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 30, ~~2019~~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 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, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes 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 ~~25, 2019~~23, 2020
Common Stock (par value $0.01 per share)		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 30, ~~2019~~2020 and December 31, ~~2018~~2019	7
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019	8
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019	9
	Condensed Consolidated Statements of Shareholder's Equity for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019	10
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2019~~2020 and ~~2018~~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	6263
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	8894
Item 4.	Controls and Procedures	8894

Part II	Other Information
Item 1.	Legal Proceedings	8995
Item 1A.	Risk Factors	8995
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8996
Item 3.	Defaults Upon Senior Securities	8996
Item 4.	Mine Safety Disclosures	8996
Item 5.	Other Information	9096
Item 6.	Exhibits	9197
Signatures		9298

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	BBVA USA
BBVA	Banco Bilbao Vizcaya Argentaria, S.A.
BBVA Group	BBVA and its consolidated subsidiaries
BOLI	Bank Owned Life Insurance
BSI	BBVA Securities Inc.
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 USA Bancshares, Inc. and its subsidiaries
CRA	Community Reinvestment Act
~~EGRRCPA~~	~~Economic Growth Regulatory Relief and Consumer Protection 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
~~FBO Tailoring Proposals~~	Federal banking agencies proposed rules that would adjust the thresholds at which certain enhanced prudential standards and Basel III capital and liquidity requirements apply to FBOs and the U.S. IHCs of FBOs pursuant to the EGRRCPA
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
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
OREO	Other Real Estate Owned
~~OTTI~~	~~Other-Than-Temporary Impairment~~
OIS	Overnight Index Swap



Parent	BBVA USA Bancshares, Inc.
PPP	Paycheck Protection Program
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

~~Resolution Plan Proposal~~
	~~Federal Reserve Board and FDIC proposed rule that would reduce or eliminate resolution planning requirements for institutions that fall into certain risk-based categories~~
SBA	Small Business Administration
SBIC	Small Business Investment Company
SEC	Securities and Exchange Commission
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
~~Tax Cuts~~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 ~~Jobs Act~~	~~H.R. 1, formerly known as~~rules adopted jointly by the ~~Tax Cuts~~Federal Reserve Board, OCC and ~~Jobs Act of 2017~~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 USA Bancshares, Inc. and its subsidiaries, or any one or more of them, as the context may require. The term “Parent” refers to BBVA USA Bancshares, Inc. The term “BBVA” refers to Banco Bilbao Vizcaya Argentaria, S.A., the parent company of BBVA 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;

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

decline in real estate values or overall economic weakness could also have an adverse impact upon the value of real estate or other assets which the Company owns as a result of foreclosing a loan and its ability to realize value on 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 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;

a failure by the Company to 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 the creditworthiness of customers;

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, 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;

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;

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

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

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.

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 USA 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, 2019			December 31, 2018			September 30, 2020			December 31, 2019
	(In Thousands)						(In Thousands)
Assets:
Cash and due from banks	$	1,117,458		$	1,217,319		$	1,035,307		$	1,149,734
Federal funds sold, securities purchased under agreements to resell and interest bearing deposits	5,356,141			2,115,307			14,041,538			5,788,964
Cash and cash equivalents	6,473,599			3,332,626			15,076,845			6,938,698
Trading account assets	564,000			237,656			926,497			473,976
Debt securities available for sale	7,612,590			10,981,216			6,028,072			7,235,305
Debt securities held to maturity (fair value of $6,514,496 and $2,925,420 at September 30, 2019 and December 31, 2018, respectively)	6,334,634			2,885,613
Debt securities held to maturity, net of allowance for debt securities held to maturity losses of $15,105 at September 30, 2020 (fair value of $9,779,195 and $6,921,158 at September 30, 2020 and December 31, 2019, respectively)							9,428,931			6,797,046
Loans held for sale, at fair value	134,314			68,766			253,454			112,058
Loans	63,320,571			65,186,554			66,180,612			63,946,857
Allowance for loan losses	(942,191		)	(885,242		)	(1,804,423		)	(920,993		)
Net loans	62,378,380			64,301,312			64,376,189			63,025,864
Premises and equipment, net	1,085,635			1,152,958			1,063,923			1,087,698
Bank owned life insurance	746,819			736,171			758,391			750,224
Goodwill	4,983,296			4,983,296			2,328,296			4,513,296
Other assets	2,600,820			2,267,560			3,412,324			2,669,182
Total assets	$	92,914,087		$	90,947,174		$	103,652,922		$	93,603,347
Liabilities:
Deposits:
Noninterest bearing	$	21,019,303		$	20,183,876		$	26,803,670		$	21,850,216
Interest bearing	52,550,139			51,984,111			59,567,362			53,135,067
Total deposits	73,569,442			72,167,987			86,371,032			74,985,283
FHLB and other borrowings	3,709,949			3,987,590			3,560,973			3,690,044
Federal funds purchased and securities sold under agreements to repurchase	117,421			102,275			189,474			173,028
Other short-term borrowings	45			—
Accrued expenses and other liabilities	1,415,612			1,176,793			2,136,479			1,368,403
Total liabilities	78,812,469			77,434,645			92,257,958			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, 2019 and December 31, 2018	229,475			229,475
Issued — 1,150 shares at both September 30, 2020 and December 31, 2019							229,475			229,475
Common stock — $0.01 par value:
Authorized — 300,000,000 shares
Issued — 222,963,891 and 222,950,751 shares at September 30, 2019 and December 31, 2018, respectively	2,230			2,230
Issued — 222,963,891 shares at both September 30, 2020 and December 31, 2019							2,230			2,230
Surplus	14,359,966			14,545,849			14,032,321			14,043,727
Accumulated deficit	(585,859		)	(1,107,198		)	(3,264,295		)	(917,227		)
Accumulated other comprehensive income (loss)	66,009			(186,848		)	365,374			(1,072		)
Total BBVA USA Bancshares, Inc. shareholder’s equity	14,071,821			13,483,508			11,365,105			13,357,133
Noncontrolling interests	29,797			29,021			29,859			29,456
Total shareholder’s equity	14,101,618			13,512,529			11,394,964			13,386,589
Total liabilities and shareholder’s equity	$	92,914,087		$	90,947,174		$	103,652,922		$	93,603,347

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

BBVA USA 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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2020		2019		2020			2019
	(In Thousands)								(In Thousands)
Interest income:
Interest and fees on loans	$	771,245	$	751,470	$	2,359,500	$	2,126,411	$	644,643	$	771,245	$	2,029,886		$	2,359,500
Interest on debt securities available for sale	36,051		53,201		134,698		163,595		19,474		36,051		36,787			134,698
Interest on debt securities held to maturity	38,893		16,110		101,701		41,598		49,981		38,893		130,883			101,701
Interest on trading account assets	487		833		1,627		2,507		892		487		3,171			1,627
Interest and dividends on other earning assets	46,528		17,449		105,319		44,240		6,436		46,528		62,627			105,319
Total interest income	893,204		839,063		2,702,845		2,378,351		721,426		893,204		2,263,354			2,702,845
Interest expense:
Interest on deposits	203,979		139,898		588,811		353,568		61,147		203,979		323,168			588,811
Interest on FHLB and other borrowings	32,975		37,131		104,901		93,799		14,644		32,975		57,756			104,901
Interest on federal funds purchased and securities sold under agreements to repurchase	15,137		3,169		24,886		5,104		3,736		15,137		38,668			24,886
Interest on other short-term borrowings	72		579		368		1,490		49		72		440			368
Total interest expense	252,163		180,777		718,966		453,961		79,576		252,163		420,032			718,966
Net interest income	641,041		658,286		1,983,879		1,924,390		641,850		641,041		1,843,322			1,983,879
Provision for loan losses	140,629		94,964		477,939		243,273
Net interest income after provision for loan losses	500,412		563,322		1,505,940		1,681,117
Total provision for credit losses									150,977		140,629		1,047,427			477,939
Net interest income after provision for credit losses									490,873		500,412		795,895			1,505,940
Noninterest income:
Service charges on deposit accounts	65,143		60,325		185,782		175,067		54,710		65,143		160,474			185,782
Card and merchant processing fees	50,385		44,219		146,742		127,945		48,628		50,385		142,135			146,742
Investment banking and advisory fees									40,013		28,324		111,805			67,939
Investment services sales fees	29,287		28,286		87,316		88,176		26,218		29,287		85,596			87,316
Money transfer income	26,020		23,441		73,273		68,049		27,109		26,020		77,118			73,273
Investment banking and advisory fees	28,324		13,956		67,939		62,398
Mortgage banking									13,741		8,204		55,060			19,011
Asset management fees	11,405		11,143		34,039		32,902		12,024		11,405		35,488			34,039
Corporate and correspondent investment sales	11,799		12,490		24,298		40,901		3,478		11,799		33,050			24,298
Mortgage banking	8,204		6,717		19,011		23,078
Bank owned life insurance	3,508		4,597		12,895		13,187		4,972		3,508		14,691			12,895
Investment securities gains, net	21,003		—		29,961		—		—		21,003		22,616			29,961
Other	66,241		53,285		182,104		154,600		53,767		66,241		153,223			182,104
Total noninterest income	321,319		258,459		863,360		786,303		284,660		321,319		891,256			863,360
Noninterest expense:
Salaries, benefits and commissions	295,092		292,679		884,111		868,971		296,708		295,092		858,541			884,111
Professional services	72,903		68,403		210,583		197,625		78,018		72,903		226,338			210,583
Equipment	63,908		63,739		191,940		190,759		68,793		63,908		198,226			191,940
Net occupancy	42,241		42,514		123,298		125,607		41,145		42,241		122,573			123,298
Money transfer expense	18,005		16,120		50,273		46,143		18,897		18,005		53,991			50,273
Securities impairment:
Other-than-temporary impairment	—		418		221		989
Less: non-credit portion recognized in other comprehensive income	—		135		108		397
Total securities impairment	—		283		113		592
Goodwill impairment									—		—		2,185,000			—
Other	106,738		121,772		318,856		318,271		92,067		106,738		339,469			318,969
Total noninterest expense	598,887		605,510		1,779,174		1,747,968		595,628		598,887		3,984,138			1,779,174
Net income before income tax expense	222,844		216,271		590,126		719,452
Income tax expense	39,899		41,756		106,014		151,849
Net income	182,945		174,515		484,112		567,603
Net income (loss) before income tax (benefit) expense									179,905		222,844		(2,296,987		)	590,126
Income tax expense (benefit)									13,664		39,899		(101,506		)	106,014
Net income (loss)									166,241		182,945		(2,195,481		)	484,112
Less: net income attributable to noncontrolling interests	514		426		1,669		1,482		401		514		1,374			1,669
Net income attributable to BBVA USA Bancshares, Inc.	182,431		174,089		482,443		566,121
Net income (loss) attributable to BBVA USA Bancshares, Inc.									165,840		182,431		(2,196,855		)	482,443
Less: preferred stock dividends	4,561		4,576		13,771		12,699		3,286		4,561		11,406			13,771
Net income attributable to common shareholder	$	177,870	$	169,513	$	468,672	$	553,422
Net income (loss) attributable to common shareholder									$	162,554	$	177,870	$	(2,208,261	)	$	468,672

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(In Thousands)
Net income $ 182,945
$ 174,515
$ 484,112
$ 567,603
Other comprehensive income, net of tax:
Net unrealized gains (losses) arising during period from debt securities available for sale 32,464
(31,189 ) 169,868
(106,320 )
Less: reclassification adjustment for net gains on sale of debt securities available for sale in net income 16,023
—
22,857
—
Net change in net unrealized holding gains (losses) on debt securities available for sale 16,441
(31,189 ) 147,011
(106,320 )
Change in unamortized net holding losses on debt securities held to maturity 2,223
1,989
5,905
6,522
Unamortized unrealized net holding losses on debt securities available for sale transferred to debt securities held to maturity —
—
—
(30,487 )
Less: non-credit related impairment on debt securities held to maturity —
103
82
303
Change in unamortized non-credit related impairment on debt securities held to maturity 175
208
675
623
Net change in unamortized holding gains (losses) on debt securities held to maturity 2,398
2,094
6,498
(23,645 )
Unrealized holding gains arising during period from cash flow hedge instruments 33,662
10,996
131,665
19,340
Change in defined benefit plans —
—
3,119
(3,379 )
Other comprehensive income (loss), net of tax 52,501
(18,099 ) 288,293
(114,004 )
Comprehensive income 235,446
156,416
772,405
453,599
Less: comprehensive income attributable to noncontrolling interests 514
426
1,669
1,482
Comprehensive income attributable to BBVA USA Bancshares, Inc. $ 234,932
$ 155,990
$ 770,736
$ 452,117

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
	(In Thousands)
Net income (loss)	$	166,241		$	182,945	$	(2,195,481	)	$	484,112
Other comprehensive income, net of tax:
Net unrealized (losses) gains arising during period from debt securities available for sale	(6,311		)	32,464		125,103			169,868
Less: reclassification adjustment for net gains on sale of debt securities available for sale in net income	—			16,023		17,220			22,857
Net change in net unrealized holding (losses) gains on debt securities available for sale	(6,311		)	16,441		107,883			147,011
Change in unamortized net holding gains on debt securities held to maturity	1,644			2,223		4,924			5,905
Less: non-credit related impairment on debt securities held to maturity	—			—		—			82
Change in unamortized non-credit related impairment on debt securities held to maturity	102			175		341			675
Net change in unamortized holding gains on debt securities held to maturity	1,746			2,398		5,265			6,498
Unrealized holding (losses) gains arising during period from cash flow hedge instruments	(34,226		)	33,662		251,544			131,665
Change in defined benefit plans	—			—		1,754			3,119
Other comprehensive (loss) income, net of tax	(38,791		)	52,501		366,446			288,293
Comprehensive income (loss)	127,450			235,446		(1,829,035		)	772,405
Less: comprehensive income attributable to noncontrolling interests	401			514		1,374			1,669
Comprehensive income (loss) attributable to BBVA USA Bancshares, Inc.	$	127,049		$	234,932	$	(1,830,409	)	$	770,736

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

BBVA USA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Unaudited)
Preferred Stock Common Stock Surplus Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Non-Controlling Interests Total Shareholder’s Equity
(In Thousands)
Three Months Ended September 30,
Balance, June 30, 2018 $ 229,475
$ 2,230
$ 14,699,773
$ (1,476,614 ) $ (293,323 ) $ 29,103
$ 13,190,644
Net income —
—
—
174,089
—
426
174,515
Other comprehensive loss, net of tax —
—
—
—
(18,099 ) —
(18,099 )
Preferred stock dividends —
—
(4,576 ) —
—
—
(4,576 )
Capital contribution —
—
—
—
—
3
3
Balance, September 30, 2018 $ 229,475
$ 2,230
$ 14,695,197
$ (1,302,525 ) $ (311,422 ) $ 29,532
$ 13,342,487

Balance, June 30, 2019 $ 229,475
$ 2,230
$ 14,364,527
$ (768,290 ) $ 13,508
$ 29,273
$ 13,870,723
Net income —
—
—
182,431
—
514
182,945
Other comprehensive income, net of tax —
—
—
—
52,501
—
52,501
Preferred stock dividends —
—
(4,561 ) —
—
—
(4,561 )
Capital contribution —
—
—
—
—
10
10
Balance, September 30, 2019 $ 229,475
$ 2,230
$ 14,359,966
$ (585,859 ) $ 66,009
$ 29,797
$ 14,101,618

Preferred Stock Common Stock Surplus Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Non-Controlling Interests Total Shareholder’s Equity
(In Thousands)
Nine Months Ended September 30,
Balance, December 31, 2017 $ 229,475
$ 2,230
$ 14,818,608
$ (1,868,659 ) $ (197,405 ) $ 29,061
$ 13,013,310
Cumulative effect from adoption of ASU 2016-01 —
—
—
13
(13 ) —
—
Balance, January 1, 2018 $ 229,475
$ 2,230
$ 14,818,608
$ (1,868,646 ) $ (197,418 ) $ 29,061
$ 13,013,310
Net income —
—
—
566,121
—
1,482
567,603
Other comprehensive loss, net of tax —
—
—
—
(114,004 ) —
(114,004 )
Preferred stock dividends —
—
(12,699 ) —
—
(1,036 ) (13,735 )
Common stock dividends —
—
(110,000 ) —
—
—
(110,000 )
Capital contribution —
—
—
—
—
25
25
Vesting of restricted stock —
—
(712 ) —
—
—
(712 )
Balance, September 30, 2018 $ 229,475
$ 2,230
$ 14,695,197
$ (1,302,525 ) $ (311,422 ) $ 29,532
$ 13,342,487

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 —
—
—
482,443
—
1,669
484,112
Other comprehensive income, net of tax —
—
—
—
288,293
—
288,293
Issuance of common stock —
—
802
—
—
—
802
Preferred stock dividends —
—
(13,771 ) —
—
(1,037 ) (14,808 )
Common stock dividends —
—
(170,000 ) —
—
—
(170,000 )
Capital contribution —
—
—
—
—
144
144
Vesting of restricted stock —
—
(2,914 ) —
—
—
(2,914 )
Balance, September 30, 2019 $ 229,475
$ 2,230
$ 14,359,966
$ (585,859 ) $ 66,009
$ 29,797
$ 14,101,618

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

	Preferred Stock		Common Stock		Surplus			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non-Controlling Interests		Total Shareholder’s Equity
	(In Thousands)
Three Months Ended September 30,
Balance, June 30, 2019	$	229,475	$	2,230	$	14,364,527		$	(768,290	)	$	13,508		$	29,273	$	13,870,723
Net income	—		—		—			182,431			—			514		182,945
Other comprehensive income, net of tax	—		—		—			—			52,501			—		52,501
Preferred stock dividends	—		—		(4,561		)	—			—			—		(4,561		)
Capital contribution	—		—		—			—			—			10		10
Balance, September 30, 2019	$	229,475	$	2,230	$	14,359,966		$	(585,859	)	$	66,009		$	29,797	$	14,101,618

Balance, June 30, 2020	$	229,475	$	2,230	$	14,035,607		$	(3,430,135	)	$	404,165		$	29,447	$	11,270,789
Net income	—		—		—			165,840			—			401		166,241
Other comprehensive loss, net of tax	—		—		—			—			(38,791		)	—		(38,791		)
Preferred stock dividends	—		—		(3,286		)	—			—			—		(3,286		)
Capital contribution	—		—		—			—			—			11		11
Balance, September 30, 2020	$	229,475	$	2,230	$	14,032,321		$	(3,264,295	)	$	365,374		$	29,859	$	11,394,964



	Preferred Stock		Common Stock		Surplus			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non-Controlling Interests			Total Shareholder’s Equity
	(In Thousands)
Nine Months Ended September 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	—		—		—			482,443			—			1,669			484,112
Other comprehensive income, net of tax	—		—		—			—			288,293			—			288,293
Issuance of common stock	—		—		802			—			—			—			802
Preferred stock dividends	—		—		(13,771		)	—			—			(1,037		)	(14,808		)
Common stock dividends	—		—		(170,000		)	—			—			—			(170,000		)
Capital contribution	—		—		—			—			—			144			144
Vesting of restricted stock	—		—		(2,914		)	—			—			—			(2,914		)
Balance, September 30, 2019	$	229,475	$	2,230	$	14,359,966		$	(585,859	)	$	66,009		$	29,797		$	14,101,618

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	—		—		—			(2,196,855		)	—			1,374			(2,195,481		)
Other comprehensive income, net of tax	—		—		—			—			366,446			—			366,446
Preferred stock dividends	—		—		(11,406		)	—			—			(1,037		)	(12,443		)
Capital contribution	—		—		—			—			—			66			66
Balance, September 30, 2020	$	229,475	$	2,230	$	14,032,321		$	(3,264,295	)	$	365,374		$	29,859		$	11,394,964


(1)	Related to the Company's adoption of ASU 2016-02, ASU 2017-12 and ASU 2018-02 on January 1, 2019. ~~See Note 1, Basis of Presentation, for additional information.~~

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2020			2019
	(In Thousands)						(In Thousands)
Operating Activities:
Net income	$	484,112		$	567,603
Net (loss) income							$	(2,195,481	)	$	484,112
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	194,040			183,839			264,207			194,040
Goodwill impairment							2,185,000			—
Securities impairment	113			592			—			113
Amortization of intangibles	—			3,933
Accretion of discount, loan fees and purchase market adjustments, net	(26,732		)	(48,771		)
Provision for loan losses	477,939			243,273
Amortization (accretion) of discount, loan fees and purchase market adjustments, net							48,741			(26,732		)
Provision for credit losses							1,047,427			477,939
Net change in trading account assets	(326,344		)	3,747			(452,521		)	(326,344		)
Net change in trading account liabilities	(5,891		)	61,599			72,623			(5,891		)
Originations and purchases of mortgage loans held for sale	(554,488		)	(486,143		)	(1,064,535		)	(554,488		)
Sale of mortgage loans held for sale	509,685			494,542			975,048			509,685
Deferred tax benefit	(11,611		)	(949		)	(180,700		)	(11,611		)
Investment securities gains, net	(29,961		)	—			(22,616		)	(29,961		)
Net gain on sale of premises and equipment	(7,077		)	(194		)	(273		)	(7,077		)
Gain on sale of loans	(925		)	—			—			(925		)
Gain on sale of mortgage loans held for sale	(20,745		)	(14,858		)	(51,909		)	(20,745		)
Net loss (gain) on sale of other real estate and other assets	1,436			(122		)
Decrease (increase) in other assets	95,117			(171,203		)
(Decrease) increase in other liabilities	(14,147		)	23,883
Net (gain) loss on sale of other real estate and other assets							(198		)	1,436
(Increase) decrease in other assets							(297,558		)	95,117
Increase (decrease) in other liabilities							752,674			(14,147		)
Net cash provided by operating activities	764,521			860,771			1,079,929			764,521
Investing Activities:
Proceeds from sales of debt securities available for sale	2,442,176			—			863,712			2,442,176
Proceeds from prepayments, maturities and calls of debt securities available for sale	3,556,157			2,749,439			3,360,970			3,556,157
Purchases of debt securities available for sale	(2,454,096		)	(2,947,622		)	(2,928,381		)	(2,454,096		)
Proceeds from prepayments, maturities and calls of debt securities held to maturity	234,157			267,913			778,938			234,157
Purchases of debt securities held to maturity	(3,688,706		)	(709,510		)	(3,474,536		)	(3,688,706		)
Proceeds from sales of equity securities	180,375			640,662			82,362			180,375
Purchases of equity securities	(182,504		)	(648,083		)	(10,043		)	(182,504		)
Net change in loan portfolio	93,914			(3,058,583		)	(2,625,679		)	93,914
Proceeds from sales of loans	1,353,379			46,055			—			1,353,379
Purchases of premises and equipment	(88,647		)	(90,163		)	(113,044		)	(88,647		)
Proceeds from sales of premises and equipment	12,812			3,604			2,370			12,812
Proceeds from settlement of BOLI policies	3,331			4,321			6,575			3,331
Cash payments for premiums of BOLI policies	(26		)	(26		)	—			(26		)
Proceeds from sales of other real estate owned	21,569			15,943			13,358			21,569
Net cash provided by (used in) investing activities	1,483,891			(3,726,050		)
Net cash (used in) provided by investing activities							(4,043,398		)	1,483,891
Financing Activities:
Net increase in total deposits	1,414,158			1,135,463			11,391,671			1,414,158
Net increase in federal funds purchased and securities sold under agreements to repurchase	15,146			58,413			16,446			15,146
Net increase in other short-term borrowings	45			50,718			—			45
Proceeds from FHLB and other borrowings	4,436,995			17,273,916			1,000			4,436,995
Repayment of FHLB and other borrowings	(4,790,177		)	(16,130,158		)	(228,939		)	(4,790,177		)
Capital contribution for non-controlling interest	144			25			66			144
Vesting of restricted stock	(2,914		)	(712		)	—			(2,914		)
Issuance of common stock	802			—			—			802
Common dividends paid	(170,000		)	(110,000		)	—			(170,000		)
Preferred dividends paid	(14,808		)	(13,735		)	(12,443		)	(14,808		)
Net cash provided by financing activities	889,391			2,263,930			11,167,801			889,391
Net increase (decrease) in cash, cash equivalents and restricted cash	3,137,803			(601,349		)
Net increase in cash, cash equivalents and restricted cash							8,204,332			3,137,803
Cash, cash equivalents and restricted cash at beginning of year	3,501,380			4,270,950			7,156,689			3,501,380
Cash, cash equivalents and restricted cash at end of period	$	6,639,183		$	3,669,601		$	15,361,021		$	6,639,183

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

BBVA USA BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

General

~~Effective June 10, 2019, the Company amended its Certificate of Formation to change its legal name from BBVA Compass Bancshares, Inc. to BBVA USA Bancshares, Inc.~~

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 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 months ended September 30, ~~2019,~~2020, are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2019.~~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, ~~2018.~~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

~~Leases~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ ~~which supersedes ASC Topic 840,~~ ~~Leases~~. Subsequently, the FASB issued ASU 2018-01 in January 2018 which provides a practical expedient for land easements and issued ASU 2018-11 in July 2018 which includes an option to recognize a cumulative effect adjustment to retained earnings in the period of adoption instead of applying the guidance to prior comparative periods. This ASU, as amended, requires lessees to recognize right-of-use assets and associated liabilities that arise from leases, with the exception of short-term leases. Subsequent accounting for leases varies depending on whether the lease is classified as an operating lease or a finance lease. This ASU, as amended, does not make significant changes to lessor accounting. There are several new qualitative and quantitative disclosures required. Upon transition, lessees and lessors have the option to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective transition approach or to apply the modified retrospective approach with an additional, optional transition method that initially applies this ASU as of the adoption date and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted this ASU, as amended, on January 1, 2019 using the optional transition method, which allowed for a modified retrospective method of adoption with a cumulative effect adjustment to retained earnings without restating comparable periods. The Company also elected the transition relief package of practical expedients for which there is no requirement to reassess existence of leases, their classification, and initial direct costs as well as an exemption for short term leases with a term of less than one year. The Company did not elect the practical expedient to use hindsight in determining the lease term and in assessing impairment of right-of-use assets.

At January 1, 2019, the Company recognized right-of-use assets of $290 million and lease liabilities of $332 million. The right-of-use assets and corresponding lease liabilities, recorded upon adoption, were primarily based on the present value of unpaid future minimum lease payments as of January 1, 2019. Those amounts were impacted by assumptions related to renewals and/or extensions of existing lease contracts and the interest rate used to discount those future lease obligations. Additionally, the Company recognized a cumulative effect adjustment of approximately $3.5 million at adoption to increase the beginning balance of retained earnings as of January 1, 2019 for the remaining deferred gains on sale-leaseback transactions which occurred prior to adoption. This ASU will not have a material impact on the timing of expense recognition on the Company's results of operations.

~~See Note 7, Leases, for the required disclosures in accordance with this ASU.~~

~~Premium Amortization on Purchased Callable Debt Securities~~

~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.~~ The amendments in this ASU reduce the amortization period for certain callable debt securities carried at a premium and require the premium to be amortized over a period not to exceed the earliest call date. These amendments do not apply to securities carried at a discount. The Company adopted this ASU on January 1, 2019. The adoption of this standard had no impact on the financial condition or results of operations 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.

~~In October 2018, the FASB issued ASU 2018-16,~~ ~~Inclusion of the SOFR OIS Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.~~ ~~The amendments in this ASU permit the OIS rate based on SOFR as a US benchmark interest rate for hedge accounting purposes under Topic 815.~~

The Company adopted these ASUs on January 1, 2019. The adoption of these standards did not have a material impact on the financial condition or results of operations of the Company. The adoption resulted in an immaterial cumulative effect adjustment to the opening balance of retained earnings. For additional information on the Company’s derivative and hedging activities, see Note 5, Derivatives and Hedging.

~~Comprehensive Income~~

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~. The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company adopted this ASU on January 1, 2019 and reclassified approximately $35.4 million from accumulated other comprehensive income to retained earnings.

~~Recently Issued Accounting Standards Not Yet Adopted~~

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 approach changes the impairment model for 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 off-balance sheet credit exposures. This model 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 ~~will~~ also ~~apply~~applies to purchased financial assets with credit deterioration, superseding current accounting guidance for such assets.

The 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, ~~as a contra account to the amortized cost basis,~~ instead of a direct reduction of the amortized cost basis of the investment, as required under current guidance. As a result, entities ~~will~~ 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 guidance. ~~The amendments~~

In November 2018, the FASB issued ASU 2018-19 and in ~~this~~April, May and November 2019 and February 2020, the FASB issued ASU ~~are effective for annual periods,~~2019-04, ASU 2019-05, ASU 2019-11, and ~~interim periods within those annual periods, beginning after December 15, 2019. Early application of this~~ ASU ~~is permitted. The Company intends~~2020-02 respectively, which made minor clarifications to adopt this standard on January 1, 2020. Adoption will be applied on a modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings at the date of initial application. However, certain provisions of the guidance ~~are only required to be applied on a prospective basis.~~in ASU 2016-13.

The Company’s implementation process ~~includes~~included loss model development, data sourcing and validation, ~~loss model development,~~ 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, and overall operational readiness for adoption of the amended guidance, which will continue throughout 2019, including parallel runs alongside the Company’s current allowance process. Parallel runs that have been more focused on the operational process have been performed in the second and third quarters of 2019. Parallel runs will be enhanced throughout the remainder of 2019 to include the qualitative framework, supporting analytics, end-to-end governance, internal controls and disclosures.controls.

The Company ~~provides updates~~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 ~~senior management and~~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 ~~Audit Committee. These communications provide an update on the status~~cumulative effect of ~~the implementation project plan and any identified risks.~~adopting this ASU.

The Company ~~is currently~~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 ~~the process~~accumulated other comprehensive income as of ~~evaluating the impact of the amended guidance on its Condensed Consolidated Financial Statements. It currently expects the allowance for loan losses~~January 1, 2020 related to ~~increase upon adoption given that the allowance~~improvements in cash flows expected to be collected will be ~~required to cover~~accreted into income over the ~~expected~~remaining life of the ~~loan portfolio upon adoption. The extent~~asset. Recoveries of ~~this impact is still being evaluated and~~amounts previously written off relating to improvements in cash flows after January 1, 2020 will ~~depend on economic conditions, economic forecasts and the composition and credit quality of the Company's loan portfolio at the time of adoption.~~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 ~~will have~~had no impact from purchased-credit-deteriorated assets upon adoption. ~~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 debt securities held to maturity losses	$	1,847	$	—	$	1,847
Allowance for loan losses	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 ~~does~~did not ~~expect to~~ 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 ~~nonpayment~~credit risk.

~~In November 2018, the FASB issued ASU 2018-19~~See Note 2, Debt Securities Available for Sale and ~~in April~~Debt Securities Held to Maturity, and ~~May 2019, the FASB issued ASU 2019-04~~Note 3, Loans and ~~ASU 2019-05, respectively, which made minor clarifications to the guidance in ASU 2016-13. The FASB has also established a Transition Resource Group~~Allowance for ~~Credit~~Loan Losses, to evaluate implementation issues arising from the amended guidance and make recommendations to the FASB on which issues may warrant the issuance of additional clarifying guidance. The Company continues to monitor the issues discussed by the Transition Resource Group and the recommended amendments proposed to the FASB as part of its implementation analysis.

~~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,~~required disclosures in accordance 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. Based on the Company’s most recent qualitative goodwill impairment assessment performed as of October 31, 2018, there were no reporting units for which it was more-likely-than-not thatthis ASU.

the carrying amount of a reporting unit exceeded its respective fair value; therefore, this ASU would not currently have an impact on the Company’s Consolidated Financial Statements or related disclosures. However, if upon adoption, which is expected to occur on January 1, 2020, the carrying amount of a reporting unit exceeds its respective fair value, the Company would be required to recognize an impairment charge for the amount that the carrying value exceeds the fair value.

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. The amendments in this ASU ~~modify~~modified the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurements. ~~This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. Early adoption is permitted.~~ The Company ~~is currently assessing the impact that the~~adopted this ASU on January 1, 2020. The adoption of this standard ~~will~~did not have material impact on ~~its fair value disclosures.~~the financial condition or results of operation of the Company. See Note 9, Fair Value Measurements, for the modified disclosure in accordance with this ASU.

Internal-Use Software

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing ArrangementThat is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. ~~This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. Early adoption is permitted.~~ The Company ~~is currently assessing the impact that the~~adopted this ASU on January 1, 2020. The adoption of this standard ~~will~~did not have material impact on the financial condition ~~and~~or results of ~~operations~~operation of the Company.

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

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


	September 30, 2019								September 30, 2020
			Gross Unrealized								Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value		Amortized Cost		Gains		Losses		Fair Value
	(In Thousands)								(In Thousands)
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	$	3,186,688	$	20,413	$	38,600	$	3,168,501	$	2,154,055	$	51,784	$	14,830	$	2,191,009
Agency mortgage-backed securities	1,477,410		18,125		9,710		1,485,825		935,845		35,144		1,067		969,922
Agency collateralized mortgage obligations	2,950,019		13,760		6,318		2,957,461		2,812,087		54,656		238		2,866,505
States and political subdivisions	756		47		—		803		615		21		—		636
Total	$	7,614,873	$	52,345	$	54,628	$	7,612,590	$	5,902,602	$	141,605	$	16,135	$	6,028,072
Debt securities held to maturity:
U.S. Treasury and other U.S. government agencies	$	1,285,850	$	62,972	$	—	$	1,348,822	$	1,290,667	$	121,608	$	—	$	1,412,275
Collateralized mortgage obligations:
Agency	4,318,121		114,366		11,071		4,421,416		7,638,230		211,081		10,399		7,838,912
Non-agency	39,657		8,132		196		47,593		31,760		5,946		435		37,271
Asset-backed securities and other	55,222		1,350		1,336		55,236		48,747		1,268		4,679		45,336
States and political subdivisions(1)	635,784		12,384		6,739		641,429		434,632		14,936		4,167		445,401
Total	$	6,334,634	$	199,204	$	19,342	$	6,514,496	$	9,444,036	$	354,839	$	19,680	$	9,779,195


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


	December 31, 2018								December 31, 2019
			Gross Unrealized								Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value		Amortized Cost		Gains		Losses		Fair Value
	(In Thousands)								(In Thousands)
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	$	5,525,902	$	13,000	$	107,435	$	5,431,467	$	3,145,331	$	16,888	$	34,694	$	3,127,525
Agency mortgage-backed securities	2,156,872		9,402		36,453		2,129,821		1,322,432		12,444		9,019		1,325,857
Agency collateralized mortgage obligations	3,492,538		4,021		77,580		3,418,979		2,783,003		7,744		9,622		2,781,125
States and political subdivisions	886		63		—		949		757		41		—		798
Total	$	11,176,198	$	26,486	$	221,468	$	10,981,216	$	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	$	2,089,860	$	26,988	$	10,338	$	2,106,510	4,846,862		82,105		16,568		4,912,399
Non-agency	46,834		7,198		1,129		52,903		37,705		5,923		1,154		42,474
Asset-backed securities and other	61,304		2,346		471		63,179		52,355		1,266		2,017		51,604
States and political subdivisions	687,615		18,545		3,332		702,828		573,075		8,652		7,494		574,233
Total	$	2,885,613	$	55,077	$	15,270	$	2,925,420	$	6,797,046	$	151,345	$	27,233	$	6,921,158

The investments held within the states and political subdivision caption of 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 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 debt securities ~~and held to maturity debt securities~~ that were in a loss position at September 30, ~~2019~~2020 and December 31, ~~2018~~.2019, for which an allowance for credit losses has not been recorded at September 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, 2019												September 30, 2020
	Securities in a loss position for less than 12 months				Securities in a loss position for 12 months or longer				Total				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		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)												(In Thousands)
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	$	83,020	$	86	$	854,321	$	38,514	$	937,341	$	38,600	$	5,226	$	67	$	351,472	$	14,763	$	356,698	$	14,830
Agency mortgage-backed securities	33,955		64		881,426		9,646		915,381		9,710		38,151		211		41,528		856		79,679		1,067
Agency collateralized mortgage obligations	483,488		723		752,903		5,595		1,236,391		6,318		115,423		63		176,202		175		291,625		238
Total	$	600,463	$	873	$	2,488,650	$	53,755	$	3,089,113	$	54,628	$	158,800	$	341	$	569,202	$	15,794	$	728,002	$	16,135

Debt securities held to maturity:
Collateralized mortgage obligations:
Agency	$	752,834	$	11,071	$	—	$	—	$	752,834	$	11,071
Non-agency	8,109		99		5,320		97		13,429		196
Asset-backed securities and other	43,549		879		9,278		457		52,827		1,336
States and political subdivisions	171,340		6,595		30,926		144		202,266		6,739
Total	$	975,832	$	18,644	$	45,524	$	698	$	1,021,356	$	19,342


	December 31, 2018												December 31, 2019
	Securities in a loss position for less than 12 months				Securities in a loss position for 12 months or longer				Total				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		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)												(In Thousands)
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	$	338	$	1	$	3,879,564	$	107,434	$	3,879,902	$	107,435	$	59,496	$	208	$	819,360	$	34,486	$	878,856	$	34,694
Agency mortgage-backed securities	68,404		279		1,533,156		36,174		1,601,560		36,453		245,191		851		592,312		8,168		837,503		9,019
Agency collateralized mortgage obligations	116,052		132		2,710,008		77,448		2,826,060		77,580		880,485		4,768		579,679		4,854		1,460,164		9,622
Total	$	184,794	$	412	$	8,122,728	$	221,056	$	8,307,522	$	221,468	$	1,185,172	$	5,827	$	1,991,351	$	47,508	$	3,176,523	$	53,335

Debt securities held to maturity:
Collateralized mortgage obligations:
Agency	$	—	$	—	$	845,512	$	10,338	$	845,512	$	10,338
Non-agency	3,715		71		13,195		1,058		16,910		1,129
Asset-backed securities and other	6,911		87		5,994		384		12,905		471
States and political subdivisions	116,925		2,148		118,834		1,184		235,759		3,332
Total	$	127,551	$	2,306	$	983,535	$	12,964	$	1,111,086	$	15,270

As indicated in the previous tables, at September 30, ~~2019,~~2020, the Company held 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 September 30, 2020
Allowance for debt securities held to maturity losses:
Balance at beginning of period	$	15,017
Provision for credit losses	88
Securities charged off	—
Recoveries	—
Balance at end of period	$	15,105

Nine Months Ended September 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	13,258
Securities charged off	—
Recoveries	—
Balance at end of period	$	15,105

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 September 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 September 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~~its HTM debt securities ~~available for sale or held to maturity portfolios, presented in the preceding tables, represents an OTTI at either September 30, 2019 or~~ ~~December 31, 2018, 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.~~September 30, 2020, aggregated by credit quality indicator.

Three Months Ended
September 30, Nine Months Ended
September 30,
2019
2018 2019 2018
(In Thousands)
Balance at beginning of period $ 23,529
$ 23,133
$ 23,416
$ 22,824
Reductions for securities paid off during the period (realized) —
—
—
—
Additions for the credit component on debt securities in which OTTI was not previously recognized —
—
—
—
Additions for the credit component on debt securities in which OTTI was previously recognized —
283
113
592
Balance at end of period $ 23,529
$ 23,416
$ 23,529
$ 23,416

For the three months ended September 30, 2019, there was no OTTI recognized and for the three months ended September 30, 2018, there was $283 thousand of OTTI recognized on held to maturity securities. For the nine months ended September 30, 2019 and 2018, there was $113 thousand and $592 thousand, respectively, of OTTI recognized



	September 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	$	1,290,667	$	—	$	—	$	—	$	—	$	—	$	1,290,667
Collateralized mortgage obligations:
Agency	7,638,230		—		—		—		—		—		7,638,230
Non-agency	310		8,223		10,950		5,670		2,741		3,866		31,760
Asset-backed securities and other	—		47,901		250		596		—		—		48,747
States and political subdivisions	—		257,076		177,556		—		—		—		434,632
	$	8,929,207	$	313,200	$	188,756	$	6,266	$	2,741	$	3,866	$	9,444,036

~~on held to maturity securities. The debt securities primarily impacted by credit impairment are held to maturity non-agency collateralized mortgage obligations.~~

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


September 30, 2019	Amortized Cost		Fair Value
September 30, 2020					Amortized Cost		Fair Value
	(In Thousands)				(In Thousands)
Debt securities available for sale:
Maturing within one year	$	399,828	$	399,391	$	325,088	$	325,409
Maturing after one but within five years	2,185,935		2,202,123		1,400,509		1,449,556
Maturing after five but within ten years	66,633		67,896		6,417		6,514
Maturing after ten years	535,048		499,894		422,656		410,166
	3,187,444		3,169,304		2,154,670		2,191,645
Mortgage-backed securities and collateralized mortgage obligations	4,427,429		4,443,286		3,747,932		3,836,427
Total	$	7,614,873	$	7,612,590	$	5,902,602	$	6,028,072

Debt securities held to maturity:
Maturing within one year	$	834	$	835	$	24,474	$	24,517
Maturing after one but within five years	825,404		858,940		1,419,845		1,541,388
Maturing after five but within ten years	937,617		971,268		177,387		185,275
Maturing after ten years	213,001		214,444		152,340		151,832
	1,976,856		2,045,487		1,774,046		1,903,012
Collateralized mortgage obligations	4,357,778		4,469,009		7,669,990		7,876,183
Total	$	6,334,634	$	6,514,496	$	9,444,036	$	9,779,195

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
	(In Thousands)								(In Thousands)
Gross gains	$	21,003	$	—	$	29,961	$	—	$	—	$	21,003	$	22,616	$	29,961
Gross losses	—		—		—		—		—		—		—		—
Net realized gains	$	21,003	$	—	$	29,961	$	—	$	—	$	21,003	$	22,616	$	29,961

(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 ratings 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 estimated 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, 2019		December 31, 2018		September 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Commercial loans:
Commercial, financial and agricultural	$	24,683,130	$	26,562,319	$	26,940,173	$	24,432,238
Real estate – construction	2,005,347		1,997,537		2,403,674		2,028,682
Commercial real estate – mortgage	13,074,173		13,016,796		13,695,800		13,861,478
Total commercial loans	39,762,650		41,576,652		43,039,647		40,322,398
Consumer loans:
Residential real estate – mortgage	13,503,327		13,422,156		13,463,757		13,533,954
Equity lines of credit	2,618,112		2,747,217		2,441,723		2,592,680
Equity loans	263,444		298,614		194,367		244,968
Credit card	936,147		818,308		907,793		1,002,365
Consumer direct	2,388,358		2,553,588		2,023,696		2,338,142
Consumer indirect	3,848,533		3,770,019		4,109,629		3,912,350
Total consumer loans	23,557,921		23,609,902		23,140,965		23,624,459
Total loans	$	63,320,571	$	65,186,554	$	66,180,612	$	63,946,857

Accrued interest receivable totaling $232 million and $205 million at September 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)			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, 2020																Three months ended September 30, 2020
Allowance for loan losses:
Beginning balance																$	757,512		$	227,875		$	183,485		$	585,480		$	1,754,352
Provision (credit) for loan losses																7,128			89,086			65,974			(11,299		)	150,889
Loans charged-off																(54,187		)	(372		)	(962		)	(66,200		)	(121,721		)
Loan recoveries																3,398			121			1,041			16,343			20,903
Net (charge-offs) recoveries																(50,789		)	(251		)	79			(49,857		)	(100,818		)
Ending balance																$	713,851		$	316,710		$	249,538		$	524,324		$	1,804,423
Three months ended September 30, 2019	Three months ended September 30, 2019															Three months ended September 30, 2019
Allowance for loan losses:
Beginning balance	$	456,054		$	117,786		$	100,351		$	303,469		$	977,660		$	456,054		$	117,786		$	100,351		$	303,469		$	977,660
Provision for loan losses	28,787			6,410			3,214			102,218			140,629			28,787			6,410			3,214			102,218			140,629
Loans charged-off	(73,178		)	(2,270		)	(4,835		)	(121,400		)	(201,683		)	(73,178		)	(2,270		)	(4,835		)	(121,400		)	(201,683		)
Loan recoveries	3,236			79			3,183			19,087			25,585			3,236			79			3,183			19,087			25,585
Net charge-offs	(69,942		)	(2,191		)	(1,652		)	(102,313		)	(176,098		)	(69,942		)	(2,191		)	(1,652		)	(102,313		)	(176,098		)
Ending balance	$	414,899		$	122,005		$	101,913		$	303,374		$	942,191		$	414,899		$	122,005		$	101,913		$	303,374		$	942,191
Three months ended September 30, 2018

Nine Months Ended September 30, 2020																Nine Months Ended September 30, 2020
Allowance for loan losses:
Beginning balance	$	431,510		$	113,246		$	98,032		$	217,212		$	860,000
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	9,560			896			1,446			83,062			94,964			386,106			241,910			103,142			303,011			1,034,169
Loans charged-off	(20,142		)	(2,328		)	(5,570		)	(73,599		)	(101,639		)
Loan charge-offs																(109,364		)	(9,512		)	(4,056		)	(279,959		)	(402,891		)
Loan recoveries	6,167			316			3,454			12,131			22,068			10,523			713			3,973			52,012			67,221
Net charge-offs	(13,975		)	(2,012		)	(2,116		)	(61,468		)	(79,571		)	(98,841		)	(8,799		)	(83		)	(227,947		)	(335,670		)
Ending balance	$	427,095		$	112,130		$	97,362		$	238,806		$	875,393		$	713,851		$	316,710		$	249,538		$	524,324		$	1,804,423

Nine Months Ended September 30, 2019	Nine Months Ended September 30, 2019															Nine Months Ended September 30, 2019
Allowance for loan losses:
Beginning balance	$	393,315		$	112,437		$	101,929		$	277,561		$	885,242		$	393,315		$	112,437		$	101,929		$	277,561		$	885,242
Provision for loan losses	142,185			9,906			5,147			320,701			477,939			142,185			9,906			5,147			320,701			477,939
Loan charge-offs	(132,006		)	(2,407		)	(14,526		)	(345,028		)	(493,967		)	(132,006		)	(2,407		)	(14,526		)	(345,028		)	(493,967		)
Loan recoveries	11,405			2,069			9,363			50,140			72,977			11,405			2,069			9,363			50,140			72,977
Net charge-offs	(120,601		)	(338		)	(5,163		)	(294,888		)	(420,990		)	(120,601		)	(338		)	(5,163		)	(294,888		)	(420,990		)
Ending balance	$	414,899		$	122,005		$	101,913		$	303,374		$	942,191		$	414,899		$	122,005		$	101,913		$	303,374		$	942,191
Nine Months Ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	420,635		$	118,133		$	109,856		$	194,136		$	842,760
Provision (credit) for loan losses	39,397			(9,184		)	(7,339		)	220,399			243,273
Loan charge-offs	(42,968		)	(3,217		)	(15,123		)	(210,195		)	(271,503		)
Loan recoveries	10,031			6,398			9,968			34,466			60,863
Net (charge-offs) recoveries	(32,937		)	3,181			(5,155		)	(175,729		)	(210,640		)
Ending balance	$	427,095		$	112,130		$	97,362		$	238,806		$	875,393


(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 September 30, 2020, the increase in the allowance for loan losses was primarily driven by deterioration in credit quality indicators of the loan portfolio, primarily driven by downgrades in the commercial loan portfolios due to the impact of the COVID-19 pandemic. For the nine months ended September 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 at December 31, 2019.



	Commercial, Financial and Agricultural		Commercial Real Estate (1)		Residential Real Estate (2)		Consumer (3)		Total
	(In Thousands)
December 31, 2019
Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	88,164	$	13,255	$	22,775	$	2,638	$	126,832
Collectively evaluated for impairment	320,033		105,378		76,314		292,436		794,161
Total allowance for loan losses	$	408,197	$	118,633	$	99,089	$	295,074	$	920,993
Ending balance of loans:
Individually evaluated for impairment	$	238,653	$	78,301	$	155,728	$	13,362	$	486,044
Collectively evaluated for impairment	24,193,585		15,811,859		16,215,874		7,239,495		63,460,813
Total loans	$	24,432,238	$	15,890,160	$	16,371,602	$	7,252,857	$	63,946,857


(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 table ~~below provides a summary of the allowance for~~presents information on nonaccrual loans, by loan ~~losses and related loan balances by portfolio.~~class at September 30, 2020.

Commercial, Financial and Agricultural Commercial Real Estate (1) Residential Real Estate (2) Consumer (3) Total
(In Thousands)
September 30, 2019
Ending balance of allowance attributable to loans:
Individually evaluated for impairment $ 92,309
$ 11,645
$ 23,629
$ 1,083
$ 128,666
Collectively evaluated for impairment 322,590
110,360
78,284
302,291
813,525
Total allowance for loan losses $ 414,899
$ 122,005
$ 101,913
$ 303,374
$ 942,191
Ending balance of loans:
Individually evaluated for impairment $ 269,636
$ 83,201
$ 156,814
$ 7,498
$ 517,149
Collectively evaluated for impairment 24,413,494
14,996,319
16,228,069
7,165,540
62,803,422
Total loans $ 24,683,130
$ 15,079,520
$ 16,384,883
$ 7,173,038
$ 63,320,571

December 31, 2018
Ending balance of allowance attributable to loans:
Individually evaluated for impairment $ 73,072
$ 6,283
$ 26,008
$ 1,880
$ 107,243
Collectively evaluated for impairment 320,243
106,154
75,921
275,681
777,999
Total allowance for loan losses $ 393,315
$ 112,437
$ 101,929
$ 277,561
$ 885,242
Ending balance of loans:
Individually evaluated for impairment $ 386,282
$ 85,250
$ 153,342
$ 5,135
$ 630,009
Collectively evaluated for impairment 26,176,037
14,929,083
16,314,645
7,136,780
64,556,545
Total loans $ 26,562,319
$ 15,014,333
$ 16,467,987
$ 7,141,915
$ 65,186,554



	September 30, 2020
	Nonaccrual		Nonaccrual With No Recorded Allowance
	(In Thousands)
Commercial, financial and agricultural	$	660,254	$	67,309
Real estate – construction	12,614		—
Commercial real estate – mortgage	275,668		27,771
Residential real estate – mortgage	204,442		—
Equity lines of credit	37,216		—
Equity loans	8,758		—
Credit card	—		—
Consumer direct	9,134		—
Consumer indirect	24,954		—
Total loans	$	1,233,040	$	95,080


~~(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.~~

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


	September 30, 2019												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	$	106,174	$	109,976	$	—	$	163,462	$	211,790	$	92,309	$	51,203	$	52,991	$	—	$	187,450	$	249,486	$	88,164
Real estate – construction	—		—		—		120		120		11		—		—		—		5,972		5,979		850
Commercial real estate – mortgage	52,645		57,164		—		30,436		32,695		11,634		46,232		51,286		—		26,097		27,757		12,405
Residential real estate – mortgage	—		—		—		111,609		111,609		8,616		—		—		—		111,623		111,623		8,974
Equity lines of credit	—		—		—		15,968		15,973		12,155		—		—		—		15,466		15,472		10,896
Equity loans	—		—		—		29,237		30,086		2,858		—		—		—		28,639		29,488		2,905
Credit card	—		—		—		—		—		—		—		—		—		—		—		—
Consumer direct	—		—		—		7,311		9,307		899		—		—		—		11,601		13,596		1,903
Consumer indirect	—		—		—		187		187		184		—		—		—		1,761		1,761		735
Total loans	$	158,819	$	167,140	$	—	$	358,330	$	411,767	$	128,666	$	97,435	$	104,277	$	—	$	388,609	$	455,162	$	126,832

December 31, 2018
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 $ 162,011
$ 196,316
$ —
$ 224,271
$ 262,947
$ 73,072
Real estate – construction —
—
—
138
138
6
Commercial real estate – mortgage 45,628
48,404
—
39,484
44,463
6,277
Residential real estate – mortgage —
—
—
104,787
104,787
8,711
Equity lines of credit —
—
—
16,012
16,016
13,334
Equity loans —
—
—
32,543
33,258
3,963
Credit card —
—
—
—
—
—
Consumer direct —
—
—
4,715
4,715
1,473
Consumer indirect —
—
—
420
420
407
Total loans $ 207,639
$ 244,720
$ —
$ 422,370
$ 466,744
$ 107,243

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

Three Months Ended September 30, 2019 Three Months Ended September 30, 2018
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(In Thousands)
Commercial, financial and agricultural $ 318,790
$ 496
$ 286,815
$ 29
Real estate – construction 584
2
12,182
1
Commercial real estate – mortgage 77,165
221
80,779
238
Residential real estate – mortgage 109,450
691
105,743
660
Equity lines of credit 16,553
164
16,885
184
Equity loans 29,455
268
33,836
295
Credit card —
—
—
—
Consumer direct 7,360
102
923
9
Consumer indirect 203
—
550
1
Total loans $ 559,560
$ 1,944
$ 537,713
$ 1,417

Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018
Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(In Thousands)
Commercial, financial and agricultural $ 377,390
$ 2,033
$ 268,037
$ 622
Real estate – construction 436
6
10,060
5
Commercial real estate – mortgage 79,910
687
82,350
648
Residential real estate – mortgage 107,456
2,021
109,262
2,029
Equity lines of credit 15,617
514
17,833
571
Equity loans 30,568
816
34,814
897
Credit card —
—
—
—
Consumer direct 6,459
233
2,197
24
Consumer indirect 280
—
707
4
Total loans $ 618,116
$ 6,310
$ 525,260
$ 4,800

Detailed information on the Company's allowance for loan losses methodology and the Company's impaired loan policy are included in the Notes to the Company's Consolidated Financial Statements for the year ended December 31, 2018.



	Three Months Ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized
	(In Thousands)
Commercial, financial and agricultural	$	318,790	$	496
Real estate – construction	584		2
Commercial real estate – mortgage	77,165		221
Residential real estate – mortgage	109,450		691
Equity lines of credit	16,553		164
Equity loans	29,455		268
Credit card	—		—
Consumer direct	7,360		102
Consumer indirect	203		—
Total loans	$	559,560	$	1,944

	Nine Months Ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized
	(In Thousands)
Commercial, financial and agricultural	$	377,390	$	2,033
Real estate – construction	436		6
Commercial real estate – mortgage	79,910		687
Residential real estate – mortgage	107,456		2,021
Equity lines of credit	15,617		514
Equity loans	30,568		816
Credit card	—		—
Consumer direct	6,459		233
Consumer indirect	280		—
Total loans	$	618,116	$	6,310

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, illustrate the credit quality indicators associated with the Company’s loans, by loan class.


	Commercial						Commercial
	September 30, 2019						September 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	$	23,417,187	$	1,921,410	$	12,718,589	$	4,572,407	$	2,978,677	$	2,607,424	$	2,926,530	$	1,067,416	$	3,431,190	$	7,991,155	$	—	$	25,574,799
Special Mention	661,147		10,430		170,527		48,114		27,997		64,487		50,861		25,958		55,495		357,594		—		630,506
Substandard	502,442		73,507		171,154		22,771		19,829		47,314		57,440		31,907		83,181		381,100		—		643,542
Doubtful	102,354		—		13,903		—		—		30,797		24,690		7,606		13,876		14,357		—		91,326
	$	24,683,130	$	2,005,347	$	13,074,173
Total commercial, financial and agricultural							$	4,643,292	$	3,026,503	$	2,750,022	$	3,059,521	$	1,132,887	$	3,583,742	$	8,744,206	$	—	$	26,940,173
Real estate - construction
Pass							$	157,825	$	724,378	$	750,181	$	368,924	$	108,282	$	79,430	$	168,885	$	—	$	2,357,905
Special Mention							—		—		—		18,982		1,532		454		—		—		20,968
Substandard							—		6,660		7,374		—		6,104		4,663		—		—		24,801
Doubtful							—		—		—		—		—		—		—		—		—
Total real estate - construction							$	157,825	$	731,038	$	757,555	$	387,906	$	115,918	$	84,547	$	168,885	$	—	$	2,403,674
Commercial real estate - mortgage
Pass							$	1,099,683	$	3,112,582	$	3,675,597	$	1,667,937	$	1,008,139	$	2,479,403	$	219,460	$	—	$	13,262,801
Special Mention							2,854		27,804		110,568		4,164		25,520		37,157		—		—		208,067
Substandard							575		566		11,872		61,771		23,318		114,042		9,818		—		221,962
Doubtful							—		—		—		—		—		2,970		—		—		2,970
Total commercial real estate - mortgage							$	1,103,112	$	3,140,952	$	3,798,037	$	1,733,872	$	1,056,977	$	2,633,572	$	229,278	$	—	$	13,695,800


	December 31, 2018						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	$	25,395,640	$	1,971,852	$	12,620,421	$	23,319,645	$	1,979,310	$	13,547,273
Special Mention	412,129		12,372		215,322		543,928		67		168,679
Substandard	631,706		13,313		170,303		488,813		49,305		134,420
Doubtful	122,844		—		10,750		79,852		—		11,106
	$	26,562,319	$	1,997,537	$	13,016,796	$	24,432,238	$	2,028,682	$	13,861,478


	Consumer												Consumer
	September 30, 2019												September 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	$	13,345,060	$	2,579,161	$	254,015	$	916,110	$	2,363,237	$	3,805,994	$	1,774,759	$	2,373,282	$	1,184,954	$	1,244,319	$	1,375,615	$	5,266,254	$	—	$	—	$	13,219,183
Nonperforming	158,267		38,951		9,429		20,037		25,121		42,539		328		2,417		9,463		21,155		16,904		194,307		—		—		244,574
	$	13,503,327	$	2,618,112	$	263,444	$	936,147	$	2,388,358	$	3,848,533
Total residential real estate - mortgage													$	1,775,087	$	2,375,699	$	1,194,417	$	1,265,474	$	1,392,519	$	5,460,561	$	—	$	—	$	13,463,757
Equity lines of credit
Performing													$	—	$	—	$	—	$	—	$	—	$	—	$	2,397,594	$	3,468	$	2,401,062
Nonperforming													—		—		—		—		—		—		40,462		199		40,661
Total equity lines of credit													$	—	$	—	$	—	$	—	$	—	$	—	$	2,438,056	$	3,667	$	2,441,723
Equity loans
Performing													$	3,717	$	13,212	$	10,689	$	4,748	$	3,924	$	148,622	$	—	$	—	$	184,912
Nonperforming													14		—		473		163		—		8,805		—		—		9,455
Total equity loans													$	3,731	$	13,212	$	11,162	$	4,911	$	3,924	$	157,427	$	—	$	—	$	194,367
Credit card
Performing													$	—	$	—	$	—	$	—	$	—	$	—	$	891,251	$	—	$	891,251
Nonperforming													—		—		—		—		—		—		16,542		—		16,542
Total credit card													$	—	$	—	$	—	$	—	$	—	$	—	$	907,793	$	—	$	907,793
Consumer direct
Performing													$	352,071	$	568,277	$	470,073	$	133,739	$	62,502	$	24,366	$	396,891	$	—	$	2,007,919
Nonperforming													155		3,722		7,892		1,821		576		164		1,447		—		15,777
Total consumer direct													$	352,226	$	571,999	$	477,965	$	135,560	$	63,078	$	24,530	$	398,338	$	—	$	2,023,696
Consumer indirect
Performing													$	1,010,830	$	1,402,703	$	980,220	$	411,866	$	136,671	$	138,551	$	—	$	—	$	4,080,841
Nonperforming													512		4,675		10,095		6,479		3,715		3,312		—		—		28,788
Total consumer indirect													$	1,011,342	$	1,407,378	$	990,315	$	418,345	$	140,386	$	141,863	$	—	$	—	$	4,109,629


	December 31, 2018												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	$	13,248,822	$	2,707,289	$	287,392	$	801,297	$	2,535,724	$	3,742,394	$	13,381,709	$	2,553,000	$	236,122	$	979,569	$	2,313,082	$	3,870,839
Nonperforming	173,334		39,928		11,222		17,011		17,864		27,625		152,245		39,680		8,846		22,796		25,060		41,511
	$	13,422,156	$	2,747,217	$	298,614	$	818,308	$	2,553,588	$	3,770,019	$	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, 2019																September 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	$	30,779	$	24,036	$	11,179	$	301,021	$	1,552	$	368,567	$	24,314,563	$	24,683,130	$	22,632	$	12,890	$	21,261	$	660,254	$	19,713	$	736,750	$	26,203,423	$	26,940,173
Real estate – construction	3,831		185		532		1,616		76		6,240		1,999,107		2,005,347		2,861		303		532		12,614		61		16,371		2,387,303		2,403,674
Commercial real estate – mortgage	13,939		41		2,375		110,632		3,492		130,479		12,943,694		13,074,173		19,280		3,968		1,816		275,668		1,831		302,563		13,393,237		13,695,800
Residential real estate – mortgage	74,796		22,329		4,778		153,078		60,537		315,518		13,187,809		13,503,327		88,035		49,344		39,728		204,442		55,132		436,681		13,027,076		13,463,757
Equity lines of credit	11,088		4,616		2,072		36,879		—		54,655		2,563,457		2,618,112		13,418		6,300		3,445		37,216		—		60,379		2,381,344		2,441,723
Equity loans	2,452		978		524		8,728		24,789		37,471		225,973		263,444		1,847		1,158		271		8,758		20,750		32,784		161,583		194,367
Credit card	10,372		8,092		20,037		—		—		38,501		897,646		936,147		9,776		7,526		16,542		—		—		33,844		873,949		907,793
Consumer direct	35,762		23,075		17,773		7,348		7,360		91,318		2,297,040		2,388,358		25,762		11,730		6,643		9,134		17,926		71,195		1,952,501		2,023,696
Consumer indirect	81,075		26,294		8,599		33,940		—		149,908		3,698,625		3,848,533		34,116		9,744		3,834		24,954		—		72,648		4,036,981		4,109,629
Total loans	$	264,094	$	109,646	$	67,869	$	653,242	$	97,806	$	1,192,657	$	62,127,914	$	63,320,571	$	217,727	$	102,963	$	94,072	$	1,233,040	$	115,413	$	1,763,215	$	64,417,397	$	66,180,612

December 31, 2018
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 $ 17,257
$ 11,784
$ 8,114
$ 400,389
$ 18,926
$ 456,470
$ 26,105,849
$ 26,562,319
Real estate – construction 218
8,849
544
2,851
116
12,578
1,984,959
1,997,537
Commercial real estate – mortgage 11,678
3,375
2,420
110,144
3,661
131,278
12,885,518
13,016,796
Residential real estate – mortgage 80,366
29,852
5,927
167,099
57,446
340,690
13,081,466
13,422,156
Equity lines of credit 14,007
5,109
2,226
37,702
—
59,044
2,688,173
2,747,217
Equity loans 3,471
843
180
10,939
26,768
42,201
256,413
298,614
Credit card 9,516
7,323
17,011
—
—
33,850
784,458
818,308
Consumer direct 37,336
19,543
13,336
4,528
2,684
77,427
2,476,161
2,553,588
Consumer indirect 100,434
32,172
9,791
17,834
—
160,231
3,609,788
3,770,019
Total loans $ 274,283
$ 118,850
$ 59,549
$ 751,486
$ 109,601
$ 1,313,769
$ 63,872,785
$ 65,186,554

~~Policies related to the Company's nonaccrual and past due loans are included in the Company's Consolidated Financial Statements for the year ended December 31, 2018.~~



	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 September 30, 2020, the Company had deferrals on approximately 13 thousand loans with an amortized cost of $1.1 billion.

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 30, 2020, $7.8 million of TDR modifications included an interest rate concession and $113.3 million of TDR modifications resulted from modifications to the loan’s structure. During the three months ended September 30, 2019, $7.8 million of TDR modifications included an interest rate concession and $25.0 million of TDR modifications resulted from modifications

to the loan’s structure. During the ~~three~~nine months ended September 30, ~~2018, $1.9~~2020, $17.3 million of TDR modifications included an interest rate concession and ~~$106.5~~$182.4 million of TDR modifications resulted from modifications to the loan’s structure. During the nine months ended September 30, 2019, $17.3 million of TDR modifications included an interest rate concession and $57.8 million of TDR modifications resulted from modifications to the loan’s structure. During the nine months ended September 30, 2018, $25.3 million of TDR modifications included an interest rate concession and $113.0 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, 2019			Three Months Ended September 30, 2018			Three Months Ended September 30, 2020			Three Months Ended September 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	4	$	1,411	1	$	104,065	10	$	104,864	4	$	1,411
Real estate – construction	—	—		—	—		—	—		—	—
Commercial real estate – mortgage	2	18,115		1	679		2	5,589		2	18,115
Residential real estate – mortgage	29	8,523		17	2,025		19	6,706		29	8,523
Equity lines of credit	3	259		3	80		5	168		3	259
Equity loans	1	49		7	464		6	1,246		1	49
Credit card	—	—		—	—		—	—		—	—
Consumer direct	110	4,401		2	1,098		42	2,545		110	4,401
Consumer indirect	1	2		—	—		—	—		1	2

	Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2020			Nine Months Ended September 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	10	$	28,330	5	$	121,263	21	$	170,579	10	$	28,330
Real estate – construction	—	—		2	307		—	—		—	—
Commercial real estate – mortgage	6	20,638		3	2,313		5	7,886		6	20,638
Residential real estate – mortgage	65	15,574		50	10,862		34	8,528		65	15,574
Equity lines of credit	5	353		7	197		13	567		5	353
Equity loans	8	456		19	2,235		8	1,496		8	456
Credit card	—	—		—	—		—	—		—	—
Consumer direct	178	9,176		3	1,104		176	10,656		178	9,176
Consumer indirect	1	2		—	—		—	—		1	2

The impact to the allowance for loan losses related to modifications classified as TDRs ~~were~~was approximately ~~$6.7~~$5.4 million and ~~$18.3~~$6.7 million for the three ~~and nine~~ months ended September 30, 2020 and 2019, respectively. The impact to the allowance for loan losses related to modifications classified as TDRs were ~~$(100) thousand~~$10.6 million and ~~$11.2~~$18.3 million for the ~~three and~~ nine months ended September 30, ~~2018,~~2020 and 2019, respectively.

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 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, 2019 Three Months Ended September 30, 2018
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 1
599
—
�� —
Residential real estate – mortgage 1
234
2
327
Equity lines of credit —
—
—
—
Equity loans —
—
—
—
Credit card —
—
—
—
Consumer direct 1
600
—
—
Consumer indirect —
—
—
—

Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018
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 1
599
—
—
Residential real estate – mortgage 2
455
4
474
Equity lines of credit —
—
—
—
Equity loans 2
151
3
167
Credit card —
—
—
—
Consumer direct 4
2,610
—
—
Consumer indirect —
—
—
—

~~All commercial and consumer loans modified in a TDR are considered to be impaired, even if they maintain their accrual status.~~



	Three Months Ended September 30, 2020			Three Months Ended September 30, 2019
	Number of Contracts	Recorded Investment at Default		Number of Contracts	Recorded Investment at Default
	(Dollars in Thousands)
Commercial, financial and agricultural	1	$	16,739	—	$	—
Real estate – construction	—	—		—	—
Commercial real estate – mortgage	—	—		1	599
Residential real estate – mortgage	—	—		1	234
Equity lines of credit	—	—		—	—
Equity loans	1	270		—	—
Credit card	—	—		—	—
Consumer direct	—	—		1	600
Consumer indirect	—	—		—	—

	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
	Number of Contracts	Recorded Investment at Default		Number of Contracts	Recorded Investment at Default
	(Dollars in Thousands)
Commercial, financial and agricultural	1	$	16,739	—	$	—
Real estate – construction	—	—		—	—
Commercial real estate – mortgage	—	—		1	599
Residential real estate – mortgage	2	182		2	455
Equity lines of credit	1	65		—	—
Equity loans	1	270		2	151
Credit card	—	—		—	—
Consumer direct	5	235		4	2,610
Consumer indirect	—	—		—	—

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were ~~$60.4~~$100.6 million and ~~$54.2~~$43.8 million, respectively, of commitments to lend additional funds to borrowers whose terms have been modified in a TDR.

Foreclosure Proceedings

OREO totaled ~~$19~~$15 million and ~~$17~~$22 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. OREO included ~~$16~~$8 million and $14 million of foreclosed residential real estate properties at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were ~~$53~~$32 million and ~~$62~~$57 million, respectively, of 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 ~~$134~~$253 million and ~~$69~~$112 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and were comprised entirely 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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
	(In Thousands)								(In Thousands)
Loans transferred from held for investment to held for sale	$	—	$	—	$	1,196,883	$	—	$	—	$	—	$	—	$	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	10,897		37,580		1,092,195		46,055		—		10,897		—		1,092,195

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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
	(In Thousands)								(In Thousands)
Residential real estate loans originated for sale in the secondary market sold (1)	$	188,550	$	148,967	$	488,940	$	479,684	$	403,190	$	188,550	$	923,139	$	488,940
Net gains recognized on sales of residential real estate loans originated for sale in the secondary market (2)	8,101		5,409		20,745		14,858		25,636		8,101		51,909		20,745
Servicing fees recognized (2)	2,703		2,544		8,007		8,181		2,550		2,703		7,726		8,007


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


(2)	Recorded as a component of mortgage banking 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, 2019		December 31, 2018		September 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Recorded balance of residential real estate mortgage loans sold with retained servicing (1)	$	4,514,658	$	4,588,273	$	4,447,793	$	4,534,202
MSRs (2)	37,265		51,539		28,731		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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	(In Thousands)												(In Thousands)
Carrying value, at beginning of period	$	41,966		$	54,276		$	51,539		$	49,597		$	29,035		$	41,966		$	42,022		$	51,539
Additions	1,600			1,594			4,305			5,266			3,244			1,600			7,654			4,305
Increase (decrease) in fair value:
Due to changes in valuation inputs or assumptions	(4,269		)	2,533			(11,303		)	9,403			(1,052		)	(4,269		)	(13,866		)	(11,303		)
Due to other changes in fair value (1)	(2,032		)	(3,091		)	(7,276		)	(8,954		)	(2,496		)	(2,032		)	(7,079		)	(7,276		)
Carrying value, at end of period	$	37,265		$	55,312		$	37,265		$	55,312		$	28,731		$	37,265		$	28,731		$	37,265


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

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

At September 30, ~~2019~~2020 and December 31, ~~2018,~~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, 2019			December 31, 2018			September 30, 2020			December 31, 2019
	(Dollars in Thousands)						(Dollars in Thousands)
Fair value of MSRs	$	37,265		$	51,539		$	28,731		$	42,022
Composition of residential loans serviced for others:
Fixed rate mortgage loans	98.0		%	97.7		%	98.4		%	98.1		%
Adjustable rate mortgage loans	2.0			2.3			1.6			1.9
Total	100.0		%	100.0		%	100.0		%	100.0		%
Weighted average life (in years)	4.1			6.6			3.5			4.6
Prepayment speed:	18.1		%	7.4		%	29.5		%	16.9		%
Effect on fair value of a 10% increase	$	(2,939	)	$	(1,432	)	$	(1,478	)	$	(2,906	)
Effect on fair value of a 20% increase	(5,007		)	(2,778		)	(3,236		)	(5,043		)
Weighted average option adjusted spread:	6.4		%	6.5		%	6.2		%	6.4		%
Effect on fair value of a 10% increase	$	(1,055	)	$	(1,627	)	$	(670	)	$	(1,159	)
Effect on fair value of a 20% increase	(1,568		)	(3,116		)	(1,310		)	(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 September 30, 2020
Goodwill	9,835,400
Accumulated impairment losses	(7,507,104		)
Goodwill, net at September 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 September 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:



	September 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 September 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 September 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 September 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 September 30, 2020. Therefore, the Company determined that a test of goodwill impairment was not required for each of the reporting units for the September 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, ~~2018,~~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, 2019						December 31, 2018						September 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	$	2,923,950	$	30,240	$	—	$	2,923,950	$	13,479	$	28,479	$	3,496,086	$	12,408	$	837	$	3,623,950	$	10,633	$	354
Total fair value hedges			30,240		—				13,479		28,479				12,408		837				10,633		354
Cash flow hedges:
Interest rate contracts:
Swaps related to commercial loans	7,000,000		—		—		1,500,000		2,367		—		10,000,000		—		—		10,000,000		—		—
Swaps related to FHLB advances	120,000		—		3,419		120,000		—		1,938		120,000		—		3,000		120,000		—		2,864
Foreign currency contracts:
Forwards related to currency fluctuations	1,380		51		—		5,272		174		—		1,178		—		87		2,597		102		—
Total cash flow hedges			51		3,419				2,541		1,938				—		3,087				102		2,864
Total derivatives designated as hedging instruments			$	30,291	$	3,419			$	16,020	$	30,417			$	12,408	$	3,924			$	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	$	307,980	$	252	$	605	$	166,641	$	187	$	1,021	$	794,989	$	638	$	1,993	$	289,990	$	148	$	514
Option contracts related to mortgage servicing rights	75,000		234		—		—		—		—		—		—		—		60,000		38		—
Interest rate lock commitments	180,127		4,038		—		91,395		2,012		—		636,349		16,305		—		146,941		3,088		—
Equity contracts:
Purchased equity option related to equity-linked CDs	209,724		6,989		—		450,660		14,185		—		50,831		774		—		152,130		4,460		—
Written equity option related to equity-linked CDs	179,156		—		5,966		389,030		—		12,434		41,065		—		625		128,620		—		3,765
Foreign exchange contracts:
Forwards and swaps related to commercial loans	525,441		3,532		1,128		413,127		1,565		1,109		385,230		2,678		1,883		443,493		167		3,872
Spots related to commercial loans	15,343		4		28		19,911		24		2		336		—		1		48,626		7		68
Swap associated with sale of Visa, Inc. Class B shares	148,907		—		5,494		111,466		—		3,706		172,368		—		6,435		161,904		—		5,904
Futures contracts (3)	4,470,000		—		—		3,223,000		—		—		2,240,000		—		—		2,110,000		—		—
Trading account assets and liabilities:
Interest rate contracts for customers	35,268,019		415,139		114,662		34,436,223		149,269		130,704		40,169,859		711,389		155,542		35,503,973		313,573		97,881
Foreign exchange contracts for customers	1,094,649		29,693		27,447		1,140,665		19,465		17,341		1,400,345		37,928		35,640		1,039,507		22,766		20,678
Total trading account assets and liabilities			444,832		142,109				168,734		148,045				749,317		191,182				336,339		118,559
Total free-standing derivative instruments not designated as hedging instruments			$	459,881	$	155,330			$	186,707	$	166,317			$	769,712	$	202,119			$	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.


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

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 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 months ended September 30, ~~2019~~2020 and ~~2018,~~2019, related to hedged firm commitments no longer qualifying as a fair value hedge. At September 30, ~~2019,~~2020, the fair value hedges had a weighted average expected remaining term of ~~3.6~~2.7 years.

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 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 months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

At September 30, ~~2019,~~2020, cash flow hedges not terminated had a net fair value of $(3) million and a weighted average life of ~~3.6~~2.4 years. Net ~~losses~~gains of ~~$1.3~~$173.1 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 ~~4.3~~4.2 years.

The following table presents the effect of hedging derivative instruments on the Company’s Unaudited Condensed Consolidated Statements of Income.


	Interest Income			Interest Expense			Interest Income			Interest Expense
	Interest and fees on loans			Interest on FHLB and other borrowings			Interest and fees on loans			Interest on FHLB and other borrowings
							(In Thousands)
Three Months Ended September 30, 2020
Total amounts presented in the unaudited condensed consolidated statements of income							$	644,643		$	14,644

Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements and amortization on derivatives							$	—		$	12,247
Recognized on derivatives							—			(12,407		)
Recognized on hedged items							—			12,058
Net income (expense) recognized on fair value hedges							$	—		$	11,898

Gain (losses) on cash flow hedging relationships: (1)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income (2)							$	43,671		$	(832	)
Net income (expense) recognized on cash flow hedges							$	43,671		$	(832	)
	(In Thousands)
Three Months Ended September 30, 2019
Total amounts presented in the unaudited condensed consolidated statements of income	$	771,245		$	32,975		$	771,245		$	32,975

Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements and amortization on derivatives	$	—		$	(136	)	$	—		$	(136	)
Recognized on derivatives	—			9,369			—			9,369
Recognized on hedged items	—			(8,999		)	—			(8,999		)
Net income (expense) recognized on fair value hedges	$	—		$	234		$	—		$	234

Gain (losses) on cash flow hedging relationships: (1)
Interest rate contracts:
Realized losses reclassified from AOCI into net income (2)	$	(295	)	$	(254	)	$	(295	)	$	(254	)
Net income (expense) recognized on cash flow hedges	$	(295	)	$	(254	)	$	(295	)	$	(254	)

Three Months Ended September 30, 2018
Total amounts presented in the unaudited condensed consolidated statements of income	$	751,470		$	37,131

Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements and amortization on derivatives	$	—		$	243
Recognized on derivatives	—			(13,181		)
Recognized on hedged items	—			12,920
Net income (expense) recognized on fair value hedges	$	—		$	(18	)

Gain (losses) on cash flow hedging relationships: (1)
Interest rate contracts:
Realized losses reclassified from AOCI into net income (2)	$	(13,782	)	$	(251	)
Net income (expense) recognized on cash flow hedges	$	(13,782	)	$	(251	)


(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 Income			Interest Expense
	Interest and fees on loans			Interest on FHLB and other borrowings			Interest and fees on loans			Interest on FHLB and other borrowings
							(In Thousands)
Nine Months Ended September 30, 2020
Total amounts presented in the unaudited condensed consolidated statements of income							$	2,029,886		$	57,756

Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements and amortization on derivatives							$	—		$	21,906
Recognized on derivatives							—			100,598
Recognized on hedged items							—			(95,575		)
Net income (expense) recognized on fair value hedges							$	—		$	26,929

Gain (losses) on cash flow hedging relationships: (1)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income (2)							$	82,963		$	(1,841	)
Net income (expense) recognized on cash flow hedges							$	82,963		$	(1,841	)
	(In Thousands)
Nine Months Ended September 30, 2019
Total amounts presented in the unaudited condensed consolidated statements of income	$	2,359,500		$	104,901		$	2,359,500		$	104,901

Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements and amortization on derivatives	$	—		$	(4,192	)	$	—		$	(4,192	)
Recognized on derivatives	—			76,315			—			76,315
Recognized on hedged items	—			(72,510		)	—			(72,510		)
Net income (expense) recognized on fair value hedges	$	—		$	(387	)	$	—		$	(387	)

Gain (losses) on cash flow hedging relationships: (1)
Interest rate contracts:
Realized losses reclassified from AOCI into net income (2)	$	(2,765	)	$	(584	)	$	(2,765	)	$	(584	)
Net income (expense) recognized on cash flow hedges	$	(2,765	)	$	(584	)	$	(2,765	)	$	(584	)

Nine Months Ended September 30, 2018
Total amounts presented in the unaudited condensed consolidated statements of income	$	2,126,411		$	93,799

Gains (losses) on fair value hedging relationships:
Interest rate contracts:
Amounts related to interest settlements and amortization on derivatives	$	—		$	3,529
Recognized on derivatives	—			(63,679		)
Recognized on hedged items	—			60,472
Net income (expense) recognized on fair value hedges	$	—		$	322

Gain (losses) on cash flow hedging relationships: (1)
Interest rate contracts:
Realized losses reclassified from AOCI into net income (2)	$	(35,839	)	$	(1,048	)
Net income (expense) recognized on cash flow hedges	$	(35,839	)	$	(1,048	)


(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 table presents 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.

September 30, 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 $ 3,481,608
$ 45,962
$ 2,430



			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)
September 30, 2020
FHLB and other borrowings	$	3,259,422	$	120,610	$	1,224

December 31, 2019
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 and foreign exchange contracts in its trading activities. See Note 13, Derivatives and Hedging, in the Notes to the December 31, ~~2018,~~2019, Consolidated Financial Statements for a description of the Company's derivatives not designated as 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 September 30,						Nine Months Ended September 30,
	Statements of Income Caption	2019			2018			2019			2018			Statements of Income Caption	2020			2019			2020			2019
		(In Thousands)													(In Thousands)
Futures contracts	Mortgage banking income and corporate and correspondent investment sales	$	14		$	195		$	(1,365	)	$	400		Mortgage banking income and corporate and correspondent investment sales	$	(12	)	$	14		$	(764	)	$	(1,365	)
Interest rate contracts:
Interest rate lock commitments	Mortgage banking income	191			(475		)	2,026			(281		)	Mortgage banking income	(4,438		)	191			13,217			2,026
Option contracts related to mortgage servicing rights	Mortgage banking income	285			—			1,313			(38		)	Mortgage banking income	—			285			1,528			1,313
Forward contracts related to residential mortgage loans held for sale	Mortgage banking income	530			708			481			553			Mortgage banking income	2,115			530			(989		)	481
Interest rate contracts for customers	Corporate and correspondent investment sales	7,398			8,639			13,490			28,559			Corporate and correspondent investment sales	(62		)	7,398			18,762			13,490
Equity contracts:
Purchased equity option related to equity-linked CDs	Other expense	(2,187		)	(4,945		)	(7,196		)	(20,550		)	Other expense	(1,094		)	(2,187		)	(3,686		)	(7,196		)
Written equity option related to equity-linked CDs	Other expense	1,942			4,539			6,469			18,641			Other expense	930			1,942			3,140			6,469
Foreign currency contracts:
Forward and swap contracts related to commercial loans	Other income	13,787			5,333			15,484			23,717			Other income	(15,885		)	13,787			(4,694		)	15,484
Spot contracts related to commercial loans	Other income	(1,263		)	(2,649		)	(1,065		)	(3,768		)	Other income	2,076			(1,263		)	4,900			(1,065		)
Foreign currency exchange contracts for customers	Corporate and correspondent investment sales	4,085			3,514			11,547			11,811			Corporate and correspondent investment sales	3,400			4,085			12,024			11,547

Derivatives Credit and Market Risks

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

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

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

resulting hedging strategies are then incorporated into the Company’s overall interest rate risk management and trading strategies.

Entering into interest rate swap agreements and options involves not only the risk of dealing with counterparties and their ability to meet the terms of the contracts but also interest rate risk associated with unmatched positions. At September 30, ~~2019,~~2020, interest rate swap agreements and options classified as trading were substantially matched. The Company had credit risk of ~~$445~~$749 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 months ended September 30, ~~2019~~2020 and ~~2018.~~2019. At September 30, ~~2019~~2020 and December 31, ~~2018,~~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 30, ~~2019,~~2020, have credit risk of ~~$30~~$12 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 months ended September 30, ~~2019~~2020 and ~~2018.~~2019. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were no nonperforming derivative positions classified as nontrading.

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had recorded the right to reclaim cash collateral of ~~$110~~$221 million and ~~$97~~$150 million, respectively, within other assets on the Company’s Unaudited Condensed Consolidated Balance ~~Sheets~~Sheets. At both September 30, 2020 and December 31, 2019, the Company had recorded the obligation to return cash collateral of ~~$40~~$12 million ~~and $22 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 30, ~~2019,~~2020, was ~~$54~~$76 million for which the Company has collateral requirements of ~~$52~~$74 million in the normal course of business. If the credit risk-related contingent features underlying these agreements had been triggered on September 30, ~~2019,~~2020, the Company’s collateral requirements to its counterparties would increase 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, ~~2018,~~2019, was ~~$24~~$47 million for which the Company had collateral requirements of ~~$23~~$45 million in the normal course of business. If the credit risk-related contingent features underlying these agreements had been triggered on December 31, ~~2018,~~2019, the Company’s collateral requirements to its counterparties would have increased by $1$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, 2019
Derivative financial assets:
Subject to a master netting arrangement	$	75,652	$	—	$	75,652	$	—	$	32,770	$	42,882
Not subject to a master netting arrangement	414,520		—		414,520		—		—		414,520
Total derivative financial assets	$	490,172	$	—	$	490,172	$	—	$	32,770	$	457,402


Derivative financial liabilities:
Subject to a master netting arrangement	$	111,107	$	—	$	111,107	$	—	$	109,616	$	1,491
Not subject to a master netting arrangement	47,642		—		47,642		—		—		47,642
Total derivative financial liabilities	$	158,749	$	—	$	158,749	$	—	$	109,616	$	49,133

December 31, 2018
September 30, 2020
Derivative financial assets:
Subject to a master netting arrangement	$	82,168	$	—	$	82,168	$	—	$	18,932	$	63,236	$	46,217	$	—	$	46,217	$	—	$	3,502	$	42,715
Not subject to a master netting arrangement	120,559		—		120,559		—		—		120,559		735,903		—		735,903		—		—		735,903
Total derivative financial assets	$	202,727	$	—	$	202,727	$	—	$	18,932	$	183,795	$	782,120	$	—	$	782,120	$	—	$	3,502	$	778,618

Derivative financial liabilities:
Subject to a master netting arrangement	$	99,579	$	—	$	99,579	$	—	$	96,917	$	2,662	$	174,188	$	—	$	174,188	$	—	$	174,188	$	—
Not subject to a master netting arrangement	97,155		—		97,155		—		—		97,155		31,855		—		31,855		—		—		31,855
Total derivative financial liabilities	$	196,734	$	—	$	196,734	$	—	$	96,917	$	99,817	$	206,043	$	—	$	206,043	$	—	$	174,188	$	31,855

December 31, 2019
Derivative financial assets:
Subject to a master netting arrangement													$	41,390	$	—	$	41,390	$	—	$	5,860	$	35,530
Not subject to a master netting arrangement													313,592		—		313,592		—		—		313,592
Total derivative financial assets													$	354,982	$	—	$	354,982	$	—	$	5,860	$	349,122

Derivative financial liabilities:
Subject to a master netting arrangement													$	94,979	$	—	$	94,979	$	—	$	94,979	$	—
Not subject to a master netting arrangement													40,921		—		40,921		—		—		40,921
Total derivative financial liabilities													$	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 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, 2019
September 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	$	2,576,433	$	2,446,653	$	129,780	$	129,780	$	—	$	—	$	3,616,312	$	3,472,218	$	144,094	$	144,094	$	—	$	—

Securities sold under agreements to repurchase:	Securities sold under agreements to repurchase:												Securities sold under agreements to repurchase:
Subject to a master netting arrangement	$	2,564,074	$	2,446,653	$	117,421	$	117,421	$	—	$	—	$	3,661,692	$	3,472,218	$	189,474	$	189,474	$	—	$	—

December 31, 2018
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	$	246,844	$	136,897	$	109,947	$	109,947	$	—	$	—	$	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	$	239,172	$	136,897	$	102,275	$	102,275	$	—	$	—	$	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.

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, 2019
September 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		$	776,238	$	978,287	$	110,048	$	664,750	$	2,529,323		$	2,668,963	$	249,229	$	106,750	$	636,750	$	3,661,692
Mortgage-backed securities		—		—		34,751		—		34,751			—		—		—		—		—
Total		$	776,238	$	978,287	$	144,799	$	664,750	$	2,564,074		$	2,668,963	$	249,229	$	106,750	$	636,750	$	3,661,692

December 31, 2018
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		$	190,650	$	—	$	—	$	—	$	190,650		$	321,310	$	—	$	—	$	305,750	$	627,060
Mortgage-backed securities		—		—		48,522		—		48,522			—		—		23,558		—		23,558
Total		$	190,650	$	—	$	48,522	$	—	$	239,172		$	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 30, ~~2019,~~2020, the fair value of collateral received related to securities purchased under agreements to resell was ~~$2.7~~$4.3 billion and the fair value of collateral pledged for securities sold under agreements to repurchase was

~~$2.6~~ $4.3 billion. At December 31, ~~2018,~~2019, the fair value of collateral received related to securities purchased under agreements

to resell was ~~$251~~$648 million and the fair value of collateral pledged for securities sold under agreements to repurchase was ~~$247~~$644 million.

~~(7) Leases~~

The Company leases certain land, office space, and branches. These leases are generally for periods of 10 to 20 years with various renewal options. The Company, by policy, does not include renewal options for facility leases as part of its right-of-use assets and lease liabilities unless they are deemed reasonably certain to be exercised. Variable lease payments that are dependent on an index or a rate are initially measured using the index or rate at the commencement date and are included in the measurement of lease liability. Variable lease payments that are not dependent on an index or a rate or changes in variable payments based on an index or rate after the commencement date are excluded from the measurement of the lease liability and recognized in profit and loss in accordance with Topic 842. Variable lease payments are defined as payments made for the right to use an asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.

The Company has made a policy election to not apply the recognition requirements of ASC 842 to all short-term leases. Instead, the short-term lease payments will be recognized in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred. As a practical expedient, the Company has also made a policy election to not separate nonlease components from lease components and instead account for each separate lease component and the nonlease components associated with that lease component as a single lease component.

The Company determines whether a contract contains a lease based on whether a contract, or a part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The discount rate is determined as the rate implicit in the lease or when a rate cannot be readily determined, the Company’s incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The following table summarizes the Company’s lease portfolio classification and respective right-of-use asset balances and lease liability balances which are included in other assets and accrued expenses and other liabilities, respectively, on the Company’s Unaudited Condensed Consolidated Balance Sheets.

September 30, 2019
Finance Operating Total
(In Thousands)
Right-of-use asset $ 8,897
$ 276,169
$ 285,066
Lease liability balance 12,747
317,929
330,676

~~The table below presents information about the Company's total lease costs which include amounts recognized on the Company’s Unaudited Condensed Consolidated Statements of Income during the period.~~

Three Months Ended September 30, Nine Months Ended September 30,
2019 2019
(In Thousands)
Interest on lease liabilities $ 150
$ 463
Amortization of right-of-use assets 331
992
Finance lease cost 481
1,455
Operating lease cost 12,949
38,753
Variable lease cost 5,372
13,817
Sublease income (2,137 ) (5,689 )
Total lease cost $ 16,665
$ 48,336

~~The table below presents supplemental cash flow information arising from lease transactions and noncash information on lease liabilities arising from obtaining right-of-use assets.~~

Nine Months Ended September 30,
2019
(In Thousands)
Cash paid for amounts included in measurement of liabilities
Operating cash flows from operating leases $ 40,751
Operating cash flows from finance leases 463
Financing cash flows from finance leases 1,181
Right-of-use assets obtained in exchange for lease obligations
Operating leases 29,901
Finance leases —

~~The weighted-average remaining lease term and discount rates at September 30, 2019 were as follows:~~

Finance Operating Total
Weighted-average remaining lease term 8.6 years
9.9 years
9.9 years
Weighted-average discount rate 4.7 % 3.3 % 3.4 %

~~The following table provides the annual undiscounted future minimum payments under finance and noncanceable operating leases at September 30, 2019:~~

Finance Operating Total
(In Thousands)
Remainder of 2019 $ 553
$ 13,857
$ 14,410
2020 2,233
54,540
56,773
2021 2,143
50,448
52,591
2022 1,923
45,444
47,367
2023 1,501
39,568
41,069
2024 1,410
30,732
32,142
Thereafter 5,696
137,660
143,356
Total $ 15,459
$ 372,249
$ 387,708

~~At September 30, 2019 the Company had no additional operating or finance leases that had not yet commenced that would create significant rights and obligations for the Company as a lessee.~~

~~The table below presents a reconciliation of the undiscounted cash flows to the finance lease liabilities and operating lease liabilities.~~

September 30, 2019
Finance Operating Total
(In Thousands)
Total undiscounted lease liability $ 15,459
$ 372,249
$ 387,708
Less: imputed interest 2,712
54,320
57,032
Total discounted lease liability $ 12,747
$ 317,929
$ 330,676

(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, 2019		December 31, 2018		September 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Commitments to extend credit	$	27,374,025	$	28,827,897	$	27,668,274	$	27,725,965
Standby and commercial letters of credit	988,247		1,249,205		922,873		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 both September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the recorded amount of these deferred fees was $7 ~~million and $8~~ million, respectively. The Company holds various assets as collateral supporting those commitments for which collateral is deemed necessary. At September 30, ~~2019,~~2020, the maximum potential amount of future undiscounted payments the Company could be required to make under outstanding standby letters of credit was ~~$988~~$923 million. At September 30, ~~2019~~2020 and December 31, ~~2018,~~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 ~~$64~~$144 million and ~~$66~~$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 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the amount of potential recourse was ~~$19~~$18 million of which the Company had reserved ~~$793~~$693 thousand 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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had ~~$1.3~~$3.0 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.

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 ~~significant~~ legal proceedings.

In January 2014, 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, et al. v. BBVA USA, et al., wherein the plaintiffs (who are the borrowers and guarantors of the underlying loans) allege that BBVA USA wrongfully sold their loans to a third 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 ~~March 2015, the Bank was named as a defendant in a lawsuit filed in the United States District Court for the Southern District of Texas,~~ ~~Lomix Limited Partnership, et al. v. BBVA USA~~, wherein the plaintiffs (who are the borrower and guarantors of the underlying loan) allege that the Bank wrongfully sold their loan to a third party, and wrongfully disclosed the guarantors’ personal financial information in connection with the sale of the loan. The plaintiffs seek unspecified monetary relief. On February 28, 2019, the Court granted partial summary judgment in favor of BBVA USA, leaving only a nominal claim for damages. The plaintiffs disclaimed nominal damages and the Court entered a final judgment in favor of BBVA USA. Plaintiffs filed a notice of appeal with the Fifth Circuit Court of Appeals on April 5, 2019, but later withdrew the appeal on or about August 26, 2019, prompting the appellate court to dismiss the matter on that same date.

~~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 SEC 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. On April 2, 2018, the court granted the defendants' motion to dismiss with prejudice. The plaintiffs appealed to the United States Court of Appeals for the Fifth Circuit. After briefing and oral argument, on July 16, 2019, the appellate court issued an opinion affirming the trial court’s dismissal of BSI. Additional review and/or appeal of the Fifth Circuit’s opinion is possible. 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, 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.

~~In December 2016, the Bank was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Northern District of Alabama,~~ ~~Robert Hossfeld, individually and on behalf of all others similarly situated v. BBVA USA~~, alleging violations of the Telephone Consumer Protection Act in the context of customer satisfaction survey calls to the cell phones of individuals who have not given, or who have withdrawn, consent to receive calls on their cell phones. The plaintiffs seek unspecified monetary relief. The parties reached a settlement on November 6, 2018, and the Court entered a Preliminary Approval of Settlement Order on February 19, 2019. The Court entered its Order and Final Judgment approving the settlement on September 12, 2019.

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 November 2017, the Bank was named as a defendant in a lawsuit filed in the United States District Court for the Southern District of New York and subsequently transferred to the United States District Court for the Northern District of Texas, ~~Stabilis Fund II, LLC v. BBVA USA~~, alleging that the Bank fraudulently induced the plaintiff to purchase a loan that subsequently became the subject of litigation. The plaintiff seeks unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

~~In March 2018, the Company and BSI were named as defendants in a putative class action lawsuit filed in the United States District Court for the Southern District of New York,~~ ~~In re Mexican Government Bonds Antitrust Litigation,~~ alleging that the defendant financial institutions engaged in collusion with respect to the purchase and sale of Mexican government bonds. Five substantially similar lawsuits were filed and consolidated with the original lawsuit. The plaintiffs seek injunctive and unspecified monetary relief. On September 30, 2019, the Court issued an Opinion and Order dismissing plaintiffs’ claims for failure to state a claim, while granting plaintiffs an opportunity to explain why the Court should grant leave to amend plaintiff's complaint. On October 21, 2019 plaintiffs filed a letter stating they intend to move for leave to amend. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In March 2019, the Company and its subsidiary, Simple Finance Technology Corp., were named as defendants in a putative class action lawsuit filed in the United States District Court for the Northern District of California, Amitahbo Chattopadhyay v. BBVA USA Bancshares, Inc., et 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 directing non-citizen applicants to complete the online account origination processes in a physical branch location. Plaintiff alleges that ~~this constitutes~~these practices constitute alienage discrimination and violations of California's Unruh Act. The Company believes that there are substantial defenses to these claims and intends to defend them vigorously.

In 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, Ferguson v. BBVA USA Bancshares, Inc., wherein the plaintiffs allege certain investment options within the Company’s employee retirement plan violate provisions of 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 April 2020, BBVA USA was named as a defendant in a lawsuit filed in the United States District Court for the Eastern District of Texas, Marshall Division originally styled Estech Systems, Inc. v. BBVA USA Bancshares, Inc., alleging that BBVA USA has violated intellectual property rights owned by the plaintiff in connection with various patents regarding voice-over-internet protocols (VoIP). The plaintiff alleges that BBVA USA’s use of certain phone systems and technologies violate its claimed patent rights. The plaintiff seeks unspecified monetary relief. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

In June 2020, BBVA USA was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Southern District of California styled Sarah Hill v. BBVA USA, challenging BBVA USA’s assessment of 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.

In July 2020, BSI was named as a defendant in a putative class action lawsuit filed in the Supreme Court of the State of New York, County of New York, City of Miami Fire Fighters’ and Police Officers’ Retirement Trust, individually and on behalf of all others similarly situated v. Occidental Petroleum Corporation, et al., wherein the plaintiffs allege that Occidental Petroleum Corporation, 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 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 30, ~~2019,~~2020, the Company had accrued legal reserves in the amount of ~~$24~~$25 million. Additionally, for those matters where a loss is reasonably possible and the amount of loss is reasonably estimable, the Company estimates the amount of losses that it could incur beyond the accrued legal reserves. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote" if “the chance of the future event or events occurring is slight.” For a limited number of legal matters in which the Company is involved, the Company is able to estimate a range of reasonably possible losses in excess of related reserves, if any. Management currently estimates these losses to range from $0 to approximately ~~$87~~$76 million. This estimated range of reasonably possible losses is based on information available at September 30, ~~2019.~~2020. The matters underlying the 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.

(9) Fair Value Measurements

See Note 19, Fair Value Measurements, in the Notes to the December 31, ~~2018,~~2019, Consolidated Financial Statements for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and 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, 2019		(Level 1)		(Level 2)		(Level 3)		September 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	$	118,767	$	118,767	$	—	$	—	$	177,180	$	177,180	$	—	$	—
State and political subdivisions	401		—		401		—
Interest rate contracts	415,139		—		415,139		—		711,389		—		711,389		—
Foreign exchange contracts	29,693		—		29,693		—		37,928		—		37,928		—
Total trading account assets	564,000		118,767		445,233		—		926,497		177,180		749,317		—
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	3,168,501		2,600,606		567,895		—		2,191,009		1,725,371		465,638		—
Mortgage-backed securities	1,485,825		—		1,485,825		—		969,922		—		969,922		—
Collateralized mortgage obligations	2,957,461		—		2,957,461		—		2,866,505		—		2,866,505		—
States and political subdivisions	803		—		803		—		636		—		636		—
Total debt securities available for sale	7,612,590		2,600,606		5,011,984		—		6,028,072		1,725,371		4,302,701		—
Loans held for sale	134,314		—		134,314		—		253,454		—		253,454		—
Derivative assets:
Interest rate contracts	34,764		234		30,492		4,038		29,351		—		13,046		16,305
Equity contracts	6,989		—		6,989		—		774		—		774		—
Foreign exchange contracts	3,587		—		3,587		—		2,678		—		2,678		—
Total derivative assets	45,340		234		41,068		4,038		32,803		—		16,498		16,305
Other assets:
Equity securities	23,522		23,522		—		—		28,035		28,035		—		—
MSR	37,265		—		—		37,265		28,731		—		—		28,731
SBIC	120,248		—		—		120,248		164,362		—		—		164,362
Liabilities:
Trading account liabilities:
U.S. Treasury and other U.S. government agencies	$	45	$	45	$	—	$	—
Interest rate contracts	114,662		—		114,662		—		$	155,542	$	—	$	155,542	$	—
Foreign exchange contracts	27,447		—		27,447		—		35,640		—		35,640		—
Total trading account liabilities	142,154		45		142,109		—		191,182		—		191,182		—
Derivative liabilities:
Interest rate contracts	4,024		—		4,024		—		5,830		—		5,830		—
Equity contracts	5,966		—		5,966		—		625		—		625		—
Foreign exchange contracts	1,156		—		1,156		—		1,971		—		1,971		—
Total derivative liabilities	11,146		—		11,146		—		8,426		—		8,426		—


			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, 2018		(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	$	68,922	$	68,922	$	—	$	—	$	137,637	$	137,637	$	—	$	—
Interest rate contracts	149,269		—		149,269		—		313,573		—		313,573		—
Foreign exchange contracts	19,465		—		19,465		—		22,766		—		22,766		—
Total trading account assets	237,656		68,922		168,734		—		473,976		137,637		336,339		—
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	5,431,467		4,746,335		685,132		—		3,127,525		2,598,471		529,054		—
Mortgage-backed securities	2,129,821		—		2,129,821		—		1,325,857		—		1,325,857		—
Collateralized mortgage obligations	3,418,979		—		3,418,979		—		2,781,125		—		2,781,125		—
States and political subdivisions	949		—		949		—		798		—		798		—
Total debt securities available for sale	10,981,216		4,746,335		6,234,881		—		7,235,305		2,598,471		4,636,834		—
Loans held for sale	68,766		—		68,766		—		112,058		—		112,058		—
Derivative assets:
Interest rate contracts	18,045		—		16,033		2,012		13,907		38		10,781		3,088
Equity contracts	14,185		—		14,185		—		4,460		—		4,460		—
Foreign exchange contracts	1,763		—		1,763		—		276		—		276		—
Total derivative assets	33,993		—		31,981		2,012		18,643		38		15,517		3,088
Other assets:
Equity securities	17,839		17,839		—		—		19,038		19,038		—		—
MSR	51,539		—		—		51,539		42,022		—		—		42,022
SBIC	80,074		—		—		80,074		119,475		—		—		119,475
Liabilities:
Trading account liabilities:
Interest rate contracts	$	130,704	$	—	$	130,704	$	—	$	97,881	$	—	$	97,881	$	—
Foreign exchange contracts	17,341		—		17,341		—		20,678		—		20,678		—
Total trading account liabilities	148,045		—		148,045		—		118,559		—		118,559		—
Derivative liabilities:
Interest rate contracts	31,438		—		31,438		—		3,732		—		3,732		—
Equity contracts	12,434		—		12,434		—		3,765		—		3,765		—
Foreign exchange contracts	1,111		—		1,111		—		3,940		—		3,940		—
Total derivative liabilities	44,983		—		44,983		—		11,437		—		11,437		—

There were no transfers between Levels 1 or 2 of the fair value hierarchy for the three and nine months ended September 30, 2019 and 2018. 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 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,	Interest Rate Contracts, net			Other Assets - MSR			Other Assets - SBIC		Interest Rate Contracts, net			Other Assets - MSR			Other Assets - SBIC
	(In Thousands)
Balance, June 30, 2018	$	2,610		$	54,276		$	41,513
Transfers into Level 3	—			—			—
Transfers out of Level 3	—			—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(475		)	(558		)	—
Included in other comprehensive income	—			—			—
Purchases, issuances, sales and settlements:
Purchases	—			—			1,209
Issuances	—			1,594			—
Sales	—			—			—
Settlements	—			—			—
Balance, September 30, 2018	$	2,135		$	55,312		$	42,722
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2018	$	(475	)	$	(558	)	$	—
									(In Thousands)
Balance, June 30, 2019	$	3,847		$	41,966		$	102,065	$	3,847		$	41,966		$	102,065
Transfers into Level 3	—			—			—		—			—			—
Transfers out of Level 3	—			—			—		—			—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	191			(6,301		)	10,239		191			(6,301		)	10,239
Included in other comprehensive income	—			—			—		—			—			—
Purchases, issuances, sales and settlements:
Purchases	—			—			7,944		—			—			7,944
Issuances	—			1,600			—		—			1,600			—
Sales	—			—			—		—			—			—
Settlements	—			—			—		—			—			—
Balance, September 30, 2019	$	4,038		$	37,265		$	120,248	$	4,038		$	37,265		$	120,248
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2019	$	191		$	(6,301	)	$	10,239	$	191		$	(6,301	)	$	10,239

Balance, June 30, 2020									$	20,743		$	29,035		$	152,784
Transfers into Level 3									—			—			—
Transfers out of Level 3									—			—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)									(4,438		)	(3,548		)	7,846
Included in other comprehensive income									—			—			—
Purchases, issuances, sales and settlements:
Purchases									—			—			3,732
Issuances									—			3,244			—
Sales									—			—			—
Settlements									—			—			—
Balance, September 30, 2020									$	16,305		$	28,731		$	164,362
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2020									$	(4,438	)	$	(3,548	)	$	7,846


(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,	Interest Rate Contracts, net			Other Assets - MSR			Other Assets - SBIC			Interest Rate Contracts, net		Other Assets - MSR			Other Assets - SBIC
	(In Thousands)
Balance, December 31, 2017	$	2,416		$	49,597		$	45,042
Transfers into Level 3	—			—			—
Transfers out of Level 3	—			—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(281		)	449			(6,673		)
Included in other comprehensive income	—			—			—
Purchases, issuances, sales and settlements:
Purchases	—			—			4,353
Issuances	—			5,266			—
Sales	—			—			—
Settlements	—			—			—
Balance, September 30, 2018	$	2,135		$	55,312		$	42,722
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2018	$	(281	)	$	449		$	(6,673	)
										(In Thousands)
Balance, December 31, 2018	$	2,012		$	51,539		$	80,074		$	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)	2,026			(18,579		)	24,310			2,026		(18,579		)	24,310
Included in other comprehensive income	—			—			—			—		—			—
Purchases, issuances, sales and settlements:
Purchases	—			—			15,864			—		—			15,864
Issuances	—			4,305			—			—		4,305			—
Sales	—			—			—			—		—			—
Settlements	—			—			—			—		—			—
Balance, September 30, 2019	$	4,038		$	37,265		$	120,248		$	4,038	$	37,265		$	120,248
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2019	$	2,026		$	(18,579	)	$	24,310		$	2,026	$	(18,579	)	$	24,310

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)										13,217		(20,945		)	30,388
Included in other comprehensive income										—		—			—
Purchases, issuances, sales and settlements:
Purchases										—		—			14,499
Issuances										—		7,654			—
Sales										—		—			—
Settlements										—		—			—
Balance, September 30, 2020										$	16,305	$	28,731		$	164,362
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2020										$	13,217	$	(20,945	)	$	30,388


(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 months ended September 30, ~~2019~~2020 and ~~2018,~~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, 2019		(Level 1)		(Level 2)		(Level 3)		Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			September 30, 2020		(Level 1)		(Level 2)		(Level 3)		Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
	(In Thousands)														(In Thousands)
Nonrecurring fair value measurements	Nonrecurring fair value measurements														Nonrecurring fair value measurements
Assets:
Debt securities held to maturity	$	1,036	$	—	$	—	$	1,036	$	—		$	(113	)
Impaired loans (1)	6,270		—		—		6,270		(69,615		)	(113,140		)
OREO	18,931		—		—		18,931		(1,169		)	(3,928		)	$	15,051	$	—	$	—	$	15,051	$	(5	)	$	(913	)

			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, 2018		(Level 1)		(Level 2)		(Level 3)		Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018			September 30, 2019		(Level 1)		(Level 2)		(Level 3)		Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
	(In Thousands)														(In Thousands)
Nonrecurring fair value measurements	Nonrecurring fair value measurements														Nonrecurring fair value measurements
Assets:
Debt securities held to maturity	$	3,955	$	—	$	—	$	3,955	$	(283	)	$	(592	)	$	1,036	$	—	$	—	$	1,036	$	—		$	(113	)
Impaired loans (1)	11,875		—		—		11,875		(17,225		)	(28,666		)	6,270		—		—		6,270		(69,615		)	(113,140		)
OREO	18,706		—		—		18,706		(1,322		)	(2,407		)	18,931		$	—	—		18,931		(1,169		)	(3,928		)


(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:

~~Debt securities held to maturity~~ – Nonrecurring fair value adjustments on debt 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 and include at least one significant unobservable input, 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 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 tables below 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
September 30, 2019 Valuation Technique Unobservable Input(s) (Weighted Average)
(In Thousands)
Recurring fair value measurements:
Interest rate contracts, net $ 4,038
Discounted cash flow Closing ratios (pull-through) 8.8% - 99.9% (64.6%)
Cap grids 0.2% - 2.3% (0.9%)
Other assets - MSRs 37,265
Discounted cash flow Option adjusted spread 6.0% - 9.0% (6.4%)
Constant prepayment rate or life speed 0.0% - 89.7% (17.4%)
Cost to service $65 - $4,000 ($90)
Other assets - SBIC investments 120,248
Transaction price Transaction price N/A
Nonrecurring fair value measurements:
Debt securities held to maturity $ 1,036
Discounted cash flow Prepayment rate 9.9%
Default rate 6.0%
Loss severity 61.9%
Impaired loans 6,270
Appraised value Appraised value 0.0% - 70.0% (11.8%)
OREO 18,931
Appraised value Appraised value 8.0% (1)



			Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at				Range of Unobservable Inputs
	September 30, 2020		Valuation Technique	Unobservable Input(s)	(Weighted Average)
	(In Thousands)
Recurring fair value measurements:
Interest rate contracts, net	$	16,305	Discounted cash flow	Closing ratios (pull-through)	1.6% - 100.0% (51.7%)
				Cap grids	0.1% - 2.7% (0.9%)
Other assets - MSRs	28,731		Discounted cash flow	Option adjusted spread	6.0% - 8.3% (6.2%)
				Constant prepayment rate or life speed	3.5% - 90.3% (19.9%)
				Cost to service	$65 - $4,000 ($94)
Other assets - SBIC investments	164,362		Transaction price	Transaction price	N/A
Nonrecurring fair value measurements:
OREO	15,051		Appraised value	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, 2018

Valuation Technique

Unobservable Input(s)

(Weighted Average)

December 31, 2019

Valuation Technique

Unobservable Input(s)

(Weighted Average)

(In Thousands)

Recurring fair value measurements:

Interest rate contracts, net

2,012

Discounted cash flow

Closing ratios (pull-through)

15.0% - 99.6% (61.5%)

3,088

Discounted cash flow

Closing ratios (pull-through)

16.8% - 100.0% (60.1%)

Cap grids

0.5% - 3.1% (1.0%)

Cap grids

0.5% - 2.5% (0.9%)

Other assets - MSRs

51,539

Discounted cash flow

Option adjusted spread

6.3% - 8.5% (6.5%)

42,022

Discounted cash flow

Option adjusted spread

6.0% - 9.0% (6.4%)

Constant prepayment rate or life speed

0.0% - 43.6% (9.6%)

Constant prepayment rate or life speed

0.0% - 80.0% (14.6%)

Cost to service

$65 - $4,000 ($84)

Cost to service

$65 - $4,000 ($90)

Other assets - SBIC investments

80,074

Transaction price

N/A

119,475

Transaction price

N/A

Nonrecurring fair value measurements:

Debt securities held to maturity

4,380

Discounted cash flow

Prepayment rate

8.4%

2,177

Discounted cash flow

Prepayment rate

13.7% - 14.7% (14.2%)

Default rate

9.4%

Default rate

3.1% - 4.9% (4.0%)

Loss severity

83.5%

Loss severity

50.3% - 61.9% (56.1%)

Impaired loans

57,968

Appraised value

0.0% - 70.0% (14.6%)

484

Appraised value

0.0% - 70.0% (9.7%)

OREO

16,869

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

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, 2019										September 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	$	6,473,599	$	6,473,599	$	6,473,599	$	—	$	—	$	15,076,845	$	15,076,845	$	15,076,845	$	—	$	—
Debt securities held to maturity	6,334,634		6,514,496		1,348,822		4,421,416		744,258		9,444,036		9,779,195		1,412,275		7,838,912		528,008
Loans, net	62,378,380		60,545,039		—		—		60,545,039
Loans											66,180,612		65,384,443		—		—		65,384,443
Liabilities:
Deposits	$	73,569,442	$	73,602,165	$	—	$	73,602,165	$	—	$	86,371,032	$	86,400,715	$	—	$	86,400,715	$	—
FHLB and other borrowings	3,709,949		3,732,704		—		3,732,704		—		3,560,973		3,444,859		—		3,444,859		—
Federal funds purchased and securities sold under agreements to repurchase	117,421		117,421		—		117,421		—		189,474		189,474		—		189,474		—


	December 31, 2018										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	$	3,332,626	$	3,332,626	$	3,332,626	$	—	$	—	$	6,938,698	$	6,938,698	$	6,938,698	$	—	$	—
Debt securities held to maturity	2,885,613		2,925,420		—		2,106,510		818,910		6,797,046		6,921,158		1,340,448		4,912,399		668,311
Loans, net	64,301,312		61,186,996		—		—		61,186,996
Loans											63,946,857		60,869,662		—		—		60,869,662
Liabilities:
Deposits	$	72,167,987	$	72,175,418	$	—	$	72,175,418	$	—	$	74,985,283	$	75,024,350	$	—	$	75,024,350	$	—
FHLB and other borrowings	3,987,590		3,935,945		—		3,935,945		—		3,690,044		3,721,949		—		3,721,949		—
Federal funds purchased and securities sold under agreements to repurchase	102,275		102,275		—		102,275		—		173,028		173,028		—		173,028		—

Fair Value Option

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.

At both September 30, ~~2019~~2020 and December 31, ~~2018,~~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 is reflected in interest and fees on loans in the Company's Unaudited Condensed Consolidated Statements of Income. Net gains ~~(losses)~~ of ~~$887~~$425 thousand and ~~$(47)~~$887 thousand resulting from changes in fair value of these loans were recorded in noninterest income during the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Net gains ~~(losses)~~ of $9.2 million and $1.6 million ~~and $(420) thousand~~ resulting from changes in fair value of these loans were recorded in noninterest income during the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately ~~$530 thousand~~$2.1 million and ~~$708~~$530 thousand for the three months ended September 30, 2020 and 2019, ~~and 2018,~~

respectively, and ~~$481 thousand~~$(1.0) million and ~~$553~~$481 thousand for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~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 residential mortgage loans measured at fair value.


	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference		Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference
	(In Thousands)						(In Thousands)
September 30, 2019
September 30, 2020
Residential mortgage loans held for sale	$	134,314	$	130,043	$	4,271	$	253,454	$	240,518	$	12,936
December 31, 2018
December 31, 2019
Residential mortgage loans held for sale	$	68,766	$	66,052	$	2,714	$	112,058	$	108,345	$	3,713

(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,
2019 2018
Pretax Tax Expense/ (Benefit) After-tax Pretax Tax Expense/ (Benefit) After-tax
(In Thousands)
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during period from debt securities available for sale $ 42,553
$ 10,089
$ 32,464
$ (40,831 ) $ (9,642 ) $ (31,189 )
Less: reclassification adjustment for net gains on sale of debt securities in net income 21,003
4,980
16,023
—
—
—
Net change in unrealized gains (losses) on debt securities available for sale 21,550
5,109
16,441
(40,831 ) (9,642 ) (31,189 )
Change in unamortized net holding losses on debt securities held to maturity 2,915
692
2,223
2,604
615
1,989
Unamortized unrealized net holding losses on debt securities available for sale transferred to debt securities held to maturity —
—
—
—
—
—
Less: non-credit related impairment on debt securities held to maturity —
—
—
135
32
103
Change in unamortized non-credit related impairment on debt securities held to maturity 229
54
175
271
63
208
Net change in unamortized holding gains on debt securities held to maturity 3,144
746
2,398
2,740
646
2,094
Unrealized holding gains arising during period from cash flow hedge instruments 44,121
10,459
33,662
15,187
4,191
10,996
Change in defined benefit plans —
—
—
—
—
—
Other comprehensive income (loss) $ 68,815
$ 16,314
$ 52,501
$ (22,904 ) $ (4,805 ) $ (18,099 )

Nine Months Ended September 30,
2019 2018
Pretax Tax Expense/ (Benefit) After-tax Pretax Tax Expense/ (Benefit) After-tax
(In Thousands)
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during period from debt securities available for sale $ 222,660
$ 52,792
$ 169,868
$ (139,236 ) $ (32,916 ) $ (106,320 )
Less: reclassification adjustment for net gains on sale of debt securities in net income 29,961
7,104
22,857
—
—
—
Net change in unrealized gains (losses) on debt securities available for sale 192,699
45,688
147,011
(139,236 ) (32,916 ) (106,320 )
Change in unamortized net holding losses on debt securities held to maturity 7,741
1,836
5,905
8,538
2,016
6,522
Unamortized unrealized net holding losses on debt securities available for sale transferred to debt securities held to maturity —
—
—
(39,904 ) (9,417 ) (30,487 )
Less: non-credit related impairment on debt securities held to maturity 108
26
82
397
94
303
Change in unamortized non-credit related impairment on debt securities held to maturity 885
210
675
815
192
623
Net change in unamortized holding gains (losses) on debt securities held to maturity 8,518
2,020
6,498
(30,948 ) (7,303 ) (23,645 )
Unrealized holding gains arising during period from cash flow hedge instruments 172,571
40,906
131,665
26,894
7,554
19,340
Change in defined benefit plans 4,089
970
3,119
(4,425 ) (1,046 ) (3,379 )
Other comprehensive income (loss) $ 377,877
$ 89,584
$ 288,293
$ (147,715 ) $ (33,711 ) $ (114,004 )



	Three Months Ended September 30,
	2020									2019
	Pretax			Tax Expense/ (Benefit)			After-tax			Pretax		Tax Expense/ (Benefit)		After-tax
	(In Thousands)
Other comprehensive income:
Unrealized holding (losses) gains arising during period from debt securities available for sale	$	(8,290	)	$	(1,979	)	$	(6,311	)	$	42,553	$	10,089	$	32,464
Less: reclassification adjustment for net gains on sale of debt securities in net income	—			—			—			21,003		4,980		16,023
Net change in unrealized (losses) gains on debt securities available for sale	(8,290		)	(1,979		)	(6,311		)	21,550		5,109		16,441
Change in unamortized net holding gains on debt securities held to maturity	2,160			516			1,644			2,915		692		2,223
Less: non-credit related impairment on debt securities held to maturity	—			—			—			—		—		—
Change in unamortized non-credit related impairment on debt securities held to maturity	134			32			102			229		54		175
Net change in unamortized holding gains on debt securities held to maturity	2,294			548			1,746			3,144		746		2,398
Unrealized holding (losses) gains arising during period from cash flow hedge instruments	(44,951		)	(10,725		)	(34,226		)	44,121		10,459		33,662
Change in defined benefit plans	—			—			—			—		—		—
Other comprehensive (loss) income	$	(50,947	)	$	(12,156	)	$	(38,791	)	$	68,815	$	16,314	$	52,501


	Nine Months Ended September 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	$	164,304		$	39,201		$	125,103		$	222,660	$	52,792	$	169,868
Less: reclassification adjustment for net gains on sale of debt securities in net income	22,616			5,396			17,220			29,961		7,104		22,857
Net change in unrealized gains on debt securities available for sale	141,688			33,805			107,883			192,699		45,688		147,011
Change in unamortized net holding gains on debt securities held to maturity	6,469			1,545			4,924			7,741		1,836		5,905
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	449			108			341			885		210		675
Net change in unamortized holding gains on debt securities held to maturity	6,918			1,653			5,265			8,518		2,020		6,498
Unrealized holding gains arising during period from cash flow hedge instruments	330,370			78,826			251,544			172,571		40,906		131,665
Change in defined benefit plans	2,301			547			1,754			4,089		970		3,119
Other comprehensive income	$	481,277		$	114,831		$	366,446		$	377,877	$	89,584	$	288,293

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

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)
Balance, December 31, 2017 $ (132,821 ) $ (24,765 ) $ (34,228 ) $ (5,591 ) $ (197,405 )
Cumulative effect of adoption of ASU 2016-01 (13 ) —
—
—
(13 )
$ (132,834 ) $ (24,765 ) $ (34,228 ) $ (5,591 ) $ (197,418 )
Other comprehensive loss before reclassifications (136,807 ) (8,838 ) —
(303 ) (145,948 )
Amounts reclassified from accumulated other comprehensive income (loss) 6,522
28,178
(3,379 ) 623
31,944
Net current period other comprehensive (loss) income (130,285 ) 19,340
(3,379 ) 320
(114,004 )
Balance, September 30, 2018 $ (263,119 ) $ (5,425 ) $ (37,607 ) $ (5,271 ) $ (311,422 )

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 169,868
129,110
—
(82 ) 298,896
Amounts reclassified from accumulated other comprehensive income (loss) (16,952 ) 2,555
3,119
675
(10,603 )
Net current period other comprehensive income 152,916
131,665
3,119
593
288,293
Balance, September 30, 2019 $ (31,361 ) $ 136,800
$ (33,727 ) $ (5,703 ) $ 66,009



	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)
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	169,868			129,110			—			(82		)	298,896
Amounts reclassified from accumulated other comprehensive (loss) income	(16,952		)	2,555			3,119			675			(10,603		)
Net current period other comprehensive income	152,916			131,665			3,119			593			288,293
Balance, September 30, 2019	$	(31,361	)	$	136,800		$	(33,727	)	$	(5,703	)	$	66,009

Balance, December 31, 2019	$	(40,080	)	$	91,445		$	(46,666	)	$	(5,771	)	$	(1,072	)
Other comprehensive income before reclassifications	125,103			313,311			—			—			438,414
Amounts reclassified from accumulated other comprehensive (loss) income	(12,296		)	(61,767		)	1,754			341			(71,968		)
Net current period other comprehensive income	112,807			251,544			1,754			341			366,446
Balance, September 30, 2020	$	72,727		$	342,989		$	(44,912	)	$	(5,430	)	$	365,374


(1)	Related to the Company's adoption of ASU 2017-12 and ASU 2018-02 on January 1, 2019. ~~See Note 1, Basis of Presentation, for additional information.~~

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 Statements 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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018				2020			2019			2020			2019
	(In Thousands)													(In Thousands)
Unrealized Gains (Losses) on Debt Securities Available for Sale and Transferred to Held to Maturity	$	21,003		$	—		$	29,961		$	—		Investment securities gains, net	$	—		$	21,003		$	22,616		$	29,961		Investment securities gains, net
	(2,915		)	(2,604		)	(7,741		)	(8,538		)	Interest on debt securities held to maturity	(2,160		)	(2,915		)	(6,469		)	(7,741		)	Interest on debt securities held to maturity
	18,088			(2,604		)	22,220			(8,538		)		(2,160		)	18,088			16,147			22,220
	(4,288		)	615			(5,268		)	2,016			Income tax (expense) benefit	516			(4,288		)	(3,851		)	(5,268		)	Income tax (expense) benefit
	$	13,800		$	(1,989	)	$	16,952		$	(6,522	)	Net of tax	$	(1,644	)	$	13,800		$	12,296		$	16,952		Net of tax

Accumulated Gains (Losses) on Cash Flow Hedging Instruments	$	(295	)	$	(13,782	)	$	(2,765	)	$	(35,839	)	Interest and fees on loans	$	43,671		$	(295	)	$	82,963		$	(2,765	)	Interest and fees on loans
	(254		)	(251		)	(584		)	(1,048		)	Interest on FHLB and other borrowings	(832		)	(254		)	(1,841		)	(584		)	Interest on FHLB and other borrowings
	(549		)	(14,033		)	(3,349		)	(36,887		)		42,839			(549		)	81,122			(3,349		)
	130			3,314			794			8,709			Income tax benefit	(10,221		)	130			(19,355		)	794			Income tax (expense) benefit
	$	(419	)	$	(10,719	)	$	(2,555	)	$	(28,178	)	Net of tax	$	32,618		$	(419	)	$	61,767		$	(2,555	)	Net of tax

Defined Benefit Plan Adjustment	$	—		$	—		$	(4,089	)	$	4,425		(2)	$	—		$	—		$	(2,301	)	$	(4,089	)	(2)
	—			—			970			(1,046		)	Income tax benefit (expense)	—			—			547			970			Income tax benefit
	$	—		$	—		$	(3,119	)	$	3,379		Net of tax	$	—		$	—		$	(1,754	)	$	(3,119	)	Net of tax

Unamortized Impairment Losses on Debt Securities Held to Maturity	$	(229	)	$	(271	)	$	(885	)	$	(815	)	Interest on debt securities held to maturity	$	(134	)	$	(229	)	$	(449	)	$	(885	)	Interest on debt securities held to maturity
	54			63			210			192			Income tax benefit	32			54			108			210			Income tax benefit
	$	(175	)	$	(208	)	$	(675	)	$	(623	)	Net of tax	$	(102	)	$	(175	)	$	(341	)	$	(675	)	Net of tax


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


(2)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 17, Benefit Plans, in the Notes to the December 31, ~~2018,~~2019, Consolidated Financial Statements for additional details).

(11) Supplemental Disclosure for Statement of Cash Flows

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


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2020		2019
	(In Thousands)				(In Thousands)
Supplemental disclosures of cash flow information:
Interest paid	$	686,126	$	387,311	$	468,723	$	686,126
Net income taxes paid	94,033		121,156		52,221		94,033
Supplemental schedule of noncash investing and financing activities:
Operating cash flows from operating leases					38,039		40,751
Operating cash flows from finance leases					404		463
Financing cash flows from finance leases					1,266		1,181

Supplemental schedule of noncash activities:
Transfer of loans and loans held for sale to OREO	$	25,067	$	17,249	$	6,877	$	25,067
Transfer of available for sale debt securities to held to maturity debt securities	—		1,017,275
Transfer of loans to loans held for sale	1,196,883		—		—		1,196,883
Right-of-use assets obtained in exchange for lease obligations- operating leases					29,726		29,901

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.


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2020		2019
	(In Thousands)				(In Thousands)
Cash and cash equivalents	$	6,473,599	$	3,526,911	$	15,076,845	$	6,473,599
Restricted cash in other assets	165,584		142,690		284,176		165,584
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	6,639,183	$	3,669,601	$	15,361,021	$	6,639,183

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.

(12) Segment Information

The Company’s operating segments are based on the Company’s organizational structure. Each segment reflects the manner in which financial information is evaluated by management. The operating segment results include certain 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 exceed 10% of consolidated revenue.

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


	Three Months Ended September 30, 2019														Three Months Ended September 30, 2020
	Commercial Banking and Wealth		Retail 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)	$	280,377	$	316,978	$	26,647	$	(40,912	)	$	57,951		$	641,041
Allocated provision for loan losses	33,653		69,885		13,955		491			22,645			140,629
Net interest income															$	243,434	$	247,457	$	29,515	$	64,107		$	57,337		$	641,850
Allocated provision (credit) for credit losses															53,546		12,515		7,157		(1,468		)	79,227			150,977
Noninterest income	67,001		127,109		58,961		24,882			43,366			321,319		59,271		118,358		52,060		3,620			51,351			284,660
Noninterest expense	172,879		309,074		39,311		5,009			72,614			598,887		159,822		309,173		38,342		4,594			83,697			595,628
Net income (loss) before income tax expense (benefit)	140,846		65,128		32,342		(21,530		)	6,058			222,844		89,337		44,127		36,076		64,601			(54,236		)	179,905
Income tax expense (benefit)	29,578		13,677		6,792		(4,521		)	(5,627		)	39,899
Income tax (benefit) expense															18,761		9,267		7,576		13,566			(35,506		)	13,664
Net income (loss)	111,268		51,451		25,550		(17,009		)	11,685			182,945		70,576		34,860		28,500		51,035			(18,730		)	166,241
Less: net income attributable to noncontrolling interests	87		—		—		400			27			514
Less: net income (loss) attributable to noncontrolling interests															40		—		—		391			(30		)	401
Net income (loss) attributable to BBVA USA Bancshares, Inc.	$	111,181	$	51,451	$	25,550	$	(17,409	)	$	11,658		$	182,431	$	70,536	$	34,860	$	28,500	$	50,644		$	(18,700	)	$	165,840
Average assets	$	39,756,495	$	19,110,008	$	7,855,727	$	19,898,446		$	8,321,780		$	94,942,456	$	44,218,296	$	18,338,000	$	8,102,696	$	28,065,244		$	5,558,662		$	104,282,898


	Three Months Ended September 30, 2018															Three Months Ended September 30, 2019
	Commercial Banking and Wealth		Retail 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)	$	342,790	$	378,064	$	48,591		$	(24,882	)	$	(86,277	)	$	658,286	$	267,905	$	299,535	$	24,800	$	(40,478	)	$	89,279	$	641,041
Allocated provision (credit) for loan losses	37,897		61,060		(15,807		)	(553		)	12,367			94,964
Allocated provision for loan losses																33,653		69,888		13,955		491			22,642		140,629
Noninterest income	63,874		115,821		32,223			5,235			41,306			258,459		62,620		126,270		47,356		24,882			60,191		321,319
Noninterest expense	173,121		293,720		43,379			7,109			88,181			605,510		160,024		308,468		39,311		5,009			86,075		598,887
Net income (loss) before income tax expense (benefit)	195,646		139,105		53,242			(26,203		)	(145,519		)	216,271		136,848		47,449		18,890		(21,096		)	40,753		222,844
Income tax expense (benefit)	41,086		29,212		11,181			(5,503		)	(34,220		)	41,756		28,738		9,964		3,967		(4,430		)	1,660		39,899
Net income (loss)	154,560		109,893		42,061			(20,700		)	(111,299		)	174,515		108,110		37,485		14,923		(16,666		)	39,093		182,945
Less: net income attributable to noncontrolling interests	24		—		—			405			(3		)	426		87		—		—		400			27		514
Net income (loss) attributable to BBVA USA Bancshares, Inc.	$	154,536	$	109,893	$	42,061		$	(21,105	)	$	(111,296	)	$	174,089	$	108,023	$	37,485	$	14,923	$	(17,066	)	$	39,066	$	182,431
Average assets	$	39,016,626	$	18,839,497	$	8,311,665		$	16,257,647		$	7,693,233		$	90,118,668	$	39,960,074	$	18,829,121	$	7,855,727	$	19,898,446		$	8,399,088	$	94,942,456


	Nine Months Ended September 30, 2019														Nine Months Ended September 30, 2020
	Commercial Banking and Wealth		Retail 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)	$	878,854	$	1,000,057	$	92,895	$	(79,718	)	$	91,791		$	1,983,879
Allocated provision (credit) for loan losses	169,770		229,561		39,210		(147		)	39,545			477,939
Net interest income															$	734,156	$	773,017		$	85,706		$	68,091	$	182,352		$	1,843,322
Allocated provision for credit losses															266,479		257,599			114,585			253		408,511			1,047,427
Noninterest income	195,224		363,187		147,865		40,027			117,057			863,360		186,942		363,309			162,372			36,012		142,621			891,256
Noninterest expense	525,797		914,767		118,373		15,013			205,224			1,779,174		509,251		910,861			140,173			14,294		2,409,559			3,984,138
Net income (loss) before income tax expense (benefit)	378,511		218,916		83,177		(54,557		)	(35,921		)	590,126		145,368		(32,134		)	(6,680		)	89,556		(2,493,097		)	(2,296,987		)
Income tax expense (benefit)	79,487		45,972		17,467		(11,457		)	(25,455		)	106,014		30,527		(6,748		)	(1,403		)	18,807		(142,689		)	(101,506		)
Net income (loss)	299,024		172,944		65,710		(43,100		)	(10,466		)	484,112		114,841		(25,386		)	(5,277		)	70,749		(2,350,408		)	(2,195,481		)
Less: net income attributable to noncontrolling interests	349		—		—		1,207			113			1,669		101		—			—			1,181		92			1,374
Net income (loss) attributable to BBVA USA Bancshares, Inc.	$	298,675	$	172,944	$	65,710	$	(44,307	)	$	(10,579	)	$	482,443	$	114,740	$	(25,386	)	$	(5,277	)	$	69,568	$	(2,350,500	)	$	(2,196,855	)
Average assets	$	39,886,487	$	19,145,739	$	7,770,444	$	18,713,337		$	8,284,884		$	93,800,891	$	43,462,414	$	18,540,427		$	8,366,581		$	24,299,743	$	6,389,605		$	101,058,770


	Nine Months Ended September 30, 2018															Nine Months Ended September 30, 2019
	Commercial Banking and Wealth		Retail 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)	$	1,003,541	$	1,085,582	$	144,509		$	(56,237	)	$	(253,005	)	$	1,924,390	$	875,894	$	975,209	$	91,048	$	(79,284	)	$	121,012		$	1,983,879
Allocated provision (credit) for loan losses	75,166		120,594		(45,630		)	(1,063		)	94,206			243,273		169,770		229,564		39,210		(147		)	39,542			477,939
Noninterest income	188,012		340,317		122,204			17,133			118,637			786,303		183,142		360,094		123,584		40,027			156,513			863,360
Noninterest expense	506,149		871,560		119,763			17,912			232,584			1,747,968		486,138		912,804		118,373		15,013			246,846			1,779,174
Net income (loss) before income tax expense (benefit)	610,238		433,745		192,580			(55,953		)	(461,158		)	719,452		403,128		192,935		57,049		(54,123		)	(8,863		)	590,126
Income tax expense (benefit)	128,150		91,086		40,442			(11,750		)	(96,079		)	151,849		84,657		40,516		11,980		(11,366		)	(19,773		)	106,014
Net income (loss)	482,088		342,659		152,138			(44,203		)	(365,079		)	567,603		318,471		152,419		45,069		(42,757		)	10,910			484,112
Less: net income attributable to noncontrolling interests	282		—		—			1,227			(27		)	1,482		349		—		—		1,207			113			1,669
Net income (loss) attributable to BBVA USA Bancshares, Inc.	$	481,806	$	342,659	$	152,138		$	(45,430	)	$	(365,052	)	$	566,121	$	318,122	$	152,419	$	45,069	$	(43,964	)	$	10,797		$	482,443
Average assets	$	38,332,544	$	18,538,673	$	8,346,850		$	16,096,911		$	7,667,498		$	88,982,476	$	40,099,702	$	18,875,648	$	7,770,444	$	18,713,337		$	8,341,760		$	93,800,891

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 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 ~~loan~~credit losses and the segments' provision for ~~loan~~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 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 lines of business based upon the underlying risks in each business considering economic and regulatory capital standards.

The development and application of these methodologies is a dynamic process. Accordingly, prior period financial results have been revised to reflect management accounting enhancements and changes in the Company's organizational structure. The ~~2018~~2019 segment information has been revised to conform to the ~~2019~~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 with those presented by other financial institutions.

~~(13) Revenue from Contracts with Customers~~

~~The following tables depict the disaggregation of revenue according to revenue type and segment.~~

Commercial Banking and Wealth Retail Banking Corporate and Investment Banking Treasury and Corporate Support and Other Total
(In Thousands)
Three Months Ended September 30, 2019
Service charges on deposit accounts $ 12,750
$ 50,700
$ 1,693
$ —
$ 65,143
Card and merchant processing fees 9,698
36,806
—
3,881
50,385
Investment services sales fees 29,287
—
—
—
29,287
Money transfer income —
—
—
26,020
26,020
Investment banking and advisory fees —
—
28,324
—
28,324
Asset management fees 11,405
—
—
—
11,405
63,140
87,506
30,017
29,901
210,564
Other revenues (1) 3,861
39,603
28,944
38,347
110,755
Total noninterest income $ 67,001
$ 127,109
$ 58,961
$ 68,248
$ 321,319

Three Months Ended September 30, 2018
Service charges on deposit accounts $ 11,911
$ 46,653
$ 1,761
$ —
$ 60,325
Card and merchant processing fees 7,113
33,786
—
3,320
44,219
Investment services sales fees 28,286
—
—
—
28,286
Money transfer income —
—
—
23,441
23,441
Investment banking and advisory fees —
—
13,956
—
13,956
Asset management fees 11,143
—
—
—
11,143
58,453
80,439
15,717
26,761
181,370
Other revenues (1) 5,421
35,382
16,506
19,780
77,089
Total noninterest income $ 63,874
$ 115,821
$ 32,223
$ 46,541
$ 258,459


~~(1)~~	~~Other revenues primarily relate to revenues not derived from contracts with customers.~~

Commercial Banking and Wealth Retail Banking Corporate and Investment Banking Treasury and Corporate Support and Other Total
(In Thousands)
Nine Months Ended September 30, 2019
Service charges on deposit accounts $ 37,784
$ 143,002
$ 4,996
$ —
$ 185,782
Card and merchant processing fees 27,158
108,302
—
11,282
146,742
Investment services sales fees 87,316
—
—
—
87,316
Money transfer income —
—
—
73,273
73,273
Investment banking and advisory fees —
—
67,939
—
67,939
Asset management fees 34,039
—
—
—
34,039
186,297
251,304
72,935
84,555
595,091
Other revenues (1) 8,927
111,883
74,930
72,529
268,269
Total noninterest income $ 195,224
$ 363,187
$ 147,865
$ 157,084
$ 863,360

Nine Months Ended September 30, 2018
Service charges on deposit accounts $ 34,681
$ 135,277
$ 5,109
$ —
$ 175,067
Card and merchant processing fees 21,220
97,090
—
9,635
127,945
Investment services sales fees 88,176
—
—
—
88,176
Money transfer income —
—
—
68,049
68,049
Investment banking and advisory fees —
—
62,398
—
62,398
Asset management fees 32,902
—
—
—
32,902
176,979
232,367
67,507
77,684
554,537
Other revenues (1) 11,033
107,950
54,697
58,086
231,766
Total noninterest income $ 188,012
$ 340,317
$ 122,204
$ 135,770
$ 786,303


~~(1)~~	~~Other revenues primarily relate to revenues not derived from contracts with customers.~~

~~(14)~~(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 ~~2019~~2020 and ~~2018~~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 ~~$3.6~~$3.2 billion and ~~$4.1~~$3.4 billion as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The net fair value of outstanding derivative contracts between the Company and BBVA are detailed below.


	September 30, 2019			December 31, 2018			September 30, 2020			December 31, 2019
	(In Thousands)						(In Thousands)
Derivative contracts:
Fair value hedges	$	17,447		$	(24,839	)	$	(837	)	$	(354	)
Cash flow hedges	51			174			(87		)	102
Free-standing derivatives not designated as hedging instruments	(3,968		)	23,378			(52,206		)	(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, 2019		December 31, 2018		September 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Securities purchased under agreements to resell	$	77,280	$	109,947	$	142,344	$	178,914
Securities sold under agreements to repurchase	83,967		—		155,678		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 entered into an uncommitted demand facility agreement with BBVA for a revolving loan facility up to $1 billion to be used for trade settlement purposes. BSI has not drawn against this facility in ~~2019.~~2020. At both September 30, ~~2019~~2020 and December 31, ~~2018~~2019 there was no amount outstanding under the revolving note and cash subordination agreement. There was ~~$24~~$8 thousand in interest expense related to these agreements for the three months ended September 30, ~~2019~~2020 and no$24 thousand interest expense for the three months ended September 30, ~~2018~~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 ~~$50~~$67 thousand and ~~$232~~$50 thousand for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~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 ~~$10.2~~$4.4 million and ~~$8.6~~$10.2 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~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 ~~$9.4~~$13.8 million and ~~$7.0~~$9.4 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~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 ~~$21.8~~$12.9 million and ~~$33.9~~$21.8 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~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 ~~$26.0~~$39.1 million and ~~$22.5~~$26.0 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~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 both September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the carrying amount of the Series A Preferred Stock was approximately $229 million. During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company paid ~~$13.8~~$11.4 million and ~~$12.7~~$13.8 million, respectively, of preferred stock dividends to BBVA.

Loan Sales to Related Parties

During the nine months ended September 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 ~~policy relates~~policies relate to the allowance for loan ~~losses. This~~losses and goodwill impairment. These critical accounting ~~policy requires~~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, ~~2018.~~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 income attributable to the Company for the three months ended September 30, ~~2019~~2020 was ~~$182.4~~$165.8 million compared to ~~$174.1~~$182.4 million earned during the three months ended September 30, ~~2018.~~2019. The Company’s results of operations for the three months ended September 30, ~~2019,~~2020, reflected ~~higher noninterest income and lower noninterest expense and income tax expense partially offset by~~ higher provision for ~~loan~~credit losses, ~~and~~ lower ~~net interest income.~~noninterest income offset by lower income tax expense.

Net interest income totaled $641.9 million for the three months ended September 30, 2020 compared to $641.0 million for the three months ended September 30, ~~2019 compared to $658.3 million for the three months ended September 30, 2018.~~2019. Net interest income for the three months ended September 30, ~~2019~~2020 was impacted by ~~higher funding costs.~~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 30, ~~2019~~2020 was ~~3.07%~~2.68%, compared to ~~3.27%~~3.07% for the three months ended September 30, ~~2018.~~2019.

~~The~~For the three months ended September 30, 2020, the Company recorded $151.0 million of provision for ~~loan~~credit losses ~~was~~compared to $140.6 million for the three months ended September 30, ~~2019~~2019. For the three months ended September 30, 2020, provision for credit losses was comprised of $150.9 million of provision for loan losses and $88 thousand of provision for HTM security losses.

For the three months ended September 30, 2020, the Company recorded $150.9 million of provision for loan losses compared to ~~$95.0~~$140.6 million for the three months ended September 30, ~~2018. The increase in provision~~2019. Provision for loan losses for the three months ended September 30, ~~2019 was driven by higher losses within the consumer direct loan portfolio~~2020 reflected continued economic risk in certain portfolios and negative credit quality indicators, as well as ~~well as an increase in losses in~~ the ~~commercial, financial and agricultural loan portfolio.~~impact of net charge-offs recorded during the three months ended September 30, 2020.

Net charge-offs for the three months ended September 30, ~~2019~~2020 totaled ~~$176.1~~$100.8 million compared to ~~$79.6~~$176.1 million for the three months ended September 30, ~~2018.~~2019. The ~~increase~~decrease in net charge-offs for the three months ended September 30, ~~2019~~2020, as compared to the corresponding period in ~~2018~~2019, was primarily driven by a ~~$56.0~~$19.2 million ~~increase~~decrease in commercial, financial and agricultural net charge-offs, ~~which includes~~ a ~~$40.0~~$39.4 million ~~charge-off of one health care loan, and a $35.2 million increase~~decrease in consumer direct net charge-offs, and a $15.2 million decrease in consumer indirect net charge-offs.

Noninterest income ~~increased~~decreased to $284.7 million for the three months ended September 30, 2020 compared to $321.3 million for the three months ended September 30, ~~2019 compared~~2019. The primary drivers of the decrease was a $10.4 million decrease in service charges on deposit accounts, an $8.3 million decrease in corporate and correspondent investment sales, a $21.0 million decrease in investment securities gains and a $12.5 million decrease in other noninterest income due to ~~$258.5~~a decrease in gains on sales of fixed assets, a decrease in service and referral income with BBVA and its affiliates, and a decrease in fair value adjustments on the SBIC investments offset by a $11.7 million increase in investment banking and advisory fees and a $5.5 million increase in mortgage banking income.

Noninterest expense decreased $3.3 million to $595.6 million for the three months ended September 30, 2018. The primary drivers of the increase in noninterest income were a $6.2 million increase in card and merchant processing, a $2.6 million increase in money transfer income, a $14.4 million increase in investment banking and advisory fees, a $21.0 million increase in investment securities gains, and a $13.0 million increase in other noninterest income due to a $10.2 million increase in the value of the SBIC investments and a $2.7 million increase in gain on sale of fixed assets.

~~Noninterest expense decreased $6.6 million~~2020 compared to $598.9 million for the three months ended September 30, ~~2019 compared to $605.5 million for the three months ended September 30, 2018.~~2019. The decrease was driven by a ~~$15.0~~$14.7 million decrease in other noninterest expense primarily attributable to ~~a decrease~~decreases in ~~FDIC insurance expense~~in marketing expenses, item processing fees, in travel expenses and in business development offset by a ~~$2.4 million increase in salaries, benefits and commissions, a $4.5~~$5.1 million increase in professional services and a ~~$1.9~~$4.9 million increase in ~~money transfer expense.~~equipment.

Income tax expense was $13.7 million for the three months ended September 30, 2020 compared to $39.9 million for the three months ended September 30, ~~2019 compared to $41.8 million for the three months ended September 30, 2018.~~2019. This resulted in an effective tax rate of ~~17.9%~~7.6% for the three months ended September 30, ~~2019~~2020 and ~~19.3%~~17.9% for three months ended September 30, ~~2018.~~2019. The ~~decrease in the~~ tax rate was

primarily ~~driven~~impacted by lower net income before income taxes relative to permanent income tax ~~differences~~difference for the three months ended September 30, ~~2019.~~2020.

The Company's total assets at September 30, ~~2019~~2020 were ~~$92.9~~$103.7 billion, an increase of ~~$2.0~~$10.0 billion from December 31, ~~2018~~2019 levels. Total loans, excluding loans held for sale, were ~~$63.3~~$66.2 billion at September 30, ~~2019, a decrease~~2020, an increase of ~~$1.9~~$2.2 billion or ~~2.9%~~3.5% from year-end December 31, ~~2018~~2019 levels. The ~~decrease in loans~~increase was primarily ~~due~~driven by $3.2 billion of SBA PPP loans that the Company has facilitated to assist its commercial customers during the ~~sale of approximately $1.2 billion in commercial loans to BBVA, S.A. New York Branch.~~COVID-19 pandemic. Deposits increased ~~$1.4~~$11.4 billion or ~~1.9%~~15.2% compared to December 31, ~~2018.~~2019.

Total shareholder's equity at September 30, ~~2019~~2020 was ~~$14.1~~$11.4 billion, ~~an increase~~a decrease of ~~$589 million~~$2.0 billion compared to December 31, ~~2018.~~2019.

~~Capital~~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 year, the Company observed the impact of the pandemic on its business. The reduction in interest rates and economic forecast uncertainty that negatively impacted the provision for credit losses had the most immediate, negative impacts on the Company’s 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

~~Under the Basel III transitional provisions, the Company's Tier1 and CET1 ratios were 13.24% and 12.89%, respectively, at September 30, 2019 compared~~Government Response to ~~12.33% and 12.00%, respectively, at December 31, 2018.~~COVID-19

In October 2019, the federal banking agencies issued final rules that adjust the thresholds at which certain enhanced prudential standards and BASEL III capital and liquidity requirements apply to FBOs, including BBVA, and the U.S. IHCs of FBOs, including the Parent, pursuant to EGRRCPA. These rules establish risk-based categories for FBOs and their U.S. IHCs that determine whether and to what extent enhanced prudential standards and certain capital and liquidity requirements apply to FBOs and their U.S. IHCs. Once these rules are effective, BBVA and the Parent will be subject to less restrictive enhanced prudential standards and capital and liquidity requirements than under current regulations. In addition, in October 2019Congress, the Federal Reserve Board and the ~~FDIC~~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 expanded the Small Business Administration’s business loan guarantee program through August 8, 2020. Paycheck Protection Program loans were available to a broader range of entities than ordinary Small Business Administration loans, require 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 had independently extended their moratorium on foreclosures and evictions for single family federally backed mortgages until at least December 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 stated that it expects to hold interest rates near zero for several years. 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, 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 ~~final rule that reduces~~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 ~~eliminates resolution planning requirements for~~make loans to, financial institutions ~~that fall into certain risk-based categories. Once this rule is effective, BBVA,~~providing financing to eligible money market mutual funds.

These facilities and programs are in various stages of development, and the Company and the Bank ~~will be subject~~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 ~~reduced resolution planning~~Definition of Eligible Retained Income

The U.S. banking agencies have adopted a 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 Company is currently evaluating what effect these final rules will have on~~

Regulatory Effects of the ~~Company, its subsidiaries, or these entities' activities, reporting of financial condition and/or results of operations.~~CARES Act

In ~~August~~addition to authorizing several programs to provide loans, guarantees and ~~September 2019,~~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 ~~released final~~finalized amendments to the Volcker ~~Rule regulations that tailor~~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 ~~Volcker Rule's compliance requirements~~Company’s consolidated financial position, results of operations or cash flows.

Capital

Under the Basel III final rule, the Company's Tier 1 and CET1 ratios were 13.13% and 12.79%, respectively, at September 30, 2020 compared to 12.83% and 12.49%, respectively, at December 31, 2019.

The Company has elected the ~~amount~~‘five-year transition’ for the ASC 326 accounting standard from the banking agencies’ final rule announced allows banking organizations to defer certain effects of ~~a firm's trading activity, revise~~ the ~~definition~~ASC 326 accounting standard on their regulatory capital. Specifically, this interim final rule allows for 25% of ~~a trading account, clarify certain key provisions~~the cumulative increase in the ~~Volcker Rule,~~allowance for credit losses since the adoption of ASC 326 and ~~simplify the information that covered entities are required to provide to regulatory agencies. The Company is~~100% of the ~~view that~~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 ~~Volcker Rule and the amendments to the Volcker Rule is not material to its business operations.~~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.

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 ~~Federal Reserve Board.~~

~~The~~relevant banking law and Federal Reserve Board ~~will~~regulations and policy. The Company has paid no ~~longer take action~~common dividends to require the Company to comply with the Federal Reserve Board’s LCR rule until it formally amends its regulations to implement the EGRRCPA. In October 2019, the Federal Reserve Board finalized a rule formally amending its regulations to no longer require the Company to comply with the LCR rule once the amendment becomes effective. BBVA during 2020.

At September 30, ~~2019,~~2020, the Company's LCR was 144% ~~and was~~, which would have been fully compliant with the LCR ~~requirements.~~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.

Recently Issued Accounting Standards Not Yet Adopted

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The amendments in this 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 this standard will have on the financial condition and results of operations of the Company.

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 potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments in this ASU provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other 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 income attributable to the Company totaled ~~$182.4~~$165.8 million and ~~$174.1~~$182.4 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company’s results of operations for the three months ended September 30, ~~2019,~~2020, reflected ~~higher noninterest income and lower noninterest expense and income tax expense offset by~~ higher provision for ~~loan~~credit losses, ~~and~~ lower ~~net interest income.~~noninterest income offset by lower income tax expense.

Consolidated net (loss) income attributable to the Company totaled ~~$482.4 million~~$(2.2) billion and ~~$566.1~~$482.4 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company’s results of operations for the nine months ended September 30, ~~2019,~~2020, reflected ~~higher~~lower net interest income, ~~and noninterest income and lower income tax expense offset by~~ 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 30, ~~2019~~2020 and ~~2018~~2019

Net interest income on a fully taxable equivalent basis totaled $652.7 million for the three months ended September 30, 2020, a decrease of $1.3 million compared with $653.9 million for the three months ended September 30, ~~2019, a decrease of $17.5 million compared with $671.4 million for the three months ended September 30, 2018.~~2019. The decrease in net interest income was primarily the result of ~~an increase~~a decrease in interest income on loans and AFS debt securities offset by decreases in interest expense on interest bearing deposits ~~offset by increases in interest income on loans~~ and ~~investment securities.~~FHLB and other borrowings.

Net interest margin was 2.68% for the three months ended September 30, 2020 compared to 3.07% for the three months ended September 30, ~~2019 compared to 3.27% for the three months ended September 30, 2018.~~2019. The 2039 basis point decrease in net interest margin was primarily driven by ~~higher funding costs.~~the impact of the decrease in the Federal Reserve Board benchmark interest rates in October of 2019 and in March of 2020.

The fully taxable equivalent yield for the three months ended September 30, ~~2019,~~2020, on the loan portfolio was ~~4.88%~~3.84% compared to ~~4.71%~~4.88% for the same period in ~~2018.~~2019. The 17104 basis point ~~increase~~decrease was primarily driven by the timing of the Federal Reserve Board's ~~increase~~decrease of benchmark rates in ~~September~~October of 2019 and ~~December~~in March of ~~2018 compared to the lowering of the benchmark rates in July and September of 2019.~~2020.

The fully taxable equivalent yield on the investment securities portfolio was 1.95% for the three months ended September 30, 2020 compared to 2.20% for the three months ended September 30, ~~2019 compared to 2.04% for the three months ended September 30, 2018.~~2019. The ~~increase~~decrease was a result of ~~higher~~lower interest rates during the three months ended September 30, ~~2019~~2020 as compared to rates during the three months ended September 30, ~~2018 partially offset by higher levels of premium amortization as actual and expected prepayments have decreased.~~2019.

The average rate paid on interest bearing deposits was 0.41% for the three months ended September 30, 2020 compared to 1.55% for the three months ended September 30, 2019 ~~compared to 1.12% for the three months ended September 30, 2018~~ and reflects the impact of ~~higher~~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 30, ~~2019~~2020 was ~~3.39%~~1.63% compared to ~~3.34%~~3.39% for the corresponding period in ~~2018.~~2019.

Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

Net interest income totaled $1.8 billion for the nine months ended September 30, 2020 compared to $2.0 billion for the nine months ended September 30, ~~2019 compared to $1.9 billion for the nine months ended September 30, 2018.~~

2019.

Net interest income on a fully taxable equivalent basis totaled ~~$2.0~~$1.9 billion for ~~both~~ the nine months ended September 30, ~~2019 and~~2020 compared to $2.0 billion for the nine months ended September 30, ~~2018.~~2019.

Net interest margin was 2.71% for the nine months ended September 30, 2020 compared to 3.24% for the nine months ended September 30, ~~2019 compared to 3.28% for the nine months ended September 30, 2018.~~2019. The 453 basis point decrease in net interest margin was primarily driven by the ~~impact~~timing of ~~higher funding costs.~~the Federal Reserve Board's decrease of benchmark rates in October of 2019 and in March of 2020.

The fully taxable equivalent yield for the nine months ended September 30, ~~2019,~~2020, for the loan portfolio was ~~4.97%~~4.09% compared to ~~4.57%~~4.97% for the same period in ~~2018.~~2019. The 4088 basis point ~~increase~~decrease was primarily driven by the impact of higher interest rates during the first half of 2019 as the Federal Reserve Board did not lower benchmark rates until ~~July~~the second half of 2019 and ~~September of 2019.~~in March 2020.

The fully taxable equivalent yield on the investment securities portfolio was 1.62% for the nine months ended September 30, 2020 compared to 2.32% for the nine months ended September 30, ~~2019 compared to 2.06% for the nine months ended September 30, 2018.~~2019. The 2670 basis point ~~increase~~decrease was a result of ~~higher~~lower interest rates for the nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019 as well as higher levels of premium amortization as actual and expected prepayments increased.

The average rate paid on interest bearing deposits was 0.75% for the nine months ended September 30, 2020 compared to 1.51% for the nine months ended September 30, 2019 ~~compared to 0.97% for the nine months ended September 30, 2018~~ and reflects the impact of ~~higher~~lower funding costs on interest ~~rates offered on~~bearing deposit offerings including savings, ~~and~~ money market and CD products.

The average rate paid on FHLB and other borrowings for the nine months ended September 30, ~~2019~~2020 was ~~3.46%~~2.13% compared to ~~3.21%~~3.46% for the corresponding period in ~~2018.~~2019. The 25133 basis point ~~increase~~decrease was primarily driven by the impact of ~~higher~~lower rate FHLB advances as well as the impact of ~~the $600 million issuance of unsecured senior notes in August 2019.~~fair value hedges on other 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, 2019							Three Months Ended September 30, 2018							Three Months Ended September 30, 2020							Three Months Ended September 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)	$	63,629,992		$	782,948	4.88	%	$	64,316,342		$	763,165	4.71	%	$	67,837,185		$	654,687	3.84	%	$	63,629,992		$	782,948	4.88	%
Debt securities – AFS	7,987,642			36,051		1.79		11,416,609			53,201		1.85		5,325,937			19,474		1.45		7,987,642			36,051		1.79
Debt securities – HTM (tax exempt) (3)	620,542			5,674		3.63		755,150			6,885		3.62		469,850			3,659		3.10		620,542			5,674		3.63
Debt securities – HTM (taxable)	5,117,184			34,401		2.67		1,605,504			10,663		2.63		8,497,820			47,088		2.20		5,117,184			34,401		2.67
Total debt securities - HTM	5,737,726			40,075		2.77		2,360,654			17,548		2.95		8,967,670			50,747		2.25		5,737,726			40,075		2.77
Trading account securities (3)	125,468			487		1.54		122,919			833		2.69		219,514			892		1.62		125,468			487		1.54
Other (4) (5)	7,057,288			46,528		2.62		3,175,714			17,449		2.18		14,417,595			6,436		0.18		7,057,288			46,528		2.62
Total earning assets	84,538,116			906,089		4.25		81,392,238			852,196		4.15		96,767,901			732,236		3.01		84,538,116			906,089		4.25
Noninterest earning assets:
Cash and due from banks	822,866							510,217							887,593							822,866
Allowance for loan losses	(971,396		)					(866,131		)
Net unrealized (loss) gain on investment securities available for sale	(9,389		)					(296,537		)
Allowance for credit losses															(1,768,829		)					(971,396		)
Net unrealized gain (loss) on investment securities available for sale															128,713							(9,389		)
Other noninterest earning assets	10,562,259							9,378,881							8,267,520							10,562,259
Total assets	$	94,942,456						$	90,118,668						$	104,282,898						$	94,942,456
Liabilities:
Interest bearing liabilities:
Interest bearing demand deposits	$	8,870,753		25,179		1.13		$	7,703,562		12,644		0.65		$	14,188,763		9,777		0.27		$	8,870,753		25,179		1.13
Savings and money market accounts	28,840,389			96,060		1.32		26,759,661			63,796		0.95		37,992,549			26,476		0.28		28,840,389			96,060		1.32
Certificates and other time deposits	14,529,036			82,740		2.26		14,909,612			63,458		1.69		7,085,441			24,894		1.40		14,529,036			82,740		2.26
Total interest bearing deposits	52,240,178			203,979		1.55		49,372,835			139,898		1.12		59,266,753			61,147		0.41		52,240,178			203,979		1.55
FHLB and other borrowings	3,860,727			32,975		3.39		4,412,717			37,131		3.34		3,567,285			14,644		1.63		3,860,727			32,975		3.39
Federal funds purchased and securities sold under agreements to repurchase (5)	1,401,320			15,137		4.29		172,277			3,169		7.30		1,492,378			3,736		1.00		1,401,320			15,137		4.29
Other short-term borrowings	13,348			72		2.14		77,413			579		2.97		5,984			49		3.26		13,348			72		2.14
Total interest bearing liabilities	57,515,573			252,163		1.74		54,035,242			180,777		1.33		64,332,400			79,576		0.49		57,515,573			252,163		1.74
Noninterest bearing deposits	20,754,143							20,990,763							26,034,478							20,754,143
Other noninterest bearing liabilities	2,615,801							1,758,494							2,521,092							2,615,801
Total liabilities	80,885,517							76,784,499							92,887,970							80,885,517
Shareholder’s equity	14,056,939							13,334,169							11,394,928							14,056,939
Total liabilities and shareholder’s equity	$	94,942,456						$	90,118,668						$	104,282,898						$	94,942,456
Net interest income/net interest spread				$	653,926	2.51	%				$	671,419	2.82	%				$	652,660	2.52	%				$	653,926	2.51	%
Net interest margin						3.07	%						3.27	%						2.68	%						3.07	%
Taxable equivalent adjustment				12,885							13,133							10,810							12,885
Net interest income				$	641,041						$	658,286						$	641,850						$	641,041


(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.

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, 2019							Nine Months Ended September 30, 2018							Nine Months Ended September 30, 2020							Nine Months Ended September 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)	$	64,382,982		$	2,395,043	4.97	%	$	63,247,623		$	2,160,341	4.57	%	$	67,324,774		$	2,061,376	4.09	%	$	64,382,982		$	2,395,043	4.97	%
Debt securities – AFS	8,957,354			134,698		2.01		11,458,832			163,598		1.91		5,923,281			36,787		0.83		8,957,354			134,698		2.01
Debt securities – HTM (tax exempt) (3)	636,007			17,268		3.63		814,394			20,921		3.43		513,511			12,339		3.21		636,007			17,268		3.63
Debt securities – HTM (taxable)	4,209,100			88,030		2.80		1,335,534			25,050		2.51		7,611,952			121,123		2.13		4,209,100			88,030		2.80
Total debt securities - HTM	4,845,107			105,298		2.91		2,149,928			45,971		2.86		8,125,463			133,462		2.19		4,845,107			105,298		2.91
Trading account securities (3)	96,936			1,627		2.24		131,618			2,508		2.55		210,319			3,171		2.01		96,936			1,627		2.24
Other (4) (5)	5,219,171			105,319		2.70		3,042,505			44,240		1.94		10,887,267			62,627		0.77		5,219,171			105,319		2.70
Total earning assets	83,501,550			2,741,985		4.39		80,030,506			2,416,658		4.04		92,471,104			2,297,423		3.32		83,501,550			2,741,985		4.39
Noninterest earning assets:
Cash and due from banks	979,764							605,800							888,628							979,764
Allowance for loan losses	(952,170		)					(850,392		)
Net unrealized (loss) gain on investment securities available for sale	(99,388		)					(272,312		)
Allowance for credit losses															(1,404,498		)					(952,170		)
Net unrealized gain (loss) on investment securities available for sale															94,178							(99,388		)
Other noninterest earning assets	10,371,135							9,468,874							9,009,358							10,371,135
Total assets	$	93,800,891						$	88,982,476						$	101,058,770						$	93,800,891
Liabilities:
Interest bearing liabilities:
Interest bearing demand deposits	$	8,954,456		72,061		1.08		$	7,946,242		33,250		0.56		$	13,350,036		47,758		0.48		$	8,954,456		72,061		1.08
Savings and money market accounts	27,906,692			261,172		1.25		26,054,348			151,479		0.78		35,247,830			155,211		0.59		27,906,692			261,172		1.25
Certificates and other time deposits	15,360,243			255,578		2.22		14,560,787			168,839		1.55		9,133,442			120,199		1.76		15,360,243			255,578		2.22
Total interest bearing deposits	52,221,391			588,811		1.51		48,561,377			353,568		0.97		57,731,308			323,168		0.75		52,221,391			588,811		1.51
FHLB and other borrowings	4,057,769			104,901		3.46		3,903,295			93,799		3.21		3,623,293			57,756		2.13		4,057,769			104,901		3.46
Federal funds purchased and securities sold under agreements to repurchase (5)	763,681			24,886		4.36		100,045			5,104		6.82		1,379,052			38,668		3.75		763,681			24,886		4.36
Other short-term borrowings	16,235			368		3.03		69,242			1,490		2.88		12,844			440		4.58		16,235			368		3.03
Total interest bearing liabilities	57,059,076			718,966		1.68		52,633,959			453,961		1.15		62,746,497			420,032		0.89		57,059,076			718,966		1.68
Noninterest bearing deposits	20,409,910							21,282,629							23,527,092							20,409,910
Other noninterest bearing liabilities	2,503,845							1,850,856							2,645,061							2,503,845
Total liabilities	79,972,831							75,767,444							88,918,650							79,972,831
Shareholder’s equity	13,828,060							13,215,032							12,140,120							13,828,060
Total liabilities and shareholder’s equity	$	93,800,891						$	88,982,476						$	101,058,770						$	93,800,891
Net interest income/net interest spread				$	2,023,019	2.71	%				$	1,962,697	2.89	%				$	1,877,391	2.43	%				$	2,023,019	2.71	%
Net interest margin						3.24	%						3.28	%						2.71	%						3.24	%
Taxable equivalent adjustment				39,140							38,307							34,069							39,140
Net interest income				$	1,983,879						$	1,924,390						$	1,843,322						$	1,983,879


(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.

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 30, ~~2019~~2020 and ~~2018~~2019

For the three months ended September 30, ~~2019,~~2020, the Company recorded $151.0 million of provision for credit losses compared to $140.6 million for the three months ended September 30, 2019. For the three months ended September 30, 2020, provision for credit losses was comprised of $150.9 million of provision for loan losses and $88 thousand of provision for HTM security losses.

For the three months ended September 30, 2020, the Company recorded $150.9 million of provision for loan losses compared to ~~$95.0~~$140.6 million for the three months ended September 30, ~~2018. The increase in provision~~2019. Provision for loan losses for the three months ended September 30, ~~2019 was primarily attributable to higher losses within the consumer direct loan portfolio~~2020 reflected continued economic risk in certain portfolios and negative credit quality indicators, as well as ~~an increase in losses in~~ the ~~commercial, financial and agricultural loan portfolio~~impact of net charge-offs recorded during the three months ended September 30, ~~2019.~~2020.

The Company recorded net charge-offs of ~~$176.1~~$100.8 million during the three months ended September 30, ~~2019~~2020 compared to ~~$79.6~~$176.1 million during the corresponding period in ~~2018.~~2019. The ~~increase~~decrease in net charge-offs for the three months ended September 30, ~~2019,~~2020, as compared to the corresponding period in ~~2018,~~2019, was primarily driven by a ~~$56.0~~$19.2 million ~~increase~~decrease in commercial, financial and agricultural net charge-offs, ~~which includes~~ a ~~$40.0~~$39.4 million ~~charge-off of one health care loan,~~decrease in consumer direct net charge-offs, and a ~~$35.2~~$15.2 million ~~increase~~decrease in consumer ~~direct~~indirect net charge-offs.

Net charge-offs were 0.59% of average loans for the three months ended September 30, 2020 compared to 1.10% of average loans for the three months ended September 30, 2019.

Nine Months Ended September 30, 2020 and 2019

For the nine months ended September 30, 2020, the Company recorded $1.0 billion of provision for credit losses compared to ~~0.49%~~$477.9 million for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, provision for credit losses was comprised of $1.0 billion of provision for loan losses and $13.3 million of provision for HTM security losses.

For the nine months ended September 30, 2020, the Company recorded $1.0 billion of provision for loan losses compared to $477.9 million for the nine months ended September 30, 2019. The 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 the impact of the COVID-19 pandemic on economic conditions which impacted the Company's economic forecast. During the nine months ended September 30, 2020, economic conditions continued to deteriorate due to the impact of the COVID-19 health crisis. As a result, economic projections for 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 due to the decrease in oil prices.

The Company recorded net charge-offs of $335.7 million during the nine months ended September 30, 2020 compared to $421.0 million during the corresponding period in 2019. The decrease in net charge-offs for the nine months ended September 30, 2020 as compared to the corresponding period in 2019 was driven in part by a $56.5 million decrease in consumer direct net charge-offs, a $21.8 million decrease in commercial, financial and agricultural net charge-offs, and a $20.6 million decrease in consumer indirect net charge-offs offset by a $6.4 million increase in commercial real estate - mortgage net charge-offs and a $10.1 million increase in credit card net charge-offs.

Net charge-offs were 0.67% of average loans for the ~~three~~nine months ended September 30, ~~2018.~~2020 compared to 0.88% of average loans for the nine months ended September 30, 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.

~~Nine Months Ended September 30, 2019 and 2018~~

For the nine months ended September 30, 2019, the Company recorded $477.9 million of provision for loan losses compared to $243.3 million for the nine months ended September 30, 2018. The increase in provision for loan losses was primarily attributable to higher losses within the consumer direct loan portfolio as well as an increase in the allowance on individually evaluated nonperforming loans in the commercial, financial and agricultural loan portfolio during the nine months ended September 30, 2019.

The Company recorded net charge-offs of $421.0 million during the nine months ended September 30, 2019 compared to $210.6 million during the corresponding period in 2018. The increase in net charge-offs for the nine months ended September 30, 2019 as compared to the corresponding period in 2018 was driven in part by an $87.7 million increase in commercial, financial and agricultural net charge-offs as well as a $91.0 million increase in consumer direct net charge-offs and an $11.0 million increase in consumer indirect net charge-offs.

~~Net charge-offs were 0.88% of average loans for the nine months ended September 30, 2019 compared to 0.45% of average loans for the nine months ended September 30, 2018.~~

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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
	(In Thousands)								(In Thousands)
Service charges on deposit accounts	$	65,143	$	60,325	$	185,782	$	175,067	$	54,710	$	65,143	$	160,474	$	185,782
Card and merchant processing fees	50,385		44,219		146,742		127,945		48,628		50,385		142,135		146,742
Investment banking and advisory fees									40,013		28,324		111,805		67,939
Investment services sales fees	29,287		28,286		87,316		88,176		26,218		29,287		85,596		87,316
Money transfer income	26,020		23,441		73,273		68,049		27,109		26,020		77,118		73,273
Investment banking and advisory fees	28,324		13,956		67,939		62,398
Mortgage banking									13,741		8,204		55,060		19,011
Asset management fees	11,405		11,143		34,039		32,902		12,024		11,405		35,488		34,039
Corporate and correspondent investment sales	11,799		12,490		24,298		40,901		3,478		11,799		33,050		24,298
Mortgage banking	8,204		6,717		19,011		23,078
Bank owned life insurance	3,508		4,597		12,895		13,187		4,972		3,508		14,691		12,895
Investment securities gains, net	21,003		—		29,961		—		—		21,003		22,616		29,961
Other	66,241		53,285		182,104		154,600		53,767		66,241		153,223		182,104
Total noninterest income	$	321,319	$	258,459	$	863,360	$	786,303	$	284,660	$	321,319	$	891,256	$	863,360

Three Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

Noninterest income was $284.7 million for the three months ended September 30, 2020, compared to $321.3 million for the three months ended September 30, ~~2019, compared~~2019. The decrease in noninterest income was primarily driven by decreases in service charges on deposit accounts, corporate and correspondent investment sales, investment securities gains and other noninterest income offset by increases in investment banking and advisory fees and mortgage banking income.

Service charges on deposit accounts represent the Company's largest category of noninterest revenue. Service charges on deposit accounts decreased to ~~$258.5~~$54.7 million for the three months ended September 30, 2018. The increase in noninterest income was primarily driven by increases in card and merchant processing fees, money transfer income, investment banking and advisory fees, investment securities gains and other noninterest income.

~~Card and merchant processing fees represents income related~~2020, compared to ~~customers' utilization of their debt and credit cards, as well as interchange income and merchants' discounts. Income from card and merchant processing fees increased to $50.4~~$65.1 million for the three months ended September 30, 2019 ~~compared to $44.2 million for~~driven by a general decline in consumer spending activity associated with the ~~three months ended September 30, 2018. The primary contributor to this increase was a $5.3 million increase in interchange income related to growth in the number of accounts~~COVID-19 pandemic as well as ~~an increase in current customers' spending volumes.~~

~~Money transfer income represents income from~~ the Parent's wholly owned subsidiary, BBVA Transfer Holdings, Inc., which engages in money transfer services, including money transmission and foreign exchange services. Income from money transfer services increasedbank implementing fee waivers to ~~$26.0 million~~offer relief for those customers impacted by the ~~three months ended September 30, 2019, compared to $23.4 million for the three months ended September 30, 2018 driven by an increase in transaction volumes when compared to the same period in 2018.~~COVID-19 pandemic.

Investment banking and advisory fees primarily represent income from BSI. Income from investment banking and advisory fees increased to $40.0 million for the three months ended September 30, 2020, compared to $28.3 million for the three months ended September 30, ~~2019, compared to $14.0 million for the three months ended September 30, 2018.~~2019. The primary driver of this increase was an increase in debt capital markets activity during the three months ended September 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019.

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 $5.5 million for three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase in mortgage banking income was primarily due to a $10.4 million increase in gains on sale of mortgage loans driven by increased production and sales income as lower market interest rates drove increased applications offset by a decrease of $5.7 million in fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs.

Corporate and correspondent investment sales 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 to $3.5 million for the three months ended September 30, 2020 from $11.8 million for the three months ended September 30, 2019. The primary driver of the decrease was a decrease in sales of interest rate contracts as well as a decrease in valuation adjustments on interest rate contracts.

Investment securities gains, net were $21.0 million for the three months ended September 30, ~~2019.~~2019 and there were no gains for the three months ended September 30, 2020. See, “—Debt Securities” for more information related to the debt securities sales.

Other income is comprised of income recognized that does not typically fit into one of the other noninterest income categories and includes various fees associated with letters of credit, syndications, ATMS and foreign exchange. Other noninterest income ~~increased~~decreased to $53.8 million for the three months ended September 30, 2020, compared to $66.2 million for the three months ended September 30, 2019, ~~compared to $53.3 million for the three months ended September 30, 2018,~~was primarily due to a ~~$10.2~~$6.2 million ~~increase~~decrease in ~~the~~gains on sales of fixed assets, $4.7 million decrease in service and referral income with BBVA and its affiliates, and a $2.4 million decrease in fair value ofadjustments on the SBIC ~~investments and a $2.7 million increase in gain on sale of fixed assets.~~

investments.

Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

Noninterest income was $891.3 million for the nine months ended September 30, 2020, compared to $863.4 million for the nine months ended September 30, ~~2019, compared to $786.3 million for the nine months ended September 30, 2018.~~2019. The increase in noninterest income was primarily driven by increases in ~~service charges on deposit accounts, card and merchant processing fees, money transfer income,~~ investment banking and advisory fees, ~~investment securities gains and other noninterest income partially offset by decreases in~~ mortgage banking, and corporate and correspondent investment ~~sales.~~sales partially offset by decreases in service charges on deposit accounts and other noninterest income.

Service charges on deposit accounts ~~increased~~decreased to $160.5 million for the nine months ended September 30, 2020, compared to $185.8 million for the nine months ended September 30, 2019 ~~compared to $175.1 million for the nine months ended September 30, 2018 due primarily to continued customer account growth and increases in non-sufficient fund activity in 2019 when compared to 2018.~~

Income from card and merchant processing fees increased to $146.7 million for the nine months ended September 30, 2019, compared to $127.9 million for the nine months ended September 30, 2018, due to a $15.1 million increase in interchange income related to growth in the number of accounts. Additionally, merchant income and cash advance fees also increased $3.7 million in 2019 when compared to 2018.

~~Income from money transfer services increased to $73.3 million for the nine months ended September 30, 2019, compared to $68.0 million for the nine months ended September 30, 2018,~~ driven by ~~an increase~~a general decline in ~~transaction volumes when compared~~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 ~~same period in 2018.~~COVID-19 pandemic.

Income from investment banking and advisory fees increased to $111.8 million for the nine months ended September 30, 2020, compared to $67.9 million for the nine months ended September 30, ~~2019, compared to $62.4 million for the nine months ended September 30, 2018.~~2019. The increase was driven primarily by an increase in ~~underwriting~~debt capital markets activity during the nine months ended September 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019.

Mortgage banking for the nine months ended September 30, 2020 was $55.1 million, an increase of $36.0 million compared to the nine months ended September 30, 2019. The increase in mortgage banking income was driven by an increase of $17.4 million in fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs as well as $17.3 million increase in gains on sale of mortgage loans driven by increased production and sales income as lower market interest rates drove increased applications.

Income from corporate and correspondent investment sales ~~decreased~~increased to $33.1 million for the nine months ended September 30, 2020, compared to $24.3 million for the nine months ended September 30, 2019, ~~compared to $40.9 million for the nine months ended September 30, 2018,~~ primarily driven by ~~a decline~~an increase in customer interest rate ~~and foreign exchange swap~~ income due to ~~a decrease~~an increase in interest rate contract ~~and foreign exchange~~ sales as well as valuation adjustments on interest rate contracts for the nine months ended September 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019.

~~Mortgage banking for the nine months ended September 30, 2019 was $19.0 million, a decrease of $4.1 million compared~~Other noninterest income decreased to the nine months ended September 30, 2018. The decrease in mortgage banking income was driven by a decrease in the valuation related to MSRs due to a decline in interest rates during 2019 when compared to 2018.

~~Investment securities gains, net were $30.0~~$153.2 million for the nine months ended September 30, ~~2019. See, “—Debt Securities” for more information related to the debt securities sales.~~

~~Other noninterest income increased~~2020, compared to $182.1 million for the nine months ended September 30, 2019, ~~compared to $154.6 million for the nine months ended September 30, 2018,~~ due in part to a ~~$31.0~~$10.6 million ~~increase~~decrease in ~~the value of the SBIC investments and an $8.8 million increase related to gains on the sale of fixed assets partially offset by~~syndication fees, a ~~$10.3~~$7.8 million decrease in service and referral income with BBVA and its ~~affiliates.~~affiliates, and a $7.3 million decrease in gains on sale of fixed assets offset by an $6.4 million increase in the 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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
	(In Thousands)								(In Thousands)
Salaries, benefits and commissions	$	295,092	$	292,679	$	884,111	$	868,971	$	296,708	$	295,092	$	858,541	$	884,111
Professional services	72,903		68,403		210,583		197,625		78,018		72,903		226,338		210,583
Equipment	63,908		63,739		191,940		190,759		68,793		63,908		198,226		191,940
Net occupancy	42,241		42,514		123,298		125,607		41,145		42,241		122,573		123,298
Money transfer expense	18,005		16,120		50,273		46,143		18,897		18,005		53,991		50,273
Total securities impairment	—		283		113		592
Goodwill impairment									—		—		2,185,000		—
Other	106,738		121,772		318,856		318,271		92,067		106,738		339,469		318,969
Total noninterest expense	$	598,887	$	605,510	$	1,779,174	$	1,747,968	$	595,628	$	598,887	$	3,984,138	$	1,779,174

Three Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

Noninterest expense was $595.6 million for the three months ended September 30, 2020, a slight decrease of $3.3 million compared to $598.9 million for the three months ended September 30, ~~2019, a decrease of $6.6 million compared to $605.5 million for the three months ended September 30, 2018.~~2019. The decrease in noninterest expense was primarily driven by a decrease in other noninterest expense, partially offset by increases in ~~salaries, benefits and commissions,~~ professional services and ~~money transfer~~equipment expense.

Salaries, benefits and commissions expense increased to $295.1 million during the three months ended September 30, 2019, compared to $292.7 million for the three months ended September 30, 2018, related to increases in full time salaries due to annual merit increases and increases in deferred compensation plans as well as higher costs associated with benefits.

Professional services expense represents fees incurred for the various support functions, which includes legal, consulting, outsourcing and other professional related fees. Professional services increased ~~$4.5~~during the three months ended September 30, 2020, to $78.0 million compared to $72.9 million for the corresponding period in 2019 primarily due to a $2.4 million increase in outsourcing and professional services paid to BBVA and a $3.0 million increase in contractor and other professional services.

Equipment expense increased by $4.9 million during the three months ended September 30, ~~2019,~~2020, to ~~$72.9~~$68.8 million compared to ~~$68.4~~$63.9 million for the corresponding period in ~~2018 due to a $1.7 million increase professional services paid to BBVA and a $1.6 million increase in bankcard fees.~~

Money transfer expense represents expense from the Parent's wholly owned subsidiary, BBVA Transfer Holdings, Inc., which engages in money transfer services, including money transmission and foreign exchange services. Money transfer expense increased to $18.0 million during the three months ended September 30, 2019 ~~compared to $16.1 million for the corresponding period in 2018~~primarily due to an increase in ~~transaction volumes.~~software related expenses.

Other noninterest expense includes FDIC insurance, marketing, communications, postage, supplies, subscriptions, provision for unfunded commitments and gains and losses on the sales and write-downs of OREO. Other noninterest expense decreased ~~$15.0~~$14.7 million during the three months ended September 30, ~~2019,~~2020, to ~~$106.7~~$92.1 million compared to ~~$121.8~~$106.7 million for the three months ended September 30, ~~2018~~2019, primarily attributable to ~~a $17.1~~decreases of $6.2 million ~~decrease~~ in ~~FDIC insurance expense.~~marketing expenses, $4.4 million in item processing fees, $4.5 million in travel expenses and $4.6 million in business development which was partially offset by an $8.5 million increase in provision for unfunded commitments.

Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

Noninterest expense increased ~~$31.2 million~~$2.2 billion to ~~$1.8~~$4.0 billion for the nine months ended September 30, ~~2019~~2020, compared to the nine months ended September 30, ~~2018.~~2019. Noninterest expense ~~was impacted~~increased primarily due to goodwill impairment along with increases in professional services and other noninterest expense offset in part by ~~increases~~decreases in salaries, benefits and ~~commissions, professional services and money transfer expense.~~commissions.

Salaries, benefits and commissions ~~expense increased to $884.1~~decreased $25.6 million during the nine months ended September 30, ~~2019,~~2020 compared to ~~$869.0 million for~~ the ~~nine months ended September 30, 2018, related to increases~~corresponding period in ~~full time~~

~~salaries~~2019 primarily due to ~~annual merit increases and increases~~a decrease in ~~deferred compensation plans as well as higher costs associated with benefits.~~incentive expenses.

Professional services increased ~~$13.0 million~~ during the nine months ended September 30, ~~2019,~~2020, to ~~$210.6~~$226.3 million compared to ~~$197.6~~$210.6 million for the corresponding period in ~~2018~~2019 primarily due to ~~a $5.9~~an $8.1 million increase in outsourcing and professional services paid to BBVA and a ~~$3.1~~$5.0 million increase in ~~services related~~contractor and other professional services.

Goodwill impairment was $2.2 billion for the nine months ended September 30, 2020, compared to ~~credit reporting, a $3.1 million increase~~no goodwill impairment during the nine months ended September 30, 2019. Refer to "—Goodwill" and Note 5, Goodwill, in ~~bankcard fees.~~the Notes to the Unaudited Condensed Consolidated Financial Statements.

~~Money transfer~~Other noninterest expense increased ~~to $50.3~~$20.5 million during the nine months ended September 30, ~~2019,~~2020, to $339.5 million compared to ~~$46.1~~$319.0 million for the ~~corresponding period in 2018 due~~nine months ended September 30, 2019 primarily attributable to ana $68.6 million increase in ~~transaction volumes.~~provision for unfunded commitments which was partially offset by decreases of $12.3 million in marketing expenses, $11.7 million in item processing fees, $9.5 million in travel expenses and $10.4 million in business development.

Income Tax Expense

Three Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

The Company’s income tax expense totaled ~~$39.9~~$13.7 million and ~~$41.8~~$39.9 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The effective tax rate was 7.6% for the three months ended September 30, 2020 and 17.9% for the three months ended September 30, ~~2019 and 19.3% for the three months ended September 30, 2018.~~2019. The ~~decrease in the~~ tax rate was primarily ~~driven~~impacted by the Company's lower net income before ~~taxes~~income tax relative to permanent income tax differences for the three months ended September 30, ~~2019.~~2020.

Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

The Company’s income tax (benefit) expense totaled ~~$106.0~~$(101.5) million and ~~$151.8~~$106.0 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The effective tax rate was 4.4% for the nine months ended September 30, 2020 and 18.0% for the nine months ended September 30, 2019 and 21.1% for the nine months ended September 30, 2018.The decrease in the tax rate was primarily driven by lower net income before taxes relative to permanent income tax differences for the nine months ended September 30, 2019. ~~Additionally, the~~The tax rate for the nine months ended September 30, ~~2018~~2020 was ~~also~~primarily impacted by ~~$11.4 million of additional income tax expense~~an unfavorable permanent difference related to goodwill impairment for the ~~correction of an error in prior periods that resulted from an incorrect calculation of the proportional amortization of the Company's Low Income Housing Tax Credit investments.~~ nine months ended September 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 ~~$5.4~~$14.0 billion at September 30, ~~2019,~~2020, compared to ~~$2.1~~$5.8 billion December 31, ~~2018.~~2019. The increase was primarily driven by ~~a $3.0~~an $8.2 billion increase in interest bearing deposits with the Federal Reserve.

Trading Account Assets

Trading account assets totaled ~~$564~~$926 million at September 30, ~~2019,~~2020, compared to ~~$238~~$474 million at December 31, ~~2018.~~2019. The increase in trading account assets primarily related to increases in the fair value of interest rate derivative contracts for customers.

Debt Securities

At September 30, ~~2019,~~2020, the securities portfolio included ~~$7.6~~$6.0 billion in available for sale debt securities and ~~$6.3~~$9.4 billion in held to maturity debt securities for a total debt securities portfolio of ~~$13.9~~$15.5 billion, an increase of ~~$80 million~~$1.4 billion compared with December 31, ~~2018.~~2019.

During the nine months ended September 30, ~~2019,~~2020, the Company received proceeds of ~~$2.4 billion~~$863.7 million related to the sale of U.S. Treasury securities and agency ~~mortgage-backed~~collateralized mortgage obligations securities classified as available for sale which resulted in a net gain of ~~$30.0~~$22.6 million. The Company also purchased approximately ~~$3.7~~$3.5 billion of ~~U.S. Treasury securities,~~ agency collateralized mortgage obligations ~~and states and political subdivision securities~~ that were classified as held to maturity.

The Company recognized $113 thousand and $592 thousand in OTTI charges during the nine months ended September 30, 2019 and 2018, respectively. While all securities are reviewed by the Company for OTTI, the securities

~~primarily impacted by credit impairment are held to maturity non-agency collateralized mortgage obligations. Refer to Note 2,Debt Securities Available for Sale and Debt Securities Held to Maturity, in the Notes to the Unaudited Condensed Consolidated Financial Statements for further details.~~

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 following table presents the composition of the loan portfolio.

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

	September 30, 2019		December 31, 2018		September 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Commercial loans:
Commercial, financial and agricultural	$	24,683,130	$	26,562,319	$	26,940,173	$	24,432,238
Real estate – construction	2,005,347		1,997,537		2,403,674		2,028,682
Commercial real estate – mortgage	13,074,173		13,016,796		13,695,800		13,861,478
Total commercial loans	$	39,762,650	$	41,576,652	$	43,039,647	$	40,322,398
Consumer loans:
Residential real estate – mortgage	$	13,503,327	$	13,422,156	$	13,463,757	$	13,533,954
Equity lines of credit	2,618,112		2,747,217		2,441,723		2,592,680
Equity loans	263,444		298,614		194,367		244,968
Credit card	936,147		818,308		907,793		1,002,365
Consumer direct	2,388,358		2,553,588		2,023,696		2,338,142
Consumer indirect	3,848,533		3,770,019		4,109,629		3,912,350
Total consumer loans	$	23,557,921	$	23,609,902	$	23,140,965	$	23,624,459
Total loans	$	63,320,571	$	65,186,554	$	66,180,612	$	63,946,857
Loans held for sale	134,314		68,766		253,454		112,058
Total loans and loans held for sale	$	63,454,885	$	65,255,320	$	66,434,066	$	64,058,915

Loans and loans held for sale, net of unearned income, totaled ~~$63.5~~$66.4 billion at September 30, ~~2019, a decrease~~2020, an increase of ~~$1.8~~$2.4 billion from December 31, ~~2018. During~~2019. The increase was primarily due to the ~~nine months ended September 30, 2019,~~impact of $3.2 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 ~~sold~~has facilitated to ~~BBVA, S.A. New York Branch approximately $1.2 billion~~assist its commercial customers during the COVID-19 pandemic as well as reflecting an increase in line of ~~commercial loans.~~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, foreclosed real estate and other repossessed assets, totaled ~~$757 million~~$1.4 billion at September 30, ~~2019, a decrease~~2020, an increase of ~~$84~~$641 million, compared to ~~$840~~$710 million at December 31, ~~2018.~~2019. The increase in nonperforming assets was primarily driven by a $392 million increase in commercial, financial and agricultural nonaccrual loans, primarily in the energy, financial services, and leisure and consumer services sectors as well as a $178 million increase in commercial real estate - mortgage and a $57 million increase in residential real estate - mortgage. As a percentage of total loans and loans held for sale, foreclosed real estate and other repossessed assets, nonperforming assets were ~~1.19%~~2.03% at September 30, ~~2019~~2020 compared with ~~1.29%~~1.11% at December 31, ~~2018.~~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, 2019		December 31, 2018		September 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Commercial, financial and agricultural	$	317,556	$	371,627	$	482,453	$	312,125
Real estate – construction	44,350		12,791		3,635		13,099
Commercial real estate – mortgage	106,695		74,737		231,882		78,428
	$	468,601	$	459,155	$	717,970	$	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, 2019		December 31, 2018		September 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Nonaccrual loans:
Commercial, financial and agricultural	$	301,021	$	400,389	$	660,254	$	268,288
Real estate – construction	1,616		2,851		12,614		8,041
Commercial real estate – mortgage	110,632		110,144		275,668		98,077
Residential real estate – mortgage	153,078		167,099		204,442		147,337
Equity lines of credit	36,879		37,702		37,216		38,113
Equity loans	8,728		10,939		8,758		8,651
Credit card	—		—		—		—
Consumer direct	7,348		4,528		9,134		6,555
Consumer indirect	33,940		17,834		24,954		31,781
Total nonaccrual loans	653,242		751,486		1,233,040		606,843
Nonaccrual loans held for sale	—		—		—		—
Total nonaccrual loans and loans held for sale	$	653,242	$	751,486	$	1,233,040	$	606,843
Accruing TDRs: (1)
Commercial, financial and agricultural	$	1,552	$	18,926	$	19,713	$	1,456
Real estate – construction	76		116		61		72
Commercial real estate – mortgage	3,492		3,661		1,831		3,414
Residential real estate – mortgage	60,537		57,446		55,132		57,165
Equity lines of credit	—		—		—		—
Equity loans	24,789		26,768		20,750		23,770
Credit card	—		—		—		—
Consumer direct	7,360		2,684		17,926		12,438
Consumer indirect	—		—		—		—
Total Accruing TDRs	97,806		109,601		115,413		98,315
Accruing TDRs classified as loans held for sale	—		—		—		—
Total Accruing TDRs (loans and loans held for sale)	$	97,806	$	109,601	$	115,413	$	98,315
Loans 90 days past due and accruing:
Commercial, financial and agricultural	$	11,179	$	8,114	$	21,261	$	6,692
Real estate – construction	532		544		532		571
Commercial real estate – mortgage	2,375		2,420		1,816		6,576
Residential real estate – mortgage	4,778		5,927		39,728		4,641
Equity lines of credit	2,072		2,226		3,445		1,567
Equity loans	524		180		271		195
Credit card	20,037		17,011		16,542		22,796
Consumer direct	17,773		13,336		6,643		18,358
Consumer indirect	8,599		9,791		3,834		9,730
Total loans 90 days past due and accruing	67,869		59,549		94,072		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	$	67,869	$	59,549	$	94,072	$	71,126
Foreclosed real estate	$	17,381	$	16,869	$	15,051	$	20,833
Other repossessed assets	$	17,584	$	12,031	$	8,527	$	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 tables.

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

	September 30, 2019		December 31, 2018		September 30, 2020		December 31, 2019
	(In Thousands)				(In Thousands)
Nonaccrual loans	$	653,242	$	751,486	$	1,233,040	$	606,843
Loans 90 days or more past due and accruing (1)	67,869		59,549		94,072		71,126
TDRs 90 days or more past due and accruing	588		411		830		414
Nonperforming loans	721,699		811,446		1,327,942		678,383
Foreclosed real estate	17,381		16,869		15,051		20,833
Other repossessed assets	17,584		12,031		8,527		10,930
Total nonperforming assets	$	756,664	$	840,346	$	1,351,520	$	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, 2019		December 31, 2018		September 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)	1.14	%	1.24	%	2.00	%	1.06	%
Nonperforming assets as a percentage of total loans and loans held for sale, foreclosed real estate, and other repossessed assets (2)	1.19		1.29		2.03		1.11
Allowance for loan losses as a percentage of loans	1.49		1.36		2.73		1.44
Allowance for loan losses as a percentage of nonperforming loans (3)	130.55		109.09		135.88		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, foreclosed real estate 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.

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

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2020			2019
	(In Thousands)						(In Thousands)
Balance at beginning of period,	$	751,486		$	658,865		$	606,843		$	751,486
Additions	584,569			534,328			1,123,537			584,569
Returns to accrual	(102,455		)	(148,261		)	(82,014		)	(102,455		)
Loan sales	—			(40,095		)	—			—
Payments and paydowns	(120,898		)	(124,435		)	(292,496		)	(120,898		)
Transfers to foreclosed real estate	(21,171		)	(15,677		)	(6,966		)	(21,171		)
Charge-offs	(438,289		)	(236,566		)	(115,864		)	(438,289		)
Balance at end of period	$	653,242		$	628,159		$	1,233,040		$	653,242

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 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,						Nine Months Ended September 30,
	2019			2018			2020			2019
	(In Thousands)						(In Thousands)
Balance at beginning period	$	311,442		$	285,606		$	215,481		$	311,442
New TDRs	75,069			138,281			199,712			75,069
Payments/Payoffs	(129,332		)	(58,600		)	(71,133		)	(129,332		)
Charge-offs	(41,749		)	(5,821		)	(4,557		)	(41,749		)
Transfers to foreclosed real estate	(2,153		)	—			—			(2,153		)
Balance at end of period	$	213,277		$	359,466		$	339,503		$	213,277

The Company’s aggregate recorded investment in ~~impaired~~ loans modified through TDRs was ~~$213~~$340 million at September 30, ~~2019~~2020 compared to ~~$311~~$215 million at December 31, ~~2018.~~2019. Included in these amounts are ~~$98~~$115 million at September 30, ~~2019~~2020 and ~~$110~~$98 million at December 31, ~~2018~~2019 of accruing 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 September 30, 2020, the Company had outstanding deferrals on approximately 13 thousand loans with an amortized cost of $1.1 billion compared to approximately 63 thousand loans with an amortized cost basis of $7.2 billion at June 30, 2020.

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 ~~$942 million~~$1.8 billion at September 30, ~~2019,~~2020, from ~~$885~~$921 million at December 31, ~~2018.~~ 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 nine months ended September 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 September 30, 2020, represented the best information available at the end of the reporting period, and included the following considerations:

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

Substantial increase in unemployment with a peak during the second quarter of 2020 and along with a substantially slower employment recovery.

Stability in BBB spread is improved.

Positive inflation projections.

Stable GDP outlook.

Further, due to the level of uncertainty related to the economic outlook, a qualitative framework adjustment as of September 30, 2020 was utilized to address model performance in response to the unprecedented economic conditions and forecasts.

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 September 30, 2020, due to concerns around continued volatility in oil prices.

The ratio of the allowance for loan losses to total loans was ~~1.49%~~2.73% at September 30, ~~2019~~2020 compared to ~~1.36%~~1.44% at December 31, ~~2018.~~2019. Nonperforming loans were ~~$722 million~~$1.3 billion at September 30, ~~2019~~2020 compared to ~~$811~~$678 million at December 31, 2018. The allowance attributable to individually impaired loans was $129 million at September 30, 2019 compared to $107 million at December 31, 2018. The increase was driven primarily by updated impairment analyses. 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 0.59% of average loans for the three months ended September 30, 2020 compared to 1.10% of average loans for the three months ended September 30, ~~2019 compared to 0.49% of average loans for the three months ended September 30, 2018.~~2019. The ~~increase~~decrease in net charge-offs for the three months ended September 30, ~~2019,~~2020, as compared to the corresponding period in ~~2018,~~2019, was primarily driven by a ~~$56.0~~$19.2 million ~~increase~~decrease in commercial, financial and agricultural net charge-offs, ~~which includes~~ a ~~$40.0~~$39.4 million ~~charge-off of one health care loan,~~decrease in consumer direct net charge-offs, and a ~~$35.2~~$15.2 million ~~increase~~decrease in consumer ~~direct~~indirect net charge-offs.

Net charge-offs were 0.67% of average loans for the nine months ended September 30, 2020 compared to 0.88% of average loans for the nine months ended September 30, ~~2019 compared to 0.45% of average loans for the nine months ended September 30, 2018.~~2019. The ~~increase~~decrease in net charge-offs for the nine months ended September 30, ~~2019~~2020 as compared to the corresponding period in ~~2018~~2019 was driven in part by a ~~$87.7~~$56.5 million ~~increase~~decrease in consumer direct net charge-offs, a $21.8 million decrease in commercial, financial and agricultural net charge-offs, ~~as well as~~and a ~~$91.0~~$20.6 million decrease in consumer indirect net charge-offs offset by a $6.4 million increase in ~~consumer direct~~commercial real estate - mortgage net charge-offs and a ~~$11.0~~$10.1 million increase in ~~consumer indirect~~credit card net charge-offs.

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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	(Dollars in Thousands)												(Dollars in Thousands)
Average loans outstanding during the period	$	63,525,661		$	64,249,540		$	64,157,886		$	63,189,287		$	67,606,052		$	63,525,661		$	67,181,618		$	64,157,886
Allowance for loan losses, beginning of period	$	977,660		$	860,000		$	885,242		$	842,760
Allowance for loan losses, beginning of period, prior to adoption of ASC 326													1,754,352			977,660			$	920,993		$	885,242
Impact of adopting ASC 326													—			—			184,931			—
Allowance for loan losses, beginning of period, after adoption of ASC 326													1,754,352			977,660			1,105,924			885,242
Charge-offs:
Commercial, financial and agricultural	73,178			20,142			132,006			42,968			54,187			73,178			109,364			132,006
Real estate – construction	—			—			19			436			216			—			243			19
Commercial real estate – mortgage	2,270			2,328			2,388			2,781			156			2,270			9,269			2,388
Residential real estate – mortgage	2,692			3,192			6,337			7,798			331			2,692			1,446			6,337
Equity lines of credit	1,687			1,324			6,506			4,909			578			1,687			2,152			6,506
Equity loans	456			1,054			1,683			2,416			53			456			458			1,683
Credit card	18,317			11,721			53,425			34,937			20,626			18,317			64,114			53,425
Consumer direct	71,213			32,245			193,060			90,908			28,162			71,213			134,078			193,060
Consumer indirect	31,870			29,633			98,543			84,350			17,412			31,870			81,767			98,543
Total charge-offs	201,683			101,639			493,967			271,503			121,721			201,683			402,891			493,967
Recoveries:
Commercial, financial and agricultural	3,236			6,167			11,405			10,031			3,398			3,236			10,523			11,405
Real estate – construction	59			23			1,965			261			63			59			139			1,965
Commercial real estate – mortgage	20			293			104			6,137			58			20			574			104
Residential real estate – mortgage	1,412			1,102			2,605			2,770			448			1,412			1,553			2,605
Equity lines of credit	1,256			1,343			5,129			4,315			345			1,256			1,859			5,129
Equity loans	515			1,009			1,629			2,883			248			515			561			1,629
Credit card	1,919			2,035			5,348			4,078			2,099			1,919			5,963			5,348
Consumer direct	7,221			3,480			18,052			6,855			3,603			7,221			15,522			18,052
Consumer indirect	9,947			6,616			26,740			23,533			10,641			9,947			30,527			26,740
Total recoveries	25,585			22,068			72,977			60,863			20,903			25,585			67,221			72,977
Net charge-offs	176,098			79,571			420,990			210,640			100,818			176,098			335,670			420,990
Total provision for loan losses	140,629			94,964			477,939			243,273			150,889			140,629			1,034,169			477,939
Allowance for loan losses, end of period	$	942,191		$	875,393		$	942,191		$	875,393		$	1,804,423		$	942,191		$	1,804,423		$	942,191
Net charge-offs to average loans	1.10		%	0.49		%	0.88		%	0.45		%	0.59		%	1.10		%	0.67		%	0.88		%

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 30, ~~2019~~2020 and December 31, ~~2018.~~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 ~~$24.7~~$26.9 billion at September 30, ~~2019~~2020 compared to ~~$26.6~~$24.4 billion at December 31, ~~2018.~~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, 2019								December 31, 2018 (1)									September 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		$	2,136,336	$	25,496	$	—	$	—	$	2,403,917	$	68,891	$	—	$	3,922		$	1,863,377	$	78,204	$	17,905	$	10	$	2,139,178	$	47,261	$	—	$	8
Basic Materials		501,199		1,582		—		165		567,966		2,426		—		—			457,664		10,533		—		4		526,485		1,342		—		—
Capital Goods & Industrial Services		2,007,005		30,769		103		—		2,523,857		74,769		124		39			2,533,380		50,841		1,002		226		1,987,046		23,736		96		4
Construction & Construction Materials		742,692		49,537		—		—		732,838		19,971		—		—			795,254		44,229		—		—		653,157		45,243		—		—
Consumer		705,009		1,853		—		—		592,607		600		—		—			634,621		3,146		—		—		641,289		1,540		—		—
Healthcare		2,796,881		18,024		317		37		2,914,464		18,682		333		83			3,125,195		7,273		302		—		2,747,248		24,989		314		—
Energy		3,062,547		138,743		—		—		2,863,529		119,069		—		—			2,528,588		244,377		—		—		2,905,791		69,042		—		—
Financial Services		927,225		914		—		1,520		1,061,922		94		—		—			1,037,623		90,767		—		2,337		1,009,533		23,427		—		1,615
General Corporates		1,717,090		17,137		499		8,503		1,757,121		4,645		3		3,993			2,164,734		16,936		—		9,325		1,726,318		16,883		475		5,065
Institutions		3,188,413		425		—		—		3,349,248		474		—		—			3,348,340		12,809		—		—		3,166,048		400		—		—
Leisure and Consumer Services		2,706,091		8,036		344		—		2,597,598		22,544		—		10			3,701,996		94,454		301		9,359		2,777,440		6,957		335		—
Real Estate		1,450,000		230		—		—		1,533,206		248		—		—			1,537,883		—		—		—		1,490,985		—		—		—
Retail		500,874		1,513		245		954		573,658		29,751		—		67			462,493		1,938		203		—		483,988		1,869		236		—
Telecoms, Technology & Media		956,084		2,775		44		—		1,525,730		3,680		46		—			1,166,176		2,260		—		—		909,476		2,558		—		—
Transportation		944,594		3,987		—		—		1,000,564		34,545		—		—			1,110,065		2,487		—		—		903,034		3,041		—		—
Utilities		341,090		—		—		—		564,094		—		18,420		—			472,784		—		—		—		365,222		—		—		—
Total Commercial, Financial and Agricultural		$	24,683,130	$	301,021	$	1,552	$	11,179	$	26,562,319	$	400,389	$	18,926	$	8,114		$	26,940,173	$	660,254	$	19,713	$	21,261	$	24,432,238	$	268,288	$	1,456	$	6,692


~~(1)~~	~~December 31, 2018 data has been revised to conform to current period industry classifications, as the Company redefined industry classifications during the first quarter of 2019.~~

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 ~~$13.1~~$13.7 billion and ~~$13.0~~$13.9 billion at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and real estate — construction loans totaled $2.4 billion and $2.0 billion at ~~both~~ September 30, ~~2019~~2020 and December 31, ~~2018.~~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 13 Commercial Real Estate	Table 13 Commercial Real Estate																	Table 13 Commercial Real Estate

		September 30, 2019								December 31, 2018									September 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		$	378,421	$	5,459	$	2,093	$	—	$	375,442	$	5,507	$	2,221	$	237		$	420,492	$	4,241	$	20	$	—	$	419,063	$	4,377	$	2,048	$	—
Arizona		890,045		8,656		—		—		855,007		8,342		—		—			1,018,389		8,655		—		—		1,074,395		22,549		—		—
California		1,940,729		—		—		28		2,196,360		—		—		1,722			1,901,233		53,178		—		28		1,992,085		—		—		28
Colorado		590,703		5,970		—		—		533,481		6,036		—		—			808,951		10,238		—		—		694,691		6,463		—		—
Florida		1,238,530		11,207		37		—		1,086,443		18,030		66		—			1,170,022		5,186		—		1,478		1,299,336		11,047		27		—
New Mexico		111,959		4,084		—		—		157,473		3,769		121		14			101,457		3,573		—		—		100,845		3,952		—		—
Texas		3,662,882		59,774		511		2,347		3,911,128		41,707		382		447			3,896,231		55,664		997		310		3,802,306		36,278		495		4,168
Other		4,260,904		15,482		851		—		3,901,462		26,753		871		—			4,379,025		134,933		814		—		4,478,757		13,411		844		2,380
		$	13,074,173	$	110,632	$	3,492	$	2,375	$	13,016,796	$	110,144	$	3,661	$	2,420		$	13,695,800	$	275,668	$	1,831	$	1,816	$	13,861,478	$	98,077	$	3,414	$	6,576

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

		September 30, 2019								December 31, 2018									September 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		$	67,027	$	92	$	—	$	115	$	64,758	$	96	$	—	$	69		$	77,219	$	—	$	—	$	115	$	70,800	$	90	$	—	$	115
Arizona		198,756		—		—		—		181,143		—		—		—			226,644		5,650		—		—		158,027		—		—		—
California		245,712		—		—		—		253,416		—		—		—			442,766		6,535		—		—		281,690		—		—		—
Colorado		92,916		—		—		—		111,375		—		—		—			101,164		—		—		—		94,260		473		—		—
Florida		168,666		906		—		—		213,502		—		—		—			156,274		6		—		—		167,346		905		—		—
New Mexico		14,012		26		16		—		6,868		—		46		—			25,394		—		12		—		18,000		242		15		—
Texas		780,055		186		60		417		754,994		2,331		70		475			783,578		17		49		417		747,651		5,926		57		456
Other		438,203		406		—		—		411,481		424		—		—			590,635		406		—		—		490,908		405		—		—
		$	2,005,347	$	1,616	$	76	$	532	$	1,997,537	$	2,851	$	116	$	544		$	2,403,674	$	12,614	$	61	$	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 $13.5 billion at both September 30, ~~2019~~2020 and ~~$13.4 billion at~~ December 31, ~~2018.~~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 15 Residential Real Estate — Mortgage	Table 15 Residential Real Estate — Mortgage																	Table 15 Residential Real Estate — Mortgage

		September 30, 2019								December 31, 2018									September 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		$	925,575	$	24,726	$	11,303	$	998	$	944,556	$	23,285	$	11,677	$	1,002		$	841,815	$	23,827	$	8,616	$	6,151	$	913,683	$	21,891	$	11,208	$	1,557
Arizona		1,369,479		12,217		10,898		530		1,334,736		12,572		8,415		217			1,403,048		14,574		7,273		1,802		1,380,589		12,111		7,645		609
California		3,375,734		19,088		3,718		—		3,252,592		15,898		3,910		—			3,666,288		35,362		5,947		3,712		3,441,689		17,941		3,383		—
Colorado		1,146,398		4,645		2,100		—		1,132,517		5,255		784		—			1,064,684		5,734		2,199		669		1,144,260		4,141		2,327		144
Florida		1,535,070		31,892		10,256		370		1,590,912		39,699		9,908		1,433			1,486,545		47,672		9,831		3,102		1,511,146		32,740		10,051		247
New Mexico		213,805		4,003		1,258		635		219,434		3,683		1,287		—			195,838		3,280		1,226		640		215,835		3,802		1,249		424
Texas		4,529,746		43,350		19,074		1,527		4,536,383		50,069		19,293		3,275			4,435,857		58,508		18,285		21,462		4,534,481		43,048		19,394		1,660
Other		407,520		13,157		1,930		718		411,026		16,638		2,172		—			369,682		15,485		1,755		2,190		392,271		11,663		1,908		—
		$	13,503,327	$	153,078	$	60,537	$	4,778	$	13,422,156	$	167,099	$	57,446	$	5,927		$	13,463,757	$	204,442	$	55,132	$	39,728	$	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 16 Residential Real Estate - Mortgage	Table 16 Residential Real Estate - Mortgage																	Table 16 Residential Real Estate - Mortgage

		September 30, 2019								December 31, 2018									September 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		$	709,444	$	101,475	$	20,717	$	3,135	$	730,294	$	113,560	$	19,131	$	4,803		$	696,406	$	121,820	$	20,888	$	21,803	$	707,778	$	96,107	$	22,804	$	3,736
621 – 680		1,098,070		22,450		11,432		106		1,146,999		20,877		14,168		301			1,004,125		28,878		10,186		9,554		1,074,497		23,950		10,570		114
681 – 720		1,753,448		11,175		10,263		—		1,725,819		11,471		9,031		451			1,597,539		18,191		6,747		3,245		1,704,801		9,197		7,305		144
Above 720		9,355,593		10,834		17,559		346		9,208,678		11,156		14,847		107			9,658,124		21,691		17,012		2,104		9,490,067		11,000		15,922		290
Unknown		586,772		7,144		566		1,191		610,366		10,035		269		265			507,563		13,862		299		3,022		556,811		7,083		564		357
		$	13,503,327	$	153,078	$	60,537	$	4,778	$	13,422,156	$	167,099	$	57,446	$	5,927		$	13,463,757	$	204,442	$	55,132	$	39,728	$	13,533,954	$	147,337	$	57,165	$	4,641

Equity lines of credit and equity loans totaled ~~$2.9~~$2.6 billion and $2.8 billion at September 30, ~~2019~~2020 and ~~$3.0 billion at~~ December 31, ~~2018.~~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 17 Equity Loans and Lines	Table 17 Equity Loans and Lines																	Table 17 Equity Loans and Lines

		September 30, 2019								December 31, 2018									September 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		$	460,925	$	9,197	$	7,640	$	205	$	498,839	$	11,536	$	8,062	$	477		$	414,233	$	10,907	$	6,455	$	748	$	452,102	$	10,096	$	7,437	$	341
Arizona		324,590		6,368		3,595		29		348,763		6,409		4,005		221			269,508		6,023		3,054		106		311,875		5,475		3,674		22
California		411,798		2,148		190		49		426,179		3,358		267		402			374,715		1,743		88		617		399,494		2,528		187		165
Colorado		173,564		2,829		747		87		193,122		2,822		841		128			149,594		2,341		425		—		167,594		2,729		738		176
Florida		299,109		8,258		5,295		43		332,367		8,646		5,704		398			271,483		6,335		4,287		363		295,552		7,298		4,827		121
New Mexico		46,824		1,555		577		491		50,873		1,515		593		286			39,332		1,999		496		—		45,440		1,704		505		11
Texas		1,136,239		14,046		6,389		1,545		1,166,304		13,097		6,901		446			1,095,055		15,404		5,601		1,882		1,138,289		15,104		6,050		914
Other		28,507		1,206		356		147		29,384		1,258		395		48			22,170		1,222		344		—		27,302		1,830		352		12
		$	2,881,556	$	45,607	$	24,789	$	2,596	$	3,045,831	$	48,641	$	26,768	$	2,406		$	2,636,090	$	45,974	$	20,750	$	3,716	$	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 18 Equity Loans and Lines	Table 18 Equity Loans and Lines																	Table 18 Equity Loans and Lines

		September 30, 2019								December 31, 2018									September 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		$	199,277	$	24,867	$	6,669	$	2,228	$	204,527	$	26,747	$	5,905	$	1,923		$	171,033	$	24,947	$	6,277	$	3,046	$	200,509	$	27,098	$	6,262	$	1,232
621 – 680		344,851		10,498		7,306		173		376,248		9,548		9,126		254			338,873		10,012		5,176		386		355,324		9,207		7,314		290
681 – 720		493,624		6,448		4,345		195		537,568		8,014		3,908		106			437,442		6,871		3,018		60		484,077		6,324		3,683		139
Above 720		1,837,132		3,657		6,370		—		1,919,796		3,950		7,829		106			1,683,312		4,105		5,882		224		1,790,879		4,095		6,511		101
Unknown		6,672		137		99		—		7,692		382		—		17			5,430		39		397		—		6,859		40		—		—
		$	2,881,556	$	45,607	$	24,789	$	2,596	$	3,045,831	$	48,641	$	26,768	$	2,406		$	2,636,090	$	45,974	$	20,750	$	3,716	$	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 $2.0 billion and $2.3 billion at September 30, 2020 and December 31, 2019, respectively. Total credit cards were ~~$2.4 billion~~$908 million at September 30, 2020 and ~~$2.6~~$1.0 billion at December 31, ~~2018. Total credit cards at September 30, 2019 were $936 million and $818 million at December 31, 2018.~~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 ~~$3.8~~$4.1 billion and $3.9 billion at ~~both~~ September 30, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively.

The following tables provide information related to refreshed FICO scores for the Company's consumer direct and consumer indirect loans.

Table 19 Consumer Direct	Table 19 Consumer Direct																	Table 19 Consumer Direct

		September 30, 2019								December 31, 2018									September 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		$	170,810	$	3,524	$	1,048	$	7,073	$	217,273	$	3,870	$	1,002	$	12,197		$	174,867	$	5,709	$	649	$	5,792	$	225,736	$	4,258	$	1,433	$	17,228
621 – 680		467,052		1,966		981		6,371		531,466		257		387		178			364,597		1,813		2,022		219		450,532		1,259		2,858		359
681 – 720		557,928		1,246		3,626		2,632		596,889		147		1,295		311			437,666		814		4,554		82		516,706		693		5,150		123
Above 720		1,118,644		612		1,705		1,121		1,149,606		254		—		11			985,718		255		10,701		97		1,076,436		345		2,997		84
Unknown		73,924		—		—		576		58,354		—		—		639			60,848		543		—		453		68,732		—		—		564
		$	2,388,358	$	7,348	$	7,360	$	17,773	$	2,553,588	$	4,528	$	2,684	$	13,336		$	2,023,696	$	9,134	$	17,926	$	6,643	$	2,338,142	$	6,555	$	12,438	$	18,358

Table 20 Consumer Indirect	Table 20 Consumer Indirect																	Table 20 Consumer Indirect

		September 30, 2019								December 31, 2018									September 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		$	758,852	$	27,233	$	—	$	7,192	$	865,702	$	14,700	$	—	$	9,128		$	647,789	$	21,032	$	—	$	3,242	$	817,071	$	27,600	$	—	$	9,100
621 – 680		1,054,395		4,390		—		1,012		1,083,116		2,084		—		381			989,198		2,587		—		271		1,006,409		2,969		—		408
681 – 720		738,007		1,359		—		298		719,093		648		—		69			780,537		771		—		130		728,580		621		—		157
Above 720		1,295,021		958		—		97		1,099,289		402		—		213			1,688,941		564		—		174		1,358,098		591		—		65
Unknown		2,258		—		—		—		2,819		—		—		—			3,164		—		—		17		2,192		—		—		—
		$	3,848,533	$	33,940	$	—	$	8,599	$	3,770,019	$	17,834	$	—	$	9,791		$	4,109,629	$	24,954	$	—	$	3,834	$	3,912,350	$	31,781	$	—	$	9,730

Foreign Exposure

As of September 30, ~~2019,~~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 September 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 September 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 September 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 September 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 September 30, 2020. Therefore, the Company determined that a test of goodwill impairment was not required for each of the reporting units for the September 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.

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.

~~There were no changes in the Company's and the Bank's credit ratings during the three months ended September 30, 2019.~~ The Company's and the Bank's credit ratings at September 30, ~~2019~~2020 were as follows:

Table 21 Credit Ratings

	As of September 30, ~~2019~~2020
	Standard & Poor’s	Moody’s	Fitch
BBVA USA Bancshares, Inc.
Long-term debt rating	BBB+	Baa2	~~BBB+~~BBB
Short-term debt rating	A-2	—	F2
BBVA USA
Long-term debt rating	BBB+	Baa2	~~BBB+~~BBB
Long-term bank deposits (1)	N/A	A2	A-BBB+
Subordinated debt	BBB	Baa2	~~BBB~~BBB-
Short-term debt rating	A-2	P-2	F2
Short-term deposit rating (1)	N/A	P-1	F2
Outlook	Stable	Stable	~~Negative~~Stable

(1) S&P does not provide a 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, ~~2018,~~2019, for additional information.

A 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 increased by ~~$1.4~~$11.4 billion from December 31, ~~2018~~2019 to September 30, ~~2019.~~2020. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, total deposits included ~~$5.5~~$3.7 billion and ~~$9.0~~$4.7 billion, respectively, of brokered deposits. The following table presents the Company’s deposits segregated by major category:

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

	September 30, 2019				December 31, 2018				September 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	$	21,019,303	28.6	%	$	20,183,876	28.0	%	$	26,803,670	31.0	%	$	21,850,216	29.1	%
Interest-bearing demand deposits	8,740,086		11.9		8,400,192		11.6		14,382,063		16.7		10,031,622		13.4
Savings and money market	29,873,962		40.6		27,877,124		38.6		38,964,325		45.1		31,050,016		41.4
Time deposits	13,936,091		18.9		15,706,795		21.8		6,220,974		7.2		12,053,429		16.1
Total deposits	$	73,569,442	100.0	%	$	72,167,987	100.0	%	$	86,371,032	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 23 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, 2019
Balance at September 30, 2020
Securities sold under agreements to repurchase (1)											$	1,050,182	$	1,379,052	0.11	%	$	189,474	0.22	%
Other short-term borrowings											14,951		12,844		4.58		—		—
											$	1,065,133	$	1,391,896			$	189,474
Balance at December 31, 2019
Federal funds purchased	$	5,060	$	998	1.75	%	$	—	—	%	$	5,060	$	746	1.50	%	$	—	—	%
Securities sold under agreements to repurchase (1)	1,052,762		762,683		0.30		117,421		2.22		1,198,822		857,176		0.22		173,028		1.70
Other short-term borrowings	69,446		16,235		3.03		45		3.03		69,446		14,963		3.79		—		—
	$	1,127,268	$	779,916			$	117,466			$	1,273,328	$	872,885			$	173,028
Balance at December 31, 2018
Federal funds purchased	$	2,000	$	82	2.50	%	$	—	—	%
Securities sold under agreements to repurchase (1)	183,511		109,770		1.78		102,275		3.73
Other short-term borrowings	159,004		68,423		3.04		—		—
	$	344,515	$	178,275			$	102,275


(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.

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, FHLB and other borrowings were $3.6 billion and $3.7 billion, ~~and $4.0 billion,~~ respectively. ~~In August 2019, the Bank issued under its Global Bank Note Program $600 million aggregate principal amount of its 2.5% unsecured senior notes due 2024.~~

For the nine months ended September 30, ~~2019,~~2020, the Company had ~~$4.4 billion~~$1.0 million of proceeds received from FHLB and other borrowings and repayments were approximately ~~$4.8 billion.~~$228.9 million.

Shareholder’s Equity

Total shareholder's equity was ~~$14.1~~$11.4 billion at September 30, ~~2019,~~2020, compared to ~~$13.5~~$13.4 billion at December 31, ~~2018, an increase~~2019, a decrease of ~~$589 million.~~$2.0 billion. Shareholder's equity ~~increased $482 million~~decreased $2.2 billion due to ~~earnings~~losses attributable to the Company during the period ~~as well as a $288~~offset, in part, by increases of $366 million ~~increase~~ in accumulated other comprehensive income largely attributable to a decrease in unrealized losses on available for sale securities ~~offset, in part,~~and cash flow hedging instruments. Additionally, the impact of the adoption of ASC 326 decreased shareholder's equity by ~~the payment of preferred and common dividends totaling $184 million to its sole shareholder, BBVA.~~$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 30, ~~2019,~~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 30, ~~2019.~~2020.

Table 24 Net Interest Income Sensitivity

	Estimated % Change in Net Interest Income
	September 30, ~~2019~~2020
Rate Change
+ 200 basis points	~~5.03~~2.46	%
+ 100 basis points	~~2.78~~1.27
- ~~100~~25 basis points	(~~4.45~~0.85	)

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 25 Economic Value of Equity

	Estimated % Change in Economic Value of Equity
	September 30, ~~2019~~2020
Rate Change
+ 300 basis points	~~(11.76)~~(8.15)	%
+ 200 basis points	(~~7.16~~3.69	)
+ 100 basis points	(~~2.77~~0.58	)
- ~~100~~25 basis points	(~~0.07~~0.38	)

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 30, ~~2019,~~2020, the Company had derivative financial instruments outstanding with notional amounts of ~~$52.5~~$59.5 billion. The estimated net fair value of open contracts was in an asset position of ~~$331~~$576 million

at September 30, ~~2019.~~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 September 30, 2020, the Company had unused FHLB borrowing capacity of $8.4 billion. Additionally, the Company had Federal Reserve discount window availability of $13.7 billion at September 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 30, ~~2019~~2020 or December 31, ~~2018~~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 August 27, 2019, the Bank issued under its Global Bank Note Program $600 million aggregate principal amount of its 2.50% unsecured senior notes due 2024.~~ 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.

The Federal Reserve Board will no longer take action to require the Company to comply with the Federal Reserve Board’s LCR rule until it formally amends its regulations to implement the EGRRCPA. In October 2019, the Federal Reserve Board finalized a rule formally amending its regulations to no longer require the Company to comply with the LCR rule once the amendment becomes effective. At September 30, ~~2019,~~2020, the Company's LCR was 144% and was fully compliant with the LCR 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 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

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

	September 30, 2019			December 31, 2018			September 30, 2020			December 31, 2019
	(Dollars in Thousands)						(Dollars in Thousands)
Capital:
CET1 Capital	$	8,792,958		$	8,457,585		$	8,784,855		$	8,615,357
Tier 1 Capital	9,027,158			8,691,785			9,014,855			8,849,557
Total Capital	10,495,530			10,216,625			10,506,667			10,332,023
Ratios:
CET1 Risk-based Capital Ratio	12.89		%	12.00		%	12.79		%	12.49		%
Tier 1 Risk-based Capital Ratio	13.24			12.33			13.13			12.83
Total Risk-based Capital Ratio	15.39			14.49			15.30			14.98
Leverage Ratio	10.03			10.03			8.82			9.70

At September 30, ~~2019,~~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’ final rule that allows banking organizations to defer certain effects of the ASC 326 accounting standard on their regulatory capital. Specifically, this 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 8, Commitments, Contingencies and Guarantees, of the Notes to the Unaudited Condensed Consolidated Financial Statements.


Item 1A.	Risk Factors

Various risk and uncertainties could affect the Company's business. These risks are described elsewhere in this report and the Company's other filings with the SEC, including the Company's Annual Report on Form 10-K for the year-ended December 31, ~~2018.~~2019.

The following discussion updates the risk factors disclosed in the Company's Annual Report on Form 10-K for the year-ended December 31, ~~2018.~~2019.

The ~~Company is~~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 or modelled precisely, 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, 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 if any of these measures will be reinstated when there will be a ~~subsidiary~~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 ~~BBVA Group,~~credit losses in our loan portfolios and ~~activities across BBVA Group~~increases in our allowance for credit losses, particularly if businesses remain closed or re-close, 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 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 or modelled precisely, 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 business~~Company's performance.

As of September 30, 2020, energy-related loan balances represented approximately 3.8 percent of the Bank’s total loan portfolio. This amount is comprised of loans directly related to energy, such as exploration and ~~results~~production, pipeline transportation of ~~operations.~~

The Company is a part of a highly diversified international financial group which offers a wide variety of financial and related products and services including retail banking, asset management, private banking and wholesale banking. The BBVA Group strives to foster a culture in which its employees act with integrity and feel comfortable reporting instances of misconduct. The BBVA Group employees are essential to this culture, and acts of misconduct by any employee, and particularly by senior management, could erode trust and confidence and damage the BBVA Group and the Company’s reputation among existing and potential clientsnatural gas, crude oil and other ~~stakeholders. Negative public opinion could result from actual or alleged conduct by~~refined petroleum products, oil field services, and refining and support. In late 2014, oil prices began to decline and continued to decline through the ~~BBVA Group entities in any number~~first half of ~~activities or circumstances, including operations, employment-related offenses such as sexual harassment and discrimination, regulatory compliance,~~2016, which at the ~~use and protection of data and systems, and the satisfaction of client expectations, and from actions taken by regulators or others in response to such conduct.~~

The Spanish judicial authorities are investigating the activities of the company Centro Exclusivo de Negocios y Transacciones, S.L. (Cenyt). Such investigation includes the provision of services by Cenyt to BBVA. On July 29, 2019, BBVA was named as an official suspect (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 - Piece No. 9, Central Investigating Court No. 6 of the National High Court) for possible breaches of law related to bribery, revelation of secrets and corruption in connection with BBVA’s relationship with Cenyt. Certain current and former officers, directors and employees of the BBVA Group have also been named as official suspects in connection with this investigation. BBVA has beentime had and continues to proactively collaborate with the Spanish judicial authorities, including sharing with the courts information from its on-going forensic investigation regarding its relationship with Cenyt. BBVA is currently not able to publicly disclose such information due to the legal requirement not to interfere with the judicial investigation. The criminal judicial proceeding is at a preliminary stage and is currently subject to a secrecy order. Therefore, it is not possible at this time to predict the scope or duration of such proceeding or any related proceeding or its or their possible outcomes or implications for the BBVA Group, including any fines, damages or harm to the BBVA Group’s reputation caused thereby. This matter or any similar matters arising across the BBVA Group could damage the Company’s reputation and adversely affect the confidence of the Company’s clients, rating agencies, regulators, bondholders and other parties and could have an adverse effect on some of the ~~Company’s~~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 ~~operating results.~~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

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~~. BBVA made a payment of $642 to Bank Melli on July 11, 2019, due to outstanding commissions on the counterindemnity executed on October 16, 2018. Such counterindemnity was issued in April 2000 and has been regularly reported until its execution in 2018.

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~~nine months ended September 30, ~~2019,~~2020, from embassy-related activity, which include fees and/or commissions, did not exceed ~~$297.~~$51. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure.


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 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 on June 10, 2019).
3.2	Bylaws of BBVA 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 ~~5, 2019~~3, 2020	BBVA USA Bancshares, Inc.
	By:	/s/ Kirk P. Pressley
		Name:	Kirk P. Pressley
		Title:	Senior Executive Vice President, Chief Financial Officer and Duly Authorized Officer

9298



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(In Thousands)
Balance at beginning of period	$	23,529	$	23,133	$	23,416	$	22,824
Reductions for securities paid off during the period (realized)	—		—		—		—
Additions for the credit component on debt securities in which OTTI was not previously recognized	—		—		—		—
Additions for the credit component on debt securities in which OTTI was previously recognized	—		283		113		592
Balance at end of period	$	23,529	$	23,416	$	23,529	$	23,416



	September 30, 2019
	Finance		Operating		Total
	(In Thousands)
Right-of-use asset	$	8,897	$	276,169	$	285,066
Lease liability balance	12,747		317,929		330,676