred and common dividends totaling $71.0 million to its sole shareholder, BBVA.~~the adoption of ASC 326 decreased shareholder's equity by $150 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, interest rate risk, liquidity risk, operational risk, market risk, model risk, reputational risk, fiduciary risk, suitability risk, compliance risk, legal risk, and strategic and business 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; 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 ~~September~~June 30, ~~2017,~~2020, 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 ~~September~~June 30, ~~2017.~~2020.

Table 2324 Net Interest Income Sensitivity

	Estimated % Change in Net Interest Income
	~~September~~June 30, ~~2017~~2020
Rate Change
+ 200 basis points	~~8.93~~4.38	%
+ 100 basis points	~~4.58~~2.46
- ~~100~~25 basis points	(~~4.82~~0.98	)

Management modeled only a 25 basis point decline because larger declines would have resulted in a federal funds rate of less than zero.

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 2425 Economic Value of Equity

	Estimated % Change in Economic Value of Equity
	~~September~~June 30, ~~2017~~2020
Rate Change
+ 300 basis points	~~(6.10)~~(8.91)	%
+ 200 basis points	(~~3.80~~3.98	)
+ 100 basis points	(~~1.64~~0.36	)
- ~~100~~25 basis points	(~~0.72~~0.73	)

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 ~~September~~June 30, ~~2017,~~2020, the Company had derivative financial instruments outstanding with notional amounts of ~~$46.8~~$60.9 billion. The estimated net fair value of open contracts was in an asset position of ~~$37~~$631 million at ~~September~~June 30, ~~2017.~~2020. For additional information about derivatives, refer to Note 5,6, 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.

The Company's financing arrangement with the FHLB adds additional flexibility in managing the Company's liquidity position. At June 30, 2020, the Company had unused FHLB borrowing capacity of $8.6 billion. Additionally, the Company had Federal Reserve discount window availability of $13.9 billion at June 30, 2020.

In addition to the Company’s financial performance and condition, liquidity may be impacted by the Parent’s structure as a 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 ~~September~~June 30, ~~2017~~2020 or December 31, ~~2016~~2019 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.

~~On June 29, 2017, the Bank issued under its Global Bank Note Program $750 million aggregate principal amount of its 2.875% unsecured senior notes due 2022.~~ The Company has paid no common dividends to BBVA during 2020.

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,~~At June 30, 2020, the ~~Federal Reserve Board, the OCC,~~Company's LCR was 144% 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 September 30, 2017, the Company was fully compliant with the LCR ~~requirements in effect for 2017.~~requirements. However, ~~should~~ the ~~Company's cash position or investment mix change~~Company is no longer subject to the LCR going forward as a result of the Tailoring Rules. It may become subject to the LCR again in the future if the ~~Company's ability to meet~~Company becomes a Category IV U.S. IHC under the ~~LCR requirement may be impacted.~~Tailoring Rules.

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

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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

Table 25 Capital Ratios
Table 26 Capital Ratios							Table 26 Capital Ratios

	September 30, 2017			December 31, 2016			June 30, 2020			December 31, 2019
	(Dollars in Thousands)						(Dollars in Thousands)
Capital:
CET1 Capital	$	8,005,526		$	7,669,118		$	8,608,032		$	8,615,357
Tier 1 Capital	8,239,726			7,907,518			8,838,032			8,849,557
Total Capital	9,706,431			9,550,482			10,353,666			10,332,023
Ratios:
CET1 Risk-based Capital Ratio	12.07		%	11.49		%	12.18		%	12.49		%
Tier 1 Risk-based Capital Ratio	12.42			11.85			12.51			12.83
Total Risk-based Capital Ratio	14.63			14.31			14.66			14.98
Leverage Ratio	10.00			9.46			8.66			9.70

At ~~September~~June 30, ~~2017,~~2020, 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.

The Company has elected the ‘five-year transition’ for the ASC 326 accounting standard from the banking agencies’ interim final rule announced on March 27, 2020. This five-year transition election allows banking organizations to defer certain effects of the ASC 326 accounting standard on their regulatory capital. Specifically, this interim final rule allows for 25% of the cumulative increase in the allowance for credit losses since the adoption of ASC 326 and 100% of the day-one impact of ASC 326 adoption to be deferred for a two-year period. This two-year period will be followed by a three-year transition period to phase-in the impact of the deferred amounts on regulatory capital


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.

PART II OTHER INFORMATION


Item 1.	Legal Proceedings

See under “Legal and Regulatory Proceedings” in Note 78, 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.~~2019.

~~There have been no material changes to~~The following discussion updates the risk factors disclosed in the Company's Annual Report on Form 10-K for the year-ended December 31, ~~2016.~~2019.

The COVID-19 pandemic has adversely impacted the Company's business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. Despite the partial lifting of some of these measures in some of the states in our geographic footprint, the recent increase in cases in the United States means that it remains unknown when there will be a return to normal economic activity.

As a result, the demand for the Company's products and services has been and may continue to be significantly impacted, which impact has adversely affected, and may continue to adversely affect, our revenue. Furthermore, the pandemic has resulted and could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we have recognized and may be required to recognize additional impairments of our goodwill. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic, and we have already temporarily closed certain of our branches and offices. In response to the pandemic, we have also suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions, and are offering fee waivers, payment deferrals, and other expanded assistance for credit card, automobile, mortgage, and other consumer and commercial customers, and future governmental actions may require the continuance or the expansion of these and other types of customer-related responses.

Among other relief programs, we are participating in the SBA’s Paycheck Protection Program. Paycheck Protection Program loans are fixed, low interest rate loans that are guaranteed by the SBA and subject to numerous other regulatory requirements, and a borrower may apply to have all or a portion of the loan forgiven. If Paycheck Protection Program borrowers fail to qualify for loan forgiveness, we face a heightened risk of holding these loans at unfavorable interest rates for an extended period of time. While the Paycheck Protection Program loans are guaranteed by the SBA, various regulatory requirements will apply to our ability to seek recourse under the guarantees, and related procedures are currently subject to uncertainty. If a borrower defaults on a Paycheck Protection Program loan, these requirements and uncertainties may limit our ability to fully recover against the loan guarantee or to seek full recourse against the borrower.

The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

To the extent the COVID-19 pandemic continues to adversely affect the global economy, and/or adversely affects our business, results of operations or financial condition, it may also have the effect of increasing the likelihood and/

or magnitude of other risks described in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, including those risks related to market, credit, geopolitical and business operations.

Volatile or declining oil prices could adversely affect the Company's performance.

As of June 30, 2020, energy-related loan balances represented approximately 4.4 percent of the Bank’s total loan portfolio. 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. In late 2014, oil prices began to decline and continued to decline through the first half of 2016, which at the time had and continues to have an adverse effect on some of the Bank’s borrowers in this portfolio and on the value of the collateral securing some of these loans. The recent steep decline in oil prices, including, at times, dropping below zero dollars per barrel, in March and April 2020 has again adversely impacted and may continue to adversely impact some of the Bank’s customers in this industry, including with respect to the cash flows of such customers which could impair their ability to service any loans outstanding to them and/or reduce demand for loans. These factors could result in higher delinquencies and greater charge-offs in future periods, which could adversely affect the Company's business, financial condition or results of operations. Furthermore, energy production and related industries represent a significant part of the economies in some of the Bank’s primary markets. A prolonged period of low or volatile oil prices could have a negative impact on the economies and real estate markets of states such as Texas, which could adversely affect the Company's business, financial condition or results of operations.


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~~


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 September 30, 2017. For the three months ended September 30, 2017, no fees and/or commissions have been recorded in connection with these counter indemnities. 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.

Iranian embassy-related activity. The BBVA Group maintains bank accounts in Spain for one employee of the Iranian embassy in Spain. This employee is a Spanish citizen. Estimated gross revenues for the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2020, from embassy-related activity, which include fees and/or commissions, did not exceed ~~$56.~~$4. 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.~~


Item 6.	Exhibits



Exhibit Number	Description of Documents

3.1	Second Amended and Restated Certificate of Formation of the Company, reflecting name change to BBVA ~~Compass~~USA Bancshares, Inc., (incorporated herein by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K (file no. 000-55106), 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)~~June 10, 2019).
3.2	Bylaws of BBVA ~~Compass~~USA 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.

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: ~~November 8, 2017~~August 4, 2020	BBVA ~~Compass~~USA Bancshares, Inc.
	By:	/s/ Kirk P. Pressley
		Name:	Kirk P. Pressley
		Title:	Senior Executive Vice President, Chief Financial Officer and Duly Authorized Officer

9397



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(In Thousands)
Balance at beginning of period	$	22,824	$	22,582	$	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	—		—		—		130
Balance at end of period	$	22,824	$	22,582	$	22,824	$	22,582

Table 13 Energy Portfolio

	September 30, 2017						December 31, 2016
	Recorded Investment		Total Commitment		Nonaccrual		Recorded Investment		Total Commitment		Nonaccrual
	(In Thousands)
Exploration and production	$	1,630,303	4,080,635		$	178,449	$	1,654,565	$	4,182,861	$	308,096
Midstream	976,845		3,011,822		—		1,199,844		3,230,513		11,298
Drilling oil and support services	179,636		373,389		2,350		263,770		467,908		66,811
Refineries and terminals	165,453		266,081		205		128,010		262,618		339
Other	—		—		—		—		—		—
Total energy portfolio	$	2,952,237	$	7,731,927	$	181,004	$	3,246,189	$	8,143,900	$	386,544



	September 30, 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	55.2	%	2.7	%	51.0	%	2.8	%
Midstream	33.1		1.6		37.0		2.0
Drilling oil and support services	6.1		0.3		8.1		0.4
Refineries and terminals	5.6		0.3		3.9		0.2
Other	—		—		—		—
Total energy portfolio	100.0	%	4.9	%	100.0	%	5.4	%