UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2016

or

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

For the transition period from                     to  

Commission File Number: 000-55106

BBVA Compass Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Texas		20-8948381
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2200 Post Oak Blvd. Houston, Texas		77056
(Address of principal executive offices)		(Zip Code)
	(205) 297-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company 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

As of February 21, 2017, the registrant had 222,950,751 outstanding shares of common stock, all of which was held by an affiliate of the registrant. Accordingly, there was no public market for the registrant's common stock as of June 30, 2016, the last business day of the registrant's most recently completed second fiscal quarter.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Explanatory Note

The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K. Accordingly, the registrant is filing this Annual Report on Form 10-K with certain reduced disclosures that correspond to the disclosure items the registrant is permitted to omit from an Annual Report on Form 10-K filing pursuant to General Instruction I(2) of Form 10-K.

TABLE OF CONTENTS

		Page
Part I
Item 1.	Business	9
Item 1A.	Risk Factors	27
Item 1B.	Unresolved Staff Comments	38
Item 2.	Properties	38
Item 3.	Legal Proceedings	38
Item 4.	Mine Safety Disclosures	38
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	38
Item 6.	Selected Financial Data	40
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	87
Item 8.	Financial Statements and Supplementary Data	88
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	166
Item 9A.	Controls and Procedures	166
Item 9B.	Other Information	167
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	168
Item 11.	Executive Compensation	168
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	168
Item 13.	Certain Relationships and Related Transactions, and Director Independence	168
Item 14.	Principal Accounting Fees and Services	168
Part IV
Item 15.	Exhibits, Financial Statement Schedules	170
Item 16.	10-K Summary	170
Signatures		171

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
ARMs	Adjustable rate mortgages
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Basel III	Global regulatory framework developed by the Basel Committee on Banking Supervision
Basel Committee	Basel Committee on Banking Supervision
Bank	Compass Bank
BBVA	Banco Bilbao Vizcaya Argentaria, S.A.
BBVA Compass	Registered trade name of Compass Bank
BBVA Group	BBVA and its consolidated subsidiaries
BOLI	Bank Owned Life Insurance
BSI	BBVA Securities Inc.
Capital Securities	Debentures issued by the Parent
CAPM	Capital Asset Pricing Model
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
CCAR	Comprehensive Capital Analysis and Review
CD	Certificate of Deposit or time deposit
CET1	Common Equity Tier 1
CFPB	Consumer Financial Protection Bureau
CET1 Risk-Based Capital Ratio	Ratio of CET1 to risk-weighted assets
Company	BBVA Compass Bancshares, Inc. and its subsidiaries
Covered Assets	Loans and other real estate owned acquired from the FDIC subject to loss sharing agreements
Covered Loans	Loans acquired from the FDIC subject to loss sharing agreements
CQR	Credit Quality Review
CRA	Community Reinvestment Act
CRD-IV	Capital Requirements Directive IV
DIF	Depository Insurance Fund
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
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	Foreign banking organization
FDIC	Federal Deposit Insurance Corporation
FDICIA	Federal Deposit Insurance Corporation Improvement Act
Federal Reserve Board	Board of Governors of the Federal Reserve System
FHLB	Federal Home Loan Bank
FICO	Fair Isaac Corporation
FinCEN	United States Department of Treasury Financial Crimes Enforcement Network
FINRA	Financial Industry Regulatory Authority
Fitch	Fitch Ratings

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FNMA	Federal National Mortgage Association
FTP	Funds transfer pricing
G-SIB	Globally systemically important bank
Guaranty Bank	Collectively, certain assets and liabilities of Guaranty Bank, acquired by the Company in 2009
HTM	Held To Maturity
IHC	Top-tier U.S. intermediate holding company
Large FBOs	Foreign Banking Organizations with $50 billion or more in U.S. assets
LCR	Liquidity Coverage Ratio
Leverage Ratio	Ratio of Tier 1 capital to quarterly average on-balance sheet assets
LIBOR	London Interbank Offered Rate
LGD	Loss given default
LSA	Loss Sharing Agreement
LTV	Loan to Value
Moody's	Moody's Investor Services, Inc.
MRA	Master Repurchase Agreement
MSR	Mortgage Servicing Rights
NSFR	Net Stable Funding Ratio
NYSE	NYSE Euronext, Inc.
OCC	Office of the Comptroller of the Currency
OFAC	United States Department of Treasury Office of Foreign Assets Control
OREO	Other Real Estate Owned
OTTI	Other-Than-Temporary Impairment
Parent	BBVA Compass Bancshares, Inc.
Potential Problem Loans	Commercial loans rated substandard or below, which do not meet the definition of nonaccrual, TDR, or 90 days past due and still accruing.
Preferred Stock	Class B Preferred Stock
PD	Probability of default
Purchased Impaired Loans	Acquired loans with evidence of credit deterioration since origination for which it is probable all contractual payments will not be received that are accounted for under ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.
Purchased Nonimpaired Loans	Acquired loans with a fair value that is lower than the contractual amounts due that are not required to be accounted for in accordance with ASC Subtopic 310-30
REIT	Real Estate Investment Trust
Repurchase Agreement	Securities sold under agreements to repurchase
Reverse Repurchase Agreement	Securities purchased under agreements to resell
SBA	Small Business Administration
SBIC	Small Business Investment Company
SEC	Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
Series A Preferred Stock	Floating Non-Cumulative Perpetual Preferred Stock, Series A
Simple	Simple Finance Technology Corp
S&P	Standard and Poor's Rating Services
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
Trust Preferred Securities	Mandatorily redeemable preferred capital securities

5

U.S.	United States of America
U.S. Treasury	United States Department of the Treasury
U.S. Basel III final rule	Final rule to implement the Basel III capital framework in the United States
U.S. GAAP	Accounting principles generally accepted in the United States
USA PATRIOT Act	Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001

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Forward-Looking Statements

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

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

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

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

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

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

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

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

• the Bank's CRA rating, which could result in certain restrictions on the Company's activities;

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

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

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

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

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

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

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

• downgrades to the Company's credit ratings;

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

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

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

• 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;

7

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

• changes in the creditworthiness of customers;

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

• potential changes in interchange fees;

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

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

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

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

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

The forward-looking statements in this Annual Report on Form 10-K 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.

8

Part I

Item 1. Business

Overview

The Parent is a bank holding company that conducts its business operations primarily through its commercial banking subsidiary, Compass Bank, which is an Alabama banking corporation headquartered in Birmingham, Alabama. The Bank operates under the brand “BBVA Compass." The Parent was organized in 2007 as a Texas corporation.

The Parent is a wholly owned subsidiary of BBVA (NYSE: BBVA). BBVA is a global financial services group founded in 1857. It has a significant market position in Spain, owns the largest financial institution in Mexico, has franchises in South America, has a banking position in Turkey and operates an extensive global branch network. BBVA acquired the Company in 2007.

The Bank performs banking services customary for full service banks of similar size and character. Such services include receiving demand and time deposits, making personal and commercial loans and furnishing personal and commercial checking accounts. Compass Bank offers, either directly or through its subsidiaries or affiliates, a variety of services, including: portfolio management and administration and investment services to estates and trusts; term life insurance, variable annuities, property and casualty insurance and other insurance products; investment advisory services; a variety of investment services and products to institutional and individual investors; discount brokerage services, and investment company securities and fixed-rate annuities.

As part of its operations, the Company regularly evaluates acquisition and investment opportunities of a type permissible for a bank holding company, including FDIC-assisted transactions. The Company may also from time to time consider the potential disposition of certain of its assets, branches, subsidiaries, or lines of business.

On April 8, 2013, BBVA contributed all of the outstanding stock of its wholly owned subsidiary, BSI, to the Company.  BSI is a registered broker-dealer and engages in investment banking and institutional sales of fixed income securities.

On May 14, 2013, BBVA Compass Bancshares, Inc., the Company's former mid-tier holding company, was merged into the Parent, the Company's top-tier U.S. holding company. Subsequent to the merger, the Parent's name was changed to BBVA Compass Bancshares, Inc.

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

Banking Operations

At December 31, 2016, the Company, through the Bank, operated approximately 672 banking offices in Alabama, Arizona, California, Colorado, Florida, New Mexico, and Texas. The following chart reflects the distribution of branch locations in each of the states in which the Company conducts its banking operations:

Alabama	89
Arizona	75
California	62
Colorado	38
Florida	45
New Mexico	19
Texas	344
Total	672

9

The banking centers in Alabama are located throughout the state. In Arizona, the banking centers are concentrated in the Tucson and Phoenix metropolitan markets. The banking centers in California are concentrated in the Inland Empire and Central Valley regions. The Colorado banking centers are concentrated in the Denver metropolitan area and the New Mexico banking centers are concentrated in the Albuquerque metropolitan area. In Florida, the banking centers are concentrated in Jacksonville, Gainesville, and the Florida panhandle. The Texas banking centers are primarily located in the state’s four largest metropolitan areas of Houston, Dallas/Ft. Worth, San Antonio, and Austin, as well as cities in south Texas, such as McAllen and Laredo.

The Company also operates loan production offices in Atlanta, Georgia; Miami, Orlando, and Tampa, Florida; Chicago, Illinois; New York, New York; Baltimore, Maryland; Irvine, Los Angeles, Ontario, Roseville, San Diego, and Walnut Creek, California; Charlotte and Raleigh, North Carolina; and Cleveland, Ohio.

Economic Conditions

The Company's operations and customers are primarily concentrated in the Sunbelt Region of the United States, particularly in Alabama, Arizona, California, Colorado, Florida, New Mexico and Texas. In terms of geographic distribution, approximately 56% of the Company’s total deposits and 51% of its branches are located in Texas, while Alabama represents approximately 19% of the Company’s total deposits. While the Company's ability to conduct business and the demand for the Company's products is impacted by the overall health of the United States economy, local economic conditions in the Sunbelt Region, and specifically in the states in which the Company conducts business, also significantly affect demand for the Company's products, the ability of borrowers to repay loans and the value of collateral securing loans.

One key indicator of economic health is the unemployment rate. At the beginning of 2008, the unemployment rate in the United States was 5.0%, rising to a peak of 10.0% in October 2009 during the financial crisis. While there has been a slow, but steady improvement in the unemployment rate from its peak in 2009, the improvement began to accelerate in 2013 and these improvements have continued through 2016. Consequently, the unemployment rate improved from 5.0% for December 2015 to 4.7% in December 2016, a level last achieved in November 2007. This improvement was partially the result of continued strength in nonfarm payroll growth as well as a simultaneous decline in labor force participation. The following table provides a comparison of unemployment rates as of December 2016 and 2015 for the states in which the Company has a retail branch presence.

	Unemployment Rate*
State	December 2016	December 2015	Change
Alabama	6.2%	6.3%	(0.1)
Arizona	4.8%	5.9%	(1.1)
California	5.2%	5.9%	(0.7)
Colorado	3.0%	3.5%	(0.5)
Florida	4.9%	5.1%	(0.2)
New Mexico	6.6%	6.6%	—
Texas	4.6%	4.6%	—

* Source: United States Department of Labor, Bureau of Labor Statistics as of December 2016

10

As noted above, a key driver of the improvement in the unemployment rate has been continued strength in nonfarm payroll growth. The following table provides a comparison of nonfarm payroll at December 2016 to December 2015.

	Nonfarm Payroll*
	December 2016	December 2015	Change
State	(In Thousands)
Alabama	1,976.2	1,957.5	18.7
Arizona	2,717.0	2,681.6	35.4
California	16,606.6	16,274.1	332.5
Colorado	2,627.4	2,578.6	48.8
Florida	8,462.9	8,211.5	251.4
New Mexico	830.5	828.0	2.5
Texas	12,141.3	11,931.1	210.2

* Source: United States Department of Labor, Bureau of Labor Statistics as of December 2016

Combined, the seven-state Sunbelt region in which the Company operates accounted for approximately 42% of the total increase in nonfarm payroll in the U.S. in 2016. The largest year-over-year increases nationally occurred in California, Florida and Texas, with California accounting for 15% of the total increase in total nonfarm payroll in 2016.

The lower oil prices which began in 2014 and continued into 2016 reflected an adjustment in market expectations of long-run demand, global production levels and growth in Europe and China without a subsequent adjustment in supply. In February 2016, average monthly oil prices fell to $30.32 per barrel, their lowest levels since October of 2003, an almost 70% decline from the December 2013 average monthly price per barrel of $97.63. The sharp price decline in oil led to cutbacks in planned capital expenditures and significant reductions in industry headcounts in the energy sector. The impact of the lower oil prices has been felt among energy producers, energy service providers and manufacturers of energy-related equipment and machinery. During the latter part of 2016, oil prices rebounded and stabilized closing out 2016 with a December monthly average of $51.97 per barrel, the highest level since July 2015.

Another economic indicator of health is the real estate market, and in particular changes in residential home prices. After 2008, the national real estate market has experienced a significant decline in value, and the value of real estate in certain Southeastern and Southwestern states in particular have declined significantly more than real estate values in the United States as a whole. Recent data suggests that as the economic recovery continues, the housing market throughout the United States is beginning to strengthen and home prices are beginning to recapture some of the value lost during the economic downturn. The following table presents changes in home prices since the end of 2007 and changes in home prices during 2016 for the states in which the Company operates. During 2016 home prices increased equal to or higher than the national average in all of the states in which the Company operates a retail branch network except Alabama and New Mexico. However, only in Colorado and Texas were home prices above 2007 levels.

	Percentage Change in	Percentage change in
State	Home Prices since 2007*	Home Prices during 2016*
Alabama	-1.5%	3.5%
Arizona	-13.4%	4.6%
California	-0.1%	5.0%
Colorado	34.9%	8.2%
Florida	-11.5%	7.7%
New Mexico	-8.0%	3.0%
Texas	31.9%	6.2%
U.S. National Average	2.7%	4.6%

* Source: Home price data from FHFA House price index through the third quarter of 2016.

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Segment Information

The Company is organized along lines of business. Each line of business is a strategic unit that serves a particular group of customers with certain common characteristics by offering various products and services. The lines of business results include certain overhead allocations and intercompany transactions. During the fourth quarter of 2016, the Company transferred certain customer relationships within its large middle market customer group from the Consumer and Commercial Bank segment to the Corporate and Investment Bank segment. At December 31, 2016, the Company’s operating segments consisted of Consumer and Commercial Banking, Corporate and Investment Banking, and Treasury.

The Consumer and Commercial Banking segment serves both the Company’s consumer customers through its full-service banking centers, private client offices throughout the U.S., and through the use of alternative delivery channels such as the internet, mobile devices and telephone banking. It also serves its commercial customers through its full array of banking and investment services to businesses in the Company’s markets. The Consumer and Commercial Banking segment provides individuals with comprehensive products and services including home mortgages, credit and debit cards, deposit accounts, insurance products, mutual funds and brokerage services. The segment also provides private banking and wealth management services to high net worth individuals, including specialized investment portfolio management, traditional credit products, traditional trust and estate services, investment advisory services, financial counseling and customized services to companies and their employees. In addition to traditional credit and deposit products, the Consumer and Commercial Banking segment also supports its commercial customers with capabilities in treasury management, accounts receivable purchasing, asset-based lending, international services, and insurance and interest rate protection and investment products. The Consumer and Commercial Banking segment is also responsible for the Company's small business customers and indirect automobile portfolio.

The Corporate and Investment Banking segment is responsible for providing a full array of banking and investment services to corporate and institutional clients. In addition to traditional credit and deposit products, the Corporate and Investment Banking segment also supports its customers with capabilities in treasury management, accounts receivable purchasing, asset-based lending, foreign-exchange and international services, and interest rate protection and investment products.

The Treasury segment’s primary function is to manage the liquidity and funding positions of the Company, the interest rate sensitivity of the Company's balance sheet, and to manage the investment securities portfolio.

For financial information regarding the Company’s segments, which are presented by line of business, as of and for the years ended December 31, 2016, 2015 and 2014, see Note 23, Segment Information, in the Notes to the Consolidated Financial Statements.

Competition

In most of the markets served by the Company, it encounters intense competition from national, regional and local financial service providers, including banks, thrifts, securities dealers, mortgage bankers and finance companies. Competition is based on a number of factors, including customer service and convenience, the quality and range of products and services offered, innovation, price, reputation and interest rates on loans and deposits. The Company’s ability to compete effectively also depends on its ability to attract, retain and motivate employees while managing employee-related costs.

Many of the Company’s nonfinancial institution competitors have fewer regulatory constraints, broader geographic service areas and, in some cases, lower cost structures. In addition, competition for quality customers has intensified as a result of changes in regulation, advances in technology and product delivery channels, consolidation among financial service providers, bank failures and the conversion of certain former investment banks to bank holding companies. For a discussion of risks related to the competition the Company faces, see Item 1A. - Risk Factors.

12

The table below shows the Company’s deposit market share ranking by state in which the Company operates based on deposits of FDIC-insured institutions as of June 30, 2016, the last date such information is available from the FDIC:

Table 1 Deposit Market Share Ranking
	Deposit Market
State	Share Rank*
Alabama	2nd
Arizona	5th
California	29th
Colorado	11th
Florida	19th
New Mexico	11th
Texas	4th

*Source: SNL Financial

Employees

At December 31, 2016, the Company had approximately 10,336 full-time equivalent employees.

Supervision, Regulation and Other Factors

Like all bank holding companies, the Company is regulated extensively under federal and state law. In addition, certain of the Company's non-bank subsidiaries are subject to regulation under federal and state law. The following discussion sets forth some of the elements of the bank regulatory framework applicable to the Company and certain of its subsidiaries. The bank regulatory framework is intended primarily for the protection of depositors and the DIF and not for the protection of security holders and creditors. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions.

General

Bank holding companies are subject to supervision and regulation by the Federal Reserve Board under the Bank Holding Company Act. In addition, the Alabama Banking Department regulates holding companies, like the Company, that own Alabama-chartered banks, like the Bank, under the bank holding company laws of the State of Alabama. The Company is subject to primary regulation and examination by the Federal Reserve Board, through the Federal Reserve Bank of Atlanta, and by the Alabama Banking Department. Numerous other federal and state laws, as well as regulations promulgated by the Federal Reserve Board and the state banking regulator, govern almost all aspects of the operations of the Company and the Bank. The Company and the Bank are also subject to supervision and regulation by the CFPB. Various federal and state bodies regulate and supervise the Company's non-bank subsidiaries including its brokerage, investment advisory, insurance agency and processing operations. These include, but are not limited to, the SEC, FINRA, federal and state banking regulators and various state regulators of insurance and brokerage activities. BBVA Securities Inc., a subsidiary of the Company, is permitted to underwrite and deal in bank-ineligible securities subject to certain terms and conditions pursuant to an authorizing order issued by the Federal Reserve Board.

The legislative, regulatory and supervisory framework governing the financial services sector has undergone significant and rapid change since the financial crisis. Moreover, the intensity of supervisory and regulatory scrutiny has also increased. While most of the changes required by the Dodd-Frank Act that impact the Company have been implemented or are expected to follow a known trajectory, new changes under the Trump administration, including their nature and impact, cannot yet be determined with any degree of certainty.

13

Permitted Activities

Under the Bank Holding Company Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control of more than five percent of the voting shares of, any company engaged in the following activities:

• banking or managing or controlling banks;

• furnishing services to or performing services for its subsidiaries; and

• engaging in activities that the Federal Reserve Board determines to be so closely related to banking as to be a proper incident to the business of banking, including:

• factoring accounts receivable;

• making, acquiring, brokering or servicing loans and usual related activities;

• leasing personal or real property;

• operating a non-bank depository institution, such as a savings association;

• performing trust company functions;

• providing financial and investment advisory activities;

• conducting discount securities brokerage activities;

• underwriting and dealing in government obligations and money market instruments;

• providing specified management consulting and counseling activities;

• performing selected data processing services and support services;

• acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions;

• performing selected insurance underwriting activities;

• providing certain community development activities (such as making investments in projects designed primarily to promote community welfare); and

• issuing and selling money orders and similar consumer-type payment instruments.

The Federal Reserve Board has the authority to order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company's continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any of its bank subsidiaries.

Actions by Federal and State Regulators

Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, state banking regulators, the Federal Reserve Board, and separately the FDIC as the insurer of bank deposits, have the authority to compel or restrict certain actions on the Company's part if they determine that it has insufficient capital or other resources, or is otherwise operating in a manner that may be deemed to be inconsistent with safe and sound banking practices. Under this authority, the Company's bank regulators can require it to enter into informal or formal supervisory agreements, including board resolutions, memoranda of understanding, written agreements and consents or cease and desist orders, pursuant to which the Company would be required to take identified corrective actions to address cited concerns and to refrain from taking certain actions.

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Standards for Safety and Soundness

The Federal Deposit Insurance Act requires the federal bank regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions relating to: internal controls; information systems and audit systems; loan documentation; credit underwriting; interest rate risk exposure; and asset quality. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees and benefits. The federal banking regulators have adopted regulations and interagency guidelines prescribing standards for safety and soundness to implement these required standards. These guidelines set forth the safety and soundness standards used to identify and address problems at insured depository institutions before capital becomes impaired. Under the regulations, if a regulator determines that a bank fails to meet any standards prescribed by the guidelines, the regulator may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans.

Dividends

The Federal Reserve Board has issued policy statements that provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings.

The primary sources of funds for the Company's interest and principal payments on its debt are cash on hand and dividends from its bank and non-bank subsidiaries. Various federal and state statutory provisions and regulations limit the amount of dividends that the Bank and its non-banking subsidiaries may pay. Under Alabama law, the Bank may not pay a dividend in excess of 90 percent of its net earnings until its surplus is equal to at least 20 percent of capital. The Bank is also required by Alabama law to seek the approval of the Alabama Superintendent of Banking prior to the payment of dividends if the total of all dividends declared by the Bank in any calendar year will exceed the total of (a) the Bank's net earnings for that year, plus (b) its retained net earnings for the preceding two years, less any required transfers to surplus. The statute defines net earnings as the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets, after deducting from the total thereof all current operating expenses, actual losses, accrued dividends on preferred stock, if any, and all federal, state and local taxes. The Bank cannot, without approval from the Federal Reserve Board and the Alabama Superintendent of Banking, declare or pay a dividend to the Company unless the Bank is able to satisfy the criteria discussed above.

The Federal Deposit Insurance Corporation Improvement Act generally prohibits a depository institution from making any capital distribution, including payment of a dividend, or paying any management fee to its holding company if the institution would thereafter be undercapitalized. In addition, federal banking regulations applicable to the Company and its bank subsidiary require minimum levels of capital that limit the amounts available for payment of dividends. In addition, many regulators have a policy, but not a requirement, that a dividend payment should not exceed net income to date in the current year. The ability of banks and bank holding companies to pay dividends and make other forms of capital distribution also depends on their ability to maintain a sufficient capital conservation buffer under the U.S. Basel III capital framework. The Parent's ability to pay dividends is also subject to the Federal Reserve Board's review of the Parent's annual capital plan and supervisory stress tests of the Company conducted by the Federal Reserve Board as a part of its annual CCAR process, as discussed below under "Large bank holding companies are required to submit annual capital plans to the Federal Reserve Board and are subject to stress testing requirements."

Enhanced Prudential Standards

In the past few years, the Federal Reserve Board has imposed greater risk-based and leverage capital requirements, liquidity requirements, single counterparty credit limits, capital planning and stress testing requirements, risk management requirements and other enhanced prudential standards for bank holding companies with $50 billion or more in total consolidated assets, including the Company. The capital, liquidity and capital planning and stress testing requirements of these enhanced prudential standards are discussed under the relevant topic areas below. The Federal Reserve Board has proposed but not yet finalized the single-counterparty credit limits requirements and an early remediation framework for large bank holding companies.

Under the enhanced prudential standard applicable to Large FBOs, BBVA designated the Parent as its IHC. BBVA’s combined U.S. operations (including its U.S. branches, agencies and subsidiaries) are also subject to liquidity, risk management, stress testing, asset maintenance and other enhanced prudential standards.

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Capital

The Federal Reserve Board has adopted guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in reviewing applications submitted to it under the Bank Holding Company Act. These guidelines include quantitative measures that assign risk weights to a bank holding company's assets, exposures and off-balance sheet items to determine its risk-weighted assets and that define and set minimum risk-based capital and leverage requirements. Under the capital framework currently in effect, bank holding companies are required to maintain a CET1 Risk-Based Capital Ratio of at least 4.5 percent, a Tier 1 Risk-Based Capital Ratio of at least 6 percent, a Total Risk-Based Capital Ratio of at least 8 percent and a Leverage Ratio of at least 4 percent.

CET1 capital consists principally of common stock and related surplus, plus retained earnings, less any amounts of goodwill, other intangible assets, and other items required to be deducted. Tier 1 capital consists principally of CET1 capital plus certain eligible forms of preferred stock and trust preferred securities and minority interests which are includible subject to phase-out transition provisions. Tier 2 capital primarily includes qualifying subordinated debt instruments, permitted trust preferred securities phased-out of Tier 1 capital, and allowance for loan losses. Total capital is Tier 1 capital plus Tier 2 capital. The denominator of the risk-based capital ratios is risk-weighted assets, a measure of assets and other exposures weighted to take into account different risk characteristics. For purpose of the Leverage Ratio, the denominator is quarterly average assets excluding goodwill, other intangible assets and certain other items deducted from capital.

Capital Requirements Applicable to the Company

The Company and the Bank are subject to the U.S. Basel III capital rule, which implements in the United States of a set of internationally agreed-upon bank capital standards known as Basel III, which are published by the Basel Committee, a committee of central bank and regulatory officials from 27 countries. The Basel III standards were developed after the 2008 financial crisis to further strengthen financial institutions' capital positions by requiring banking organizations to maintain higher minimum levels of capital and by implementing capital buffers above these minimum levels to help withstand future periods of stress.

Certain aspects of the U.S. Basel III capital rule, such as the minimum capital ratios and the methodology for calculating risk-weighted assets, became effective on January 1, 2015 for the Bank and the Company. Other aspects of the rule, such as the capital conservation buffer and the certain regulatory deductions from and adjustments to capital, are being phased in over several years. The phase in period for the capital conservation buffer began on January 1, 2016, with an initial phase-in amount of greater than 0.625%, rising to greater than 2.5% beginning on January 1, 2019. The required capital conservation buffer is greater than 1.25% in 2017.

Compared to previously effective capital rules, the U.S. Basel III capital rule focuses regulatory capital on CET1 capital, narrows the eligibility criteria for regulatory capital instruments, revises the methodology for calculating risk-weighted assets for certain types of assets and exposures and introduces regulatory adjustments and deductions from capital. The U.S. Basel III capital rule requires certain U.S. banking organizations, including the Bank and the Company, to maintain a minimum ratio of CET1 capital to risk-weighted assets of 4.5 percent and, when fully phased in, a CET1 capital conservation buffer of greater than 2.5 percent of risk-weighted assets. Failure to maintain the capital conservation buffer will result in increasingly stringent restrictions on a banking organization's ability to make dividend payments and other capital distributions and pay discretionary bonuses to executive officers. The U.S. Basel III capital rule also requires a minimum Tier 1 Risk-Based Capital Ratio of 6 percent and a minimum Total Risk-Based Capital Ratio of 8 percent.

The eligibility criteria for regulatory capital instruments under the U.S. Basel III capital rule required, among other things, that trust preferred securities be phased out of the Company’s Tier 1 capital by January 1, 2016.

Under the U.S. Basel III capital rule, to be well-capitalized, the Bank must maintain a Total Risk-Based Capital Ratio of 10 percent or greater, a Tier 1 Risk-Based Capital Ratio of 8 percent or greater, a CET1 Risk-Based Capital Ratio of 6.5 percent or greater, and a Tier 1 Leverage Ratio of 5 percent or greater. For a bank holding company such as the Company to be well capitalized, it generally must maintain a Total Risk-Based Capital Ratio of 10 percent or greater and a Tier 1 Risk Based Capital Ratio of 6 percent or greater.

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Capital Ratios as of December 31, 2016

The table below shows certain regulatory capital ratios for the Company and the Bank as of December 31, 2016 using the Transitional Basel III regulatory capital methodology applicable to the Company during 2016.

Table 2 Capital Ratios
	Regulatory Minimum for Company and Bank (1)		Well-Capitalized Minimum for the Bank		The Company		The Bank
CET 1 Risk-Based Capital Ratio	4.5	%	6.5	%	11.49	%	10.93	%
Tier 1 Risk-Based Capital Ratio	6.0	%	8.0	%	11.85	%	10.95	%
Total Risk-Based Capital Ratio	8.0	%	10.0	%	14.31	%	13.56	%
Leverage Ratio	4.0	%	5.0	%	9.46	%	9.14	%

(1) Regulatory minimum requirements do not include the capital conservation buffer, which must be maintained in addition to meeting regulatory minimum requirements in order to avoid automatic restrictions on capital distributions and certain discretionary bonus payments.

See Note 17, Regulatory Capital Requirements and Dividends from Subsidiaries, in the Notes to the Consolidated Financial Statements, for additional information on the calculation of capital ratios for the Company and the Bank.

Prompt Corrective Action for Undercapitalization

The FDICIA established a system of prompt corrective action to resolve the problems of undercapitalized insured depository institutions. Under this system, the federal banking regulators are required to rate insured depository institutions on the basis of five capital categories as described below. The federal banking regulators are also required to take mandatory supervisory actions and are authorized to take other discretionary actions, with respect to insured depository institutions in the three undercapitalized categories, the severity of which will depend upon the capital category to which the insured depository institution is assigned. Generally, subject to a narrow exception, the FDICIA requires the banking regulator to appoint a receiver or conservator for an insured depository institution that is critically undercapitalized. The federal banking regulators have specified by regulation the relevant capital level for each category. Under the prompt corrective action regulations that are currently in effect under the U.S. Basel III framework, all insured depository institutions are assigned to one of the following capital categories:

Well-capitalized - The insured depository institution exceeds the required minimum level for each relevant capital measure. A well-capitalized insured depository institution is one (1) having a Total Risk-Based Capital Ratio of 10 percent or greater, (2) having a Tier 1 Risk-Based Capital Ratio of 8 percent or greater, (3) having a CET1 Risk-Based Capital Ratio of 6.5 percent or greater (4) having a Leverage Ratio of 5 percent or greater, and (5) that is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure.

Adequately Capitalized - The insured depository institution meets the required minimum level for each relevant capital measure. An adequately capitalized insured depository institution is one (1) having a Total Risk-Based Capital Ratio of 8 percent or greater, (2) having a Tier 1 Risk-Based Capital Ratio of 6 percent or greater, and (3) having a CET1 Risk-Based Capital Ratio of 4.5 percent or greater (4) having a Leverage Ratio of 4 percent or greater, and (5) failing to meet the definition of a well-capitalized bank.

Undercapitalized - The insured depository institution fails to meet the required minimum level for any relevant capital measure. An undercapitalized insured depository institution is one (1) having a Total Risk-Based Capital Ratio of less than 8 percent, (2) having a Tier 1 Risk-Based Capital Ratio of less than 6 percent, (3) having a CET1 Risk-Based Capital Ratio of less than 4.5 percent, or (4) a Leverage Ratio of less than 4 percent.

Significantly Undercapitalized - The insured depository institution is significantly below the required minimum level for any relevant capital measure. A significantly undercapitalized insured depository

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institution is one (1) having a Total Risk-Based Capital Ratio of less than 6 percent, (2) having a Tier 1 Risk-Based Capital Ratio of less than 4 percent, (3) a CET 1 Risk Based-Capital Ratio of less than 3 percent, or (4) a Leverage Ratio of less than 3 percent.

Critically Undercapitalized - The insured depository institution fails to meet a critical capital level set by the appropriate federal banking agency. A critically undercapitalized institution is one having a ratio of tangible equity to total assets that is equal to or less than 2 percent.

The regulations permit the appropriate federal banking regulator to downgrade an institution to the next lower category if the regulator determines after notice and opportunity for hearing or response that the institution (1) is in an unsafe or unsound condition or (2) has received and not corrected a less-than-satisfactory rating for any of the categories of asset quality, management, earnings or liquidity in its most recent examination. Supervisory actions by the appropriate federal banking regulator depend upon an institution's classification within the five categories. The Company's management believes that the Company and the Bank have the requisite capital levels to qualify as well-capitalized institutions under the FDICIA. See Note 17, Regulatory Capital Requirements and Dividends from Subsidiaries, in the Notes to the Consolidated Financial Statements.

If an institution fails to remain well-capitalized, it will be subject to a variety of enforcement remedies that increase as the capital condition worsens. For instance, the FDICIA generally prohibits a depository institution from making any capital distribution, including payment of a dividend, or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized as a result. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions may not accept brokered deposits absent a waiver from the FDIC, are subject to growth limitations and are required to submit capital restoration plans for regulatory approval. A depository institution's holding company must guarantee any required capital restoration plan, up to an amount equal to the lesser of 5 percent of the depository institution's assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan. Federal banking regulators may not accept a capital restoration plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.

Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator.

Total Loss-Absorbing Capital and Long-Term Debt Requirements

The Federal Reserve Board's final rule on the total loss-absorbing capacity of U.S. G-SIBs and the U.S. intermediate holding companies of non-U.S. G-SIBs does not apply since neither the Parent nor BBVA are G-SIBs and are therefore not subject to the rule.

Annual Capital Plans and Stress Testing

Under enhanced prudential standards applicable to bank holding companies with $50 billion or more of total consolidated assets, the Company is required to submit annual capital plans to the Federal Reserve Board and to generally obtain approval from the Federal Reserve Board before making a dividend payment or other capital distribution. In 2014, the Company began participating in the Federal Reserve Board’s annual CCAR program, pursuant to which it reviewed qualitative and quantitative aspects of the Company’s internal capital planning process. In January 2017, the Federal Reserve Board issued a final rule exempting large and noncomplex firms, including the Company, from the qualitative component of CCAR. Under CCAR, the Company's capital plan must include an assessment of the expected uses and sources of capital over a forward-looking planning horizon of at least nine quarters, a detailed description of the Company's process for assessing capital adequacy, the Company's capital policy, and a discussion of any expected changes to the Company's business plan that are likely to have a material impact on its capital adequacy or liquidity. Based on a quantitative assessment, including a supervisory stress test conducted as part of the CCAR process, the Federal Reserve Board will either object to the Company's capital plan, in whole or in part, or provide a notice of non-

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objection to the Company. If the Federal Reserve Board objects to a capital plan, the Company may not make any capital distribution other than those with respect to which the Federal Reserve Board has indicated its non-objection.

In addition to capital planning requirements the Company and the Bank are subject to stress testing requirements under the Federal Reserve Board’s enhanced prudential standards rule and the Dodd-Frank Act. The Company must conduct semi-annual company-run stress tests and is subject to an annual supervisory stress test conducted by the Federal Reserve Board.

For the capital plan and stress test cycle beginning January 1, 2016, the Company submitted its capital plan to the Federal Reserve Board by April 5, 2016 and the Federal Reserve Board published summary results by June 30, 2016. The Federal Reserve Board did not object to the Company’s 2016 capital plan on either qualitative or quantitative grounds. For the capital plan and stress test cycle beginning January 1, 2017, the Company is required to submit its capital plan to the Federal Reserve Board by April 5, 2017 and the Federal Reserve Board is required to publish summary results by June 30, 2017. Although management believes that the capital plan that the Company plans to submit is reasonable and fiscally sound, the Company can make no assurances that the Federal Reserve Board will not object to the Company’s capital plan.

Deposit Insurance and Assessments

Deposits at the Bank are insured by the DIF as administered by the FDIC, up to the applicable limits established by law. The DIF is funded through assessments on banks, such as the Bank. Changes in the methodology used to calculate these assessments, resulting from the Dodd-Frank Act increased the assessments that the Bank is required to pay to the FDIC. In addition, in March 2016, the FDIC issued a final rule imposing a surcharge on the assessments of insured depository institutions with total consolidated assets of $10 billion or more, such as the Bank, to raise the DIF's reserve ratio. These surcharges will cease on December 31, 2018. The FDIC also collects Financing Corporation deposit assessments, which are calculated off of the assessment base established by the Dodd-Frank Act. The Bank pays the DIF assessment, less offset available by means of prepaid assessment credits, as well as the Financing Corporation assessments.

With respect to brokered deposits, an insured depository institution must be well-capitalized in order to accept, renew or roll over such deposits without FDIC clearance. An adequately capitalized insured depository institution must obtain a waiver from the FDIC in order to accept, renew or roll over brokered deposits. Undercapitalized insured depository institutions generally may not accept, renew or roll over brokered deposits. See the Deposits section in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K.

Volcker Rule

The Volcker Rule prohibits an insured depository institution, such as the Bank, and its affiliates from (1) engaging in “proprietary trading” and (2) investing in or sponsoring certain types of funds (covered funds) subject to certain limited exceptions. The final rules contain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations and also permit certain ownership interests in certain types of funds to be retained.  They also permit the offering and sponsoring of funds under certain conditions.  The final Volcker Rule regulations impose significant compliance and reporting obligations on banking entities. The Company is subject to the enhanced compliance program under the Volcker Rule but does not expect to be required to report metrics to the regulators. The Company is of the view that the impact of the Volcker Rule is not material to its business operations.

Durbin Amendment's Rules Affecting Debit Card Interchange Fees

Under the Durbin Amendment the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction is the sum of 21 cents per transaction, a 1 cent fraud prevention adjustment, and 5 basis points multiplied by the value of the transaction.

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Consumer Protection Regulations

Retail activities of banks are subject to a variety of statutes and regulations designed to protect consumers. Interest and other charges collected or contracted for by banks are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to federal laws applicable to credit transactions, such as:

• the federal Truth-In-Lending Act and Regulation Z issued by the CFPB, governing disclosures of credit terms to consumer borrowers;

• the Home Mortgage Disclosure Act and Regulation C issued by the CFPB, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

• the Equal Credit Opportunity Act and Regulation B issued by the CFPB, prohibiting discrimination on the basis of various prohibited factors in extending credit;

• the Fair Credit Reporting Act and Regulation V issued by the CFPB, governing the use and provision of information to consumer reporting agencies;

• the Fair Debt Collection Practices Act and Regulation F issued by the CFPB, governing the manner in which consumer debts may be collected by collection agencies;

• the Service Members Civil Relief Act, applying to all debts incurred prior to commencement of active military service (including credit card and other open-end debt) and limiting the amount of interest, including service and renewal charges and any other fees or charges (other than bona fide insurance) that is related to the obligation or liability; and

• the guidance of the various federal agencies charged with the responsibility of implementing such federal laws.

Deposit operations also are subject to, among others:

• the Truth in Savings Act and Regulation DD issued by the CFPB, which require disclosure of deposit terms to consumers;

• Regulation CC issued by the Federal Reserve Board, which relates to the availability of deposit funds to consumers;

• the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and

• the Electronic Fund Transfer Act and Regulation E issued by the CFPB, which governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services.

In addition, there are consumer protection standards that apply to functional areas of operation (rather than applying only to loan or deposit products). The Company and the Bank are also subject to certain state laws and regulations designed to protect consumers.

The CFPB has promulgated many mortgage-related rules since it was established under the Dodd-Frank Act including rules related to the ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, Home Mortgage Disclosure Act requirements and appraisal and escrow standards for higher priced mortgages.

Changes to consumer protection regulations, including those promulgated by the CFPB could affect the Company's business but the likelihood, timing and scope of any such changes and the impact any such change may have on the

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Company cannot be determined with any certainty. See Item 1A. Risk Factors. The Company is also subject to legislation and regulation and future legislation or regulation or changes to existing legislation or regulation could affect its business.

Annual Resolution Plans for the Company and the Bank

Each of the Company and the Bank are required to prepare and submit resolution plans, also referred to as living wills. The Bank, must submit to the FDIC a plan whereby the institution can be resolved by the FDIC, in the event of failure, in a manner that ensures depositors will receive access to insured funds within the required timeframes and generally ensures an orderly liquidation of the institution. The Company is required to submit to the Federal Reserve Board and the FDIC a plan that, in the event of material financial distress or failure, provides for the rapid and orderly liquidation of the company under the bankruptcy code and in a way that would not pose systemic risk to the financial system of the United States. If the Federal Reserve Board and the FDIC determine that a company’s plan is not credible and the company fails to cure the deficiencies in a timely manner, then the Federal Reserve Board and the FDIC may jointly impose on the company, or on any of its subsidiaries, more stringent capital, leverage or liquidity requirements or restrictions on growth, activities, or operations.

U.S. Liquidity Standards

The Federal Reserve Board evaluates the Company’s liquidity as part of the supervisory process. In addition, the Basel Committee has developed a set of internationally-agreed upon quantitative liquidity metrics: the LCR and the NSFR. The LCR was developed to ensure that covered banking organizations have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. This standard’s objective is to promote the short-term resilience of the liquidity risk profile of banking organizations. The objective of the NSFR is to reduce funding risk over a one-year horizon by requiring banking organizations to fund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress.

The federal banking regulators implemented the LCR in the United States in 2014. A more stringent version of the LCR applies to financial institutions with $250 billion or more in total assets. A more moderate version of the LCR applies to financial institutions with $50 billion but less than $250 billion of total assets, such as the Company. This version differs in certain respects from the Basel Committee’s version of the LCR, including a narrower definition of high-quality liquid assets, different prescribed cash inflow and outflow assumptions for certain types of instruments and transactions and a shorter phase-in schedule which ended on January 1, 2017. In December 2016, the Federal Reserve Board issued a final rule requiring that banking organizations holding more than $50 billion in assets, such as the Company, make certain public disclosures related to the LCR. Required disclosures include quarterly disclosure of the consolidated LCR, based on averages over the prior quarter, as well as consolidated HQLA amounts broken down by each HQLA category. In April 2016, the federal banking regulators proposed rules to implement the NSFR in the United States, including a more moderate version of the NSFR that would apply to institutions with $50 billion or more but less than $250 billion of total assets, such as the Company. In addition, the Federal Reserve Board has adopted liquidity risk management, stress testing and liquidity buffer requirements as part of the enhanced prudential standards applicable to the U.S. operations of Large FBOs such as BBVA. The Company and the Bank are part of BBVA’s U.S. operations.

Anti-Money Laundering; USA PATRIOT Act; Office of Foreign Assets Control

A major focus of U.S. governmental policy relating to financial institutions in recent years has been fighting money laundering and terrorist financing. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for that financial institution.

Under laws applicable to the Company, including the Bank Secrecy Act, as amended by the USA PATRIOT Act, and implementing regulations, U.S. financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications.

The Company is prohibited from entering into specified financial transactions and account relationships. The Company also must take reasonable steps to conduct enhanced scrutiny of account relationships, as appropriate, to

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guard against money laundering and to report any suspicious transactions. Pursuant to the USA PATRIOT Act, law enforcement authorities have been granted increased access to financial information maintained by banks, and anti-money laundering obligations have been substantially strengthened.

The USA PATRIOT Act amended, in part, the Bank Secrecy Act and provides for, among other things, the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering. The statute also provides for: (1) regulations that set minimum requirements for verifying customer identification at account opening; (2) rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; and (3) enhanced due diligence requirements for financial institutions that administer, maintain or manage private bank accounts or correspondent accounts for non-U.S. persons.

Federal, state, and local law enforcement may, through FinCEN, request that the Bank search its records for any relationships or transactions with persons reasonably suspected to be involved in terrorist activity or money laundering. Upon receiving such a request, the Bank must search its records and timely report to FinCEN any identified relationships or transactions.

Furthermore, OFAC is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and acts of Congress. OFAC publishes, and routinely updates, lists of names, such as the Specially Designated Nationals and Blocked Persons List, of individuals and entities with whom U.S. persons, as defined by OFAC, are generally prohibited from conducting transactions or dealings. Persons on these lists include persons suspected of aiding, financing, or engaging in terrorist acts, narcotics trafficking, or the proliferation of weapons of mass destruction, among other targeted activities. OFAC also administers sanctions programs against certain countries or territories. If the Bank finds a name on any transaction, account or wire transfer instruction that is on an OFAC list or determines that processing a transaction or maintaining or servicing an account would violate a sanctions program administered by OFAC, it must, depending on the regulation, freeze such account, reject such transaction, file a suspicious activity report and/or notify the appropriate authorities.

Commitments to the Bank

Under the Dodd-Frank Act, both BBVA and the Parent are required to serve as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances when BBVA and the Parent might not do so absent the statutory requirement. Under the Bank Holding Company Act, the Federal Reserve Board may require a bank holding company to terminate any activity or relinquish control of a non-bank subsidiary, other than a non-bank subsidiary of a bank, upon the Federal Reserve Board's determination that such activity or control constitutes a serious risk to the financial soundness or stability of any depository institution subsidiary. Further, the Federal Reserve Board has discretion to require a bank holding company to divest itself of any bank or non-bank subsidiaries if the agency determines that any such divestiture may aid the depository institution's financial condition. In addition, any loans by the Parent to the Bank would be subordinate in right of payment to depositors and to certain other indebtedness of the Bank.

Transactions with Affiliates and Insiders

A variety of legal limitations restrict the Bank from lending or otherwise supplying funds or in some cases transacting business with the Company or the Company's non-bank subsidiaries. The Company is subject to Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W. Section 23A places limits on the amount of “covered transactions,” which include loans or extensions of credit to, investments in or certain other transactions with, affiliates as well as the amount of advances to third parties collateralized by the securities or obligations of affiliates. The aggregate of all covered transactions is limited to 10 percent of a bank's capital and surplus for any one affiliate and 20 percent for all affiliates. Furthermore, within the foregoing limitations as to amount, certain covered transactions must meet specified collateral requirements ranging from 100 to 130 percent. Also, a bank is prohibited from purchasing low quality assets from any of its affiliates. Section 608 of the Dodd-Frank Act broadens the definition of “covered transactions” to include derivative transactions and the borrowing or lending of securities if the transaction will cause a bank to have credit exposure to an affiliate. The revised definition also includes the acceptance of debt obligations of an affiliate as collateral for a loan or extension of credit to a third party. Furthermore, reverse repurchase transactions are viewed as extensions of credit (instead of asset purchases) and thus become subject to collateral requirements.

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Section 23B prohibits an institution from engaging in certain transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with nonaffiliated companies. Except for limitations on low quality asset purchases and transactions that are deemed to be unsafe or unsound, Regulation W generally excludes affiliated depository institutions from treatment as affiliates. Transactions between a bank and any of its subsidiaries that are engaged in certain financial activities may be subject to the affiliated transaction limits. The Federal Reserve Board also may designate bank subsidiaries as affiliates.

Banks are also subject to quantitative restrictions on extensions of credit to executive officers, directors, principal shareholders and their related interests. In general, such extensions of credit (1) may not exceed certain dollar limitations, (2) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and (3) must not involve more than the normal risk of repayment or present other unfavorable features. Certain extensions of credit also require the approval of a bank's board of directors.

Regulatory Examinations

Federal and state banking agencies require the Company and the Bank to prepare annual reports on financial condition and to conduct an annual audit of financial affairs in compliance with minimum standards and procedures. The Bank, and in some cases the Company and the Company's non-bank affiliates, must undergo regular on-site examinations by the appropriate regulatory agency, which will examine for adherence to a range of legal and regulatory compliance responsibilities. A bank regulator conducting an examination has complete access to the books and records of the examined institution. The results of the examination are confidential. The cost of examinations may be assessed against the examined institution as the agency deems necessary or appropriate.

Community Reinvestment Act

The CRA requires the Federal Reserve Board to evaluate the record of the Company in meeting the credit needs of its local community, including low and moderate income neighborhoods. These evaluationsare considered in evaluating mergers, acquisitions and applications to open a branch or facility. Failure to adequately meet these criteria could result in additional requirements and limitations on the Bank.

In February 2015, the Federal Reserve Board announced the results of its regularly scheduled examination covering 2011 and 2012 to determine the Bank’s compliance with the CRA. The Bank received a rating of “needs to improve". The Bank’s rating in this CRA examination resulted in restrictions on certain activities, including certain mergers and acquisitions and applications to open branches or certain other facilities. The Bank underwent an additional CRA examination that began in the fourth quarter of 2015. In March 2016, the Federal Reserve Bank of Atlanta notified the Bank that its CRA rating had been improved to “Satisfactory,” and the aforementioned restrictions were removed from the Bank.

Commercial Real Estate Lending

Lending operations that involve concentrations of commercial real estate loans are subject to enhanced scrutiny by federal banking regulators. The regulators have advised financial institutions of the risks posed by commercial real estate lending concentrations. Such loans generally include land development, construction loans and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for examiners to help identify institutions that are potentially exposed to concentration risk and may warrant greater supervisory scrutiny:

• total reported loans for construction, land development and other land represent 100 percent or more of the institution's total capital, or

• total commercial real estate loans represent 300 percent or more of the institution's total capital, and the outstanding balance of the institution's commercial real estate loan portfolio has increased by 50 percent or more during the prior 36 months.

In October 2009, the federal banking regulators issued additional guidance on commercial real estate lending that emphasizes these considerations.

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In addition, the Dodd-Frank Act contains provisions that may impact the Company's business by reducing the amount of its commercial real estate lending and increasing the cost of borrowing, including rules relating to risk retention of securitized assets. Section 941 of the Dodd-Frank Act requires, among other things, a loan originator or a securitizer of asset-backed securities to retain a percentage of the credit risk of securitized assets. In October 2014, the banking agencies issued final rules to implement the credit risk retention requirements of Section 941 of Dodd-Frank. The regulations became effective on February 23, 2015. Compliance with the rules with respect to new securitization transactions backed by residential mortgages have been required since December 24, 2015 and compliance with respect to new securitization transactions backed by other types of assets have been required since December 24, 2016. The Company continues to evaluate the final rules and assess their impact on its securitization activities.

Branching

The Dodd-Frank Act substantially amended the legal framework that had previously governed interstate branching activities. Formerly, under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, a bank's ability to branch into a particular state was largely dependent upon whether the state “opted in” to de novo interstate branching. Many states did not “opt-in,” which resulted in branching restrictions in those states. The Dodd-Frank Act removed the “opt-in” concept and permits banks to engage in de novo branching outside of their home states, provided that the laws of the target state permit banks chartered in that state to branch within that state. Accordingly, de novo interstate branching by the Company is subject to these standards. All branching in which the Company may engage remains subject to regulatory approval and adherence to applicable legal and regulatory requirements.

Anti-Tying Restrictions

In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for them on the condition that (1) the customer obtain or provide some additional credit, property or services from or to said bank or bank holding company or their subsidiaries, or (2) the customer not obtain some other credit, property or services from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of the credit extended. A bank may, however, offer combined-balance products and may otherwise offer more favorable terms if a customer obtains two or more traditional bank products. Also, certain foreign transactions are exempt from the general rule.

Privacy and Credit Reporting

Financial institutions are required to disclose their policies for collecting and protecting confidential customer information. Customers generally may prevent financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties, with some exceptions, such as the processing of transactions requested by the consumer. Financial institutions generally may not disclose certain consumer or account information to any nonaffiliated third-party for use in telemarketing, direct mail marketing or other marketing. Federal and state banking agencies have prescribed standards for maintaining the security and confidentiality of consumer information, and the Company is subject to such standards, as well as certain federal and state laws or standards for notifying consumers in the event of a security breach.

The Bank utilizes credit bureau data in underwriting activities. Use of such data is regulated under the Fair Credit Reporting Act and Regulation V on a uniform, nationwide basis, including credit reporting, prescreening and sharing of information between affiliates and the use of credit data. The Fair and Accurate Credit Transactions Act, which amended the Fair Credit Reporting Act, permits states to enact identity theft laws that are not inconsistent with the conduct required by the provisions of that Act.

Enforcement Powers

The Bank and its “institution-affiliated parties,” including management, employees, agents, independent contractors and consultants, such as attorneys and accountants and others who participate in the conduct of the institution's affairs, are subject to potential civil and criminal penalties for violations of law, regulations or written orders of a government agency. Violations can include failure to timely file required reports, filing false or misleading information or submitting inaccurate reports. Civil penalties may be as high as $1,000,000 a day for such violations and criminal penalties for some financial institution crimes may include imprisonment for 20 years. Regulators have flexibility to commence enforcement actions against institutions and institution-affiliated parties, and the FDIC has the authority to terminate deposit insurance. When issued by a banking agency, cease-and-desist and similar orders may, among other things,

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require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts or take other actions determined to be appropriate by the ordering agency. The federal banking regulators also may remove a director or officer from an insured depository institution (and bar them from the industry) if a violation is willful or reckless.

Monetary Policy and Economic Controls

The Bank's earnings, and therefore the Company's earnings, are affected by the policies of regulatory authorities, including the monetary policy of the Federal Reserve Board. An important function of the Federal Reserve Board is to promote orderly economic growth by influencing interest rates and the supply of money and credit. Among the methods that have been used to achieve this objective are open market operations in U.S. government securities, changes in the discount rate for bank borrowings, expanded access to funds for non-banks and changes in reserve requirements against bank deposits. These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, interest rates on loans and securities, and rates paid for deposits.

The effects of the various Federal Reserve Board policies on the Company's future business and earnings cannot be predicted. The Company cannot predict the nature or extent of any affects that possible future governmental controls or legislation might have on its business and earnings.

Depositor Preference Statute

Federal law provides that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution are afforded priority over other general unsecured claims against such institution, including federal funds and letters of credit, in the liquidation or other resolution of the institution by any receiver.

FDIC Recordkeeping Requirements

In November 2016, the FDIC issued a final rule establishing recordkeeping requirements for FDIC-insured institutions with 2 million or more deposit accounts, which includes the Bank. The rule generally requires each covered institution to maintain complete and accurate information needed to determine deposit insurance coverage with respect to each deposit account. In addition, each covered institution must ensure that its information technology system is able to calculate the insured amount for most depositors within 24 hours of failure. Compliance is required by April 1, 2020.

Cybersecurity

In October 2016, the federal banking regulators issued an advance notice of proposed rulemaking regarding enhanced cyber risk management standards, which would apply to a wide range of large financial institutions and their third-party service providers, including us and our U.S. Bank Subsidiaries. The proposed standards would expand existing cybersecurity regulations and guidance to focus on cyber risk governance and management; management of internal and external dependencies; and incident response, cyber resilience and situational awareness. In addition, the proposal contemplates more stringent standards for institutions with systems that are critical to the financial sector.

Other Regulatory Matters

The Company and its subsidiaries and affiliates are subject to numerous examinations by federal and state banking regulators, as well as the SEC, FINRA and various state insurance and securities regulators. The Company and its subsidiaries have from time to time received requests for information from regulatory authorities at the federal level or in various states, including state insurance commissions, state attorneys general, federal agencies or law enforcement authorities, securities regulators and other regulatory authorities, concerning their business practices. Such requests are considered incidental to the normal conduct of business.

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,

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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.

During the year ended December 31, 2016, the Company did not knowingly engage 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, 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. During the year ended December 31, 2016, the BBVA Group had the following activities, transactions and dealings requiring disclosure under Section 13(r) of the Exchange Act.

Legacy contractual obligations related to counter indemnities. Before 2007, the BBVA Group issued certain counter indemnities to its non-Iranian customers in Europe for various business activities relating to Iran in support of guarantees provided by Bank Melli, two of which remained outstanding during the year ended December 31, 2016. For 2016, revenues of $641 (including fees and/or commissions) have been recorded in connection with these counter indemnities. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure. In addition, during 2016 the BBVA Group incurred cancellation, enforcement and postage expenses of $214,405 related to these counter guarantees. In addition, in accordance with Council Regulation (EU) Nr. 267/2012 of March 23, 2012, payments of any amounts due to Bank Melli under these counter indemnities were initially blocked and thereafter released upon authorization by the relevant Spanish authorities. The BBVA Group is committed to terminating these business relationships as soon as contractually possible and does not intend to enter into new business relationships involving Bank Melli.

Refund of funds from Bank Sepah. During the year ended December 31, 2016, Bank Sepah returned to BBVA funds in the amount of $4,624 originally transferred by BBVA in March 2007 to an account at Bank Sepah in the name of BBVA’s representative office in Tehran.

Iranian embassy-related activity. The BBVA Group maintains bank accounts in Spain for two employees of the Iranian embassy in Spain. The two employees are Spanish citizens, and one of them has retired. Estimated gross revenues for the year ended December 31, 2016, from embassy-related activity, which include fees and/or commissions, did not exceed $2,490. The BBVA Group does not allocate direct costs to fees and commissions and, therefore, has not disclosed a separate profit measure. The BBVA Group is committed to terminating these business relationships as soon as legally possible.

Additional Information

The Company’s corporate headquarters are located at 2200 Post Oak Blvd., Houston, Texas, 77056, and the Company’s telephone number is (205) 297-3000. The Company maintains an Investor Relations website on the Internet at www.bbvacompass.com. This reference to the Company's website is an inactive textual reference only, and is not a hyperlink. The contents of the Company's website shall not be deemed to be incorporated by reference into this Annual Report on Form 10-K.

The Company files annual, quarterly and current reports and other information with the SEC. You may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website that contains reports and information statements and other information that the Company files electronically with the SEC at www.sec.gov. The Company also makes available free of charge, on or through its website, these reports and other information as soon as reasonably practicable following the time they are electronically filed with or furnished to the SEC.

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Item 1A. Risk Factors

This section highlights the material risks that the Company currently faces. Any of the risks described below could materially adversely affect the Company's business, financial condition, or results of operations.

Any deterioration in national, regional and local economic conditions, particularly unemployment levels and home prices, could materially affect the Company's business, financial condition or results of operations.

The Company's business is subject to periodic fluctuations based on national, regional and local economic conditions. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on its financial condition and operations even if other favorable events occur. The Company's banking operations are locally-oriented and community-based. Accordingly, the Company expects to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets it serves, including Alabama, Arizona, California, Colorado, Florida, New Mexico and Texas. These economic conditions could require the Company to charge-off a higher percentage of loans or increase provisions for credit losses, which would reduce its net income.

The Company is part of the financial system and a systemic lack of available credit, a lack of confidence in the financial sector, continued volatility in the financial markets and/or reduced business activity could materially adversely affect its business, financial condition or results of operations.

A return of the volatile economic conditions experienced in the U.S. during 2008-2009, including the adverse conditions in the fixed income debt markets, for an extended period of time, particularly if left unmitigated by policy measures, may materially and adversely affect the Company.

Declining oil prices could adversely affect the Company's performance.

As of December 31, 2016, energy-related loan balances represented approximately 5 percent of the Bank’s total loan portfolio. This amount is comprised of loans directly related to energy, such as exploration and production, pipeline transportation of natural gas, crude oil and other refined petroleum products, oil field services, and refining and support. In late 2014, oil prices began to decline and continued to decline through the first half of 2016, which has had an adverse effect on some of the Bank’s borrowers in this portfolio and on the value of the collateral securing some of these loans. If oil prices decline in a material way, the cash flows of the Bank’s customers in this industry could be adversely impacted which could impair their ability to service any loans outstanding to them and/or reduce demand for loans. These factors could result in higher delinquencies and greater charge-offs in future periods, which could adversely affect the Company's business, financial condition or results of operations. 

Furthermore, energy production and related industries represent a significant part of the economies in some of the Bank’s primary markets. A prolonged period of low or volatile oil prices could have a negative impact on the economies and real estate markets of states such as Texas, which could adversely affect the Company's business, financial condition or results of operations.

The failure of the European Union to stabilize the fiscal condition of member countries, especially in Spain, could have an adverse impact on global financial markets, the current U.S. economic recovery and the Company.

Certain European Union member countries have fiscal obligations greater than their fiscal revenue, which has caused investor concern over such countries' ability to continue to service their debt and foster economic growth. Fiscal austerity measures such as raising taxes and reducing entitlements have improved the ability of some member countries to service their debt, but have challenged economic growth and efforts to lower unemployment rates in the region.

The Company is a wholly owned subsidiary of BBVA, which is based in Spain and serves as a source of strength and capital to the Company. Accordingly, European Union weakness, particularly in Spain, could directly impact BBVA and could have an adverse impact on the Company's business or financial condition.

A weaker European economy may transcend Europe, cause investors to lose confidence in the safety and soundness of European financial institutions and the stability of European member economies, and likewise affect U.S.-based financial institutions, the stability of the global financial markets and the economic recovery underway in the U.S. Should the U.S. economic recovery be adversely impacted by these factors, loan and asset growth at U.S. financial institutions, like the Company, could be affected.

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Weakness in the real estate market, including the secondary residential mortgage loan market, has adversely affected the Company in the past and may continue to adversely affect it.

Weakness in the non-agency secondary market for residential mortgage loans has limited the market for and liquidity of many nonconforming mortgage loans. The effects of ongoing mortgage market challenges, combined with the past corrections in residential real estate market prices and reduced levels of home sales, could result in price reductions in single family home values, adversely affecting the value of collateral securing mortgage loans that the Company holds, and mortgage loan originations and profits on sales of mortgage loans. Declining real estate prices have historically caused cyclically higher delinquencies and losses on mortgage loans and home equity lines of credit. These conditions have resulted in losses, write-downs and impairment charges in the Company's mortgage and other business units.

Future declines in real estate values, low home sales volumes, financial stress on borrowers as a result of unemployment, interest rate resets on ARMs or other factors could have adverse effects on borrowers that could result in higher delinquencies and greater charge-offs in future periods, which would adversely affect the Company's financial condition or results of operations. Additionally, counterparties to insurance arrangements used to mitigate risk associated with increased defaults in the real estate market have been stressed by weaknesses in the real estate market and a commensurate increase in the number of claims. Further, decreases in real estate values might adversely affect the creditworthiness of state and local governments, and this might result in decreased profitability or credit losses from loans made to such governments. In markets dependent on energy production, falling energy prices may adversely affect real estate values. A decline in home 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.

The Company is subject to legislation and regulation, and future legislation or regulation or changes to existing legislation or regulation could affect its business.

The legislative, regulatory and supervisory framework governing the financial sectors has undergone significant and rapid change since the financial crisis. The Dodd-Frank Act as well as other post-financial crisis regulatory reforms in the United States have increased costs, imposed limitations on activities and resulted in an increased intensity in regulatory enforcement. While most of the changes required by the Dodd-Frank Act that impact the Company have been implemented or are expected to follow a known trajectory, new changes under the Trump administration, including their nature and impact, cannot yet be determined with any degree of certainty.

Changes to laws and regulations at both the state or federal level applicable to the Company are frequently proposed and could materially impact the profitability of the Company's business, the value of assets it holds or the collateral available for its loans, require changes to business practices or expose it to additional costs, taxes, liabilities, enforcement actions and reputational risk. The likelihood, timing and scope of any such changes and the impact any such change may have on the Company cannot be determined with any certainty

The CFPB's residential mortgage regulations could adversely affect the Company's business, financial condition or results of operations.

The Company and the Bank are regulated and supervised by the CFPB. The CFPB has promulgated many mortgage-related rules since it was established under the Dodd-Frank Act, including rules related to the ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, Home Mortgage Disclosure Act requirements and appraisal and escrow standards for higher-priced mortgages.

The Company is subject to capital adequacy and liquidity standards, and if it fails to meet these standards its financial condition and operations would be adversely affected.

The U.S. Basel III capital rule and provisions in the Dodd-Frank Act increased capital requirements for banking organizations such as the Company and the Bank and will continue to increase such requirements as they are phased in. Consistent with the Basel Committee's Basel III capital framework, the U.S. Basel III capital rule includes a minimum ratio of CET1 capital to risk weighted assets of 4.5 percent and a CET1 capital conservation buffer of greater than 2.5 percent of risk-weighted assets that will apply to all U.S. banking organizations, including the Bank and the Company. Failure to maintain the capital conservation buffer would result in increasingly stringent restrictions on a banking organization's ability to make dividend payments and other capital distributions and pay discretionary bonuses to

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executive officers. Under the U.S. Basel III final rule, trust preferred securities no longer qualify as Tier 1 capital for bank holding companies such as the Company.

The Company is also required to submit an annual capital plan to the Federal Reserve Board under the CCAR process. The capital plan must include an assessment of the Company's expected uses and sources of capital over a forward-looking planning horizon of at least nine quarters, a detailed description of the Company's process for assessing capital adequacy, the Company's capital policy, and a discussion of any expected changes to the Company's business plan that are likely to have a material impact on its capital adequacy or liquidity. Based on a quantitative assessment, including a supervisory stress test conducted as part of the CCAR process, the Federal Reserve Board will either object to the Company's capital plan, in whole or in part, or provide a notice of non-objection to the Company. If the Federal Reserve Board objects to a capital plan, the Company may not make any capital distribution other than those with respect to which the Federal Reserve Board has indicated its non-objection. In addition to capital planning, the Company and the Bank are subject to capital stress testing requirements imposed by the Dodd-Frank Act.

The Federal Reserve Board evaluates the Company's liquidity as part of the supervisory process and adopted a final LCR rule, which is being phased in for the Company. Failure to comply with these regulatory standards or any new rules, such as a final rule implementing NSFR, could affect the Company's business.

In addition, BBVA designated the Parent as its IHC to comply with the Federal Reserve Board's final rule to enhance its supervision and regulation of the U.S. operations of Large FBOs. The Parent is subject to U.S. risk-based and leverage capital, liquidity, risk management, stress testing and other enhanced prudential standards on a consolidated basis under this rule. BBVA's combined U.S. operations (including its U.S. branches, agencies and subsidiaries) are also subject to certain enhanced prudential standards. These enhanced prudential standards could affect the Company’s operations.

Please refer to Item 1. Business - Supervision and Regulation for more information.

The Parent is a holding company and depends on its subsidiaries for liquidity in the form of dividends, distributions and other payments.

The Parent is a legal entity separate and distinct from its subsidiaries, including the Bank. The principal source of cash flow for the Parent is dividends from the Bank. There are statutory and regulatory limitations on the payment of dividends by the Bank. Regulations of both the Federal Reserve and the State of Alabama affect the ability of the Bank to pay dividends and other distributions to the Company and to make loans to the Company. Also, the Company’s right to participate in a distribution of assets upon a subsidiary's liquidation or reorganization is subject to the prior claims of the subsidiary's creditors. Limitations on the Parent’s ability to receive dividends and distributions from its subsidiaries could have a material adverse effect on the Company’s liquidity and on its ability to pay dividends on common stock. For additional information regarding these limitations see Item 1. Business - Supervision, Regulation and Other Factors - Dividends.

The Company is subject to credit risk.

When the Company loans money, commits to loan money or enters into a letter of credit or other contract with a counterparty, it incurs credit risk, which is the risk of losses if its borrowers do not repay their loans or its counterparties fail to perform according to the terms of their contracts. Many of the Company's products expose it to credit risk, including loans, leases and lending commitments.

Further downgrades to the U.S. government's credit rating, or the credit rating of its securities, by one or more of the credit ratings agencies could have a material adverse effect on general economic conditions, as well as the Company's operations, earnings and financial condition.

It is foreseeable that the ratings and perceived creditworthiness of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. government could be correspondingly affected by any downgrade to the U.S. government's sovereign credit rating, including the rating of U.S. Treasury securities. Instruments of this nature are key assets on the balance sheets of financial institutions, including the Company, and are widely used as collateral by financial institutions to meet their day-to-day cash flows in the short-term debt market.

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Further downgrades of the U.S. government's sovereign credit rating, and the perceived creditworthiness of U.S. government-related obligations, could impact the Company's ability to obtain funding that is collateralized by affected instruments, as well as affecting the pricing of that funding when it is available. A downgrade may also adversely affect the market value of such instruments. The Company cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions. Such ratings actions could result in a significant adverse impact on the Company. A downgrade of the sovereign credit ratings of the U.S. government or the credit ratings of related institutions, agencies or instrumentalities would significantly exacerbate the other risks to which the Company is subject and any related adverse effects on its business, financial condition and results of operations.

A reduction in the Company's own credit rating could have a material adverse effect on the Company's liquidity and increase the cost of its capital markets funding.

Adequate liquidity is essential to the Company's businesses. A reduction to the Company's credit rating could have a material adverse effect on the Company's business, financial condition and results of operations.

The rating agencies regularly evaluate the Company and their ratings are based on a number of factors, including the Company's financial strength as well as factors not entirely within its control, such as conditions affecting the financial services industry generally. Adverse changes in the credit ratings of the Kingdom of Spain, which subsequently could impact BBVA, could also adversely impact the Company's credit rating. There can be no assurance that the Company will maintain its current ratings. The Company's failure to maintain those ratings could increase its borrowing costs, require the Company to replace funding lost due to the downgrade, which may include the loss of customer deposits, and may also limit the Company's access to capital and money markets and trigger additional collateral requirements in derivatives contracts and other secured funding arrangements.

The Company's ability to access the capital markets is important to its overall funding profile. This access is affected by its credit rating. The interest rates that the Company pays on its securities are also influenced by, among other things, the credit ratings that it receives from recognized rating agencies. A downgrade to the Company's credit rating could affect its ability to access the capital markets, increase its borrowing costs and negatively impact its profitability. A ratings downgrade to the Company's credit rating could also create obligations or liabilities for it under the terms of its outstanding securities that could increase its costs or otherwise have a negative effect on the Company's results of operations or financial condition. Additionally, a downgrade of the credit rating of any particular security issued by the Company could negatively affect the ability of the holders of that security to sell the securities and the prices at which any such securities may be sold.

Changes in interest rates could affect the Company's income and cash flows.

The Company's earnings and financial condition are largely dependent on net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest rate spreads, meaning the difference between interest rates earned on loans and investments and the interest rates paid on deposits and borrowings, could adversely affect the Company's earnings and financial condition. The Company cannot control or predict with certainty changes in interest rates.

Regional and local economic conditions, competitive pressures and the policies of regulatory authorities, including monetary policies of the Federal Reserve Board, affect interest income and interest expense. The Company has policies and procedures designed to manage the risks associated with changes in market interest rates. Changes in interest rates, however, may still have an adverse effect on the Company's profitability. While the Company actively manages against these risks, if its assumptions regarding borrower behavior are wrong or overall economic conditions are significantly different than planned for, then its risk mitigation techniques may be insufficient to protect against the risk.

The costs and effects of litigation, regulatory investigations, examinations or similar matters, or adverse facts and developments relating thereto, could materially affect the Company's business, operating results and financial condition.

The Company faces legal risks in its business, and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remain high and are escalating. Substantial

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legal liability or significant regulatory action against the Company may have material adverse financial effects or cause significant reputational harm, which in turn could seriously harm its business prospects.

The Company and its operations are subject to increasing regulatory oversight and scrutiny, which may lead to additional regulatory investigations or enforcement actions, thereby increasing the Company’s costs associated with responding to or defending such actions. In particular, inquiries could develop into administrative, civil or criminal proceedings or enforcement actions and may increase the Company's compliance costs, require changes in the Company's business practices, affect the Company's competitiveness, impair the Company's profitability, harm the Company's reputation or otherwise adversely affect the Company's business.

In February 2015, the Federal Reserve Board announced the results of its regularly scheduled examination covering 2011 and 2012 to determine the Bank’s compliance with the CRA. The CRA requires the Federal Reserve Board to evaluate the record of the Bank in meeting the credit needs of its local community, including low and moderate income neighborhoods. The Bank received a rating of “needs to improve." The Bank’s rating in this CRA examination resulted in restrictions on certain activities, including certain mergers and acquisitions and applications to open branches or certain other facilities. However, the Bank received a “Satisfactory” CRA rating in its most recent CRA examination and those restrictions have been removed.

The Company's insurance may not cover all claims that may be asserted against it and indemnification rights to which it is entitled may not be honored. Any claims asserted against the Company, regardless of merit or eventual outcome, may harm its reputation. Should the ultimate judgments or settlements in any litigation or investigation significantly exceed the Company's insurance coverage, they could have a material adverse effect on its business, financial condition and results of operations. In addition, premiums for insurance covering the financial and banking sectors are rising. The Company may not be able to obtain appropriate types or levels of insurance in the future, nor may it be able to obtain adequate replacement policies with acceptable terms or at historic rates, if at all.

Disruptions in the Company's ability to access capital markets may adversely affect its capital resources and liquidity.

The Company may access capital markets to provide it with sufficient capital resources and liquidity to meet its commitments and business needs, and to accommodate the transaction and cash management needs of its clients. Other sources of contingent funding available to the Company include inter-bank borrowings, brokered deposits, repurchase agreements, FHLB capacity and borrowings from the Federal Reserve discount window. Any occurrence that may limit the Company's access to the capital markets, such as a decline in the confidence of debt investors, its depositors or counterparties participating in the capital markets, or a downgrade of its debt rating, may adversely affect the Company's capital costs and its ability to raise capital and, in turn, its liquidity.

Disruptions in the liquidity of financial markets may directly impact the Company to the extent it needs to access capital markets to raise funds to support its business and overall liquidity position. This situation could adversely affect the cost of such funds or the Company's ability to raise such funds. If the Company were unable to access any of these funding sources when needed, it might be unable to meet customers' needs, which could adversely impact its financial condition, results of operations, cash flows and level of regulatory-qualifying capital.

The Company may suffer increased losses in its loan portfolio despite enhancement of its underwriting policies and practices, and the Company's allowances for credit losses may not be adequate to cover such eventual losses.

The Company seeks to mitigate risks inherent in its loan portfolio by adhering to specific underwriting policies and practices, which often include analysis of (1) a borrower's credit history, financial statements, tax returns and cash flow projections; (2) valuation of collateral based on reports of independent appraisers; and (3) verification of liquid assets. The Company's underwriting policies, practices and standards are periodically reviewed and, if appropriate, enhanced in response to changing market conditions and/or corporate strategies.

Like other financial institutions, the Company maintains allowances for credit losses to provide for loan defaults and nonperformance. The Company's allowances for credit losses may not be adequate to cover eventual loan losses, and future provisions for credit losses could materially and adversely affect the Company's financial condition and results of operations. In addition, the FASB's Accounting Standards Update, Financial Instruments-Credit Losses (Subtopic 825-15), that would substantially change the accounting for credit losses under current U.S. GAAP standards. Under current U.S. GAAP standards, credit losses are not reflected in financial statements until it is probable that the credit loss has been incurred. Under the new Credit Loss ASU, an entity would reflect in its financial statements its

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current estimate of credit losses on financial assets over the expected life of each financial asset. The Credit Loss ASU, may have a negative impact on the Company's reported earnings, capital, regulatory capital ratios, as well as on regulatory limits which are based on capital (e.g., loans to affiliates) since it would accelerate the recognition of estimated credit losses.

The value of the Company’s goodwill may decline in the future.

A significant decline in the Company’s expected future cash flows, a significant adverse change in the business climate, or slower growth rates, any or all of which could be materially impacted by many of the risk factors discussed herein, may require that the Company take charges in the future related to the impairment of goodwill. Future regulatory actions could also have a material impact on assessments of goodwill for impairment. If the Company were to conclude that a future write-down of its goodwill and other intangible assets is necessary, the Company would record the appropriate charge which could have a material adverse effect on its results of operations.

The financial services market is undergoing rapid technological changes, and the Company may be unable to effectively compete or may experience heightened cyber-security risks as a result of these changes.

The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and may enable us to reduce costs. The Company's future success may depend, in part, on its ability to use technology to provide products and services that provide convenience to customers and to create additional efficiencies in its operations. Some of the Company's competitors have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. As a result, the Company's ability to effectively compete to retain or acquire new business may be impaired, and its business, financial condition or results of operations may be adversely affected.

The Company is under continuous threat of loss due to cyber-attacks, especially as it continues to expand customer capabilities to utilize internet and other remote channels to transact business. Two of the most significant cyber-attack risks that it faces are e-fraud and breach of sensitive customer data. Loss from e-fraud occurs when cybercriminals breach and extract funds directly from customers' or the Company's accounts. The attempts to breach sensitive customer data, such as account numbers and social security numbers, are less frequent, but could present significant reputational, legal and/or regulatory costs to the Company if successful.

Over the past few years, there have been a series of distributed denial of service attacks on financial services companies. Distributed denial of service attacks are designed to saturate the targeted online network with excessive amounts of network traffic, resulting in slow response times, or in some cases, causing the site to be temporarily unavailable. Generally, these attacks have not been conducted to steal financial data, but meant to interrupt or suspend a company's internet service. While these events may not result in a breach of client data and account information, the attacks can adversely affect the performance of a company’s website and in some instances prevented customers from accessing a company’s website. Distributed denial of service attacks, hacking and identity theft risks could cause serious reputational harm. Cyber threats are rapidly evolving and the Company may not be able to anticipate or prevent all such attacks. The Company's risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, its plans to continue to provide internet banking and mobile banking channels, and its plans to develop additional remote connectivity solutions to serve its customers. The Company may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.

The Company relies heavily on communications and information systems to conduct its business and relies on third parties and affiliates to provide key components of its business infrastructure.

The Company relies heavily on communications and information systems to conduct its business. This includes the utilization of a data center in Mexico. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company's customer relationship management, general ledger, deposit, loan and other systems. While the Company has policies and procedures designed to prevent or limit the effect of the possible failure, interruption or security breach of its information systems, there can be no assurance that any such failure, interruption or security breach will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any

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failure, interruption or security breach of the Company's information systems could damage its reputation, result in a loss of customer business, subject it to additional regulatory scrutiny, or expose it to civil litigation and possible financial liability.

Third parties and affiliates provide key components of the Company's business infrastructure such as banking services, processing, and internet connections and network access. Any disruption in such services provided by these third parties or affiliates or any failure of these third parties or affiliates to handle current or higher volumes of use could adversely affect the Company's ability to deliver products and services to clients, its reputation and its ability to otherwise conduct business. Beginning in 2011, the Bank began converting to a new core banking system. Implementation and continuing improvement of this new core banking system relies heavily on third parties to develop software.

Technological or financial difficulties of a third party or affiliate service provider, including security breaches, could adversely affect the Company's business to the extent those difficulties result in the interruption or discontinuation of services provided by that party or the loss of sensitive customer data. Further, in some instances the Company may be responsible for failures of such third parties or affiliates to comply with government regulations. The Company may not be insured against all types of losses as a result of third party or affiliate failures and the Company's insurance coverage may be inadequate to cover all losses resulting from system failures or other disruptions. Failures in the Company business infrastructure could interrupt operations or increase the costs of doing business.

The Company is subject to a variety of operational risks, including reputational risk, legal risk and regulatory and compliance risk, and the risk of fraud or theft by employees or outsiders, which may adversely affect its business and results of operations.

The Company is exposed to many types of operational risks, including reputational risk, legal, regulatory and compliance risk, the risk of fraud or theft by employees or outsiders, including unauthorized transactions by employees, or operational errors, such as clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems. Negative public opinion can result from the Company's actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, and from actions taken by government regulators and community organizations in response to those activities. In addition, negative public opinion can adversely affect the Company's ability to attract and keep customers and can expose it to litigation and regulatory action. Actual or alleged conduct by the Company can result in negative public opinion about its other business. Negative public opinion could also affect the Company's credit ratings, which are important to its access to unsecured wholesale borrowings.

The Company's business involves storing and processing sensitive consumer and business customer data. If personal, non-public, confidential or proprietary information of customers in its possession were to be mishandled or misused, the Company could suffer significant regulatory consequences, reputational damage and financial loss. Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of the Company's systems, employees or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.

Because the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. The Company's necessary dependence upon automated systems to record and process transactions and its large transaction volume may further increase the risk that technical flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. The Company also may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control, such as computer viruses, electrical or telecommunications outages, natural disasters, or other damage to property or physical assets which may give rise to disruption of service to customers and to financial loss or liability. The Company is further exposed to the risk that its external vendors may be unable to fulfill their contractual obligations, or will be subject to the same risk of fraud or operational errors by their respective employees as it is, and to the risk that the Company's, or its vendors', business continuity and data security systems prove to be inadequate. The occurrence of any of these risks could result in a diminished ability of the Company to operate its business, as well as potential liability to clients, reputational damage and regulatory intervention, which could adversely affect the Company's business, financial condition or results of operations.

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The Company depends on the expertise of key personnel, and its operations may suffer if it fails to attract and retain skilled personnel.

The Company's success depends, in large part, on its ability to attract and retain key individuals. Competition for qualified candidates in the activities and markets that the Company serves is great and it may not be able to hire these candidates and retain them. If the Company is not able to hire or retain these key individuals, it may be unable to execute its business strategies and may suffer adverse consequences to its business, operations and financial condition.

In June 2010, the federal banking regulators issued joint guidance on executive compensation designed to help ensure that a banking organization's incentive compensation policies do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization. In addition, the Dodd-Frank Act requires those agencies, along with the SEC, to adopt rules affecting the structure and reporting of incentive compensation. The federal banking regulators and SEC proposed such rules in 2011 and issued revised proposed rules in 2016.

As a wholly owned subsidiary of BBVA, the Company is also required to comply with the European Union’s CRD-IV, which, among other things, impacts the variable compensation of certain risk-takers and highly compensated individuals in the Company or its subsidiaries. In accordance with CRD-IV, the Bank pays variable compensation of certain employees half in stock and half in cash. Additionally, in accordance with CRD-IV, from 40% to 50% (depending on the classification of the employee), of such payment is deferred for three years. The deferred amounts are subject to performance indicators and a malus clause, which could result in the reduction or forfeiture of the deferred amounts. The equity awards are subject to an additional one-year holding period after delivery. Most of the Company’s competitors are not subject to CRD-IV.

If the Company is unable to attract and retain qualified employees, or do so at rates necessary to maintain its competitive position, or if compensation costs required to attract and retain employees become more expensive, the Company's performance, including its competitive position, could be materially adversely affected.

The Company's framework for managing risks may not be effective in mitigating risk and loss to the company.

The Company's risk management framework is made up of various processes and strategies to manage its risk exposure. The framework to manage risk, including the framework's underlying assumptions, may not be effective under all conditions and circumstances. If the risk management framework proves ineffective, the Company could suffer unexpected losses and could be materially adversely affected.

The Company's financial reporting controls and procedures may not prevent or detect all errors or fraud.

Financial reporting disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Any disclosure controls and procedures over financial reporting or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.

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 purchasers as a result of breaches of representations and warranties, borrower fraud or certain breaches of its servicing agreements, and this could harm the Company's liquidity, results of operations and financial condition.

The Company originates and often sells mortgage loans. When it sells mortgage loans, whether as whole loans or pursuant to a securitization, the Company is required to make customary representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated. The Company's whole loan sale agreements require it to repurchase or substitute mortgage loans in the event that it breaches certain of these representations or warranties. In addition, the Company may be required to repurchase mortgage loans as a result of borrower fraud or

34

in the event of early payment default of the borrower on a mortgage loan. Likewise, the Company is required to repurchase or substitute mortgage loans if it breaches a representation or warranty in connection with its securitizations, whether or not it was the originator of the loan. While in many cases it may have a remedy available against certain parties, often these may not be as broad as the remedies available to a purchaser of mortgage loans against it, and the Company faces the further risk that such parties may not have the financial capacity to satisfy remedies that may be available to it. Therefore, if a purchaser enforces its remedies against it, the Company may not be able to recover its losses from third parties. The Company has received repurchase and indemnity demands from purchasers. These have resulted in an increase in the amount of losses for repurchases. While the Company has taken steps to enhance its underwriting policies and procedures, these steps will not reduce risk associated with loans sold in the past. If repurchase and indemnity demands increase materially, the Company's results of operations may be adversely affected.

The Company is subject to intense competition in the financial services industry, particularly in its market area, which could result in losing business or margin declines.

The Company operates in a highly competitive industry that could become even more competitive as a result of reform of the financial services industry resulting from the Dodd-Frank Act and other legislative, regulatory and technological changes, as well as continued consolidation. The Company faces aggressive competition from other domestic and foreign lending institutions and from numerous other providers of financial services. The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified competition. Because non-banking financial institutions are not subject to the same regulatory restrictions as banks and bank holding companies, they can often operate with greater flexibility and lower cost structures. Securities firms and insurance companies that elect to become financial holding companies can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking, and may acquire banks and other financial institutions. This may significantly change the competitive environment in which the Company conducts business. Some of the Company's competitors have greater financial resources and/or face fewer regulatory constraints. As a result of these various sources of competition, the Company could lose business to competitors or be forced to price products and services on less advantageous terms to retain or attract clients, either of which would adversely affect its profitability.

Some of the Company's larger competitors, including certain national banks that have a significant presence in its market area, may have greater capital and resources than the Company, may have higher lending limits and may offer products and services not offered by the Company. Although the Company remains strong, stable and well capitalized, management cannot predict the reaction of customers and other third parties with which it conducts business with respect to the strength of the Company relative to its competitors, including its larger competitors. Any potential adverse reactions to the Company's financial condition or status in the marketplace, as compared to its competitors, could limit its ability to attract and retain customers and to compete for new business opportunities. The inability to attract and retain customers or to effectively compete for new business may have a material and adverse effect on the Company's financial condition and results of operations.

The Company also experiences competition from a variety of institutions outside of its market area. Some of these institutions conduct business primarily over the internet and may thus be able to realize certain cost savings and offer products and services at more favorable rates and with greater convenience to the customer who can pay bills and transfer funds directly without going through a bank. This “disintermediation” could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits. In addition, changes in consumer spending and saving habits could adversely affect the Company's operations, and the Company may be unable to timely develop competitive new products and services in response to these changes.

Unpredictable catastrophic events could have a material adverse effect on the Company.

The occurrence of catastrophic events such as hurricanes, tropical storms, tornados, terrorist attacks and other large scale catastrophes could adversely affect the Company's consolidated financial condition or results of operations. The Company has operations and customers in the southern United States, which could be adversely impacted by hurricanes and other severe weather in those regions. Unpredictable natural and other disasters could have an adverse effect on the Company in that such events could materially disrupt its operations or the ability or willingness of its customers to access the financial services it offers. The incidence and severity of catastrophes are inherently unpredictable. Although the Company carries insurance to mitigate its exposure to certain catastrophic events, these events could nevertheless

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reduce its earnings and cause volatility in its financial results for any fiscal quarter or year and have a material adverse effect on its financial condition and/or results of operations.

Customers could pursue alternatives to bank deposits, causing the Company to lose a relatively inexpensive source of funding.

Checking and savings account balances and other forms of client deposits could decrease if customers perceive alternative investments, such as the stock market, provide superior expected returns. When clients move money out of bank deposits in favor of alternative investments, the Company can lose a relatively inexpensive source of funds, increasing its funding costs.

Negative public opinion could damage the Company's reputation and adversely impact business and revenues.

As a financial institution, the Company's earnings and capital are subject to risks associated with negative public opinion. The reputation of the financial services industry in general has been damaged as a result of the financial crisis and other matters affecting the financial services industry, including mortgage foreclosure issues. Negative public opinion regarding the Company could result from its actual or alleged conduct in any number of activities, including lending practices, the failure of any product or service sold by it to meet its clients' expectations or applicable regulatory requirements, breach of sensitive customer information, corporate governance and acquisitions, or from actions taken by government regulators and community organizations in response to those activities. The Company could also be adversely affected by negative public opinion involving BBVA. Negative public opinion can adversely affect the Company's ability to keep, attract and/or retain clients and personnel, and can expose it to litigation and regulatory action. Actual or alleged conduct by one of the Company's businesses can result in negative public opinion about its other businesses. Negative public opinion could also affect the Company's credit ratings, which are important to accessing unsecured wholesale borrowings. Significant changes in these ratings could change the cost and availability of these sources of funding.

The Company depends on the accuracy and completeness of information about clients and counterparties.

In deciding whether to extend credit or enter into other transactions with clients and counterparties, the Company may rely on information furnished by or on behalf of clients and counterparties, including financial statements and other financial information. The Company also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.

Compliance with anti-money laundering and anti-terrorism financing rules involves significant cost and effort.

The Company is subject to rules and regulations regarding money laundering and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules and regulations can put a significant financial burden on banks and other financial institutions and poses significant technical problems. Although we have internal policies and procedures designed to ensure compliance with applicable anti-money laundering and anti-terrorism financing rules and regulations, we cannot guarantee that our policies and procedures completely prevent violations of such rules and regulations. Any such violations may have severe consequences, including sanctions, fines and reputational consequences, which could have a material adverse effect on the Company's business, financial condition or results of operations.

The Company is exposed to risks in relation to compliance with anti-corruption laws and regulations and economic sanctions programs.

The Company is required to comply with various anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, and economic sanctions programs, including those administered by the United Nations Security Council and the United States, including OFAC. The anti-corruption laws generally prohibit providing anything of value to government officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of its business, the Company may deal with entities, the employees of which are considered government officials. In addition, as noted above in Part I, Item 1 (“Anti-Money Laundering; USA PATRIOT Act; Office of Foreign Assets Control”) above, economic sanctions programs restrict the Company from conducting certain transactions or dealings involving certain sanctioned countries or persons.

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Although the Company has internal policies and procedures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations, there can be no assurance that such policies and procedures will be sufficient or that the Company’s employees, directors, officers, partners, agents and service providers will not take actions in violation of the Company’s policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which they or the Company may ultimately be held responsible. Violations of anti-corruption laws and sanctions regulations could lead to financial penalties being imposed on the Company, limits being placed on the Company’s activities, authorizations or licenses being revoked, damage to the Company’s reputation and other consequences that could have a material adverse effect on the Company’s business, results of operations and financial condition. Further, litigation or investigations relating to alleged or suspected violations of anti-corruption laws or sanctions regulations could be costly.

Changes in accounting standards could impact reported earnings.

The entities that set accounting standards and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements. These changes can materially impact how management records and reports the Company’s financial condition and results of operations. In some cases, the Company could be required to apply a new or revised accounting standard retroactively, resulting in a possible restatement of prior period financial statements.

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Item 1B. Unresolved Staff Comments

Not Applicable.

Item 2. Properties

The Company occupies various facilities principally located in Alabama, Arizona, California, Colorado, Florida, New Mexico and Texas and in states where it operates loan production offices that are used in the normal course of the financial services business. The properties consist of both owned and leased properties and include land for future banking center sites. The leased properties include both land and buildings that are generally under long-term leases. The Company leases office space used as the Company's principal executive offices in Houston, Texas. The Bank has significant operations in Birmingham, Alabama. The Company owns the land and building where the Bank is headquartered. See Note 6, Premises and Equipment, in the Notes to the Consolidated Financial Statements, for additional disclosures related to the Company’s properties.

Item 3. Legal Proceedings

See under “Legal and Regulatory Proceedings” in Note 16, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements.

Item 4. Mine Safety Disclosures

Not Applicable.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Parent's common stock is not traded on any exchange or other interdealer electronic trading facility and there is no established public trading market for the Parent's common stock.

Holders

As of the date of this filing, BBVA was the sole holder of the Parent's common stock.

Dividends

The payment of dividends on the Parent's common stock is subject to determination and declaration by the Board of Directors of the Parent and regulatory limitations on the payment of dividends. There is no assurance that dividends will be declared or, if declared, what the amount of dividends will be, or whether such dividends will continue. The following table sets forth the common dividends the Parent paid to its sole shareholder, BBVA, for each of the last eight quarters.

	2016		2015
	(In Thousands)
Quarter Ended:
March 31	$	—	$	—
June 30	60,000		35,000
September 30	—		—
December 31	32,864		60,000
Year	$	92,864	$	95,000

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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 before any dividends can be paid. A discussion of dividend restrictions is provided in Item 1. Business - Overview - Supervision, Regulation, and Other Factors - Dividends and in Note 17, Regulatory Capital Requirements and Dividends from Subsidiaries, in the Notes to the Consolidated Financial Statements.

Recent Sales of Unregistered Securities

On March 17, 2014, BBVA contributed $117 million to the Parent, and the Parent issued 2,226,875 shares of its common stock to BBVA. The shares were issued in reliance upon the exemption from registration for transactions not involving a public offering under Section 4(a)(2) of the Securities Act.

On December 3, 2015, BBVA contributed $230 million to the Parent, and the Parent issued 1,150 shares of its Floating Non-Cumulative Perpetual Preferred Stock, Series A. The shares were issued in reliance upon the exemption from registration for transactions not involving a public offering under Section 4(a)(2) of the Securities Act.

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Item 6. Selected Financial Data

The following table sets forth summarized historical consolidated financial information for each of the periods indicated. This information should be read together with Management's Discussion and Analysis of Financial Condition and Results of Operations below and with the accompanying Consolidated Financial Statements included in this Annual Report on Form 10-K. The historical information indicated as of and for the years ended December 31, 2016 through 2012, has been derived from the Company's audited Consolidated Financial Statements for the years ended December 31, 2016 through 2012. Historical results set forth below and elsewhere in this Annual Report on Form 10-K are not necessarily indicative of future performance.

	Years Ended December 31,
	2016			2015			2014			2013			2012 (1)
	(Dollars in Thousands)
Summary of Operations:
Interest income	$	2,530,459		$	2,438,275		$	2,313,996		$	2,323,279		$	2,491,536
Interest expense	462,778			425,298			328,491			280,575			261,554
Net interest income	2,067,681			2,012,977			1,985,505			2,042,704			2,229,982
Provision for loan losses	302,589			193,638			106,301			107,546			29,471
Net interest income after provision for loan losses	1,765,092			1,819,339			1,879,204			1,935,158			2,200,511
Noninterest income	1,055,974			1,079,374			1,007,812			940,129			850,048
Noninterest expense, including goodwill impairment (2)	2,303,522			2,214,853			2,246,877			2,260,906			2,351,847
Net income before income tax expense	517,544			683,860			640,139			614,381			698,712
Income tax expense	146,021			176,502			155,763			179,242			219,701
Net income	371,523			507,358			484,376			435,139			479,011
Noncontrolling interest	2,010			2,228			1,976			2,094			2,138
Net income attributable to BBVA Compass Bancshares, Inc.	$	369,513		$	505,130		$	482,400		$	433,045		$	476,873
Summary of Balance Sheet:
Period-End Balances:
Investment securities	$	12,868,272		$	12,373,196		$	11,585,629		$	9,832,281		$	9,496,359
Loans (3)	60,223,112			61,394,666			57,526,600			50,814,125			45,333,608
Allowance for loan losses	(838,293		)	(762,673		)	(685,041		)	(700,719		)	(802,853		)
Total assets	87,079,953			90,068,538			83,244,726			72,090,642			69,236,695
Deposits	67,279,533			65,981,766			61,189,810			54,437,454			51,642,778
FHLB and other borrowings	3,001,551			5,438,620			4,809,843			4,298,707			4,273,279
Shareholder's equity	12,750,707			12,624,709			12,054,922			11,545,813			11,083,573
Average Balances:
Loans(3)	$	61,505,935		$	60,176,687		$	54,423,885		$	47,959,849		$	44,118,556
Total assets	91,064,360			88,389,179			77,610,420			70,320,268			66,468,815
Deposits	67,904,564			63,538,900			58,407,270			52,553,741			48,549,780
FHLB and other borrowings	4,226,225			5,701,974			4,254,352			4,269,521			4,478,136
Shareholder's equity	12,818,572			12,368,866			11,889,993			11,342,319			10,906,123
Selected Ratios:
Return on average total assets	0.41		%	0.57		%	0.62		%	0.62		%	0.72		%
Return on average total equity	2.90			4.10			4.07			3.84			4.39
Average equity to average assets	14.08			13.99			15.32			16.13			16.41

(1) 2012 financial information has not been retrospectively adjusted to include the historical activity of the money transmission and foreign exchange services subsidiaries due to immateriality.

(2) Noninterest expense for the years ended December 31, 2016, 2015 and 2014 includes goodwill impairment of $59.9 million, $17.0 million and $12.5 million, respectively.

(3) Includes loans held for sale.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this discussion is to focus on significant changes in the financial condition and results of operations of the Company during the years ended December 31, 2016, 2015 and 2014. The Executive Overview summarizes information management believes is important for an understanding of the financial condition and results of operations of the Company. Topics presented in the Executive Overview are discussed in more detail within, and should be read in conjunction with, this Management’s Discussion and Analysis of Financial Condition and Results of Operations and the accompanying Consolidated Financial Statements included in this Annual Report on Form 10-K. The discussion of the critical accounting policies and analysis set forth below is intended to supplement and highlight information contained in the accompanying Consolidated Financial Statements and the selected financial data presented elsewhere in this Annual Report on Form 10-K.

Executive Overview

Financial Performance

Consolidated net income attributable to the Company for 2016 was $369.5 million compared to $505.1 million earned during 2015. The decrease in net income attributable to the Company reflected lower net income before income tax expense primarily as a result of higher provisions for loan losses and noninterest expense and lower noninterest income offset in part by higher net interest income.

Net interest income increased $54.7 million to $2.1 billion in 2016 compared to 2015 due in part to an increase in interest and fees on loans offset by an increase in interest on deposits. The net interest margin for 2016 remained flat at 2.64% compared to 2015.

The provision for loan losses was $302.6 million for 2016 compared to $193.6 million for 2015. Provision for loan losses for 2016 was impacted by a decline in credit quality indicators driven by downgrades during 2016 in the commercial loan portfolio, primarily related to energy loans as well as an increase in charge-offs related to energy loans as well as consumer direct and indirect loans during 2016. Net charge-offs for 2016 totaled $227.0 million compared to $116.0 million for 2015.

Noninterest income was $1.1 billion for 2016, a decrease of $23.4 million compared to 2015. The decrease in noninterest income was largely attributable to a decrease of $51.6 million in investment securities gains. This decrease was offset by a $10.9 million increase in card and merchant processing fees, and an $11.2 million increase in money transfer income. Additionally, other noninterest income increased $15.7 million driven by higher levels of syndication fee income.

Noninterest expense increased $88.7 million to $2.3 billion for 2016 compared to 2015. The higher level of noninterest expense was primarily attributable to a $42.9 million increase in goodwill impairment charges related to the write-off of goodwill associated with the Simple reporting unit. Additionally, salaries, benefits and commissions increased $38.2 million and professional services increased $23.6 million. Offsetting these increases was a $51.1 million decrease in FDIC indemnification expense

Income tax expense was $146.0 million for 2016 compared to $176.5 million for 2015. This resulted in an effective tax rate of 28.2% for 2016 and a 25.8% effective tax rate for 2015. The increase in the effective tax rate for 2016 was primarily driven by the increased goodwill impairment recognized in 2016.

The Company's total assets at December 31, 2016 were $87.1 billion, a decrease of $3.0 billion from December 31, 2015 levels. Total loans excluding loans held for sale were $60.1 billion at December 31, 2016, a decrease of $1.3 billion or 2.1% from December 31, 2015 levels. The decrease in total loans was primarily driven by decreases in the commercial, financial and agricultural and the residential real estate-mortgage portfolios due in part to strategic sales from these loan portfolios. Deposits increased $1.3 billion or 2.0% compared to December 31, 2015, driven by transaction accounts which increased 3.7% fueled by savings and money market growth. Noninterest bearing demand deposits increased 5.4%. Certificates and other time deposits decreased 3.9% at December 31, 2016 compared to December 31, 2015, due in part to a decrease in brokered deposits offset by growth in CDs due to certain product promotions.

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Total shareholders' equity at December 31, 2016 was $12.8 billion, an increase of $126 million compared to December 31, 2015.

Capital

The Company's Tier 1 and CET1 ratios were 11.85% and 11.49%, respectively at December 31, 2016, compared to 11.08% and 10.70%, respectively at December 31, 2015, under the U.S. Basel III transitional provisions. In June 2016, the Company was informed that the Federal Reserve Board did not object to the Company's capital plan and the capital actions proposed in the capital plan as part of its annual CCAR process. While the Company can give no assurances as to the outcome of the CCAR process in subsequent years or specific interactions with the regulators, it believes it has a strong capital position.

For more information see “Capital” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 1. Business - Supervision, Regulation and Other Factors - Capital, and Note 17, Regulatory Capital Requirements and Dividends from Subsidiaries, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Liquidity

The Company’s sources of liquidity include customers’ interest-bearing and noninterest-bearing deposit accounts, loan principal and interest payments, investment securities, and borrowings. As a bank holding company, the Parent’s primary source of liquidity is the Bank. Due to the net earnings restrictions on dividend distributions, the Bank was not permitted to pay any dividends at December 31, 2016 and 2015 without regulatory approval.

The Parent paid common dividends totaling $92.9 million to its sole shareholder, BBVA, during 2016. 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 before any dividends can be paid.

In January 2016, the minimum phased-in LCR requirement was 90 percent, followed by 100 percent in January 2017. At December 31, 2016, the Company was fully compliant with the minimum phased-in LCR requirements in effect. However, should the Company's cash position or investment mix change in the future, the Company's ability to meet the LCR requirement may be impacted.

Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth. For more information see below under “Liquidity Management” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 11, FHLB and Other Borrowings, Note 12, Shareholder's Equity, and Note 16, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements.

Digital Transformation

As technology advances continue to change the landscape of the financial services industry, customer behaviors are rapidly adapting and adjusting to take advantage of digital and mobile advances. The Company is focused on enhancing its digital capabilities to ensure its products, services and distribution network align with the evolving preferences of its customers. During 2016, the Company has experienced an increase in number of customers utilizing its digital and mobile capabilities. In addition, the Company has also seen an increase in products sold through its digital channels as a percentage of products sold through all channels.

Noteworthy items related to the Company’s digital transformation announced during 2016 included the following:

• In January 2016, the Company announced an alliance with industry disrupter FutureAdvisor, a subsidiary of BlackRock, the world’s largest asset manager. The alliance makes sophisticated tools and guidance available to the Company’s digital savvy clients who are not currently taking advantage of its investment services.

• In April 2016, Univision Enterprises, the products and services division of Univision Communications Inc., in partnership with Bancomer Transfer Services, Inc. announced the launch of Univision Remesas, an international digital money transfer service.

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• In May 2016, the Company announced it had expanded its suite of mobile payment solutions for its cardholders with the integration of Android Pay and Samsung Pay. These releases underscore the Company’s drive to provide more and varied ways for customers to bank digitally. They join Apple Pay and the proprietary BBVA Wallet in the Company’s suite of mobile wallet and payment solutions.

• In the second quarter of 2016, BBVA Compass began onboarding new customers from Simple onto the Bank’s platform. Previously new accounts from Simple were held at a third party financial institution. In the next few quarters, customer accounts and deposits opened prior to this milestone will be migrated from the third party financial institution to BBVA Compass.

Critical Accounting Policies

The accounting principles followed by the Company and the methods of applying these principles conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry. The Company’s critical accounting policies relate to (1) the allowance for loan losses, (2) fair value of financial instruments, (3) income taxes and (4) goodwill impairment. These critical accounting policies require the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.

Allowance for Loan Losses: Management’s policy is to maintain the allowance for loan losses at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. Management performs periodic and systematic detailed reviews of its loan portfolio to identify trends and to assess the overall collectability of the loan portfolio. Accounting standards require that loan losses be recorded when management determines it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

Estimates for the allowance for loan losses are determined by analyzing historical losses, historical migration to charge-off experience, current trends in delinquencies and charge-offs, the results of regulatory examinations and changes in the size, composition and risk assessment of the loan portfolio. Also included in management’s estimate for the allowance for loan losses are considerations with respect to the impact of current economic events. These events may include, but are not limited to, fluctuations in overall interest rates, political conditions, legislation that may directly or indirectly affect the banking industry and economic conditions affecting specific geographical areas and industries in which the Company conducts business.

While management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates.

A detailed discussion of the methodology used in determining the allowance for loan losses is included in Note 1, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements.

Fair Value of Financial Instruments: A portion of the Company’s assets and liabilities is carried at fair value, with changes in fair value recorded either in earnings or accumulated other comprehensive income (loss). These include investment securities available for sale, trading account assets and liabilities, loans held for sale, mortgage servicing assets, and derivative assets and liabilities. Periodically, the estimation of fair value also affects investment securities held to maturity when it is determined that an impairment write-down is other than temporary. Fair value determination is also relevant for certain other assets such as other real estate owned, which are recorded at the lower of the recorded balance or fair value, less estimated costs to sell. The determination of fair value also impacts certain other assets that are periodically evaluated for impairment using fair value estimates, including goodwill and impaired loans.

Fair value is generally based upon quoted market prices, when available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use observable market based parameters as inputs. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s own creditworthiness, among

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other things, as well as potentially unobservable parameters. Any such valuation adjustments are applied consistently over time. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

See Note 21, Fair Value of Financial Instruments, in the Notes to the Consolidated Financial Statements for a detailed discussion of determining fair value, including pricing validation processes.

Income Taxes: The Company’s income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated taxes due. The calculation of each component of the Company’s income tax provision is complex and requires the use of estimates and judgments in its determination. As part of the Company’s evaluation and implementation of business strategies, consideration is given to the regulations and tax laws that apply to the specific facts and circumstances for any tax positions under evaluation. Management closely monitors tax developments on both the federal and state level in order to evaluate the effect they may have on the Company’s overall tax position and the estimates and judgments used in determining the income tax provision and records adjustments as necessary.

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expenses. In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, the Company must consider all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the results of recent operations. A valuation allowance is recognized for a deferred tax asset if, based on the available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized. See Note 20, Income Taxes, in the Notes to the Consolidated Financial Statements for additional information.

Goodwill Impairment: It is the Company’s policy to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.

Accounting standards require management to estimate the fair value of each reporting unit in assessing impairment at least annually. As such, the Company engages an independent valuation expert to assist in the computation of the fair value estimates of each reporting unit as part of its annual assessment. This assessment utilizes a blend of income and market based valuation methodologies.

The impairment testing process conducted by the Company begins by assigning net assets and goodwill to each reporting unit. The Company then completes step one of the impairment test by comparing the fair value of each reporting unit with the recorded book value of its net assets, with goodwill included in the computation of the carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of that reporting unit is not considered impaired, and step two of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, step two of the impairment test is performed to determine the amount of impairment. Step two of the impairment test compares the implied fair value of goodwill attributable to each reporting unit to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination; an entity allocates the fair value determined in step one for the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

The computation of the fair value estimate is based upon management’s estimates and assumptions. Although management has used the estimates and assumptions it believes to be most appropriate in the circumstances, it should be noted that even relatively minor changes in certain valuation assumptions used in management’s calculation would result in significant differences in the results of the impairment test. See “Goodwill” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and see Note 8, Goodwill and Other Acquired Intangible Assets, in the Notes to the Consolidated Financial Statements for a detailed discussion of the impairment testing process.

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Analysis of Results of Operations

Consolidated net income attributable to the Company totaled $369.5 million, $505.1 million, and $482.4 million for 2016, 2015 and 2014, respectively. The Company's 2016 results reflected lower net income before income tax expense primarily as a result of higher provisions for loan losses and noninterest expense and lower noninterest income offset in part by higher net interest 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.

2016 compared to 2015

Net interest income totaled $2.1 billion and $2.0 in 2016 and 2015, respectively. Net interest income on a fully taxable equivalent basis totaled $2.1 billion in both 2016 and 2015. Net interest margin was 2.64% in both 2016 and 2015.

The fully taxable equivalent yield for 2016 for the loan portfolio was 3.74% compared to 3.69% for the prior year. The 5 basis point increase was primarily driven by the origination of higher yielding loans as well as the impact of the higher benchmark interest rates, which increased in December 2015 and 2016.

The fully taxable equivalent yield on the total investment securities portfolio was 1.83% for 2016, compared to 2.01% for the prior year. The 18 basis point decrease was primarily driven by proceeds from the sale of higher yielding investment securities and from prepayments, maturities and calls of investment securities that have been reinvested into investment securities with lower market rates.

The yield on trading account securities increased to 1.45% in 2016 compared to 1.35% in 2015 due primarily to the impact of the FRB raising the federal funds rate by 25 basis points in December 2015 and 2016.

The yield on other earning assets for 2016 was 0.60 % compared to 0.17 % for the prior year. The 43 basis point increase between years was primarily due to the impact of the FRB raising the federal funds rate by 25 basis points in December 2015 and 2016.

The average rate paid on interest bearing deposits remained relatively flat at 0.64% for 2016 compared to 0.62% for 2015.

The average rate on FHLB and other borrowings during 2016 was 1.96% compared to 1.58% for the prior year. The 38 basis point increase was primarily driven by changes in the value of the interest rate contracts hedging the value of the FHLB and other borrowings as well as the impact of the $700 million issuance of subordinated notes in April 2015 under the Global Bank Note program.

The average rate on other short-term borrowings was 1.44% for 2016 compared to 1.31% for 2015 due to the impact of the FRB raising the federal funds rate by 25 basis points in December 2015 and 2016.

2015 compared to 2014

Net interest income totaled $2.0 billion in both 2015 and 2014. Net interest income on a fully taxable equivalent basis totaled $2.1 billion in both 2015 and 2014.

Net interest margin was 2.64% in 2015 compared to 3.01% in 2014. The 37 basis point decrease in net interest margin primarily reflects the runoff of higher yielding covered loans as well as the impact of lower yields in the AFS investment securities portfolio. In addition, net interest margin was negatively impacted by the increase in the average balance of trading account securities and the increase in the average balance of other short term borrowings primarily due to an increase in U.S. Treasury long and short positions held by BSI.

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The fully taxable equivalent yield for 2015 for the loan portfolio was 3.69% compared to 3.93% for the prior year. The yield on non-covered loans for 2015 was 3.63% compared to 3.72% for 2014. The 9 basis point decrease was primarily due to a higher volume of new loans originated at lower yields. The yield on covered loans for 2015 was 10.87% compared to 22.67% for 2014. The decrease was primarily due to the impact of the quarterly reassessment of expected future cash flows.

The fully taxable equivalent yield on the total investment securities portfolio was 2.01% for the year ended December 31, 2015, compared to 2.28% for the prior year. The 27 basis point decrease was primarily driven by proceeds from the sale of higher yielding investment securities and from prepayments, maturities and calls of investment securities that have been reinvested into investment securities with lower market rates.

The yield on trading account securities was 1.35% in 2015 compared to 1.73% in 2014 due to an increase in U.S. Treasury securities held by BSI in 2015.

The average rate paid on interest bearing deposits was 0.62% for 2015 compared to 0.60% for 2014.

The average rate on FHLB and other borrowings during 2015 was 1.58%, compared to 1.62 % for the prior year.

The average rate on other short-term borrowings was 1.31% for 2015 compared to 1.38% for 2014 due to the effect of the increase in U.S. Treasury short positions held by BSI in 2015.

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The following tables set forth the major components of net interest income and the related annualized yields and rates, as well as the variances between the periods caused by changes in interest rates versus changes in volumes.

Table 3 Consolidated Average Balance and Yield/ Rate Analysis
	December 31, 2016							December 31, 2015							December 31, 2014
	Average Balance			Income/Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/Rate		Average Balance			Income/ Expense		Yield/Rate
	(Dollars in Thousands)
Assets:
Interest earning assets:
Loans (1) (2) (3)	61,505,935			2,303,017		3.74		60,176,687			2,221,093		3.69		54,423,885			2,139,429		3.93
Investment securities – AFS (tax exempt) (3)	10,728			846		7.89		253,547			10,446		4.12		492,306			20,745		4.21
Investment securities – AFS (taxable)	11,345,365			191,337		1.69		10,105,217			185,323		1.83		8,560,090			177,987		2.08
Total investment securities – AFS	11,356,093			192,183		1.69		10,358,764			195,769		1.89		9,052,396			198,732		2.20
Investment securities – HTM (tax exempt) (3)	1,062,391			34,535		3.25		1,128,080			35,352		3.13		1,162,674			34,881		3.00
Investment securities – HTM (taxable)	194,296			4,408		2.27		230,933			4,433		1.92		284,962			5,264		1.85
Total investment securities - HTM	1,256,687			38,943		3.10		1,359,013			39,785		2.93		1,447,636			40,145		2.77
Trading account securities (3)	3,714,155			53,816		1.45		3,784,410			50,936		1.35		446,131			7,732		1.73
Other (4) (5) (6)	3,508,368			20,939		0.60		3,330,793			5,622		0.17		2,973,165			713		0.02
Total earning assets	81,341,238			2,608,898		3.21		79,009,667			2,513,205		3.18		68,343,213			2,386,751		3.49
Noninterest earning assets:
Cash and due from banks (6)	964,281							974,956							878,930
Allowance for loan losses	(834,310		)					(714,157		)					(703,902		)
Net unrealized gain (loss) on investment securities available for sale	(5,749		)					33,207							41,316
Other noninterest earning assets	9,598,900							9,085,506							9,050,863
Total assets	$	91,064,360						$	88,389,179						$	77,610,420
Liabilities:
Interest bearing liabilities:
Interest bearing demand deposits	$	7,042,165		16,639		0.24		$	7,218,956		12,011		0.17		$	7,280,418		11,986		0.16
Savings and money market accounts	25,747,220			99,567		0.39		24,155,771			94,336		0.39		21,616,078			87,672		0.41
Certificates and other time deposits	14,454,532			188,209		1.30		12,989,759			167,809		1.29		12,745,944			151,997		1.19
Foreign office deposits	104,039			210		0.20		158,202			322		0.20		131,510			259		0.20
Total interest bearing deposits	47,347,956			304,625		0.64		44,522,688			274,478		0.62		41,773,950			251,914		0.60
FHLB and other borrowings	4,226,225			82,744		1.96		5,701,974			89,988		1.58		4,254,352			68,957		1.62
Federal funds purchased and securities sold under agreements to repurchase (5)	451,980			21,165		4.68		807,677			8,390		1.04		935,439			2,302		0.25
Other short-term borrowings	3,778,752			54,244		1.44		4,006,716			52,442		1.31		385,461			5,318		1.38
Total interest bearing liabilities	55,804,913			462,778		0.83		55,039,055			425,298		0.77		47,349,202			328,491		0.69
Noninterest bearing deposits	20,556,608							19,016,212							16,633,320
Other noninterest bearing liabilities	1,884,267							1,965,046							1,737,905
Total liabilities	78,245,788							76,020,313							65,720,427
Shareholder’s equity	12,818,572							12,368,866							11,889,993
Total liabilities and shareholder’s equity	$	91,064,360						$	88,389,179						$	77,610,420
Net interest income/net interest spread				$	2,146,120	2.38	%				$	2,087,907	2.41	%				$	2,058,260	2.80	%
Net interest margin						2.64	%						2.64	%						3.01	%
Taxable equivalent adjustment				78,439							74,930							72,755
Net interest income				$	2,067,681						$	2,012,977						$	1,985,505

(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, interest bearing deposits with the Federal Reserve and other earning assets.

(5) Yield/rate reflects impact of balance sheet offsetting. See Note 15, Securities Financing Activities.

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

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Table 4 Volume and Yield/ Rate Variances (1)
	2016 compared to 2015									2015 compared to 2014
	Change due to									Change due to
	Volume			Yield/Rate			Total			Volume			Yield/Rate			Total
	(Dollars in Thousands, yields on a fully taxable equivalent basis)
Interest income on:
Total loans	49,491			32,433			81,924			187,518			(105,854		)	81,664
Total investment securities available for sale	17,903			(21,489		)	(3,586		)	19,989			(22,951		)	(2,962		)
Total investment securities held to maturity	(3,094		)	2,252			(842		)	(2,086		)	1,726			(360		)
Trading account securities	(960		)	3,840			2,880			45,306			(2,102		)	43,204
Other (2) (3)	316			15,001			15,317			96			4,812			4,908
Total earning assets	$	63,656		$	32,037		$	95,693		$	250,823		$	(124,369	)	$	126,454
Interest expense on:
Interest bearing demand deposits	$	(301	)	$	4,929		$	4,628		$	(101	)	$	126		$	25
Savings and money market accounts	6,162			(931		)	5,231			10,010			(3,346		)	6,664
Certificates and other time deposits	19,062			1,338			20,400			2,948			12,864			15,812
Foreign office deposits	(109		)	(3		)	(112		)	54			9			63
Total interest bearing deposits	24,814			5,333			30,147			12,911			9,653			22,564
FHLB and other borrowings	(26,194		)	18,950			(7,244		)	22,890			(1,859		)	21,031
Federal funds purchased and securities sold under agreements to repurchase	(5,141		)	17,916			12,775			(355		)	6,443			6,088
Other short-term borrowings	(3,091		)	4,893			1,802			47,411			(287		)	47,124
Total interest bearing liabilities	(9,612		)	47,092			37,480			82,857			13,950			96,807
Increase (decrease) in net interest income	$	73,268		$	(15,055	)	$	58,213		$	167,966		$	(138,319	)	$	29,647

(1) The change in interest not solely due to volume or yield/rate is allocated to the volume column and yield/rate column in proportion to their relationship of the absolute dollar amounts of the change in each.

(2) Includes federal funds sold, securities purchased under agreement to resell, interest bearing deposits, interest bearing deposits with the Federal Reserve and other earning assets.

(3) Beginning in 2016, interest bearing deposits with the Federal Reserve are included in earning assets. In prior periods, these balances were included as noninterest earning assets within cash and due from banks in the cash and cash equivalents line, consistent with the Consolidated Balance Sheet presentation. Prior periods have been reclassified to conform to current period presentation.

Provision for Loan Losses

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

2016 compared to 2015

Provision for loan losses was $302.6 million for 2016 compared to $193.6 million of provision for loan losses for 2015. Provision for loan losses for 2016 was impacted by a decline in credit quality indicators driven by downgrades during 2016 in the commercial loan portfolio, primarily related to energy loans as well as an increase in charge-offs related to energy loans as well as consumer direct and indirect loans during 2016. The Company recorded net charge-offs of $227.0 million during 2016 compared to $116.0 million during 2015. Net charge-offs were 0.37% (or 0.31% excluding net charge-offs on energy loans) of average loans for 2016 compared to 0.19% (or 0.20% excluding net charge-offs on energy loans) of average loans for 2015.

2015 compared to 2014

Provision for loan losses was $193.6 million for 2015 compared to $106.3 million of provision for loan losses for 2014. Provision for loan losses for 2015 was impacted by loan growth during 2015 in the commercial, financial and agricultural, residential real estate, and consumer portfolios. Offsetting the increase attributable to loan growth was improving credit quality in the commercial, financial and agricultural, real estate-construction and commercial real estate-mortgage portfolios. The Company recorded net charge-offs of $116.0 million during 2015 compared to $122.0 million during 2014. Net charge-offs were 0.19% of average loans for 2015 compared to 0.22% of average loans for 2014.

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

Noninterest Income

The following table presents the components of noninterest income.

Table 5 Noninterest Income
	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
Service charges on deposit accounts	$	214,294	$	216,248	$	222,686
Card and merchant processing fees	123,668		112,818		107,891
Investment banking and advisory fees	107,116		105,235		87,454
Money transfer income	104,592		93,437		81,409
Retail investment sales	102,982		101,614		108,477
Asset management fees	34,875		33,194		42,772
Corporate and correspondent investment sales	24,689		30,000		29,635
Mortgage banking income	21,496		27,258		24,551
Bank owned life insurance	17,243		18,662		18,616
Investment securities gains, net	30,037		81,656		53,042
Other	274,982		259,252		231,279
Total noninterest income	$	1,055,974	$	1,079,374	$	1,007,812

2016 compared to 2015

Noninterest income was $1.1 billion for both 2016 and 2015, a slight decrease of $23.4 million. The decrease in total noninterest income was driven by decreases in corporate and correspondent investment sales, mortgage banking income and investment securities gains which were partially offset by increases in card and merchant processing fees, money transfer income, and other noninterest income

Service charges on deposit accounts represent the Company's largest category of noninterest revenue. Service charges on deposit accounts were $214.3 million in 2016, compared to $216.2 million in 2015.

Card and merchant processing fees represent income related to customers’ utilization of their debit and credit cards, as well as interchange income and merchants’ discounts. Card and merchant processing fees were $123.7 million in 2016, an increase of $10.9 million compared to 2015 driven by a $4.1 million increase related to Simple and a $5.9 million increase in debit card interchange and merchant services.

Investment banking and advisory fees primarily represent income from BSI. Income from investment banking and advisory fees increased to $107.1 million in 2016 compared to $105.2 million in 2015.

Money transfer income represents income from the Parent's wholly owned subsidiary, BBVA Compass Payments, Inc., which engages in money transfer services, including money transmission and foreign exchange services. Income from money transfer services increased to $104.6 million in 2016 compared to $93.4 million in 2015 due to higher transaction volume.

Retail investment sales income is comprised of mutual fund and annuity sales income and insurance sales fees. Income from retail investment sales increased to $103.0 million in 2016, compared to $101.6 million in 2015. 

Asset management fees are fees generated from money management transactions executed with the Company through trusts, higher net worth customers and other long-term clients. Asset management fees increased to $34.9 million in 2016, compared to $33.2 million in 2015.

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Corporate and correspondent investment sales represents income generated through the sales of interest rate protection contracts to corporate customers and the sale of bonds and other services to the Company's correspondent banking clients. Income from corporate and correspondent investment sales decreased to $24.7 million in 2016 from $30.0 million in 2015. The primary drivers of the decrease include a $4.0 million decrease in income related to a decline in the sales of interest rate contracts due to the economic environment during the year and a $2.8 million decrease related to the valuation changes in U.S. Treasury securities held to hedge market movements in the MSR asset.

Mortgage banking income for the year ended December 31, 2016 was $21.5 million compared to $27.3 million in 2015. Mortgage banking income in 2016 included $25.3 million of origination fees and gains on sales of mortgage loans as well as losses of $3.8 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. Mortgage banking income in 2015 included $35.5 million of origination fees and gains on sales of mortgage loans and losses of $7.0 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. The decrease in mortgage banking income in 2016 compared to 2015 was primarilydriven by decreased mortgage production volume during 2016 compared to 2015.

BOLI represents income generated by the underlying investments maintained within each of the Company’s life insurance policies on certain key executives and employees. BOLI was $17.2 million in 2016 compared to $18.7 million in 2015.

Investment securities gains, net decreased to $30.0 million in 2016 compared to $81.7 million in 2015. See “—Investment Securities” for more information related to the investment securities sales.

Other income is comprised of income recognized that does not typically fit into one of the other noninterest income categories and includes primarily various fees associated with letters of credit, syndication, ATMs, investment services and foreign exchange fees. The gain (loss) associated with the sale of fixed assets is also included in other income. For 2016, other income increased by $15.7 million due to an increase of approximately $11.2 million in syndication fees. The increase was also attributable to a $7.7 million increase related to the prepayment of FHLB advances and other borrowings. During 2016, the Company terminated approximately $605 million FHLB advances resulting in a $295 thousand net loss compared to an $8.0 million net loss in 2015 related to the prepayment of approximately $1.1 billion FHLB advances.

2015 compared to 2014

Noninterest income was $1.1 billion for 2015, an increase of $71.6 million compared to $1.0 billion reported for 2014. The increase in total noninterest income was driven by increases in investment banking and advisory fees, investment securities gains and other noninterest income which were partially offset by decreases in retail investment sales, asset management fees, and gain (loss) on prepayment of FHLB and other borrowings.

Service charges on deposit accounts were $216.2 million in 2015, compared to $222.7 million in 2014.

Card and merchant processing fees were $112.8 million in 2015, an increase of $4.9 million compared to 2014.

Income from investment banking and advisory fees increased to $105.2 million in 2015 compared to $87.5 million in 2014 due to a $7.5 million increase in structuring and advisory fees and an $8.5 million increase in fees due to higher bond issuances during 2015 compared to 2014.

Income from retail investment sales decreased to $101.6 million in 2015, compared to $108.5 million in 2014. The primary driver of the decrease was due to a shift in product mix to structured products and managed money which resulted in a smaller percentage of fees for the Company.

Asset management fees are fees generated from money management transactions executed with the Company through trusts, higher net worth customers and other long-term clients. Asset management fees decreased to $33.2 million in 2015, compared to $42.8 million in 2014 primarily driven by a decrease in assets under management due to the divestiture of one of the Bank's wealth management subsidiaries during 2015.

Income from corporate and correspondent investment sales increased to $30.0 million in 2015 from $29.6 million in 2014. 

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Mortgage banking income for the year ended December 31, 2015 was $27.3 million compared to $24.6 million in 2014. Mortgage banking income in 2015 included $35.5 million of origination fees and gains on sales of mortgage loans as well as losses of $7.0 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. Mortgage banking income in 2014 included $28.5 million of origination fees and gains on sales of mortgage loans and losses of $3.3 million related to fair value adjustments on mortgage loans held for sale, mortgage related derivatives and MSRs. The increase in mortgage banking income in 2015 compared to 2014 was primarily driven by the lower interest rate environment in 2015 which allowed for wider profit margins, offset by the decrease in the fair value of the MSRs.

BOLI was $18.7 million in 2015 compared to $18.6 million in 2014.

Investment securities gains, net increased to $81.7 million in 2015 compared to $53.0 million in 2014. See “—Investment Securities” for more information related to the investment securities sales.

For 2015, other income increased by $28.0 million due to a gain of $22.0 million on the sale of mortgage loans not initially originated for sale in the secondary market. Servicing fees also increased $5.6 million due to an increase in loans sold to FNMA where the Company retained the servicing in 2015 compared to 2014. The Company also recorded $6.5 million of income from Spring Studios, which was acquired by the Company in 2015. Partially offsetting the increase is an $8.0 million loss on prepayment of FHLB and other borrowings in 2015. During 2015, the Company prepaid approximately $1.1 billion of FHLB advances resulting in an $8.0 million net loss on the prepayment of FHLB advances and other borrowings.

Noninterest Expense

The following table presents the components of noninterest expense.

Table 6 Noninterest Expense
	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
Salaries, benefits and commissions	$	1,119,676	$	1,081,475	$	1,080,364
Equipment	242,273		232,050		225,175
Professional services	242,206		218,584		209,943
Net occupancy	160,997		161,035		159,174
FDIC insurance	80,070		64,072		64,260
Money transfer expense	67,474		60,350		51,214
Marketing	50,549		41,778		36,061
Communications	21,046		22,527		24,987
Amortization of intangibles	16,373		39,208		50,856
FDIC indemnification expense	3,984		55,129		115,049
Goodwill impairment	59,901		17,000		12,500
Total securities impairment	130		1,660		180
Other	238,843		219,985		217,114
Total noninterest expense	$	2,303,522	$	2,214,853	$	2,246,877

2016 compared to 2015

Noninterest expense was $2.3 billion for 2016, an increase of $88.7 million compared to 2015. The increase in noninterest expense was primarily attributable to increases in salaries, benefits and commissions, professional services, FDIC insurance, money transfer expense, goodwill impairment and other noninterest expense offset in part by decreases in amortization of intangibles and FDIC indemnification expense.

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Salaries, benefits and commissions expense is comprised of salaries and wages in addition to other employee benefit costs and represents the largest components of noninterest expense. Salaries, benefits and commissions expense was $1.1 billion in 2016, an increase of $38.2 million when compared to 2015. The increase was due in part to a $19.7 million increase in incentive expense during 2016 related to the acceleration of incentive and restricted stock expense following the removal of future service condition as well as an increase of approximately $24.8 million related to additional headcount within full time salaried employees.

Professional services expense represents fees incurred for the various support functions, which includes legal, consulting, outsourcing and other professional related fees. Professional services expense increased by $23.6 million in 2016 to $242.2 million compared to 2015 due to an increase of approximately $10.8 million of outsourcing and other professional services, approximately $7.7 million increase related to credit card processing and debit card fees and an increase of approximately $3.9 million of contractor services.

FDIC insurance was $80.1 million in 2016 compared to $64.1 million in 2015. The increase in FDIC insurance was driven by a change in the factors used to calculate the assessment, including a new FDIC assessment rate in 2016.

Money transfer expense represents expense from the Parent's wholly owned subsidiary, BBVA Compass Payments, Inc., which engages in money transfer services, including money transmission and foreign exchange services. Money transfer expense increased to $67.5 million in 2016 compared to $60.4 million in 2015 due to higher transaction volumes during 2016.

Marketing expense increased by $8.8 million to $50.5 million in 2016 due primarily to BBVA's sponsorship of the NBA and an increase in Internet-based marketing related to Simple, a subsidiary of the Company.

Amortization of intangibles decreased by $22.8 million to $16.4 million in 2016 due to the lower level of intangible assets in 2016 compared to 2015.

FDIC indemnification expense, which represents the amortization of changes in the FDIC indemnification asset stemming from changes in credit expectations of covered loans, was $4.0 million in 2016 compared to $55.1 million in 2015. The decrease in 2016 was driven by the continued runoff of the covered loan portfolio.

Goodwill impairment related to the Simple reporting unit was $59.9 million in 2016 compared to $17.0 million in 2015. Refer to "—Goodwill" and Note 8, Goodwill and Other Acquired Intangible Assets in the Notes to the Consolidated Financial Statements for further details.

Other noninterest expense represents postage, supplies, subscriptions, provision for unfunded commitments and gains and losses on the sales and write-downs of OREO as well as other OREO associated expenses. Other noninterestexpense increased in 2016 to $238.8 million compared to $220.0 million in 2015. The increase was primarily related to the civil money penalty imposed by the FRB on BSI in December 2016. See Note 16, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements for additional discussion.

2015 compared to 2014

Noninterest expense was $2.2 billion for 2015, a decrease of $32.0 million compared to 2014. The lower level of noninterest expense was primarily attributable to a decrease in FDIC indemnification expense and amortization of intangibles, offset in part by increases in equipment expense, professional services, marketing expense, goodwill impairment and total securities impairment.

Salaries, benefits and commissions expense was $1.1 billion in 2015, relatively flat when compared to 2014.

Equipment expense increased by $6.9 million to $232.1 million in 2015 compared to 2014 due to a $12.6 million increase in software amortization resulting from software additions in 2015 as well as a $4.3 million increase in software maintenance expense offset by a decrease in hardware depreciation and maintenance expense of approximately $11.2 million.

Professional services expense increased by $8.6 million in 2015 to $218.6 million compared to 2014 due to an increase of approximately $6.0 million of debit card processing services and an increase of approximately $2.4 million of consulting fees.

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Marketing expense increased by $5.7 million to $41.8 million in 2015 due primarily to BBVA's sponsorship of the NBA and the launch of the NBA American Express in 2015.

Amortization of intangibles decreased by $11.6 million to $39.2 million in 2015 due to the lower level of intangible assets in 2015 compared to 2014.

FDIC indemnification expense was $55.1 million in 2015 compared to $115.0 million in 2014. The decrease in 2015 was driven by the decrease in the balance of the covered loan portfolio.

Goodwill impairment related to the Simple reporting unit was $17.0 million in 2015 compared to $12.5 million in 2014. Refer to "—Goodwill" and Note 8, Goodwill and Other Acquired Intangible Assets in the Notes to the Consolidated Financial Statements for further details.

Other noninterest expense increased in 2015 to $220.0 million compared to $217.1 million in 2014.

Income Tax Expense

The Company’s income tax expense totaled $146.0 million, $176.5 million and $155.8 million for 2016, 2015, and 2014, respectively. The effective tax rate was 28.2%, 25.8%, and 24.3% for 2016, 2015 and 2014, respectively.

The increase in the effective tax rate for 2016 compared to 2015 was primarily driven by the goodwill impairment recognized in 2016.

The increase in the effective tax rate in 2015 compared to 2014 was primarily driven by higher net income before income tax expense relative to permanent income tax differences in 2015 as compared to 2014 and the release of a valuation allowance on net operating losses of BSI during 2014.

Refer to Note 20, Income Taxes, in the Notes to the Consolidated Financial Statements for a reconciliation of the effective tax rate to the statutory tax rate and a discussion of uncertain tax positions and other tax matters.

Business Segment Results

The Company reports on three business segments: Consumer and Commercial Banking, Corporate and Investment Banking, and Treasury. Additional detailed financial information on each business segment is included in Note 23, Segment Information, in the Notes to the Consolidated Financial Statements. Results of the Company’s business segments are based on the Company’s lines of business and internal management accounting policies that have been developed to reflect the underlying economics of the business. The structure and accounting practices are specific to the Company; therefore, the financial results of the Company’s business segments are not necessarily comparable with similar information for other financial institutions.

The Company employs an FTP methodology at the business segment level in the determination of net interest income earned primarily on loans and deposits. This methodology is a matching fund concept whereby the lines of business that 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. The intent of the FTP methodology is to transfer interest rate risk from the business segments by providing matched duration funding of assets and liabilities. Matching duration allocates interest income and expense to each segment so its resulting net interest income is insulated from interest rate risk.

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. In addition, the financial results of the business segments include allocations for shared services and operations expenses.

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Net income by business segment is summarized in the following table:

	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
Consumer and Commercial Banking	$	593,757		$	558,359		$	454,529
Corporate and Investment Banking	44,725			60,687			107,917
Treasury	19,320			67,166			45,648
Corporate Support and Other	(286,279		)	(178,854		)	(123,718		)
Net income	$	371,523		$	507,358		$	484,376

Consumer and Commercial Banking

The following table contains selected financial data for the Consumer and Commercial Banking segment:

Consumer and Commercial Banking	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
Net interest income	$	2,219,343	$	2,001,780	$	1,868,809
Allocated provision for loan losses	240,355		138,592		114,850
Noninterest income	825,881		825,417		776,451
Noninterest expense	1,891,396		1,829,591		1,806,060
Net income before income tax expense	913,473		859,014		724,350
Income tax expense	319,716		300,655		269,821
Net income	$	593,757	$	558,359	$	454,529

Comparison of 2016 with 2015

Net income was $593.8 million for 2016, an increase of $35.4 million compared to net income of $558.4 million for 2015 primarily driven by an increase in net interest income offset by increases in the allocated provision for loan losses and noninterest expense.

Net interest income in 2016 increased $217.6 million compared to the prior year as a result of an increase in the spread on earning assets due to higher yields on loans driven primarily by the origination of higher yielding loans as well as the impact of the higher benchmark interest rates, as well as lower funding spreads on deposits.

Allocated provision for loan losses increased $101.8 million from 2015 to 2016 primarily driven by an increase in charge-offs on consumer loans.

Noninterest income for 2016 of $825.9 million remained flat compared to the prior year.

Noninterest expense increased $61.8 million to $1.9 billion in 2016 compared to $1.8 billion in 2015 driven primarily by increases in allocated expenses of $25.0 million and FDIC insurance of $13.2 million.

Comparison of 2015 with 2014

Net income was $558.4 million for 2015, an increase of $103.8 million compared to net income of $454.5 for 2014 primarily driven by an increase in net interest income and noninterest income offset by an increase in the allocated provision for loan losses.

Net interest income in 2015 increased $133.0 million compared to the prior year as a result of an increase in the spread on earning assets due to higher average loan balances.

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Allocated provision for loan losses increased by $23.7 million from 2014 to 2015 due to growth in the loan portfolio.

Noninterest income increased $49.0 million to $825.4 million in 2015 compared to $776.5 million in 2014 driven by increases in other fee income of $27.6 million and shared revenue and incentive credits associated with deposit growth of $13.9 million.

Corporate and Investment Banking

The following table contains selected financial data for the Corporate and Investment Banking segment:

Corporate and Investment Banking	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
Net interest income	$	128,552	$	153,322	$	130,280
Allocated provision for loan losses	56,313		58,337		11,962
Noninterest income	177,211		156,679		197,585
Noninterest expense	180,642		158,300		143,924
Net income before income tax expense	68,808		93,364		171,979
Income tax expense	24,083		32,677		64,062
Net income	$	44,725	$	60,687	$	107,917

Comparison of 2016 with 2015

Net income was $44.7 million for 2016, compared to net income of $60.7 million for 2015. The decrease in net income of $16.0 million was primarily driven by a decrease in net interest income and an increase in noninterest expense partially offset by an increase in noninterest income.

Net interest income of $128.6 million in 2016 decreased from $153.3 million in 2015 as a result of a decrease in net spread income driven by a decrease in average earning assets, due in part to lower average loan balances.

Noninterest income increased $20.5 million from 2015 to 2016 due to a $10.5 million increase in shared revenue and incentive credits as well as a $9.3 million increase in fee income.

Noninterest expense increased $22.3 million from the prior year primarily related to the civil money penalty imposed by the FRB on BSI in December 2016. See Note 16, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements for additional discussion.

Comparison of 2015 with 2014

Net income was $60.7 million for 2015, compared to net income of $107.9 million for 2014. The decrease in net income of $47.2 million was primarily driven by increases in allocated provision for loan losses and noninterest expense as well as a decrease in noninterest income partially offset by an increase in net interest income.

Net interest income of $153.3 million in 2015 increased from $130.3 million in 2014 as a result of an increase in net spread income driven by an increase in average earning assets.

Allocated provision for loan losses increased $46.4 million primarily driven by downgrades in energy loans as well as loan growth.

Noninterest income decreased $40.9 million from 2014 to 2015 primarily due to a $36.2 million decrease in shared revenue and incentive credits offset by an increase in investment banking and advisory fee income of $17.8 million.

Noninterest expense increased $14.4 million from the prior year primarily as a result of increases in salaries and benefits of $6.7 million, professional services of $3.0 million, and FDIC insurance expense of $3.2 million.

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Treasury

The following table contains selected financial data for the Treasury segment:

Treasury	Years Ended December 31,
	2016			2015		2014
	(In Thousands)
Net interest income (expense)	$	(3,408	)	$	32,013	$	13,644
Allocated provision for loan losses	—			—		—
Noninterest income	54,228			91,439		76,699
Noninterest expense	21,096			20,119		17,597
Net income before income tax expense	29,724			103,333		72,746
Income tax expense	10,404			36,167		27,098
Net income	$	19,320		$	67,166	$	45,648

Comparison of 2016 with 2015

Net income was $19.3 million for 2016, compared to net income of $67.2 million for 2015. The decrease in net income of $47.8 million was primarily driven by decreases in net interest income and noninterest income.

Net interest income decreased $35.4 million compared to the prior year related to a decrease in the spread on earning assets.

Noninterest income in 2016 decreased $37.2 million compared to the prior year due primarily to a decrease in investment securities gains.

Comparison of 2015 with 2014

Net income was $67.2 million for 2015, compared to net income of $45.6 million for 2014. The increase in net income of $21.5 million was primarily driven by increase in net interest income and noninterest income.

Net interest income increased $18.4 million compared to the prior year related to an increase on the spread on earning assets.

Noninterest income in 2015 increased $14.7 million compared to the prior year due primarily to an increase in investment securities gains.

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Analysis of Financial Condition

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

Trading Account Assets

The following table details the composition of the Company’s trading account assets.

Table 7 Trading Account Assets
	December 31,
	2016		2015
	(In Thousands)
Trading account assets:
U.S. Treasury and other U.S. government agencies	$	2,820,797	$	3,805,269
State and political subdivisions	219		1,275
Other debt securities	4,120		2,501
Interest rate contracts	290,238		303,944
Commodity contracts	—		14,127
Foreign exchange contracts	28,367		9,899
Other trading assets	859		1,117
Total trading account assets	$	3,144,600	$	4,138,132

Trading account assets decreased $1.0 billion to $3.1 billion at December 31, 2016. The decrease in trading account assets primarily related to a decrease in U.S. Treasury securities held by the Company's broker dealer subsidiary, BSI.

Investment Securities

The composition of the Company’s investment securities portfolio reflects the Company’s investment strategy of maximizing portfolio yields commensurate with risk and liquidity considerations. The primary objectives of the Company’s investment strategy are to maintain an appropriate level of liquidity and provide a tool to assist in controlling the Company’s interest rate sensitivity position while at the same time producing adequate levels of interest income. The Company’s investment securities are classified into one of three categories based upon management’s intent to hold the investment securities: (i) investment securities available for sale, (ii) investment securities held to maturity or (iii) trading account assets and liabilities.

For additional financial information regarding the Company’s investment securities, see Note 3, Investment Securities Available for Sale and Investment Securities Held to Maturity, in the Notes to the Consolidated Financial Statements.

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The following table reflects the carrying amount of the investment securities portfolio at the end of each of the last three years.

Table 8 Composition of Investment Securities Portfolio
	December 31,
	2016		2015		2014
	(In Thousands)
Investment securities available for sale (at fair value):
Debt securities:
U.S. Treasury and other U.S. government agencies	$	2,374,331	$	3,211,492	$	2,313,542
Mortgage-backed securities	3,763,338		4,590,262		4,423,835
Collateralized mortgage obligations	5,098,928		2,705,256		2,488,579
States and political subdivisions	8,641		15,887		467,315
Other	16,185		24,045		44,441
Equity securities (1)	403,632		503,578		499,563
Total securities available for sale	$	11,665,055	$	11,050,520	$	10,237,275
Investment securities held to maturity (at amortized cost):
Collateralized mortgage obligations	$	83,087	$	103,947	$	124,051
Asset-backed securities	15,118		24,011		39,187
States and political subdivisions (2)	1,040,716		1,128,240		1,112,415
Other	64,296		66,478		72,701
Total securities held to maturity	$	1,203,217	$	1,322,676	$	1,348,354
Total investment securities	$	12,868,272	$	12,373,196	$	11,585,629

(1) Includes $403 million, $503 million and $500 million at December 31, 2016, 2015 and 2014, respectively, of FHLB and Federal Reserve stock carried at par.

(2) Represents private placement transactions underwritten as loans but meeting the definition of a security within ASC Topic 320, Investments – Debt and Equity Securities at origination.

As of December 31, 2016, the securities portfolio included $11.7 billion in available for sale securities and $1.2 billion in held to maturity securities. Approximately 90% of the total securities portfolio was backed by government agencies or government-sponsored entities.

During 2016, the Company received proceeds of $1.8 billion related to the sale of U.S. Treasury securities and other U.S. government agency securities classified as available for sale which resulted in net gains of $30.0 million.

During 2015, the Company received proceeds of $3.4 billion related to the sale of U.S. Treasury securities and other U.S. government agency securities, mortgage-backed securities, collateralized mortgage obligations and state and political subdivisions classified as available for sale which resulted in net gains of $81.7 million. Included in these proceeds received were approximately $263 million of state and political subdivisions and $287 million of mortgage-backed securities and collateralized mortgage obligations that the Company sold as part of its liquidity management strategy and due to LCR requirements. See the "—Liquidity Management" and Note 3, Investment Securities Available for Sale and Investment Securities Held to Maturity, in the Notes to the Consolidated Financial Statements for further details.

The Company recognized $130 thousand in OTTI charges in 2016 compared to $1.7 million and $180 thousand in 2015 and 2014, 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 and asset-backed securities. Refer to Note 3, Investment Securities Available for Sale and Investment Securities Held to Maturity, in the Notes to the Consolidated Financial Statements for further details.

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The maturities and weighted average yields of the investment securities available for sale and the investment securities held to maturity portfolios at December 31, 2016 are presented in the following table. Maturity data is calculated based on the next re-pricing date for securities with variable rates and remaining contractual maturity for securities with fixed rates. For other mortgage-backed securities excluding pass-through securities, the maturity was calculated using weighted average life. Taxable equivalent adjustments, using a 35 percent tax rate, have been made in calculating yields on tax-exempt obligations.

Table 9 Investment Securities Maturity Schedule
	Maturing
	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	(Dollars in Thousands)
Investment securities available for sale (at fair value):
U.S. Treasury and other U.S. government agencies	$	188,403	0.34	%	$	609,593	0.83	%	$	575,750	1.36	%	$	1,000,585	0.99	%
Mortgage-backed securities	591		2.17		80,206		1.79		108,247		1.78		3,574,294		1.24
Collateralized mortgage obligations	—		—		2,119		3.79		35,330		1.66		5,061,479		1.22
States and political subdivisions	1,087		6.21		1,900		7.24		1,257		3.87		4,397		9.74
Other	—		—		—		—		—		—		16,185		1.17
Equity securities (1)	—		—		—		—		—		—		403,632		2.07
Total	$	190,081			$	693,818			$	720,584			$	10,060,572
Investment securities held to maturity (at amortized cost):
Collateralized mortgage obligations	$	—	—	%	$	2,958	4.11	%	$	—	—	%	$	80,129	2.23	%
Asset-backed securities	—		—		—		—		25		0.79		15,093		1.00
States and political subdivisions	88,243		1.59		250,916		1.78		214,609		2.11		486,948		2.56
Other	—		—		—				—		—		64,296		1.02
Total	$	88,243	—	%	$	253,874			$	214,634			$	646,466
Total securities	$	278,324			$	947,692			$	935,218			$	10,707,038

(1) Equity securities are included in the maturing after ten years category.

Lending Activities

Average loans and loans held for sale represented 75.6% of total average interest-earnings assets at December 31, 2016, compared to 76.2% at December 31, 2015. The Company groups its loans into portfolio segments based on internal classifications reflecting the manner in which the allowance for loan losses is established and how credit risk is measured, monitored and reported. Commercial loans are comprised of commercial, financial and agricultural, real estate-construction, and commercial real estate–mortgage loans. Consumer loans are comprised of residential real-estate mortgage, equity lines of credit, equity loans, credit cards, consumer direct and consumer indirect loans. The Company also has a portfolio of covered loans that were acquired in the FDIC-assisted acquisition of certain assets and liabilities of Guaranty Bank.

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The Loan Portfolio table presents the classifications by major category at December 31, 2016, and for each of the preceding four years. The second table presents maturities of certain loan classifications at December 31, 2016, and an analysis of the rate structure for such loans with maturities greater than one year, excluding covered loans.

Table 10 Loan Portfolio
	December 31,
	2016		2015		2014		2013		2012
	(In Thousands)
Commercial loans:
Commercial, financial and agricultural	$	25,122,002	$	26,022,374	$	23,828,537	$	20,209,209	$	16,980,957
Real estate – construction	2,125,316		2,354,253		2,154,652		1,736,348		1,895,931
Commercial real estate – mortgage	11,210,660		10,453,280		9,877,206		9,106,329		7,707,548
Total commercial loans	$	38,457,978	$	38,829,907	$	35,860,395	$	31,051,886	$	26,584,436
Consumer loans:
Residential real estate – mortgage	$	13,259,994	$	13,993,285	$	13,922,656	$	12,706,879	$	11,443,973
Equity lines of credit	2,543,778		2,419,815		2,304,784		2,236,367		2,393,271
Equity loans	445,709		580,804		634,968		644,068		671,616
Credit card	604,881		627,359		630,456		660,073		625,395
Consumer direct	1,254,641		936,871		652,927		516,572		522,995
Consumer indirect	3,134,948		3,495,082		2,870,408		2,116,981		1,593,175
Total consumer loans	$	21,243,951	$	22,053,216	$	21,016,199	$	18,880,940	$	17,250,425
Covered loans	359,334		440,961		495,190		734,190		1,176,682
Total loans	$	60,061,263	$	61,324,084	$	57,371,784	$	50,667,016	$	45,011,543
Loans held for sale	161,849		70,582		154,816		147,109		322,065
Total loans and loans held for sale	$	60,223,112	$	61,394,666	$	57,526,600	$	50,814,125	$	45,333,608

Table 11 Selected Loan Maturity and Interest Rate Sensitivity
	Maturity								Rate Structure For Loans Maturing Over One Year
	One Year or Less		Over One Year Through Five Years		Over Five Years		Total		Fixed Interest Rate		Floating or Adjustable Rate
	(In Thousands)
Commercial, financial and agricultural	$	5,055,438	$	17,318,573	$	2,747,991	$	25,122,002	$	4,018,467	$	16,048,097
Real estate - construction	769,484		1,196,594		159,238		2,125,316		36,923		1,318,909
	$	5,824,922	$	18,515,167	$	2,907,229	$	27,247,318	$	4,055,390	$	17,367,006

Scheduled repayments in the preceding table are reported in the maturity category in which the payment is due. Determinations of maturities are based upon contract terms.

Loans and loans held for sale, net of unearned income, totaled $60.2 billion at December 31, 2016, a decrease of $1.2 billion from December 31, 2015. The decrease in total loans was primarily driven by decreases in the commercial, financial and agricultural and the residential real estate-mortgage portfolios. During 2016, the Company sold $444 million of commercial loans and $316 million of residential real-estate mortgage loans.

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

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Asset Quality

Nonperforming assets, which includes nonaccrual loans, nonaccrual loans held for sale, accruing loans 90 days past due, accruing TDRs 90 days past due, other real estate owned and other repossessed assets totaled $1.0 billion at December 31, 2016 compared to $506 million at December 31, 2015. The increase in nonperforming assets was due to a $513 million increase in nonaccrual loans primarily related to downgrades of certain loans in the energy portfolio. At December 31, 2016, energy nonaccrual loans were $387 million compared to $92 million at December 31, 2015. Excluding energy nonperforming loans, nonperforming assets totaled $625 million at December 31, 2016 compared to $414 million at December 31, 2015. As a percentage of total loans and loans held for sale and other real estate, nonperforming assets were 1.68% (or 1.10% excluding energy nonperforming loans) at December 31, 2016 compared with 0.82% (or 0.72% excluding energy nonperforming loans) at December 31, 2015.

The Company defines potential problem loans as commercial loans rated substandard or doubtful that do not meet the definition of nonaccrual, TDR or 90 days past due and still accruing. See Note 4, Loans and Allowance for Loan Losses, in the Notes to the 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 12 Potential Problem Loans
	December 31,
	2016		2015
	(In Thousands)
Commercial, financial and agricultural	$	630,760	$	580,491
Real estate – construction	5,578		174
Commercial real estate – mortgage	57,108		74,373
	$	693,446	$	655,038

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

Table 13 Asset Quality
	December 31,
	2016		2015		2014		2013		2012
	(In Thousands)
Nonaccrual loans:
Commercial, financial and agricultural	$	596,454	$	161,591	$	61,157	$	128,231	$	112,135
Real estate – construction	1,239		5,908		7,964		14,183		104,683
Commercial real estate – mortgage	71,921		69,953		89,736		129,672		270,734
Residential real estate – mortgage	140,303		113,234		108,357		102,904		193,983
Equity lines of credit	33,453		35,023		32,874		31,431		20,143
Equity loans	13,635		15,614		19,029		20,447		16,943
Credit card	—		—		—		—		—
Consumer direct	789		561		799		540		337
Consumer indirect	5,926		5,027		2,624		1,523		—
Covered	730		134		114		5,428		1,235
Total nonaccrual loans	864,450		407,045		322,654		434,359		720,193
Nonaccrual loans held for sale	56,592		—		—		7,359		7,583
Total nonaccrual loans and loans held for sale	$	921,042	$	407,045	$	322,654	$	441,718	$	727,776
Accruing TDRs: (1)
Commercial, financial and agricultural	$	8,726	$	9,402	$	10,127	$	25,548	$	17,832
Real estate – construction	2,393		2,247		2,112		3,801		49,215
Commercial real estate – mortgage	4,860		33,904		39,841		59,727		56,520
Residential real estate – mortgage	59,893		67,343		69,408		74,236		91,384
Equity lines of credit	—		—		—		—		—
Equity loans	34,746		37,108		41,197		42,850		21,929
Credit card	—		—		—		—		—
Consumer direct	704		908		298		91		138
Consumer indirect	—		—		—		—		—
Covered	—		—		—		3,455		7,079
Total TDRs	111,322		150,912		162,983		209,708		244,097
TDRs classified as loans held for sale	—		—		—		—		—
Total TDRs (loans and loans held for sale)	$	111,322	$	150,912	$	162,983	$	209,708	$	244,097
Loans 90 days past due and accruing:
Commercial, financial and agricultural	$	2,891	$	3,567	$	1,610	$	2,212	$	1,853
Real estate – construction	2,007		421		477		240		1,907
Commercial real estate – mortgage	—		2,237		628		797		2,771
Residential real estate – mortgage	3,356		1,961		2,598		2,460		3,645
Equity lines of credit	2,950		2,883		2,679		5,109		4,661
Equity loans	467		704		997		1,167		2,335
Credit card	10,954		9,718		9,441		10,277		7,729
Consumer direct	4,482		3,537		2,296		2,402		2,065
Consumer indirect	7,197		5,629		2,771		1,540		1,138
Covered	27,238		37,972		47,957		56,610		112,748
Total loans 90 days past due and accruing	61,542		68,629		71,454		82,814		140,852
Loans held for sale 90 days past due and accruing	—		—		—		—		—
Total loans and loans held for sale 90 days past due and accruing	$	61,542	$	68,629	$	71,454	$	82,814	$	140,852
Other real estate	$	21,112	$	20,862	$	20,600	$	23,228	$	68,568
Other repossessed assets	$	7,587	$	8,774	$	3,920	$	3,360	$	3,890

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

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

Table 14 Nonperforming Assets
	December 31,
	2016		2015		2014		2013		2012
	(In Thousands)
Nonaccrual loans	$	921,042	$	407,045	$	322,654	$	441,718	$	727,776
Loans 90 days or more past due and accruing (1)	61,542		68,629		71,454		82,814		140,852
TDRs 90 days or more past due and accruing	589		874		1,722		1,317		862
Nonperforming loans	983,173		476,548		395,830		525,849		869,490
OREO	21,112		20,862		20,600		23,228		68,568
Other repossessed assets	7,587		8,774		3,920		3,360		3,890
Total nonperforming assets	$	1,011,872	$	506,184	$	420,350	$	552,437	$	941,948

(1) Excludes loans classified as TDRs

Table 15 Asset Quality Ratios
	December 31,
	2016		2015		2014		2013		2012
	(In Thousands)
Asset Quality Ratios:
Nonperforming loans and loans held for sale as a percentage of total loans and loans held for sale (1)	1.63	%	0.78	%	0.69	%	1.03	%	1.92	%
Nonperforming assets as a percentage of total loans and loans held for sale, other real estate, and other repossessed assets (2)	1.68	%	0.82	%	0.73	%	1.09	%	2.07	%
Allowance for loan losses as a percentage of loans	1.40	%	1.24	%	1.19	%	1.38	%	1.78	%
Allowance for loan losses as a percentage of nonperforming loans (3)	90.47	%	160.04	%	173.06	%	135.15	%	93.15	%

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

(2) Nonperforming assets include nonperforming loans, other real estate 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 OREO.

Table 16 Rollforward of Other Real Estate Owned
	Years Ended December 31,
	2016			2015
	(In Thousands)
Balance at beginning of year	$	20,862		$	20,600
Transfer of loans and loans held for sale to OREO	26,235			20,781
Sales of OREO	(22,547		)	(16,314		)
Write-downs of OREO	(3,438		)	(4,205		)
Balance at end of year	$	21,112		$	20,862

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

Table 17 Rollforward of Nonaccrual Loans
	Years Ended December 31,
	2016			2015
	(In Thousands)
Balance at beginning of year	$	406,911		$	322,540
Additions	1,447,176			434,795
Returns to accrual	(183,974		)	(76,330		)
Loan sales	(150,412		)	(7,150		)
Payments and paydowns	(289,891		)	(76,640		)
Transfers to other real estate	(19,895		)	(19,445		)
Charge-offs	(289,603		)	(170,859		)
Balance at end of year	$	920,312		$	406,911

Generally when a loan is placed on nonaccrual status, the Company applies the entire amount of any subsequent payments (including interest) to the outstanding principal balance. Consequently, a substantial portion of the interest received related to nonaccrual loans has been applied to principal. At December 31, 2016, nonaccrual loans and loans held for sale, excluding covered loans, totaled $920 million. During the year ended December 31, 2016, $9.4 million of interest income was recognized on loans and loans held for sale classified as nonaccrual as of December 31, 2016. Under the original terms of the loans, interest income would have been approximately $38.5 million for loans and loans held for sale classified as nonaccrual as of December 31, 2016.

When borrowers are experiencing financial difficulties, the Company may, in order to assist the borrowers in repaying the principal and interest owed to the Company, 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. 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 1, Summary of Significant Accounting Policies, and Note 4, Loans and Allowance for Loan Losses, in the Notes to the Consolidated Financial Statements for additional information.

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

Table 18 Rollforward of TDR Activity
	Years Ended December 31,
	2016			2015
	(In Thousands)
Balance at beginning of year	$	227,817		$	243,374
New TDRs	70,136			26,147
Payments/Payoffs	(80,712		)	(33,510		)
Charge-offs	(2,319		)	(4,673		)
Loan sales	—			(1,982		)
Transfer to ORE	(1,054		)	(1,539		)
Balance at end of year	$	213,868		$	227,817

The Company’s aggregate recorded investment in impaired loans modified through TDRs excluding covered loans decreased to $214 million at December 31, 2016 from $228 million at December 31, 2015. Included in these amounts are $111 million at December 31, 2016 and $151 million at December 31, 2015 of accruing TDRs, excluding covered

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loans. Accruing TDRs are not considered nonperforming because they are performing in accordance with the restructured terms.

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

Allowance for Loan Losses

Management’s policy is to maintain the allowance for loan losses at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. Refer to Note 1, Summary of Significant Accounting Policies, and Note 4, Loans and Allowance for Loan Losses, in the Notes to the Consolidated Financial Statements for additional disclosures regarding the allowance for loan losses. The total allowance for loan losses increased to $838 million at December 31, 2016, from $763 million at December 31, 2015 primarily due to higher level of nonperforming loans. The ratio of the allowance for loan losses to total loans increased to 1.40% at December 31, 2016 from 1.24% at December 31, 2015. Nonperforming loans increased to $983 million at December 31, 2016 from $477 million at December 31, 2015. The allowance attributable to individually impaired loans was $138 million at December 31, 2016 compared to $71 million at December 31, 2015. 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 loans.

Net charge-offs were 0.37% of average loans for 2016 compared to 0.19% of average loans for 2015. The increase in net charge-offs during 2016 as compared to the corresponding period in 2015 was driven in part by a $59.5 million increase in commercial, financial and agricultural net charge-offs as well as a $24.8 million increase in consumer direct net charge-offs and a $25.2 million increase in consumer indirect net charge-offs. Commercial, financial and agricultural net charge-offs included $50.7 million of net charge-offs related to energy loans for 2016 compared to $2.7 million of net charge-offs related to energy loans for 2015.

When determining the adequacy of the allowance for loan losses, management considers changes in the size and character of the loan portfolio, changes in nonperforming and past due loans, historical loan loss experience, the existing risk of individual loans, concentrations of loans to specific borrowers or industries and current economic conditions. 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.

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The following table presents an estimated allocation of the allowance for loan losses. This allocation of the allowance for loan losses is calculated on an approximate basis and is not necessarily indicative of future losses or allocations. The entire amount of the allowance is available to absorb losses occurring in any category of loans.

Table 19 Allocation of Allowance for Loan Losses
	December 31,
	2016				2015				2014				2013				2012
	Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans
	(Dollars in Thousands)
Commercial, financial and agricultural	$	458,580	41.8	%	$	402,113	42.4	%	$	299,482	41.5	%	$	292,327	39.9	%	$	283,058	37.7	%
Real estate – construction	38,990		3.5		46,709		3.9		48,648		3.8		33,218		3.4		69,761		4.2
Commercial real estate – mortgage	77,947		18.7		75,359		17.0		89,585		17.2		125,742		18.0		184,563		17.1
Residential real estate – mortgage	60,021		22.1		64,029		22.8		69,716		24.3		71,321		25.1		115,600		25.4
Equity lines of credit	48,389		4.3		53,027		4.0		66,151		4.0		62,258		4.4		41,528		5.3
Equity loans	11,074		0.7		15,048		1.0		18,760		1.1		21,996		1.3		15,137		1.5
Credit card	39,361		1.0		39,682		1.0		42,523		1.1		46,395		1.3		37,039		1.4
Consumer direct	44,745		2.1		21,599		1.5		16,139		1.1		14,250		1.0		16,122		1.2
Consumer indirect	59,186		5.2		43,667		5.7		31,229		5.0		30,258		4.2		22,242		3.6
Total, excluding covered loans	838,293		99.4		761,233		99.3		682,233		99.1		697,765		98.6		785,050		97.4
Covered loans	—		0.6		1,440		0.7		2,808		0.9		2,954		1.4		17,803		2.6
Total	$	838,293	100.0	%	$	762,673	100.0	%	$	685,041	100.0	%	$	700,719	100.0	%	$	802,853	100.0	%

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

Table 20 Summary of Loan Loss Experience
	Years Ended December 31,
	2016			2015			2014			2013			2012
	(Dollars in Thousands)
Average loans outstanding during the year	$	61,425,876		$	60,070,527		$	54,308,414		$	47,810,838		$	44,002,221
Allowance for loan losses, beginning of year	$	762,673		$	685,041		$	700,719		$	802,853		$	1,051,796
Charge-offs:
Commercial, financial and agricultural	84,218			25,831			31,627			47,751			63,678
Real estate – construction	505			204			2,882			8,403			57,758
Commercial real estate – mortgage	4,361			3,678			12,088			35,011			94,160
Residential real estate – mortgage	8,787			10,648			21,161			73,551			56,834
Equity lines of credit	8,625			12,231			20,101			31,705			52,899
Equity loans	2,534			3,751			7,487			13,167			16,354
Credit card	37,349			32,230			36,129			32,534			31,891
Consumer direct	52,026			28,286			22,960			21,844			24,208
Consumer indirect	91,198			54,597			29,363			18,198			15,488
Covered	1,484			2,228			2,466			6,708			3,807
Total charge-offs	291,087			173,684			186,264			288,872			417,077
Recoveries:
Commercial, financial and agricultural	11,039			12,190			19,796			20,050			31,074
Real estate – construction	2,490			4,585			5,243			11,442			22,462
Commercial real estate – mortgage	2,747			1,107			2,576			7,333			13,419
Residential real estate – mortgage	5,751			7,264			6,003			6,750			3,848
Equity lines of credit	4,314			3,211			4,710			4,205			21,736
Equity loans	1,417			3,343			2,126			2,092			1,847
Credit card	2,892			2,880			2,814			2,650			2,559
Consumer direct	5,164			6,177			5,709			6,137			5,432
Consumer indirect	28,303			16,918			10,075			10,045			10,886
Covered	1			3			5,233			8,488			25,400
Total recoveries	64,118			57,678			64,285			79,192			138,663
Net charge-offs	226,969			116,006			121,979			209,680			278,414
Total provision for loan losses	302,589			193,638			106,301			107,546			29,471
Allowance for loan losses, end of year	$	838,293		$	762,673		$	685,041		$	700,719		$	802,853
Net charge-offs to average loans	0.37		%	0.19		%	0.22		%	0.44		%	0.63		%

Concentrations

The following tables provide further details regarding the Company’s commercial, financial and agricultural, commercial real estate, residential real estate and consumer segments as of December 31, 2016 and 2015.

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's industry.

The commercial, financial and agricultural portfolio segment totaled $25.1 billion at December 31, 2016, compared to $26.0 billion at December 31, 2015. This segment consists primarily of large national and international companies

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and small to mid-sized companies with business operations in the Company's geographic footprint. This 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 segment by various means, including maintaining prudent advance rates, financial covenants, and obtaining personal guarantees from the principals of the company.

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

Table 21 Commercial, Financial and Agricultural
	December 31,
	2016								2015
Industry	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Autos, Components and Durable Goods	$	580,886	$	40	$	—	$	57	$	627,543	$	83	$	—	$	—
Basic Materials	740,247		12,388		—		—		857,616		99		—		—
Capital Goods & Industrial Services	2,614,743		645		174		—		2,587,038		6,520		19		108
Construction & Infrastructure	551,487		33,991		29		—		629,869		13,998		50		139
Consumer & Healthcare	3,163,582		3,363		374		56		3,223,674		10,542		424		189
Energy	3,246,189		386,544		—		—		3,840,226		92,467		120		—
Financial Services	1,148,358		115		—		—		1,074,595		131		5		—
General Corporates	1,918,514		80,601		54		2,684		1,410,666		2,092		51		2,534
Institutions	2,373,183		1,650		7,868		74		2,542,284		5,841		8,375		—
Leisure	2,077,150		8,458		170		—		2,118,578		11,077		224		66
Real Estate	1,251,561		8		—		—		1,583,582		146		—		—
Retailers	2,410,123		30,459		—		—		2,374,773		2,671		64		496
Telecoms, Technology & Media	1,525,137		2,234		53		20		1,460,879		15,768		57		35
Transportation	794,407		11,384		—		—		800,413		156		—		—
Utilities	726,435		24,574		4		—		890,638		—		13		—
Total Commercial, Financial and Agricultural	$	25,122,002	$	596,454	$	8,726	$	2,891	$	26,022,374	$	161,591	$	9,402	$	3,567

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The Company has been closely monitoring the potential impact of lower oil prices on its energy sector lending portfolio. Total energy exposure, including unused commitments to extend credit and letters of credit was $8.1 billion and $9.4 billion at December 31, 2016 and 2015. As shown in Table 22, the Company's energy sector loan balances at December 31, 2016 were approximately $3.2 billion and represented 5.4% of the Company's total loan portfolio compared to $3.8 billion and 6.3% of the Company's total loans as of December 31, 2015. This amount is comprised of loans directly related to energy, including exploration and production, pipeline transportation of natural gas, crude oil and other refined petroleum products, oil field services, and refining and support as detailed in the following table.

Table 22 Energy Portfolio
	December 31,
	2016						2015
	Recorded Investment		Total Commitment		Nonaccrual		Recorded Investment		Total Commitment		Nonaccrual
	(In Thousands)
Exploration and production	$	1,654,565	4,182,861		$	308,096	$	2,040,748	$	5,186,887	$	91,947
Midstream	1,199,844		3,230,513		11,298		1,355,503		3,293,216		—
Drilling oil and support services	263,770		467,908		66,811		266,871		554,782		—
Refineries and terminals	128,010		262,618		339		137,904		211,258		520
Other	—		—		—		39,200		109,782		—
Total energy portfolio	$	3,246,189	$	8,143,900	$	386,544	$	3,840,226	$	9,355,925	$	92,467

	December 31,
	2016				2015
	As a % of Energy Loans		As a % of Total Loans		As a % of Energy Loans		As a % of Total Loans
Exploration and production	51.0	%	2.8	%	53.2	%	3.4	%
Midstream	37.0		2.0		35.3		2.2
Drilling oil and support services	8.1		0.4		6.9		0.4
Refineries and terminals	3.9		0.2		3.6		0.2
Other	—		—		1.0		0.1
Total energy portfolio	100.0	%	5.4	%	100.0	%	6.3	%

The lower oil prices has negatively impacted the financial results for many borrowers in the portfolio, leading to internal rating downgrades. The internal rating downgrades reflect the weakened financial performance or financial position of certain borrowers in this portfolio. The overall level of loans rated special mention or lower, including loans classified as nonaccrual, in the energy portfolio at December 31, 2016 was 32.7%, comprised of 8.7% rated special mention and 24.0% rated substandard or lower. At December 31, 2015 the overall level of loans rated special mention or lower in the energy portfolio was 16.3%, comprised of 4.3% rated special mention and 12.0% rated substandard or lower.

The Company employs a variety of risk management strategies, including the use of concentration limits, underwriting standards and continuous monitoring. As of December 31, 2016, the Company has observed negative trending of the internal risk ratings in the energy lending portfolio and an increase in nonaccrual loans from 2015, as indicated in Table 22. Currently, the credit quality issues have mostly been isolated to the exploration and production subsector which is the subsector that is most acutely impacted by pricing conditions. At December 31, 2016, approximately 80.2% of loans rated special mention or lower were in the exploration and production subsector. Within this subsector, many loans are secured and utilize borrowing base features linked to the physical commodity reserves and supported by engineering data. The borrowing bases are refreshed with updated information on a recurring basis. In the current pricing environment, the Company generally continues to see adequate collateral support of secured energy borrowers, including secured reserve based lines of credit for exploration and production borrowers. The

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Company's internal valuation methodologies involve independent engineering analysis of a borrower's reserve to calculate the present value of discounted cash flows that secure the loan. In doing so, the Company applies its oil and gas pricing policy, or when needed external market indices for oil and gas prices. Generally, the drilling oil and support services subsector also has a high risk for impact from the pricing environment since their operations are directly impacted by reduced spending by those in the exploration and production sector. However as noted in Table 22, the Company's exposure in this sector is limited.

For 2016, charge-offs on energy loans were approximately $50.7 million compared to $2.7 million for 2015. Charge-offs in this portfolio have remained low as the majority of classified energy portfolio loans remain well secured. However, if oil prices begin to decline again, this energy-related portfolio may be subject to additional pressure on credit quality metrics including past due, criticized, and nonperforming loans, as well as net charge-offs. Through its ongoing portfolio credit quality assessment, the Company has and will continue to assess the impact to the allowance for loan losses and make adjustments as appropriate. As of December 31, 2016, the Company's allowance for loan losses attributable to the energy portfolio totaled approximately 4.7% of outstanding energy loans.

Commercial Real Estate

The commercial real estate portfolio segment includes the commercial real estate and real estate - construction loan portfolios. Commercial real estate loans totaled $11.2 billion at December 31, 2016, compared to $10.5 billion at December 31, 2015, and real estate - construction loans totaled $2.1 billion at December 31, 2016, compared to $2.4 billion at December 31, 2015.

This segment consists primarily of extensions of credit 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 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 23 Commercial Real Estate
	December 31,
	2016								2015
State	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Alabama	$	493,199	$	1,853	$	2,513	$	—	$	542,889	$	2,723	$	3,365	$	989
Arizona	847,908		5,252		—		—		837,949		4,465		465		—
California	1,139,785		4,645		—		—		1,104,368		942		222		—
Colorado	436,640		6,902		—		—		395,679		8,460		10,210		—
Florida	912,874		7,262		134		—		965,365		9,564		138		—
New Mexico	174,911		6,354		132		—		160,840		6,405		22		—
Texas	3,576,090		33,043		1,152		—		3,269,626		28,956		4,292		1,248
Other	3,629,253		6,610		929		—		3,176,564		8,438		15,190		—
	$	11,210,660	$	71,921	$	4,860	$	—	$	10,453,280	$	69,953	$	33,904	$	2,237

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Table 24 Real Estate – Construction
	December 31,
	2016								2015
State	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Alabama	$	17,517	$	43	$	—	$	—	$	27,815	$	389	$	312	$	122
Arizona	94,191		—		—		—		80,713		2,404		—		—
California	246,094		—		—		—		326,698		19		22		—
Colorado	91,434		—		—		—		92,764		—		—		—
Florida	228,530		2		—		—		205,466		—		—		—
New Mexico	16,487		—		1,163		—		13,092		93		51		—
Texas	1,024,830		1,066		1,230		2,007		1,105,252		2,727		1,862		299
Other	406,233		128		—		—		502,453		276		—		—
	$	2,125,316	$	1,239	$	2,393	$	2,007	$	2,354,253	$	5,908	$	2,247	$	421

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 $13.3 billion at December 31, 2016 compared to $14.0 billion at December 31, 2015. 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 segment is concentrated in the Company's footprint as indicated in the table below.

Table 25 Residential Real Estate - Mortgage
	December 31,
	2016								2015
State	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Alabama	$	1,005,975	$	16,607	$	11,390	$	512	$	1,111,987	$	13,868	$	14,528	$	29
Arizona	1,270,521		11,831		9,901		412		1,395,539		7,251		11,567		242
California	2,929,393		16,258		2,164		429		3,022,425		13,705		2,691		104
Colorado	1,111,097		14,165		2,552		—		1,225,818		3,660		3,471		2
Florida	1,697,555		28,266		10,636		120		1,708,912		24,595		10,595		134
New Mexico	216,865		1,955		1,630		—		217,476		1,827		2,149		32
Texas	4,539,469		34,232		18,850		1,752		4,784,292		25,731		18,908		1,418
Other	489,119		16,989		2,770		131		526,836		22,597		3,434		—
	$	13,259,994	$	140,303	$	59,893	$	3,356	$	13,993,285	$	113,234	$	67,343	$	1,961

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

Table 26 Residential Real Estate - Mortgage
	December 31,
	2016								2015
FICO Score	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Below 621	$	664,660	$	91,262	$	14,831	$	2,111	$	631,139	$	72,791	$	20,380	$	1,359
621-680	1,279,658		21,507		16,854		825		1,351,069		21,000		21,018		52
681 – 720	1,980,276		6,288		13,921		37		2,227,263		4,182		12,364		154
Above 720	8,548,993		4,327		13,957		193		8,870,080		1,916		12,350		272
Unknown	786,407		16,919		330		190		913,734		13,345		1,231		124
	$	13,259,994	$	140,303	$	59,893	$	3,356	$	13,993,285	$	113,234	$	67,343	$	1,961

Equity lines of credit and equity loans totaled $3.0 billion at both December 31, 2016 and 2015, 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 segment is concentrated within the Company's footprint as indicated in the table below.

Table 27 Equity Loans and Lines
	December 31,
	2016								2015
State	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Alabama	$	566,990	$	8,380	$	11,338	$	932	$	586,094	$	10,445	$	9,847	$	1,007
Arizona	399,225		8,562		4,396		989		416,109		8,846		6,267		980
California	314,929		1,216		285		—		292,210		1,676		100		24
Colorado	192,517		3,802		1,388		86		211,464		4,971		3,045		123
Florida	382,853		9,195		7,375		583		393,931		9,178		7,188		472
New Mexico	53,491		2,087		600		—		56,148		2,383		1,052		—
Texas	1,040,395		12,309		8,997		704		985,899		11,447		8,665		845
Other	39,087		1,537		367		123		58,764		1,691		944		136
	$	2,989,487	$	47,088	$	34,746	$	3,417	$	3,000,619	$	50,637	$	37,108	$	3,587

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

Table 28 Equity Loans and Lines
	December 31,
	2016								2015
FICO Score	Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due		Recorded Investment		Nonaccrual		Accruing TDRs		Accruing Greater Than 90 Days Past Due
	(In Thousands)
Below 621	$	207,659	$	24,532	$	8,723	$	1,940	$	220,476	$	23,367	$	10,923	$	3,125
621-680	412,752		12,930		13,326		542		439,350		15,677		12,812		187
681 – 720	557,850		6,980		6,081		713		565,476		7,456		8,067		160
Above 720	1,798,151		2,466		6,430		222		1,752,094		3,641		5,143		115
Unknown	13,075		180		186		—		23,223		496		163		—
	$	2,989,487	$	47,088	$	34,746	$	3,417	$	3,000,619	$	50,637	$	37,108	$	3,587

Other Consumer

The Company also operates a consumer finance unit which purchases loan contracts for indirect automobile and other consumer financing. These loans are centrally underwritten using industry accepted tools and underwriting guidelines. The Company also originates credit card loans and other consumer-direct loans that are centrally underwritten and sourced from the Company's branches or online. Total credit card, consumer direct and consumer indirect loans at December 31, 2016 were $5.0 billion, or 8.3% of the total loan portfolio compared to $5.1 billion, or 8.3% of the total loan portfolio at December 31, 2015.

Foreign Exposure

As of December 31, 2016, 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 $5.0 billion at both December 31, 2016 and 2015 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. Refer to Note 23, Segment Information, in the Notes to the Consolidated Financial Statements for a discussion of the transfer of certain customer relationships between the Consumer and Commercial Bank and Corporate Investment Banking reporting units. In connection with the transfer, the Company reallocated goodwill to the existing reporting units using a relative fair value approach. At December 31, 2016, the goodwill, net of accumulated impairment losses, attributable to each of the Company’s three identified reporting units is as follows: Consumer and Commercial Banking - $4.1 billion, Corporate and Investment Banking - $896 million, and Simple - $0.

A test of goodwill for impairment consists of two steps. In step one of the impairment test, 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, step two of the impairment test is required to be performed to measure the amount of impairment loss, if any. Step two compares the implied fair value of goodwill attributable to each reporting unit to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination; an entity allocates the fair value determined in step one for the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. The carrying value of equity for each reporting unit is determined from an allocation based upon risk weighted assets. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Adverse changes in the economic environment,

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declining operations of the reporting unit, or other factors could result in a decline in the estimated implied fair value of goodwill.

The estimated fair value of the reporting unit is determined using a blend of both income and market approaches. For the income approach, estimated future cash flows and terminal values are discounted. The Company utilizes a CAPM in order to derive the base discount rate. The inputs to the CAPM include the 20-year risk free rate, 2-year beta for a select peer set, and a market risk premium based on published data. Once the output of the CAPM is determined, a size premium is added (also based on a published source) for each reporting unit.

In estimating future cash flows, a balance sheet as of the test date and a statement of income for the last 12 months of activity for each reporting unit is compiled. From that point, future balance sheets and statements of income are projected based on the inputs. Cash flows are based on future capitalization requirements due to balance sheet growth and anticipated changes in regulatory capital requirements.

The Company uses the guideline public company method and the guideline transaction method as the market approaches. The public company method applies valuation multiples derived from each reporting unit's peer group to tangible book value or earnings and an implied control premium to the respective reporting unit. The control premium is evaluated and compared to similar financial services transactions considering the absolute and relative potential revenue synergies and cost savings. The guideline transaction method applies valuation multiples to a financial metric of the reporting unit based on comparable observed purchase transactions in the financial services industry for the reporting unit, where available.

The Company tested its three identified reporting units with goodwill for impairment as of October 31, 2016. The results of this test indicated $59.9 million of goodwill impairment related to the Simple reporting unit. For the Company's two remaining reporting units, the most recent goodwill impairment test indicated that no goodwill impairment existed at that time.

The following table includes the carrying value and fair value of each reporting unit as of October 31, 2016, the date of the most recent annual goodwill impairment test.

Table 29 Fair Value of Reporting Units
	Fair Value		Carrying Value
	(In Thousands)
Reporting Unit:
Consumer and Commercial Banking	$	11,190,000	$	10,529,000
Corporate and Investment Banking	1,560,000		1,859,000
Simple	71,000		160,000

Based on the above data, step two of the goodwill impairment test was performed for the Corporate and Investment Banking and Simple reporting units. In step two, the fair value of the Corporate and Investment Banking and Simple reporting units' assets, both tangible and intangible, and liabilities were determined using estimates of the amounts at which the assets or liabilities could be bought, incurred, sold or settled in a taxable transaction between willing participants. For the Corporate and Investment Banking reporting unit, the effects of the step two adjustments exceeded any reductions in the value of equity determined in step one; accordingly the calculation of implied goodwill exceeded the carrying amount of goodwill by approximately 3.4% resulting in no impairment as of the October 31, 2016 test date. For the Simple reporting unit, the effects of the step two adjustments resulted in a full write off of its remaining goodwill balance of $60 million.

Both the step one fair values of the reporting units and the step two allocations of the fair values of the reporting units' are based upon management’s estimates and assumptions. Although management has used the estimates and assumptions it believes to be most appropriate in the circumstances, it should be noted that even relatively minor changes in certain valuation assumptions used in management’s calculations would result in significant differences in the results of the impairment tests. As an example, the discount rates used in the step one valuations are a key valuation assumption. In the Company’s step one test at October 31, 2016, the combined fair value of the Consumer and Commercial Bank and Corporate Investment Banking reporting units (excluding Simple) exceeded the combined carrying value by

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approximately $362 million. If the discount rates used in the step one test were increased by 50 basis points, the excess fair value would decrease to a combined deficit to fair value of $518 million. If the discount rates used in the step one test were increased by 100 basis points, the excess fair value would decrease to a combined deficit to fair value of $1.3 billion.

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

Specific factors as of the date of filing of the financial statements that could negatively impact the assumptions used in assessing goodwill for impairment include: disparities in the level of fair value changes in net assets; increases in book values of equity of a reporting unit in excess of the increase in fair value of equity; adverse business trends resulting from litigation and/or regulatory actions; higher loan losses; future increased minimum regulatory capital requirements above current thresholds; future federal rules and actions of regulators; and/or a continuation of the current level of interest rates.

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, which is further discussed in the Market Risk Management section in Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.

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At December 31, 2016, the Company's and the Bank's credit ratings were as follows:

Table 30 Credit Ratings
	As of December 31, 2016
	Standard & Poor’s	Moody’s	Fitch
BBVA Compass Bancshares, Inc.
Long-term debt rating	BBB+	Baa3	BBB+
Short-term debt rating	A-2	-	F2
Compass Bank
Long-term debt rating	BBB+	Baa3	BBB+
Long-term bank deposits (1)	N/A	A3	A-
Subordinated debt	BBB	Baa3	BBB-
Short-term debt rating	A-2	P-3	F2
Short-term deposit rating (2)	N/A	P-2	F2
Outlook	Negative	Stable	Stable

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

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

The cost and availability of financing to the Company and the Bank are impacted by their 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.

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

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Following is a brief description of the various sources of funds used by the Company.

Deposits

Total deposits increased by $1.3 billion from $66.0 billion at December 31, 2015 to $67.3 billion at December 31, 2016 due to growth in noninterest bearing demand deposits, savings and money market accounts and time deposits. Marketing efforts were the primary driver of this growth. At December 31, 2016 and 2015, total deposits included $5.8 billion and $7.0 billion, respectively, of brokered deposits.

The following table presents the Company’s average deposits segregated by major category:

Table 31 Composition of Average Deposits
	December 31,
	2016				2015				2014
	Balance		% of Total		Balance		% of Total		Balance		% of Total
	(Dollars in Thousands)
Noninterest-bearing demand deposits	$	20,556,608	30.3	%	$	19,016,212	30.0	%	$	16,633,320	28.5	%
Interest-bearing demand deposits	7,042,165		10.3		7,218,956		11.4		7,280,418		12.5
Savings and money market	25,747,220		37.9		24,155,771		38.0		21,616,078		37.0
Time deposits	14,454,532		21.3		12,989,759		20.4		12,745,944		21.8
Foreign office deposits-interest-bearing	104,039		0.2		158,202		0.2		131,510		0.2
Total average deposits	$	67,904,564	100.0	%	$	63,538,900	100.0	%	$	58,407,270	100.0	%

For additional information about deposits, see Note 9, Deposits, in the Notes to the Consolidated Financial Statements.

The following table summarizes the remaining maturities of time deposits of $100,000 or more outstanding at December 31, 2016.

Table 32 Maturities of Time Deposits of $100,000 or More
	Time Deposits of $100,000 or More
	(In Thousands)
Three months or less	$	2,051,122
Over three through six months	1,832,550
Over six through twelve months	1,275,738
Over twelve months	2,113,940
	$	7,273,350

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. At December 31, 2016, 2015 and 2014, the federal funds purchased included in short-term borrowings were primarily related to customer activity. The short-term borrowings table presents the distribution of the Company’s short-term borrowed funds and the corresponding weighted average interest rates for each of the last three years. Also provided are the maximum outstanding amounts of borrowings, the average amounts of borrowings and the average interest rates at year-end for the last three years. For additional information

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regarding the Company’s short-term borrowings, see Note 10, Short-Term Borrowings, in the Notes to the Consolidated Financial Statements.

Table 33 Short-Term Borrowings
	Maximum Outstanding at Any Month End		Average Balance		Average Interest Rate		Ending Balance		Average Interest Rate at Year-End
	(Dollars in Thousands)
December 31, 2016
Federal funds purchased	$	766,095	$	372,355	0.49	%	$	12,885	0.39	%
Securities sold under agreements to repurchase	148,291		79,625		0.49		26,167		0.55
Other short-term borrowings	4,497,354		3,778,752		1.44		2,802,977		1.68
	$	5,411,740	$	4,230,732			$	2,842,029
December 31, 2015
Federal funds purchased	$	975,785	$	692,737	0.26	%	$	673,545	0.37	%
Securities sold under agreements to repurchase	232,605		114,940		0.22		76,609		0.44
Other short-term borrowings	4,982,154		4,006,716		1.31		4,032,644		1.34
	$	6,190,544	$	4,814,393			$	4,782,798
December 31, 2014
Federal funds purchased	$	960,935	$	722,753	0.25	%	$	693,819	0.27	%
Securities sold under agreements to repurchase	435,684		212,686		0.23		435,684		0.73
Other short-term borrowings	2,545,724		385,461		1.38		2,545,724		1.62
	$	3,942,343	$	1,320,900			$	3,675,227

At December 31, 2016, total short-term borrowings totaled $2.8 billion, a decrease of $1.9 billion, compared to the ending balance at December 31, 2015. The decrease in total short-term borrowings was driven by a $1.2 billion decrease in other short-term borrowings related to U.S. Treasury short positions held by the Parent's broker dealer subsidiary, BSI as well as a $661 million decrease in federal funds purchased due to a shift away from federal funds purchased and into other deposit products. Refer to Note 15, Securities Financing Activities, in the Notes to the Consolidated Financial Statements for additional information.

At December 31, 2016 and 2015, FHLB and other borrowings were $3.0 billion and $5.4 billion, respectively. Proceeds received from the FHLB and other borrowings were approximately $2.6 billion and repayments were approximately $5.0 billion for the year ended December 31, 2016.

For a discussion of interest rates and maturities of FHLB and other borrowings, refer to Note 11, FHLB and Other Borrowings, in the Notes to the Consolidated Financial Statements.

Shareholder’s Equity

Total shareholders' equity at December 31, 2016 was $12.8 billion compared to $12.6 billion at December 31, 2015. Shareholder's equity increased $372 million due to earnings attributable to shareholder during the period offset by the payment of preferred and common dividends totaling $106.5 million as well as a $69.0 million dividend to BBVA Bancomer, USA, Inc. for the purchase of the four operating subsidiaries from BBVA Bancomer USA, Inc. See Note 2, Acquisition Activities, in the Notes to the Consolidated Financial Statements for additional information.

Risk Management

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

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The ERM program follows fundamental principles in establishing, executing and maintaining a program to manage overall risks. The Company's Board of Directors is responsible for overseeing the strategic and business plans, the ERM program and framework and the risk tolerance of the Company, approving key risk management policies, overseeing their implementation, and holding executive management accountable for the execution of the ERM program. Under the oversight of the Company's Board of Directors, management is charged with ensuring there is an effective, integrated risk management structure. This incorporates a clearly defined organizational structure, with defined roles and responsibilities for all aspects of risk management and appropriate tools that support the identification, assessment, control and reporting of key risks. Management is also responsible for defining categories of risk pertaining to the operations of the Company and is responsible for ensuring that the risk management framework adequately covers both measurable as well as non-measurable risk. Management prepares risk policies and procedures that clearly delineate the approach to all aspects of risk management through proper documentation and communication through appropriate channels. These risk management policies and procedures are aligned with the Company’s overall business strategies and support the continuous improvement of its risk management. Management and employees within each line of business and support units are the first line of defense in the identification, assessment, mitigation, monitoring and reporting of risks taken by the lines of business, consistent with the Company’s risk tolerance, the current regulatory model for these risks and any material failures that may occur. The lines of business and support units also will have additional infrastructure for certain types of risk embedded in the lines. The risk management organization and other control units serve as the second line of defense and the credit quality review and internal audit functions provide the third line of defense.

Some of the more significant processes used to manage and control these and other risks are described in the remainder of this Annual Report on Form 10-K.

Credit Risk

Credit risk is the most significant risk affecting the organization. Credit risk refers to the potential that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. It can arise from items carried on the balance sheet or in off-balance sheet instruments, customers in the Company’s normal lending activities, and other counterparties. The general definition of credit risk also includes transfer risk. That is, the risk that a particular counterparty cannot honor an obligation because it cannot obtain the currency in which the debt is denominated.

The Company has established the following general practices to manage credit risk:

• limiting the amount of credit that may be extended to individual borrowers, or on an aggregate basis to certain industries, products or collateral types;

• providing tools and policies to promote prudent lending practices;

• developing credit risk underwriting standards, metrics and the continuous monitoring of portfolio performance;

• assessing, monitoring, and reporting credit risks; and

• periodically reevaluating the Company’s strategy and overall exposure as economic, market and other relevant conditions change.

The following discussion presents the principal types of lending conducted by the Company and describes the underwriting procedures and overall risk management of the Company’s lending function.

Management Process

The Company assesses and manages credit risk through a series of policies, processes, measurement systems and controls. The lines of business are responsible for credit risk at the operational day-to-day level. Oversight of the lines of business is provided by the Credit Risk Management department and the appropriate credit committees established within the Company.

Credit Risk Management evaluates all loan requests and approves those that meet the Company’s risk tolerance and are in compliance with Company policies and regulatory guidance. Credit Risk Management also provides policy,

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portfolio, and approval data to management to help ensure that there is a common understanding of loan portfolio risk. This is accomplished by developing credit risk underwriting standards, metrics and the continuous monitoring of portfolio performance and assessing whether risk management practices have been carried out in accordance with the Company’s credit risk strategy and policies. Key metrics, trends and issues related to credit risk are presented to the Risk Committee of the Board of Directors.

The CQR function provides an independent review of the Company’s credit quality. The CQR function reports to the Audit and Compliance Committee of the Board of Directors and the Director of Internal Audit. The CQR function is charged with providing the Company's Board of Directors and executive management with independent, objective, and timely assessments of the Company’s portfolio quality, credit policies, and credit risk management process.

Underwriting Approach

The Company’s underwriting approach is designed to define acceptable combinations of specific risk-mitigating features so that the credit relationships are expected to conform to the Company’s risk tolerances. Provided below is a summary of the most significant underwriting criteria used to evaluate new loans and loan renewals.

• Cashflow and debt service coverage – cash flow adequacy is a condition of creditworthiness, meaning that loans not clearly supported by a borrower’s cash flow should be justified by secondary repayment sources.

• Secondary sources of repayment – alternative repayment sources are a significant risk-mitigating factor as long as they are liquid, can be easily accessed, and provide adequate resources to supplement the primary cash flow source.

• Value of any underlying collateral – loans are often secured by the asset being financed. Because an analysis of the primary and secondary sources of repayment is the most important factor, collateral, unless it is liquid, generally does not justify loans that cannot be serviced by the borrower’s normal cash flows.

• Overall creditworthiness of the customer, taking into account the customer’s relationships, both past and current, with other lenders – the Company’s success depends on building lasting and mutually beneficial relationships with clients, which involves assessing their financial position and background.

• Level of equity invested in the transactions – in general, borrowers are required to contribute or invest a portion of their own funds prior to any loan advances.

Structural Interest Rate, Market, and Liquidity Risks

Structural interest rate risk arises from the impact on the Company’s banking assets and liabilities due to changes in the interest rate curves in the market, impacting both economic value and net interest income generation. Market risk arises from the movement of market variables that impact the trading book. These variables can include interest rates, foreign exchange rates, and commodity prices, among others. Liquidity risk refers to the possibility that a counterparty or borrower cannot meet its payment commitments without having to resort to borrowing funds under onerous conditions or damaging its image or reputation. See the Market Risk Management and Liquidity sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.

Operational Risk

Operational risk refers to the potential loss resulting from inadequate or failed internal processes, people or systems, or from external events. It includes the current and prospective risk to earnings and capital arising from fraud, error, and the inability to deliver products or services, maintain a competitive position or manage information. Included in operational risk are compliance and legal risk. This refers to the possibility of legal or regulatory sanctions and liabilities, financial loss or damage to reputation the Company may suffer as a result of its failure to comply with all applicable laws, regulations, codes of conduct and good practice standards.

Operational risk is managed by the lines of business and supporting units with oversight by the Operational Risk Committees at the line of business and supporting unit level. The Operational Risk Committees are the key element to monitor operational risk events and the implementation of action plans and controls. Summary reports of these committees’ activities and decisions are provided to executive management.

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Strategic and Business Risk

Strategic and business risk refers to the potential of lower earnings generation due to reduced operating income that cannot be offset quickly through expense management. The origin can be either company specific or systemic. Management of these risks is a shared responsibility throughout the organization using the following management processes. An annual business planning process occurs where market, competitive and economic factors that could have a negative impact on earnings are addressed with action plans developed to deal with these factors. Additionally, monthly reporting and analysis at a line of business and support unit level is performed and reviewed.

Reputational Risk

Reputational risk normally results as a consequence of events related to other risks previously discussed. Therefore, an adequate management of all the different financial and non-financial risk is critical to mitigate and control reputational risk. Management of this risk also involves brand management, community involvement and internal and external communication.

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.

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The estimated impact on the Company’s net interest income sensitivity over a one-year time horizon at December 31, 2016, is shown in the table below along with comparable prior-year information. 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 December 31, 2016 and 2015, respectively.

Table 34 Net Interest Income Sensitivity
	Estimated % Change in Net Interest Income
	December 31, 2016		December 31, 2015
Rate Change
+ 200 basis points	8.33	%	10.72	%
+ 100 basis points	4.16		5.35

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 for new business or potential management actions.

Table 35 Economic Value of Equity
	Estimated % Change in Economic Value of Equity
	December 31, 2016		December 31, 2015
Rate Change
+ 300 basis points	(5.35)	%	(4.95)	%
+ 200 basis points	(3.29	)	(3.08	)
+ 100 basis points	(1.44	)	(1.38	)

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 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 December 31, 2016, the Company had derivative financial instruments outstanding with notional amounts of $41.4 billion, including $28.9 billion related to derivatives to facilitate transactions on behalf of its clients. The estimated net fair value of open contracts was in an asset position of $80 million at December 31, 2016. For additional information about derivatives, refer to Note 14, Derivatives and Hedging, in the Notes to the 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 customers 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

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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, securities purchased under agreements to resell are additional sources of liquidity due to their short-term maturities.

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 debt capital markets are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs.

In addition to the Company’s financial performance and condition, liquidity may be impacted by the Parent’s structure as a bank holding company that is a separate legal entity from the Bank. The Parent requires cash for various operating needs including payment of dividends to its shareholder, the servicing of debt, and the payment of general corporate expenses. The primary source of liquidity for the Parent is dividends paid by the Bank. Applicable federal and state statutes and regulations impose restrictions on the amount of dividends that may be paid by the Bank. In addition to the formal statutes and regulations, regulatory authorities also consider the adequacy of the Bank’s total capital in relation to its assets, deposits and other such items. Due to the net earnings restrictions on dividend distributions, the Bank was not permitted to pay dividends at December 31, 2016 or December 31, 2015 without regulatory approval. Appropriate limits and guidelines are in place to ensure the Parent has sufficient cash to meet operating expenses and other commitments over the next 18 months without relying on subsidiaries or capital markets for funding.

During 2016, the Parent paid common dividends of $92.9 million to its sole shareholder, BBVA. 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 before any dividends can be paid.

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.

Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth. See Note11, FHLB and Other Borrowings, Note 12, Shareholder's Equity, and Note 16, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations.

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The following tables present information about the Company’s contractual obligations.

Table 36 Contractual Obligations (1)
	December 31, 2016
	Payments Due by Period
	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 Years		Indeterminable Maturity
	(In Thousands)
FHLB and other borrowings	$	3,001,551	$	786,332	$	948,121	$	343,193	$	923,905	$	—
Short-term borrowings(2)	2,842,029		2,842,029		—		—		—		—
Capital lease obligations	23,192		2,272		4,708		4,725		11,487		—
Operating leases	447,137		67,034		118,365		91,207		170,531		—
Deposits (3)	67,279,533		8,975,395		3,891,989		498,409		62,077		53,851,663
Unrecognized income tax benefits	13,615		9,695		2,042		1,878		—		—
Total	$	73,607,057	$	12,682,757	$	4,965,225	$	939,412	$	1,168,000	$	53,851,663

(1) Amounts do not include associated interest payments.

(2) Includes federal funds purchased and borrowings with an original maturity of less than one year. For more information, see Note 10, Short-Term Borrowings, in the Notes to the Consolidated Financial Statements.

(3) Deposits with indeterminable maturity include noninterest bearing demand, savings, interest-bearing transaction accounts and money market accounts.

Off Balance Sheet Arrangements

The Company's off balance sheet credit risk includes obligations for loans sold with recourse, unfunded commitments, and letters of credit. Additionally, the Company periodically invests in various limited partnerships that sponsor affordable housing projects. See Note 16, Commitments, Contingencies and Guarantees, in the Notes to the Consolidated Financial Statements for further discussion.

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.

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The following table sets forth the Company's U.S. Basel III regulatory capital ratios subject to transitional provisions at December 31, 2016 and 2015.

Table 37  Capital Ratios
	December 31,
	2016			2015
	(Dollars in Thousands)
Capital:
CET1 Capital	$	7,669,118		$	7,363,961
Tier 1 Capital	7,907,518			7,631,561
Total Qualifying Capital	9,550,482			9,417,750
Assets:
Total risk-adjusted assets (regulatory)	$	66,719,395		$	68,846,585
Ratios:
CET1 Risk-Based Capital Ratio	11.49		%	10.70		%
Tier 1 Risk-Based Capital Ratio	11.85		%	11.08		%
Total Risk-Based Capital Ratio	14.31		%	13.68		%
Leverage Ratio	9.46		%	8.95		%

At December 31, 2016, the regulatory capital ratios of the Bank also remain well above current regulatory requirements 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 also regularly performs stress testing on its capital levels and is required annually to submit the Company’s capital plan to the Federal Reserve Board as part of the CCAR process. In June 2016, the Company was informed that the Federal Reserve Board did not object to the Company's capital plan and the capital actions proposed in the capital plan. The Company's capital plan included common dividends of $120 million, subject to approval by the Company's board of directors. The Company submitted its capital plan, which was approved by its board of directors, to the Federal Reserve in April 2016 as part of the Comprehensive Capital Analysis and Review of the 33 largest U.S. bank holding companies. The capital plan includes proposed potential capital actions covering the period from July 1, 2016 through June 30, 2017.

Please refer to Item 1. Business - Supervision and Regulation - Capital Requirements and Item 1A. - Risk Factors for more information regarding regulatory capital requirements. Also, see Note 17, Regulatory Capital Requirements and Dividends from Subsidiaries, in the Notes to the Consolidated Financial Statements for further details.

Effects of Inflation

The majority of assets and liabilities of a financial institution are monetary in nature; therefore, a financial institution differs greatly from most commercial and industrial companies, which have significant investments in fixed assets or inventories that are greatly impacted by inflation. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity-to-assets ratio. Inflation also affects other expenses that tend to rise during periods of general inflation.

Management believes the most significant potential impact of inflation on financial results is a direct result of the Company’s ability to manage the impact of changes in interest rates. Management attempts to minimize the impact of interest rate fluctuations on net interest income. However, this goal can be difficult to completely achieve in times of rapidly changing interest rates and is one of many factors considered in determining the Company’s interest rate positioning. The Company is asset sensitive as of December 31, 2016. Refer to Table 34, Net Interest Income Sensitivity, for additional details on the Company’s interest rate sensitivity.

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Effects of Deflation

A period of deflation would affect all industries, including financial institutions. Potentially, deflation could lead to lower profits, higher unemployment, lower production and deterioration in overall economic conditions. In addition, deflation could depress economic activity and impair earnings through increasing the value of debt while decreasing the value of collateral for loans. If the economy experienced a severe period of deflation, then it could depress loan demand, impair the ability of borrowers to repay loans and sharply reduce earnings.

Management believes the most significant potential impact of deflation on financial results relates to the Company’s ability to maintain a high amount of capital to cushion against future losses. In addition, the Company can utilize certain risk management tools to help it maintain its balance sheet strength even if a deflationary scenario were to develop.

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Quarterly Financial Results

The accompanying table presents condensed information relating to quarterly periods.

Table 38 Quarterly Financial Summary (Unaudited)
	December 31,
	2016								2015
	Fourth Quarter		Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
	(In Thousands)
Summary of Operations:
Interest income	$	647,026	$	630,542	$	620,129	$	632,762	$	616,981	$	610,213	$	601,717	$	609,364
Interest expense	115,274		115,733		115,891		115,880		112,892		102,339		109,734		100,333
Net interest income	531,752		514,809		504,238		516,882		504,089		507,874		491,983		509,031
Provision for loan losses	37,564		65,107		86,673		113,245		76,307		29,151		46,149		42,031
Net interest income after provision for loan losses	494,188		449,702		417,565		403,637		427,782		478,723		445,834		467,000
Noninterest income	260,758		263,765		278,246		253,205		262,198		260,720		284,382		272,074
Noninterest expense	614,070		556,271		541,037		592,144		578,695		557,375		539,487		539,296
Income before income tax expense	140,876		157,196		154,774		64,698		111,285		182,068		190,729		199,778
Income tax expense	51,473		36,845		32,272		25,431		19,637		52,428		50,335		54,102
Net income	89,403		120,351		122,502		39,267		91,648		129,640		140,394		145,676
Less: noncontrolling interest	441		523		518		528		490		491		590		657
Net income attributable to BBVA Compass Bancshares, Inc.	88,962		119,828		121,984		38,739		91,158		129,149		139,804		145,019
Less: preferred stock dividends	3,536		3,476		3,453		3,219		—		—		—		—
Net income attributable to common shareholder	$	85,426	$	116,352	$	118,531	$	35,520	$	91,158	$	129,149	$	139,804	$	145,019
Selected Average Balances:
Average Balances:
Loans (1)	$	60,428,830	$	61,060,433	$	62,355,245	$	62,195,963	$	61,480,854	$	60,632,304	$	59,746,217	$	58,813,049
Total assets	88,639,855		90,900,339		92,440,585		92,305,106		90,441,599		89,886,097		87,978,092		85,176,623
Deposits	67,718,213		67,979,739		68,441,915		67,479,613		65,369,958		64,001,250		62,622,304		62,121,309
FHLB and other borrowings	3,281,743		4,121,742		4,448,139		5,064,803		5,580,514		6,331,187		6,000,934		4,880,657
Shareholder’s equity	12,982,707		12,810,740		12,751,155		12,727,970		12,628,872		12,379,303		12,291,532		12,170,606

(1) Includes loans held for sale.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

See “Market Risk Management” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated herein by reference.

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Item 8. Financial Statements and Supplementary Data

BBVA Compass Bancshares, Inc. and Subsidiaries Financial Statements
Audited Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	89
Consolidated Balance Sheets as of December 31, 2016 and 2015	90
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014	91
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014	92
Consolidated Statements of Shareholder’s Equity for the years ended December 31, 2016, 2015 and 2014	93
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014	94
Notes to the December 31, 2016 Consolidated Financial Statements	95

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

BBVA Compass Bancshares, Inc.

Houston, TX

We have audited the accompanying consolidated balance sheets of BBVA Compass Bancshares, Inc. and its subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, shareholder’s equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of BBVA Compass Bancshares, Inc. and its subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Birmingham, AL

March 1, 2017

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BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
	December 31,
	2016			2015
	(In Thousands)
Assets:
Cash and due from banks	$	1,284,261		$	1,125,673
Interest bearing deposits with the Federal Reserve	1,830,078			3,040,207
Federal funds sold, securities purchased under agreements to resell and interest bearing deposits	137,447			330,948
Cash and cash equivalents	3,251,786			4,496,828
Trading account assets	3,144,600			4,138,132
Investment securities available for sale	11,665,055			11,050,520
Investment securities held to maturity (fair value of $1,182,009 and $1,244,121 for 2016 and 2015, respectively)	1,203,217			1,322,676
Loans held for sale (includes $105,257 and $70,582 measured at fair value for 2016 and 2015, respectively)	161,849			70,582
Loans	60,061,263			61,324,084
Allowance for loan losses	(838,293		)	(762,673		)
Net loans	59,222,970			60,561,411
Premises and equipment, net	1,300,054			1,322,378
Bank owned life insurance	711,939			700,285
Goodwill	4,983,296			5,043,197
Other intangible assets	15,203			31,576
Other assets	1,419,984			1,330,953
Total assets	$	87,079,953		$	90,068,538
Liabilities:
Deposits:
Noninterest bearing	$	20,332,792		$	19,291,533
Interest bearing	46,946,741			46,690,233
Total deposits	67,279,533			65,981,766
FHLB and other borrowings	3,001,551			5,438,620
Federal funds purchased and securities sold under agreements to repurchase	39,052			750,154
Other short-term borrowings	2,802,977			4,032,644
Accrued expenses and other liabilities	1,206,133			1,240,645
Total liabilities	74,329,246			77,443,829
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	229,475			229,475
Common stock — $0.01 par value:
Authorized — 300,000,000 shares
Issued — 222,950,751 shares	2,230			2,230
Surplus	14,985,673			15,160,267
Accumulated deficit	(2,327,440		)	(2,696,953		)
Accumulated other comprehensive loss	(168,252		)	(99,336		)
Total BBVA Compass Bancshares, Inc. shareholder’s equity	12,721,686			12,595,683
Noncontrolling interests	29,021			29,026
Total shareholder’s equity	12,750,707			12,624,709
Total liabilities and shareholder’s equity	$	87,079,953		$	90,068,538

See accompanying Notes to Consolidated Financial Statements.

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BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
Interest income:
Interest and fees on loans	$	2,236,929	$	2,162,145	$	2,086,097
Interest on investment securities available for sale	191,889		192,124		191,492
Interest on investment securities held to maturity	26,893		27,449		27,971
Interest on federal funds sold, securities purchased under agreements to resell and interest bearing deposits	20,939		5,622		713
Interest on trading account assets	53,809		50,935		7,723
Total interest income	2,530,459		2,438,275		2,313,996
Interest expense:
Interest on deposits	304,625		274,478		251,914
Interest on FHLB and other borrowings	82,744		89,988		68,957
Interest on federal funds purchased and securities sold under agreements to repurchase	21,165		8,390		2,302
Interest on other short-term borrowings	54,244		52,442		5,318
Total interest expense	462,778		425,298		328,491
Net interest income	2,067,681		2,012,977		1,985,505
Provision for loan losses	302,589		193,638		106,301
Net interest income after provision for loan losses	1,765,092		1,819,339		1,879,204
Noninterest income:
Service charges on deposit accounts	214,294		216,248		222,686
Card and merchant processing fees	123,668		112,818		107,891
Investment banking and advisory fees	107,116		105,235		87,454
Money transfer income	104,592		93,437		81,409
Retail investment sales	102,982		101,614		108,477
Asset management fees	34,875		33,194		42,772
Corporate and correspondent investment sales	24,689		30,000		29,635
Mortgage banking income	21,496		27,258		24,551
Bank owned life insurance	17,243		18,662		18,616
Investment securities gains, net	30,037		81,656		53,042
Other	274,982		259,252		231,279
Total noninterest income	1,055,974		1,079,374		1,007,812
Noninterest expense:
Salaries, benefits and commissions	1,119,676		1,081,475		1,080,364
Equipment	242,273		232,050		225,175
Professional services	242,206		218,584		209,943
Net occupancy	160,997		161,035		159,174
FDIC insurance	80,070		64,072		64,260
Money transfer expense	67,474		60,350		51,214
Marketing	50,549		41,778		36,061
Communications	21,046		22,527		24,987
Amortization of intangibles	16,373		39,208		50,856
FDIC indemnification expense	3,984		55,129		115,049
Goodwill impairment	59,901		17,000		12,500
Securities impairment:
Other-than-temporary impairment	281		1,747		415
Less: non-credit portion recognized in other comprehensive income	151		87		235
Total securities impairment	130		1,660		180
Other	238,843		219,985		217,114
Total noninterest expense	2,303,522		2,214,853		2,246,877
Net income before income tax expense	517,544		683,860		640,139
Income tax expense	146,021		176,502		155,763
Net income	371,523		507,358		484,376
Less: net income attributable to noncontrolling interests	2,010		2,228		1,976
Net income attributable to BBVA Compass Bancshares, Inc.	369,513		505,130		482,400
Less: preferred stock dividends	13,684		—		—
Net income attributable to common shareholder	$	355,829	$	505,130	$	482,400

See accompanying Notes to Consolidated Financial Statements.

91

BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
Net income	$	371,523		$	507,358		$	484,376
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during period from securities available for sale	(48,038		)	(16,635		)	61,284
Less: reclassification adjustment for net gains on sale of securities available for sale in net income	18,811			52,065			34,352
Net change in unrealized holding gains (losses) on securities available for sale	(66,849		)	(68,700		)	26,932
Change in unamortized net holding losses on investment securities held to maturity	3,613			7,905			9,027
Less: non-credit related impairment on investment securities held to maturity	96			55			151
Change in unamortized non-credit related impairment on investment securities held to maturity	951			134			1,871
Net change in unamortized holding losses on securities held to maturity	4,468			7,984			10,747
Unrealized holding gains (losses) arising during period from cash flow hedge instruments	(3,673		)	1,287			(2,405		)
Change in defined benefit plans	(2,862		)	11,955			800
Other comprehensive income (loss), net of tax	(68,916		)	(47,474		)	36,074
Comprehensive income	302,607			459,884			520,450
Less: comprehensive income attributable to noncontrolling interests	2,010			2,228			1,976
Comprehensive income attributable to BBVA Compass Bancshares, Inc.	$	300,597		$	457,656		$	518,474

See accompanying Notes to Consolidated Financial Statements.

92

BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
	Preferred Stock		Common Stock		Surplus			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non-controlling Interests			Total Shareholder’s Equity
	(In Thousands)
Balance, January 1, 2014	$	—	$	2,207	$	15,287,018		$	(3,684,483	)	$	(87,936	)	$	29,007		$	11,545,813
Net income	—		—		—			482,400			—			1,976			484,376
Other comprehensive income, net of tax	—		—		—			—			36,074			—			36,074
Preferred stock dividends	—		—		—			—			—			(2,092		)	(2,092		)
Issuance of common stock	—		23		116,977			—			—			—			117,000
Common stock dividends	—		—		(102,000		)	—			—			—			(102,000		)
Dividend to BBVA Bancomer USA, Inc.	—		—		(22,000		)	—			—			—			(22,000		)
Vesting of restricted stock	—		—		(4,702		)	—			—			—			(4,702		)
Restricted stock retained to cover taxes	—		—		(2,507		)	—			—			—			(2,507		)
Restricted stock tax benefit	—		—		490			—			—			—			490
Amortization of stock-based deferred compensation	—		—		4,470			—			—			—			4,470
Balance, December 31, 2014	$	—	$	2,230	$	15,277,746		$	(3,202,083	)	$	(51,862	)	$	28,891		$	12,054,922
Net income	—		—		—			505,130			—			2,228			507,358
Other comprehensive loss, net of tax	—		—		—			—			(47,474		)	—			(47,474		)
Issuance of preferred stock	229,475		—		—			—			—			—			229,475
Preferred stock dividends	—		—		—			—			—			(2,093		)	(2,093		)
Common stock dividends	—		—		(95,000		)	—			—			—			(95,000		)
Dividend to BBVA Bancomer USA, Inc.	—		—		(20,000		)	—			—			—			(20,000		)
Vesting of restricted stock	—		—		(3,603		)	—			—			—			(3,603		)
Restricted stock retained to cover taxes	—		—		(3,016		)	—			—			—			(3,016		)
Restricted stock tax benefit	—		—		12			—			—			—			12
Amortization of stock-based deferred compensation	—		—		4,128			—			—			—			4,128
Balance, December 31, 2015	$	229,475	$	2,230	$	15,160,267		$	(2,696,953	)	$	(99,336	)	$	29,026		$	12,624,709
Net income	—		—		—			369,513			—			2,010			371,523
Other comprehensive loss, net of tax	—		—		—			—			(68,916		)	—			(68,916		)
Preferred stock dividends	—		—		(13,684		)	—			—			(2,093		)	(15,777		)
Common stock dividends	—		—		(92,864		)	—			—			—			(92,864		)
Dividend to BBVA Bancomer USA, Inc.	—		—		(69,151		)	—			—			—			(69,151		)
Capital contribution	—		—		—			—			—			78			78
Vesting of restricted stock	—		—		(1,744		)	—			—			—			(1,744		)
Restricted stock retained to cover taxes	—		—		(630		)	—			—			—			(630		)
Restricted stock tax deficiency	—		—		(468		)	—			—			—			(468		)
Amortization of stock-based deferred compensation	—		—		3,947			—			—			—			3,947
Balance, December 31, 2016	$	229,475	$	2,230	$	14,985,673		$	(2,327,440	)	$	(168,252	)	$	29,021		$	12,750,707

See accompanying Notes to Consolidated Financial Statements.

93

BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
Operating Activities:
Net income	$	371,523		$	507,358		$	484,376
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	286,159			275,529			273,600
Goodwill impairment	59,901			17,000			12,500
Securities impairment	130			1,660			180
Amortization of intangibles	16,373			39,208			50,856
Accretion of discount, loan fees and purchase market adjustments, net	(19,614		)	(128,170		)	(176,114		)
FDIC indemnification expense	3,984			55,129			115,049
Provision for loan losses	302,589			193,638			106,301
Amortization of stock based compensation	3,947			4,128			4,470
Net change in trading account assets	(2,503		)	(20,180		)	(42,258		)
Net change in trading account liabilities	(6,234		)	(8,440		)	46,573
Net change in loans held for sale	(22,654		)	84,234			13,428
Deferred tax benefit	(21,873		)	(111,042		)	(8,868		)
Investment securities gains, net	(30,037		)	(81,656		)	(53,042		)
Loss on prepayment of FHLB and other borrowings	295			8,016			315
Loss on sale of premises and equipment	2,220			873			5,906
(Gain) loss on sale of loans	(15,551		)	(22,091		)	82
Net (gain) loss on sale of other real estate and other assets	(501		)	508			(1,511		)
Loss on disposition	—			—			981
(Increase) decrease in other assets	(60,503		)	179,190			(458,755		)
(Decrease) increase in other liabilities	(52,212		)	(306,546		)	416,916
Net cash provided by operating activities	815,439			688,346			790,985
Investing Activities:
Proceeds from sales of investment securities available for sale	1,849,517			3,369,062			1,114,215
Proceeds from prepayments, maturities and calls of investment securities available for sale	2,149,427			1,564,910			1,382,949
Purchases of investment securities available for sale	(4,773,027		)	(5,856,808		)	(4,409,991		)
Proceeds from prepayments, maturities and calls of investment securities held to maturity	155,037			123,188			195,276
Purchases of investment securities held to maturity	(28,071		)	(85,929		)	(7,312		)
Purchases of trading securities	(331,171		)	(4,831,626		)	(2,472,209		)
Proceeds from sales of trading securities	1,327,206			3,548,071			—
Net change in loan portfolio	(83,049		)	(4,426,260		)	(6,799,260		)
Purchase of premises and equipment	(177,084		)	(161,499		)	(127,229		)
Proceeds from sale of premises and equipment	12,701			8,133			19,238
Net cash paid in acquisition	—			(12,567		)	(97,566		)
Proceeds from sales of loans	1,060,351			488,550			107,936
Reimbursements from (payments to) FDIC for covered assets	978			(1,924		)	(12,709		)
Proceeds from sales of other real estate owned	26,486			20,011			25,895
Net cash provided by (used in) investing activities	1,189,301			(6,254,688		)	(11,080,767		)
Financing Activities:
Net increase in demand deposits, NOW accounts and savings accounts	1,940,034			3,565,248			5,998,697
Net (decrease) increase in time deposits	(656,122		)	1,216,581			741,354
Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase	(711,102		)	(379,349		)	276,933
Net (decrease) increase in other short-term borrowings	(1,229,667		)	1,486,920			2,540,133
Proceeds from FHLB and other borrowings	2,630,000			5,300,000			2,195,418
Repayment of FHLB and other borrowings	(5,042,837		)	(4,664,941		)	(1,688,797		)
Vesting of restricted stock	(1,744		)	(3,603		)	(4,702		)
Restricted stock grants retained to cover taxes	(630		)	(3,016		)	(2,507		)
Capital contribution for non-controlling interest	78			—			—
Issuance of preferred stock	—			229,475			—
Preferred dividends paid	(15,777		)	(2,093		)	(2,092		)
Issuance of common stock	—			—			117,000
Common dividends paid	(92,864		)	(95,000		)	(102,000		)
Dividend paid to BBVA Bancomer USA, Inc.	(69,151		)	(20,000		)	(22,000		)
Net cash (used in) provided by financing activities	(3,249,782		)	6,630,222			10,047,437
Net (decrease) increase in cash and cash equivalents	(1,245,042		)	1,063,880			(242,345		)
Cash and cash equivalents, January 1	4,496,828			3,432,948			3,675,293
Cash and cash equivalents, December 31	$	3,251,786		$	4,496,828		$	3,432,948

See accompanying Notes to Consolidated Financial Statements.

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BBVA COMPASS BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

Nature of Operations

BBVA Compass Bancshares, Inc. is a wholly owned subsidiary of BBVA.

The Bank, headquartered in Birmingham, Alabama, operates banking centers in Alabama, Arizona, California, Colorado, Florida, New Mexico and Texas. The Bank operates under the brand name BBVA Compass, which is a trade name and trademark of BBVA Compass Bancshares, Inc.

The Bank performs banking services customary for full service banks of similar size and character. Such services include receiving demand and time deposits, making personal and commercial loans and furnishing personal and commercial checking accounts. The Bank offers, either directly or through its subsidiaries and affiliates, a variety of services, including portfolio management and administration and investment services to estates and trusts; term life insurance, variable annuities, property and casualty insurance and other insurance products; investment advisory services; a variety of investment services and products to institutional and individual investors; discount brokerage services, mutual funds and fixed-rate annuities; and lease financing services.

Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries for the years ended December 31, 2016, 2015 and 2014. All intercompany accounts and transactions and balances have been eliminated in consolidation.

The Company has evaluated subsequent events through the filing date of this Annual Report on Form 10-K, to determine if either recognition or disclosure of significant events or transactions is required.

The accounting policies followed by the Company and its subsidiaries and the methods of applying these policies conform with U.S. GAAP and with practices generally accepted within the banking industry. Certain policies that significantly affect the determination of financial position, results of operations and cash flows are summarized below.

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, the most significant of which relate to the allowance for loan losses, goodwill impairment, fair value measurements and income taxes. Actual results could differ from those estimates.

Cash and cash equivalents

The Company classifies cash on hand, amounts due from banks, federal funds sold, securities purchased under agreements to resell and interest bearing deposits as cash and cash equivalents. These instruments have original maturities of three months or less.

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

Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were acquired or sold plus accrued interest. The securities pledged or received as collateral are generally U.S. government and federal agency securities. The Company's policy is to take possession of securities purchased under agreements to resell. The fair value of collateral either received from or provided to a third party is continually monitored and adjusted as deemed appropriate.

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Securities

The Company classifies its investment securities into one of three categories based upon management’s intent and ability to hold the investment securities: (i) trading account assets and liabilities, (ii) investment securities held to maturity or (iii) investment securities available for sale. Investment securities held in a trading account are required to be reported at fair value, with unrealized gains and losses included in earnings. The Company classifies purchases, sales, and maturities of trading securities held for investment purposes as cash flows from investing activities. Cash flows related to trading securities held for trading purposes are reported as cash flows from operating activities. Investment securities held to maturity are stated at cost adjusted for amortization of premiums and accretion of discounts. The related amortization and accretion is determined by the interest method and is included as a noncash adjustment in the net cash provided by operating activities in the Company’s Consolidated Statements of Cash Flows. The Company has the ability, and it is management’s intention, to hold such securities to maturity. Investment securities available for sale are recorded at fair value. Increases and decreases in the net unrealized gain or loss on the portfolio of investment securities available for sale are reflected as adjustments to the carrying value of the portfolio and as an adjustment, net of tax, to accumulated other comprehensive income. See Note 21, Fair Value of Financial Instruments, for information on the determination of fair value.

Interest earned on trading account assets, investment securities available for sale and investment securities held to maturity is included in interest income in the Company’s Consolidated Statements of Income. Net realized gains and losses on the sale of investment securities available for sale, computed principally on the specific identification method, are shown separately in noninterest income in the Company’s Consolidated Statements of Income. Net gains and losses on the sale of trading account assets and liabilities are recognized as a component of other noninterest income in the Company’s Consolidated Statements of Income.

The Company regularly evaluates each held to maturity and available for sale security in an unrealized loss position for OTTI. The Company evaluates for OTTI on a specific identification basis. In its evaluation, the Company considers such factors as the length of time and the extent to which the fair value has been below cost, the financial condition of the issuer, the Company’s intent to hold the security to an expected recovery in fair value and whether it is more likely than not that the Company will have to sell the security before its fair value recovers. The credit loss component of the OTTI on debt and equity securities is recognized in earnings. For debt securities, the portion of OTTI related to all other factors is recognized in other comprehensive income. See Note 3, Investment Securities Available for Sale and Investment Securities Held to Maturity, for details of OTTI.

Loans Held for Sale

Loans held for sale are recorded at either estimated fair value, if the fair value option is elected, or the lower of cost or estimated fair value. The Company applies the fair value option accounting guidance codified under the FASB's ASC Topic 825, Financial Instruments, for single family real estate mortgage loans originated for sale in the secondary market. Under the fair value option, all changes in the applicable loans’ fair value are recorded in earnings. Loans classified as held for sale that were not originated for resale in the secondary market are accounted for under the lower of cost or fair value method and are evaluated on an individual basis.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are considered held for investment. Loans are stated at principal outstanding adjusted for charge-offs, deferred loan fees and direct costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income on loans 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 Consolidated Statements of Cash Flows. For additional information related to the Company’s loan portfolio by type, refer to Note 4, Loans and Allowance for Loan Losses.

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, or the loan is accounted for under ASC

96

Subtopic 310-30. 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 120 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.

All nonaccrual loans and loans modified in a troubled debt restructuring are considered impaired, excluding Purchased Impaired Loans. Purchased Impaired Loans are classified as impaired only if there is evidence of credit deterioration subsequent to acquisition. The Company’s policy for recognizing interest income on impaired loans classified as nonaccrual is consistent with its nonaccrual policy. The Company’s policy for recognizing interest income on accruing impaired loans is consistent with its interest recognition policy for accruing loans.

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 impairment on TDRs, including TDRs that have defaulted, is consistent with its impairment measurement process for all impaired loans. 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 amount of the provision for loan losses charged to income is determined on the basis of numerous factors including actual loss experience, identified loan impairment, current economic conditions and periodic examinations and appraisals of the loan portfolio. Such provisions, less net loan charge-offs, comprise the allowance for loan losses which is deducted from loans and is maintained at a level management considers to be adequate to absorb losses inherent in the portfolio.

The Company monitors the entire loan portfolio in an effort to identify problem loans 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 loan losses is established as follows:

• Loans with outstanding balances greater than $1 million that are nonaccrual and all TDRs are evaluated individually with specific reserves allocated based on the present value of the loan’s expected future cash flows, discounted at the loan’s original effective interest rate, except where foreclosure or liquidation is probable or when the primary source of repayment is provided by real estate collateral. In these circumstances, impairment is measured based upon the fair value less cost to sell of the collateral. In addition, in certain rare circumstances, impairment may be based on the loan’s observable fair value.

97

• Loans in the remainder of the portfolio, including nonaccrual loans with balances of less than $1 million, are collectively evaluated for impairment with the allowance based on historical loss experience which uses historical average net charge-off percentages. In the event the Company believes a specific portfolio's historical loss experience does not adequately capture current inherent losses, the historical loss experience is adjusted. This adjustment to the historical loss experience can be positive or negative and will take into consideration relevant factors to the allowance such as changes in the portfolio composition, the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans. The assessment for whether to adjust takes place individually for each loan product.

The historical loss methodology uses historical annualized average net charge-off percentage to calculate the provision for loan and lease losses. The factor is calculated by taking the average of the net charge-offs over the life cycle available, currently 8 years.

For commercial loans, where management has determined to adjust the historical loss experience, the estimate of loss based on pools of loans with similar characteristics is made by applying a PD factor and a LGD factor to each individual loan based on loan grade, using a standardized loan grading system. The PD factor and LGD factor are determined for each loan grade using statistical models based on historical performance data. The PD factor considers on-going reviews of the financial performance of the specific borrower, including cash flow, debt-service coverage ratio, earnings power, debt level and equity position, in conjunction with an assessment of the borrower’s industry and future prospects. The PD factor considers current rating unless the account is delinquent over 60 days, in which case a higher PD factor is used. The LGD factor considers analysis of the type of collateral and the relative LTV ratio. These reserve factors are developed based on credit migration models that track historical movements of loans between loan ratings over time and long-term average loss experience. The historical time frame currently used for both PDs and LGDs is 8 years.

For consumer loans, where management has determined to adjust the historical loss experience, the estimate of loss based on pools of loans with similar characteristics is also made by applying a PD and a LGD factor. The PD factor considers current credit scores unless the account is delinquent over 60 days, in which case a higher PD factor is used. The credit score provides a basis for understanding the borrower’s past and current payment performance. The LGD factor considers analysis of the type of collateral and the relative LTV ratio. Credit scores, models, analyses, and other factors used to determine both the PD and LGD factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as required. The historical time frame currently used for both PDs and LGDs is 8 years.

Additionally, a portion of the allowance is for inherent losses which are probable to exist as of the valuation date even though they may not have been identified by the objective processes used for the allocated portion of the allowance. This portion of the allowance is particularly subjective and requires judgment based upon qualitative factors. Some of the factors considered are changes in credit concentrations, loan mix, changes in underwriting practices, including the extent of portfolios of acquired institutions, historical loss experience and the general economic environment in the Company’s markets. While the total allowance is described as consisting of separate portions, these terms are primarily used to describe a process. All portions of the allowance are available to support inherent losses in the loan portfolio.

In order to estimate a reserve for unfunded commitments, the Company uses a process consistent with that used in developing the allowance for loan losses. The Company estimates the future funding of current unfunded commitments based on historical funding experience of these commitments before default. Allowance for loan loss factors, which are based on product and loan grade and are consistent with the factors used for portfolio loans, are applied to these funding estimates to arrive at the reserve balance. This reserve for unfunded commitments is recognized in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets with changes recognized in other noninterest expense in the Company’s Consolidated Statements of Income.

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Premises and Equipment

Premises, furniture, fixtures, equipment, assets under capital leases and leasehold improvements are stated at cost less accumulated depreciation or amortization. Land is stated at cost. In addition, purchased software and costs of computer software developed for internal use are capitalized provided certain criteria are met. Depreciation is computed principally using the straight-line method over the estimated useful lives of the related assets, which ranges between 1 and 40 years. Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms or the estimated useful lives of the improvements.

Bank Owned Life Insurance

The Company maintains life insurance policies on certain of its executives and employees and is the owner and beneficiary of the policies. The Company invests in these policies, known as BOLI, to provide an efficient form of funding for long-term retirement and other employee benefits costs. The Company records these BOLI policies within bank owned life insurance on the Company’s Consolidated Balance Sheets at each policy’s respective cash surrender value, with changes recorded in noninterest income in the Company’s Consolidated Statements of Income.

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets associated with acquisition transactions. Goodwill is assigned to each of the Company’s reporting units and tested for impairment annually or on an interim basis if events or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value.

The Company has defined its reporting unit structure to include: Consumer and Commercial Banking, Corporate and Investment Banking, and Simple. The fair value of each reporting unit is estimated using a combination of the present value of future expected cash flows and hypothetical market prices of similar entities and like transactions.

Each of the defined reporting units was tested for impairment as of October 31, 2016. See Note 8, Goodwill and Other Acquired Intangible Assets, for a further discussion.

Other Intangible Assets

Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in a combination with a related contract, asset or liability. Generally, other intangible assets are deemed to have finite lives. Accordingly, other intangible assets are amortized over their anticipated estimated useful lives and are subject to impairment testing if events or changes in circumstances warrant an evaluation. Other intangible assets are amortized over a period based on the expected life of the intangible, generally 8-10 years for core deposits and up to 20 years for other intangible assets.

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of recorded balance of the loan or fair value less costs to sell of the collateral assets at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, OREO is carried at the lower of carrying amount or fair value less costs to sell and is included in other assets on the Consolidated Balance Sheets. Gains and losses on the sales and write-downs on such properties and operating expenses from these OREO properties are included in other noninterest expense in the Company’s Consolidated Statements of Income.

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Accounting for Transfers and Servicing of Financial Assets

The Company accounts for transfers of financial assets as sales when control over the transferred assets is surrendered. Control is generally considered to have been surrendered when (1) the transferred assets are legally isolated from the Company, even in bankruptcy or other receivership, (2) the transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and provide more than a trivial benefit to the Company, and (3) the Company does not maintain the obligation or unilateral ability to reclaim or repurchase the assets. If these sale criteria are met, the transferred assets are removed from the Company's balance sheet and a gain or loss on sale is recognized. If not met, the transfer is recorded as a secured borrowing, and the assets remain on the Company's balance sheet, the proceeds from the transaction are recognized as a liability, and gain or loss on sale is deferred until the sale criterion are achieved.

The Company has one primary class of MSR related to residential real estate mortgages. These mortgage servicing rights are recorded in other assets on the Consolidated Balance Sheets at fair value with changes in fair value recorded as a component of mortgage banking income in the Company’s Consolidated Statements of Income. See Note 5, Loan Sales and Servicing, for a further discussion.

Advertising Costs

Advertising costs are generally expensed as incurred and recorded as marketing expense, a component of noninterest expense in the Company’s Consolidated Statements of Income.

Income Taxes

The Company and its eligible subsidiaries file a consolidated federal income tax return. The Company files separate tax returns for subsidiaries that are not eligible to be included in the consolidated federal income tax return. Based on the laws of the respective states where it conducts business operations, the Company either files consolidated, combined or separate tax returns.

Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured using the tax rates and laws that are expected to be in effect when the differences are anticipated to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period the change is incurred. In evaluating the Company's ability to recover its deferred tax assets within the jurisdiction from which they arise, the Company must consider all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and the results of recent operations. A valuation allowance is recognized for a deferred tax asset, if based on the available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The Company recognizes income tax benefits associated with uncertain tax positions, when, in its judgment, it is more likely than not of being sustained on the basis of the technical merits. For a tax position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of other noninterest expense in the Company’s Consolidated Statements of Income. Accrued interest and penalties are included within accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets.

Noncontrolling Interests

The Company applies the accounting guidance codified in ASC Topic 810, Consolidation, related to the treatment of noncontrolling interests. This guidance requires the amount of consolidated net income attributable to the parent and to the noncontrolling interests be clearly identified and presented on the face of the consolidated financial statements.

The noncontrolling interests attributable to the Company's REIT preferred securities and mezzanine investment fund (see Note 12, Shareholder's Equity, for a discussion of the preferred securities) are reported within shareholder’s equity, separately from the equity attributable to the Company’s shareholder. The dividends paid to the REIT preferred shareholders and other mezzanine investment fund investors are reported as reductions in shareholder’s equity in the

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Consolidated Statements of Shareholder’s Equity, separately from changes in the equity attributable to the Company’s shareholder.

Accounting for Derivatives and Hedging Activities

A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest rate swaps, caps, floors, financial forwards and futures contracts, foreign exchange contracts, options written and purchased, and commodity contracts. The Company mainly uses derivatives to manage economic risk related to commercial loans, long-term debt and other funding sources. The Company also uses derivatives to facilitate transactions on behalf of its customers.

All derivative instruments are recognized on the Company’s Consolidated Balance Sheets at their fair value. The Company does not offset fair value amounts under master netting agreements. Fair values are estimated using pricing models and current market data. On the date the derivative instrument contract is entered into, the Company designates the derivative as (1) a fair value hedge, (2) a cash flow hedge, or (3) a free-standing derivative. Changes in the fair value of a derivative instrument that is highly effective and that is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in earnings. Changes in the fair value of a derivative instrument that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in accumulated other comprehensive income, until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). Changes in the fair value of a free-standing derivative and settlements on the instruments are reported in earnings.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash flow hedges to specific assets and liabilities on the Company’s Consolidated Balance Sheets or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The Company discontinues hedge accounting prospectively when: (1) it is determined that the derivative instrument is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative instrument expires or is sold, terminated or exercised; (3) the derivative instrument is de-designated as a hedge instrument because it is unlikely that a forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative instrument as a hedge instrument is no longer appropriate.

When hedge accounting is discontinued because it is determined that the derivative instrument no longer qualifies as an effective fair value or cash flow hedge, the derivative instrument continues to be carried on the Company’s Consolidated Balance Sheets at its fair value, with changes in the fair value included in earnings. Additionally, for fair value hedges, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted as an adjustment to the yield over the remaining life of the asset or liability. For cash flow hedges, when hedge accounting is discontinued, but the hedged cash flows or forecasted transaction are still expected to occur, the unrealized gains and losses that were accumulated in other comprehensive income are recognized in earnings in the same period when the earnings are affected by the hedged cash flows or forecasted transaction. When a cash flow hedge is discontinued, because the hedged cash flows or forecasted transactions are not expected to occur, unrealized gains and losses that were accumulated in other comprehensive income are recognized in earnings immediately.

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Recently Adopted Accounting Standards

Consolidation

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. The amendments in this ASU modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership, affect the consolidation analysis of reporting entities that are involved with variable interest entities and provide a scope exception from consolidation guidance for reporting entities with interest in certain investment funds. The amendments in this ASU were effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The adoption of this standard did not have a material impact on the financial condition or results of operations of the Company.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, the amendments in this ASU require debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this ASU were effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The adoption of this standard did not have a material impact on the financial condition or results of operations of the Company.

Customer's Accounting for Fees Paid in a Cloud Computing Arrangement

In April 2015, the FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments in this ASU were effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The adoption of this standard did not have a material impact on the financial condition or results of operations of the Company.

Recently Issued Accounting Standards Not Yet Adopted

Revenue from Contracts with Customers

In May 2014, the FASB released ASU 2014-09, Revenue from Contracts with Customers. The core principle of this codified guidance requires an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU were originally effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Subsequently, the FASB issued a one-year deferral for implementation, which results in the new guidance being effective for annual and interim reporting periods beginning after December 15, 2017. The FASB, however, permitted adoption of the new guidance on the original effective date. The Company is currently assessing the impact that the adoption of this standard will have on the financial condition and results of operations of the Company and its selection of transition method. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities accounted for under other U.S. GAAP, the Company does not expect the new revenue recognition guidance to have a material impact on the elements of its statement of income most closely associated with financial instruments, including securities gains, interest income and interest expense. The Company plans to adopt this standard utilizing a modified retrospective transition method in the first quarter of 2018.

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Recognition and Measurement of Financial Assets and Liabilities

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

Leases

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

Stock Compensation

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

Credit Losses

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

Statement of Cash Flows

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

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

Goodwill

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.  Under the amendments in this ASU, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  Additionally, ASU No. 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test.  This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The ASU should be applied using a prospective method.  The Company is currently assessing this pronouncement and the impact of adoption.

(2)Acquisition Activities

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

The transaction was structured as a cash purchase totaling $69.2 million. At December 31, 2015, the four subsidiaries had total assets of approximately $103 million. Because the Company and the acquired subsidiaries were under common control of the ultimate parent, BBVA, this transaction was accounted for in a manner similar to the pooling-of-interest method, which requires the merged entities be combined at their historical cost. The difference between the net carrying amount of the four subsidiaries and the total consideration paid to BBVA Bancomer USA, Inc. was recorded as a capital transaction and is reflected as a dividend to BBVA Bancomer USA, Inc. in the Consolidated Statements of Shareholder's Equity. The Company's consolidated financial statements and related footnotes are presented as if the transaction occurred at the beginning of the earliest date presented and the prior periods have been retrospectively adjusted.

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The following table summarizes the impact of the acquisition to certain captions within the Company's Consolidated Balance Sheet as of December 31, 2015 and the Company's Consolidated Income Statement for the years ended December 31, 2015 and 2014.

Balance Sheet		As Previously Reported		Retrospective Adjustments		As Retrospectively Adjusted
	(In Thousands)
December 31, 2015
Assets:
Cash and cash equivalents		$	4,452,892	$	43,936	$	4,496,828
Premises and equipment, net		1,320,163		2,215		1,322,378
Other assets		1,273,646		57,307		1,330,953
Total assets		89,965,080		103,458		90,068,538
Liabilities:
Deposits		$	65,980,530	$	1,236	$	65,981,766
Accrued expenses and other liabilities		1,185,848		54,797		1,240,645
Total liabilities		77,387,796		56,033		77,443,829
Shareholder’s equity		12,577,284		47,425		12,624,709
Total liabilities and shareholder’s equity		89,965,080		103,458		90,068,538

Income Statement	As Previously Reported		Retrospective Adjustments		As Retrospectively Adjusted
	(In Thousands)
Year Ended December 31, 2015
Interest income	$	2,438,261	$	14	$	2,438,275
Noninterest income	976,473		102,901		1,079,374
Noninterest expense	2,136,490		78,363		2,214,853
Income tax expense	167,513		8,989		176,502
Net income	491,795		15,563		507,358
Year Ended December 31, 2014
Interest income	$	2,313,985	$	11	$	2,313,996
Noninterest income	917,422		90,390		1,007,812
Noninterest expense	2,180,752		66,125		2,246,877
Income tax expense	147,331		8,432		155,763
Net income	468,532		15,844		484,376

Additionally, the Consolidated Statements of Comprehensive Income, Shareholder's Equity and Cash Flows along with Footnotes 6, 13, 14, 18, 20, 21, 22, 24 and 25 have been adjusted to reflect these retrospective adjustments.

Spring Studio

On April 15, 2015, the Bank acquired all of the voting equity interest of 4D Internet Solutions, Inc. d/b/a Spring Studio, a San Francisco based user experience and design firm. The Bank acquired assets of approximately $14 million, assumed liabilities of approximately $1 million, and recorded goodwill of approximately $13 million. The revenues and earnings of Spring Studio were not material for the year ended December 31, 2015. Net cash paid for this acquisition was $13 million.

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

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

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

	December 31, 2015
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(In Thousands)
Investment securities available for sale:
Debt securities:
U.S. Treasury and other U.S. government agencies	$	3,232,238	$	4,076	$	24,822	$	3,211,492
Mortgage-backed securities	4,624,441		16,548		50,727		4,590,262
Collateralized mortgage obligations	2,713,075		8,200		16,019		2,705,256
States and political subdivisions	15,492		395		—		15,887
Other	23,914		175		44		24,045
Equity securities	503,540		38		—		503,578
Total	$	11,112,700	$	29,432	$	91,612	$	11,050,520
Investment securities held to maturity:
Collateralized mortgage obligations	$	103,947	$	6,022	$	4,634	$	105,335
Asset-backed securities	24,011		3,002		1,574		25,439
States and political subdivisions	1,128,240		729		82,632		1,046,337
Other	66,478		2,644		2,112		67,010
Total	$	1,322,676	$	12,397	$	90,952	$	1,244,121

In the above table, equity securities include $403 million and $503 million at December 31, 2016 and 2015, respectively, of FHLB and Federal Reserve stock carried at par.

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At December 31, 2016, approximately $528 million of investment securities available for sale were pledged to secure public deposits, securities sold under agreements to repurchase and FHLB advances and for other purposes as required or permitted by law.

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

At December 31, 2016, approximately 99.8% of the debt securities classified within available for sale are rated “AAA,” the highest possible rating by nationally recognized rating agencies. The remainder of the investment securities classified within available for sale are either Federal Reserve stock, FHLB stock or money market funds.

The following table discloses the fair value and the gross unrealized losses of the Company’s available for sale securities and held to maturity securities that were in a loss position at December 31, 2016 and 2015. This information is aggregated by investment category and the length of time the individual securities have been in an unrealized loss position.

	December 31, 2016
	Securities in a loss position for less than 12 months				Securities in a loss position for 12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Investment securities available for sale:
Debt securities:
U.S. Treasury and other U.S. government agencies	$	1,277,341	$	23,862	$	609,078	$	13,338	$	1,886,419	$	37,200
Mortgage-backed securities	1,425,743		15,235		1,368,957		30,566		2,794,700		45,801
Collateralized mortgage obligations	3,527,757		99,477		782,849		7,128		4,310,606		106,605
Other	3,849		77		1,057		65		4,906		142
Total	$	6,234,690	$	138,651	$	2,761,941	$	51,097	$	8,996,631	$	189,748
Investment securities held to maturity:
Collateralized mortgage obligations	$	3,847	$	527	$	40,083	$	2,751	$	43,930	$	3,278
Asset-backed securities	343		1		9,238		1,080		9,581		1,081
States and political subdivisions	532,090		13,043		313,803		12,475		845,893		25,518
Other	16,578		174		3,587		1,856		20,165		2,030
Total	$	552,858	$	13,745	$	366,711	$	18,162	$	919,569	$	31,907

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	December 31, 2015
	Securities in a loss position for less than 12 months				Securities in a loss position for 12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Investment securities available for sale:
Debt securities:
U.S. Treasury and other U.S. government agencies	$	2,081,528	$	16,523	$	460,160	$	8,299	$	2,541,688	$	24,822
Mortgage-backed securities	2,623,761		20,380		1,408,069		30,347		4,031,830		50,727
Collateralized mortgage obligations	1,321,121		10,378		393,210		5,641		1,714,331		16,019
Other	—		—		1,078		44		1,078		44
Total	$	6,026,410	$	47,281	$	2,262,517	$	44,331	$	8,288,927	$	91,612
Investment securities held to maturity:
Collateralized mortgage obligations	$	11,066	$	326	$	52,601	$	4,308	$	63,667	$	4,634
Asset-backed securities	—		—		15,790		1,574		15,790		1,574
States and political subdivisions	73,302		6,533		794,489		76,099		867,791		82,632
Other	—		—		4,015		2,112		4,015		2,112
Total	$	84,368	$	6,859	$	866,895	$	84,093	$	951,263	$	90,952

As indicated in the previous table, at December 31, 2016, the Company held certain investment securities in unrealized loss positions. The Company does not have the intent to sell these securities and believes it is not more likely than not that it will be required to sell these securities before their anticipated recovery.

Management does not believe that any individual unrealized loss in the Company’s investment securities available for sale or held to maturity portfolios, presented in the preceding tables, represents an OTTI at either December 31, 2016 or 2015, other than those noted below.

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

	Years Ended December 31,
	2016		2015			2014
	(In Thousands)
Balance, January 1	$	22,452	$	21,123		$	20,943
Reductions for securities paid off during the period (realized)	—		(331		)	—
Additions for the credit component on debt securities in which OTTI was not previously recognized	—		1,013			—
Additions for the credit component on debt securities in which OTTI was previously recognized	130		647			180
Balance, December 31	$	22,582	$	22,452		$	21,123

During the years ended December 31, 2016, 2015 and 2014, OTTI recognized on held to maturity securities totaled $130 thousand, $1.7 million and $180 thousand, respectively. The investment securities primarily impacted by credit impairment are held to maturity non-agency collateralized mortgage obligations and asset-backed securities.

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

	Amortized Cost		Fair Value
December 31, 2016	(In Thousands)
Investment securities available for sale:
Maturing within one year	$	189,423	$	189,490
Maturing after one but within five years	623,642		611,492
Maturing after five but within ten years	582,659		577,007
Maturing after ten years	1,038,195		1,021,168
	2,433,919		2,399,157
Mortgage-backed securities and collateralized mortgage obligations	8,996,511		8,862,266
Equity securities	403,548		403,632
Total	$	11,833,978	$	11,665,055
Investment securities held to maturity:
Maturing within one year	$	88,243	$	88,280
Maturing after one but within five years	250,916		245,002
Maturing after five but within ten years	214,634		210,525
Maturing after ten years	566,337		553,128
	1,120,130		1,096,935
Collateralized mortgage obligations	83,087		85,074
Total	$	1,203,217	$	1,182,009

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

	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
Gross gains	$	30,037	$	83,488	$	53,042
Gross losses	—		1,832		—
Net realized gains	$	30,037	$	81,656	$	53,042

During 2008, the Company transferred securities with a carrying value and market value of $1.1 billion and $859 million, respectively, from investment securities available for sale to investment securities held to maturity. At December 31, 2016 and 2015 there were $13 million and $17 million, respectively, of unrealized losses, net of tax related to these securities in accumulated other comprehensive income, which are being amortized over the remaining life of those securities.

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(4) Loans and Allowance for Loan Losses

The following table presents the composition of the loan portfolio.

	December 31,
	2016		2015
	(In Thousands)
Commercial loans:
Commercial, financial and agricultural	$	25,122,002	$	26,022,374
Real estate – construction	2,125,316		2,354,253
Commercial real estate – mortgage	11,210,660		10,453,280
Total commercial loans	38,457,978		38,829,907
Consumer loans:
Residential real estate – mortgage	13,259,994		13,993,285
Equity lines of credit	2,543,778		2,419,815
Equity loans	445,709		580,804
Credit card	604,881		627,359
Consumer direct	1,254,641		936,871
Consumer indirect	3,134,948		3,495,082
Total consumer loans	21,243,951		22,053,216
Covered loans	359,334		440,961
Total loans	$	60,061,263	$	61,324,084

Unearned income totaled $260.5 million and $269.8 million at December 31, 2016 and 2015, respectively. Unamortized deferred costs totaled $322.9 million and $315.4 million at December 31, 2016 and 2015, respectively. Unamortized purchase discounts totaled $28.2 million and $39.5 million at December 31, 2016 and 2015, respectively.

The loan portfolio is diversified geographically, by product type and by industry exposure.  Geographically, the portfolio is predominantly in the Sunbelt states, including Alabama, Arizona, Colorado, Florida, New Mexico and Texas, as well as growing but modest exposure in northern and southern California. The loan portfolio’s most significant geographic presence is within Texas.  The Company monitors its exposure to various industries and adjusts loan production based on current and anticipated changes in the macro-economic environment as well as specific structural, legal and business conditions affecting each broad industry category. 

At December 31, 2016, the Company considered its energy lending portfolio as a concentration due to the impact on this portfolio of declining oil prices that began in late 2014 and continued into early 2016 before increasing and stabilizing towards the latter part of 2016. Total energy exposure, including unused commitments to extend credit and letters of credit was $8.1 billion and $9.4 billion at December 31, 2016 and 2015, respectively. The funded amount of the Company's energy lending portfolio was approximately $3.2 billion and $3.8 billion at December 31, 2016 and 2015, respectively, and is reported in total commercial, financial and agricultural in the table above. The instability in oil prices has negatively impacted the financial results of many borrowers in the energy lending portfolio, leading to internal risk rating downgrades. If oil prices remain unstable or resume their decline, the energy-related portfolio may be subject to additional pressure on credit quality metrics including past due, criticized, and nonperforming loans, as well as net charge-offs.

At December 31, 2016, approximately $13.7 billion of loans were pledged to secure deposits and FHLB advances and for other purposes as required or permitted by law.

Covered loans represent loans acquired from the FDIC subject to loss sharing agreements. The loss sharing agreements provide for FDIC loss sharing for five years for commercial loans and 10 years for single family residential loans. The loss sharing agreement for commercial loans expired in the fourth quarter of 2014.

110

Allowance for Loan Losses and Credit Quality

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

	Commercial, Financial and Agricultural			Commercial Real Estate (1)			Residential Real Estate (2)			Consumer (3)			Covered			Total Loans
	(In Thousands)
Year Ended December 31, 2016
Allowance for loan losses:
Beginning balance	$	402,113		$	122,068		$	132,104		$	104,948		$	1,440		$	762,673
Provision (credit) for loan losses	129,646			(5,502		)	(4,156		)	182,558			43			302,589
Loans charged off	(84,218		)	(4,866		)	(19,946		)	(180,573		)	(1,484		)	(291,087		)
Loan recoveries	11,039			5,237			11,482			36,359			1			64,118
Net (charge-offs) recoveries	(73,179		)	371			(8,464		)	(144,214		)	(1,483		)	(226,969		)
Ending balance	$	458,580		$	116,937		$	119,484		$	143,292		$	—		$	838,293
Year Ended December 31, 2015
Allowance for loan losses:
Beginning balance	$	299,482		$	138,233		$	154,627		$	89,891		$	2,808		$	685,041
Provision (credit) for loan losses	116,272			(17,975		)	(9,711		)	104,195			857			193,638
Loans charged off	(25,831		)	(3,882		)	(26,630		)	(115,113		)	(2,228		)	(173,684		)
Loan recoveries	12,190			5,692			13,818			25,975			3			57,678
Net (charge-offs) recoveries	(13,641		)	1,810			(12,812		)	(89,138		)	(2,225		)	(116,006		)
Ending balance	$	402,113		$	122,068		$	132,104		$	104,948		$	1,440		$	762,673
Year Ended December 31, 2014
Allowance for loan losses:
Beginning balance	$	292,327		$	158,960		$	155,575		$	90,903		$	2,954		$	700,719
Transfer - expiration of commercial LSA	1,406			6			—			323			(1,735		)	—
Provision (credit) for loan losses	17,580			(13,582		)	34,962			68,519			(1,178		)	106,301
Loans charged off	(31,627		)	(14,970		)	(48,749		)	(88,452		)	(2,466		)	(186,264		)
Loan recoveries	19,796			7,819			12,839			18,598			5,233			64,285
Net (charge-offs) recoveries	(11,831		)	(7,151		)	(35,910		)	(69,854		)	2,767			(121,979		)
Ending balance	$	299,482		$	138,233		$	154,627		$	89,891		$	2,808		$	685,041

(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.

111

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

	Commercial, Financial and Agricultural		Commercial Real Estate (1)		Residential Real Estate (2)		Consumer (3)		Covered		Total Loans
	(In Thousands)
December 31, 2016
Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	99,932	$	4,037	$	32,016	$	2,223	$	—	$	138,208
Collectively evaluated for impairment	358,648		112,900		87,468		141,069		—		700,085
Purchased loans	—		—		—		—		—		—
Total allowance for loan losses	$	458,580	$	116,937	$	119,484	$	143,292	$	—	$	838,293
Loans:
Ending balance of loans:
Individually evaluated for impairment	$	719,468	$	44,258	$	186,338	$	3,042	$	—	$	953,106
Collectively evaluated for impairment	24,377,200		13,275,968		16,062,554		4,987,208		—		58,702,930
Purchased loans	25,334		15,750		589		4,220		359,334		405,227
Total loans	$	25,122,002	$	13,335,976	$	16,249,481	$	4,994,470	$	359,334	$	60,061,263
December 31, 2015
Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	27,486	$	3,725	$	38,126	$	1,880	$	—	$	71,217
Collectively evaluated for impairment	374,458		118,343		93,978		103,068		—		689,847
Purchased loans	169		—		—		—		1,440		1,609
Total allowance for loan losses	$	402,113	$	122,068	$	132,104	$	104,948	$	1,440	$	762,673
Loans:
Ending balance of loans:
Individually evaluated for impairment	$	163,201	$	80,123	$	183,473	$	2,789	$	—	$	429,586
Collectively evaluated for impairment	25,828,286		12,685,320		16,809,525		5,051,488		—		60,374,619
Purchased loans	30,887		42,090		906		5,035		440,961		519,879
Total loans	$	26,022,374	$	12,807,533	$	16,993,904	$	5,059,312	$	440,961	$	61,324,084

(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.

112

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

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

	December 31, 2015
	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	$	45,583	$	53,325	$	—	$	117,618	$	122,148	$	27,486
Real estate – construction	3,403		3,986		—		628		689		515
Commercial real estate – mortgage	24,851		27,486		—		51,241		54,863		3,210
Residential real estate – mortgage	6,521		6,521		—		102,375		102,375		7,370
Equity lines of credit	—		—		—		28,164		30,302		23,183
Equity loans	—		—		—		46,413		47,245		7,573
Credit card	—		—		—		—		—		—
Consumer direct	—		—		—		935		935		26
Consumer indirect	—		—		—		1,854		1,854		1,854
Total loans	$	80,358	$	91,318	$	—	$	349,228	$	360,411	$	71,217

113

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

	Years Ended December 31,
	2016				2015				2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In Thousands)
Commercial, financial and agricultural	$	632,319	$	1,221	$	113,844	$	1,118	$	84,578	$	1,146
Real estate – construction	1,734		8		5,391		100		8,639		222
Commercial real estate – mortgage	44,530		1,195		84,565		2,200		116,815		3,208
Residential real estate – mortgage	109,792		2,672		110,251		2,786		114,842		2,886
Equity lines of credit	26,638		1,025		27,108		1,124		24,306		1,049
Equity loans	44,051		1,490		49,336		1,638		54,708		1,710
Credit card	—		—		—		—		—		—
Consumer direct	833		28		657		17		154		5
Consumer indirect	2,221		13		1,694		7		1,323		4
Total loans	$	862,118	$	7,652	$	392,846	$	8,990	$	405,365	$	10,230

The tables above do not include Purchased Impaired Loans, Purchased Nonimpaired Loans or loans held for sale.

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.

114

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

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

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

	December 31, 2015
	Commercial, Financial and Agricultural		Real Estate - Construction		Commercial Real Estate - Mortgage
	(In Thousands)
Pass	$	24,823,312	$	2,340,145	$	10,165,630
Special Mention	469,400		5,148		142,124
Substandard	688,427		8,941		133,091
Doubtful	41,235		19		12,435
	$	26,022,374	$	2,354,253	$	10,453,280

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

	December 31, 2015
	Residential Real Estate -Mortgage		Equity Lines of Credit		Equity Loans		Credit Card		Consumer Direct		Consumer Indirect
	(In Thousands)
Performing	$	13,877,592	$	2,381,909	$	564,110	$	617,641	$	932,773	$	3,484,426
Nonperforming	115,693		37,906		16,694		9,718		4,098		10,656
	$	13,993,285	$	2,419,815	$	580,804	$	627,359	$	936,871	$	3,495,082

115

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

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

	December 31, 2015
	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	$	8,197	$	4,215	$	3,567	$	161,591	$	9,402	$	186,972	$	25,835,402	$	26,022,374
Real estate – construction	2,864		91		421		5,908		2,247		11,531		2,342,722		2,354,253
Commercial real estate – mortgage	3,843		1,461		2,237		69,953		33,904		111,398		10,341,882		10,453,280
Residential real estate – mortgage	47,323		19,540		1,961		113,234		67,343		249,401		13,743,884		13,993,285
Equity lines of credit	8,263		4,371		2,883		35,023		—		50,540		2,369,275		2,419,815
Equity loans	6,356		2,194		704		15,614		37,108		61,976		518,828		580,804
Credit card	5,563		4,622		9,718		—		—		19,903		607,456		627,359
Consumer direct	7,648		3,801		3,537		561		908		16,455		920,416		936,871
Consumer indirect	73,438		17,167		5,629		5,027		—		101,261		3,393,821		3,495,082
Covered loans	4,862		3,454		37,972		134		—		46,422		394,539		440,961
Total loans	$	168,357	$	60,916	$	68,629	$	407,045	$	150,912	$	855,859	$	60,468,225	$	61,324,084

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.

116

The following table provides a breakout of TDRs, including nonaccrual loans, and covered loans and excluding loans classified as held for sale.

	December 31, 2016
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Nonaccrual		Total Past Due and Nonaccrual		Not Past Due or Nonaccrual		Total
	(In Thousands)
Commercial, financial and agricultural	$	—	$	—	$	—	$	30,697	$	30,697	$	8,726	$	39,423
Real estate – construction	—		—		—		226		226		2,393		2,619
Commercial real estate – mortgage	—		—		—		3,694		3,694		4,860		8,554
Residential real estate – mortgage	3,001		701		399		34,916		39,017		55,792		94,809
Equity lines of credit	—		—		—		23,660		23,660		—		23,660
Equity loans	1,329		834		190		7,015		9,368		32,393		41,761
Credit card	—		—		—		—		—		—		—
Consumer direct	—		—		—		41		41		704		745
Consumer indirect	—		—		—		2,297		2,297		—		2,297
Covered loans	—		—		—		26		26		—		26
Total loans	$	4,330	$	1,535	$	589	$	102,572	$	109,026	$	104,868	$	213,894

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Nonaccrual		Total Past Due and Nonaccrual		Not Past Due or Nonaccrual		Total
	(In Thousands)
Commercial, financial and agricultural	$	—	$	—	$	—	$	131	$	131	$	9,402	$	9,533
Real estate – construction	—		—		—		495		495		2,247		2,742
Commercial real estate – mortgage	—		—		—		7,205		7,205		33,904		41,109
Residential real estate – mortgage	2,188		1,935		498		30,174		34,795		62,722		97,517
Equity lines of credit	—		—		—		27,176		27,176		—		27,176
Equity loans	1,737		782		376		9,844		12,739		34,213		46,952
Credit card	—		—		—		—		—		—		—
Consumer direct	—		—		—		27		27		908		935
Consumer indirect	—		—		—		1,853		1,853		—		1,853
Covered loans	—		—		—		8		8		—		8
Total loans	$	3,925	$	2,717	$	874	$	76,913	$	84,429	$	143,396	$	227,825

There were no loans held for sale classified as TDRs at December 31, 2016 and 2015.

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 year ended December 31, 2016, $4.9 million of TDR modifications included an interest rate concession and $65.2 million of TDR modifications resulted from modifications to the loan’s structure. During the year ended December 31, 2015, $4.4 million of TDR modifications included an interest rate concession and $21.8 million of TDR modifications resulted from modifications to the loan’s structure. During the year ended December 31, 2014, $10.9 million of TDR modifications included an interest rate concession and $36.5 million of TDR modifications resulted from modifications to the loan’s structure.

117

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

	December 31, 2016			December 31, 2015			December 31, 2014
	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)
Commercial, financial and agricultural	10	$	44,569	6	$	384	4	$	14,281
Real estate – construction	2	3,504		—	—		3	476
Commercial real estate – mortgage	5	1,431		7	4,478		10	6,619
Residential real estate – mortgage	70	13,211		46	9,709		89	11,462
Equity lines of credit	82	3,869		115	6,482		161	7,821
Equity loans	17	1,369		35	2,586		64	4,867
Credit card	—	—		—	—		—	—
Consumer direct	4	35		23	1,210		4	265
Consumer indirect	128	2,148		74	1,298		102	1,572
Covered loans	—	—		3	29		3	15

For the years ended December 31, 2016 and 2015, charge-offs and changes to the allowance related to modifications classified as TDRs were not material.

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

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

	Years Ended December 31,
	2016			2015			2014
	Number of Contracts	Recorded Investment at Default		Number of Contracts	Recorded Investment at Default		Number of Contracts	Recorded Investment at Default
	(Dollars in Thousands)
Commercial, financial and agricultural	—	$	—	—	$	—	—	$	—
Real estate – construction	—	—		1	377		—	—
Commercial real estate – mortgage	—	—		1	178		1	2,198
Residential real estate – mortgage	—	—		7	987		7	1,157
Equity lines of credit	8	204		1	—		3	275
Equity loans	3	293		3	216		8	893
Credit card	—	—		—	—		—	—
Consumer direct	—	—		1	100		—	—
Consumer indirect	2	32		1	18		—	—
Covered loans	—	—		2	24		1	4

The Company’s allowance for loan losses is largely driven by updated risk ratings assigned to commercial loans, updated borrower credit scores on consumer loans, and borrower delinquency history in both commercial and consumer portfolios.  As such, the provision for loan losses is impacted primarily by changes in borrower payment performance

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rather than TDR classification.  In addition, all commercial and consumer loans modified in a TDR are considered to be impaired, even if they maintain their accrual status.

At December 31, 2016 and 2015, there were $12.6 million and $5.7 million, respectively, of commitments to lend additional funds to borrowers whose terms have been modified in a TDR.

Foreclosure Proceedings

Other real estate owned, a component of other assets in the Company's Consolidate Balance Sheets, totaled $21 million at both December 31, 2016 and 2015, respectively. Other real estate owned included $18 million and $17 million of foreclosed residential real estate properties at December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, there were $48 million and $30 million, respectively, of residential real estate loans secured by residential real estate properties for which formal foreclosure proceedings were in process.

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(5)Loan Sales and Servicing

Loans held for sale were $162 million and $71 million at December 31, 2016 and 2015, respectively. At December 31, 2016 loans held for sale were comprised of $57 million of commercial, financial and agricultural loans and $105 million of residential real estate - mortgage loans. At December 31, 2015 loans held for sale 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.

	2016		2015		2014
	(In Thousands)
Loans transferred from held for investment to held for sale	$	820,615	$	907,414	$	21,135
Charge-offs on loans recognized at transfer from held for investment to held for sale	8,295		—		6,508
Loans and loans held for sale sold	1,044,800		466,459		108,018

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

	2016		2015		2014
	(In Thousands)
Residential real estate loans originated for sale in the secondary market sold (1)	$	682,115	$	1,521,424	$	1,064,421
Net gains recognized on sales of residential real estate loans originated for sale in the secondary market (2)	28,207		41,913		34,739

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

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

Residential Real Estate Mortgage Loans Sold with Retained Servicing

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

	2016		2015		2014
	(In Thousands)
Residential real estate mortgage loans sold with retained servicing (3)	$	997,956	$	1,521,424	$	1,064,421
Servicing fees recognized (4)	25,772		22,087		15,971

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

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

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

	December 31, 2016		December 31, 2015
	(In Thousands)
Recorded balance of residential real estate mortgage loans sold with retained servicing (5)	$	4,684,899	$	4,444,602
MSRs (6)	51,428		44,541

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

(6) Recorded under the fair value method and included in other assets on the Company's 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

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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.

	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
Carrying value, at beginning of year	$	44,541		$	35,488		$	30,065
Additions	10,118			15,922			11,494
Increase (decrease) in fair value:
Due to changes in valuation inputs or assumptions	7,093			(2,193		)	(3,851		)
Due to other changes in fair value (1)	(10,324		)	(4,676		)	(2,220		)
Carrying value, at end of year	$	51,428		$	44,541		$	35,488

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

See Note 21, Fair Value of Financial Instruments, for additional disclosures related to the assumptions and estimates used in determining fair value of residential MSRs.

At December 31, 2016 and 2015, 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:

	December 31,
	2016			2015
	(Dollars in Thousands)
Fair value of MSRs	$	51,428		$	44,541
Composition of residential loans serviced for others:
Fixed rate mortgage loans	97.3		%	96.8		%
Adjustable rate mortgage loans	2.7			3.2
Total	100.0		%	100.0		%
Weighted average life (in years)	6.5			5.4
Prepayment speed:	15.7		%	12.4		%
Effect on fair value of a 10% increase	(1,646		)	(1,547		)
Effect on fair value of a 20% increase	(3,184		)	(2,987		)
Weighted average option adjusted spread	8.1		%	9.0		%
Effect on fair value of a 10% increase	(1,758		)	(1,504		)
Effect on fair value of a 20% increase	(3,402		)	(2,911		)

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 and should not be considered to 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 factor may result in changes in another, which may magnify or counteract the effect of the change.

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(6)Premises and Equipment

A summary of the Company’s premises and equipment is presented below.

	December 31,
	2016		2015
	(In Thousands)
Land	$	311,384	$	320,042
Buildings	594,426		586,489
Furniture, fixtures and equipment	428,326		425,019
Software	800,297		734,380
Leasehold improvements	170,523		159,799
Construction / projects in progress	158,682		103,301
	2,463,638		2,329,030
Less: Accumulated depreciation and amortization	1,163,584		1,006,652
Total premises and equipment	$	1,300,054	$	1,322,378

The Company recognized $188.7 million, $181.4 million and $178.3 million of depreciation expense related to the above premises and equipment for the years ended December 31, 2016, 2015 and 2014, respectively.

(7)Bank Owned Life Insurance

The Company maintains life insurance policies on certain of its executives and employees. At December 31, 2016 and 2015, the cash surrender values on the underlying life insurance policies totaled $712 million and $700 million, respectively, which are recorded as bank owned life insurance on the Company’s Consolidated Balance Sheets. These cash surrender values are classified separately from related split dollar life insurance arrangements of $7 million at both December 31, 2016 and 2015, respectively, which are recorded on the Company’s Consolidated Balance Sheets as accrued expenses and other liabilities. Changes to the underlying cash surrender value are recorded in noninterest income in the Company’s Consolidated Statements of Income and for the years ended December 31, 2016, 2015 and 2014 totaled $17.2 million, $18.7 million and $18.6 million, respectively.

(8)Goodwill and Other Acquired Intangible Assets

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

	Years Ended December 31,
	2016			2015
	(In Thousands)
Balance, January 1:
Goodwill	$	9,835,400		$	9,822,050
Accumulated impairment losses	(4,792,203		)	(4,775,203		)
Goodwill, net at January 1	5,043,197			5,046,847
Annual activity:
Goodwill acquired during the year	—			13,350
Disposition adjustments	—			—
Impairment losses	(59,901		)	(17,000		)
Balance, December 31:
Goodwill	9,835,400			9,835,400
Accumulated impairment losses	(4,852,104		)	(4,792,203		)
Goodwill, net at December 31	$	4,983,296		$	5,043,197

During the Company's 2016 and 2015 annual goodwill impairment test, $59.9 million and $17.0 million, respectively, of goodwill attributable to the Simple reporting unit was determined to be impaired.

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Goodwill is allocated to each of the Company's segments (each a reporting unit: Consumer and Commercial Bank, Corporate and Investment Banking, and Simple). Refer to Note 23, Segment Information, for a discussion of the transfer of certain large middle market customer relationships from the Consumer and Commercial Bank segment to the Corporate and Investment Banking segment. In connection with the transfer, the Company reallocated goodwill between the Consumer and Commercial Bank and Corporate and Investment Banking reporting units using a relative fair value approach.

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. In step one of the impairment test, 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, step two of the impairment test is required to be performed to measure the amount of impairment loss, if any. Step two compares the implied fair value of goodwill attributable to each reporting unit to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination; an entity allocates the fair value determined in step one for the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

The Company tests its identified reporting units with goodwill for impairment on an annual basis or more often if events and circumstances indicate impairment may exist. The most recent goodwill impairment test occurred as of October 31, 2016. The results of this test indicated $59.9 million of goodwill impairment related to the Simple reporting unit. For the Company's two remaining reporting units with goodwill, the most recent goodwill impairment test indicated that no goodwill impairment existed at that time.

At December 31, 2016, the goodwill, net of accumulated impairment losses, attributable to each of the Company’s three identified reporting units is as follows: Consumer and Commercial Banking - $4.1 billion, Corporate and Investment Banking - $896 million, and Simple - $0.

Through December 31, 2016, the Company had recognized accumulated goodwill impairment losses of $3.8 billion, $249 million, and $89 million within the Consumer and Commercial Banking, Corporate and Investment Banking, and Simple reporting units, respectively. In addition, the Company has previously recognized $694 million of accumulated goodwill impairment losses from reporting units that no longer have a goodwill balance.

Both the step one fair values of the reporting units and the step two allocations of the fair values of the reporting units’ assets and liabilities are based upon management’s estimates and assumptions. Although management has used the estimates and assumptions it believes to be most appropriate in the circumstances, it should be noted that even relatively minor changes in certain valuation assumptions used in management’s calculations would result in significant differences in the results of the impairment tests.

Adverse changes in the economic environment, a continuation in the current level of interest rates, declining operational profitability, or other factors in future periods could result in a decline in the implied fair value of the goodwill and future goodwill impairment charges.

In addition to goodwill, the Company also has finite-lived intangible assets in the form of core deposit intangibles and other identifiable intangibles. These core deposit intangibles and other identifiable intangibles are amortized over their estimated useful lives, which, at December 31, 2016, approximated 2 years for core deposit intangibles and 1.1 years for other identifiable intangible assets. The Company reviews intangible assets for possible impairment whenever events or circumstances indicate that carrying amounts may not be recoverable.

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Intangible assets are detailed in the following table.

	December 31,
	2016						2015
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
	(In Thousands)
Other intangible assets:
Core deposit intangibles	$	772,024	$	761,915	$	10,109	$	772,024	$	748,783	$	23,241
Other identifiable intangibles	39,800		34,706		5,094		39,800		31,465		8,335
Total other intangible assets	$	811,824	$	796,621	$	15,203	$	811,824	$	780,248	$	31,576

The Company recognized $16.4 million, $39.2 million and $50.9 million of intangible amortization expense during the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016, estimated future amortization expense was $10.1 million for 2017 and $5.1 million for 2018.

(9)Deposits

Time deposits of less than $100,000 totaled $6.2 billion at December 31, 2016, while time deposits of $100,000 or more totaled $7.3 billion. At December 31, 2016, the scheduled maturities of time deposits were as follows.

	(In Thousands)
2017	$	8,975,395
2018	2,972,648
2019	919,341
2020	401,610
2021	96,799
Thereafter	62,077
Total	$	13,427,870

At December 31, 2016 and 2015, demand deposit overdrafts reclassified to loans totaled $15 million and $12 million, respectively. In addition to the securities and loans the Company has pledged as collateral to secure public deposits and FHLB advances at December 31, 2016, the Company also had $7.3 billion of standby letters of credit issued by the FHLB to secure public deposits.

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(10)Short-Term Borrowings

The short-term borrowings table below shows the distribution of the Company’s short-term borrowed funds.

	Ending Balance		Ending Average Interest Rate		Average Balance		Maximum Outstanding Balance
	(Dollars in Thousands)
As of and for the year ended
December 31, 2016
Federal funds purchased	$	12,885	0.39	%	$	372,355	$	766,095
Securities sold under agreements to repurchase	26,167		0.55		79,625		148,291
Total	39,052				451,980		914,386
Other short-term borrowings	2,802,977		1.68		3,778,752		4,497,354
Total short-term borrowings	$	2,842,029			$	4,230,732	$	5,411,740
As of and for the year ended
December 31, 2015
Federal funds purchased	$	673,545	0.37	%	$	692,737	$	975,785
Securities sold under agreements to repurchase	76,609		0.44		114,940		232,605
Total	750,154				807,677		1,208,390
Other short-term borrowings	4,032,644		1.34		4,006,716		4,982,154
Total short-term borrowings	$	4,782,798			$	4,814,393	$	6,190,544

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(11) FHLB and Other Borrowings

The following table details the Company’s FHLB advances and other borrowings including maturities and interest rates as of December 31, 2016.

		December 31,
	Maturity Dates	2016			2015
		(In Thousands)
FHLB advances:
LIBOR-based floating rate (weighted average rate of 1.52%)	2021	$	120,000		$	525,000
Fixed rate (weighted average rate of 2.20%)	2019-2025	410,529			2,418,071
Unamortized discount		—			(27		)
Total FHLB advances		530,529			2,943,044
Senior notes and subordinated debentures:
1.85% senior notes	2017	400,000			400,000
2.75% senior notes	2019	600,000			600,000
6.40% subordinated debentures	2017	350,000			350,000
5.50% subordinated debentures	2020	227,764			227,764
3.88% subordinated debentures	2025	700,000			700,000
5.90% subordinated debentures	2026	71,086			71,086
Fair value of hedged subordinated debentures		36,800			65,384
Net unamortized discount		(18,298		)	(22,359		)
Total senior notes and subordinated debentures		2,367,352			2,391,875
Capital securities:
LIBOR plus 3.05% floating rate debentures payable to State National Capital Trust I	2033	15,470			15,470
LIBOR plus 2.85% floating rate debentures payable to Texas Regional Statutory Trust I	2034	51,547			51,547
LIBOR plus 2.60% floating rate debentures payable to TexasBanc Capital Trust I	2034	25,774			25,774
LIBOR plus 2.79% floating rate debentures payable to State National Statutory Trust II	2034	10,310			10,310
Unamortized premium		569			600
Total capital securities		103,670			103,701
Total FHLB and other borrowings		$	3,001,551		$	5,438,620

The following table presents maturity information for the Company’s FHLB and other borrowings, including the fair value of hedged senior notes and subordinated debentures and unamortized discounts and premiums, as of December 31, 2016.

	FHLB Advances		Senior Notes and Subordinated Debentures		Capital Securities
	(In Thousands)
Maturing:
2017	$	—	$	786,332	$	—
2018	—		—		—
2019	350,000		598,121		—
2020	—		223,193		—
2021	120,000		—		—
Thereafter	60,529		759,706		103,670
Total	$	530,529	$	2,367,352	$	103,670

Capital Securities

At December 31, 2016, the Company had four subsidiary business trusts (TexasBanc Capital Trust I, State National Capital Trust I, State National Statutory Trust II and Texas Regional Statutory Trust I) which had issued Trust Preferred

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Securities. As guarantor, the Company unconditionally guarantees payment of accrued and unpaid distributions required to be paid on the Trust Preferred Securities, the redemption price when the Trust Preferred Securities are called for redemption, and amounts due if a trust is liquidated or terminated.

The Company owns all of the outstanding common stock of each of the four trusts. The trusts used the proceeds from the issuance of their Trust Preferred Securities and common securities to buy debentures issued by the Parent. These Capital Securities are the trusts’ only assets, and the interest payments the subsidiary business trusts receive from the Capital Securities are used to finance the distributions paid on the Trust Preferred Securities. In accordance with ASC Topic 810, the subsidiary business trusts are not consolidated by the Company. The Capital Securities are included in FHLB and other borrowings on the Company’s Consolidated Balance Sheets as of December 31, 2016 and 2015.

The Trust Preferred Securities must be redeemed when the related Capital Securities mature, or earlier, if provided in the governing indenture. Each issue of Trust Preferred Securities carries an interest rate identical to that of the related Capital Securities.

All of the subsidiary business trusts have the right to redeem their Trust Preferred Securities currently.

(12)Shareholder's Equity

Series A Preferred Stock

In December 2015, the Company completed the sale of 1,150 shares of its Floating Non-Cumulative Perpetual Preferred Stock, Series A at a per share prices of $200,000. The Series A Preferred Stock was purchased by BBVA. The holder of the Series A Preferred Stock will be entitled to receive dividend payments only when, as and if declared by the Company’s Board of Directors or a duly authorized committee thereof. Any such dividends will be payable from the date of original issue at a floating rate per annum equal to the three-month U.S. dollar LIBOR as determined on the relevant dividend determination date plus 5.24%. Any such dividends will be payable on a non-cumulative basis, quarterly in arrears on March 1, June 1, September 1 and December 1, commencing March 1, 2016. Payment of dividends on the Series A Preferred Stock is subject to certain legal, regulatory and other restrictions. Redemption is solely at the Company's option. The Company may, at its option, redeem the Series A Preferred Stock (i) in whole or in part, from time to time, on any dividend payment date on or after December 1, 2022 or (ii) in whole but not in part at any time within 90 days of certain changes to regulatory capital requirements. 

At both December 31, 2016 and 2015, the carrying amount of the Series A Preferred Stock, including related surplus, net of issuance costs was approximately $229 million.

Class B Preferred Stock

In December 2000, a subsidiary of the Bank issued $21 million of Class B Preferred Stock. The Preferred Stock outstanding was approximately $23 million at both December 31, 2016 and 2015 and is classified as noncontrolling interests on the Company’s Consolidated Balance Sheets. The Preferred Stock qualifies as Tier 1 capital under Federal Reserve guidelines. The Preferred Stock dividends are preferential, non-cumulative and payable semi-annually in arrears on June 15 and December 15 of each year, commencing June 15, 2001, at a rate per annum equal to 9.875% of the liquidation preference of $1,000 per share when and if declared by the board of directors of the subsidiary, in its sole discretion, out of funds legally available for such payment.

The Preferred Stock is redeemable for cash, at the option of the subsidiary, in whole or in part, at any time on or after June 15, 2021. Prior to June 15, 2021, the Preferred Stock is not redeemable, except that prior to such date, the Preferred Stock may be redeemed for cash, at the option of the subsidiary, in whole but not in part, only upon the occurrence of certain tax or regulatory events. Any such redemption is subject to the prior approval of the Federal Reserve. The Preferred Stock is not redeemable at the option of the holders thereof at any time.

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(13)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 (loss).

	December 31, 2016
	Pretax			Tax Expense/ (Benefit)			After-tax
	(In Thousands)
Other comprehensive loss:
Unrealized holding losses arising during period from securities available for sale	$	(76,706	)	$	(28,668	)	$	(48,038	)
Less: reclassification adjustment for net gains on sale of securities in net income	30,037			11,226			18,811
Net change in unrealized losses on securities available for sale	(106,743		)	(39,894		)	(66,849		)
Change in unamortized net holding losses on investment securities held to maturity	5,848			2,235			3,613
Less: non-credit related impairment on investment securities held to maturity	151			55			96
Change in unamortized non-credit related impairment on investment securities held to maturity	1,438			487			951
Net change in unamortized holding losses on securities held to maturity	7,135			2,667			4,468
Unrealized holding losses arising during period from cash flow hedge instruments	(5,882		)	(2,209		)	(3,673		)
Change in defined benefit plans	(4,826		)	(1,964		)	(2,862		)
Other comprehensive loss	$	(110,316	)	$	(41,400	)	$	(68,916	)

	December 31, 2015
	Pretax			Tax Expense/ (Benefit)			After-tax
	(In Thousands)
Other comprehensive loss:
Unrealized holding losses arising during period from securities available for sale	$	(26,090	)	$	(9,455	)	$	(16,635	)
Less: reclassification adjustment for net gains on sale of securities in net income	81,656			29,591			52,065
Net change in unrealized losses on securities available for sale	(107,746		)	(39,046		)	(68,700		)
Change in unamortized net holding losses on investment securities held to maturity	10,948			3,043			7,905
Less: non-credit related impairment on investment securities held to maturity	87			32			55
Change in unamortized non-credit related impairment on investment securities held to maturity	1,661			1,527			134
Net change in unamortized holding losses on securities held to maturity	12,522			4,538			7,984
Unrealized holding gains arising during period from cash flow hedge instruments	3,141			1,854			1,287
Change in defined benefit plans	18,971			7,016			11,955
Other comprehensive loss	$	(73,112	)	$	(25,638	)	$	(47,474	)

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	December 31, 2014
	Pretax			Tax Expense/ (Benefit)			After-tax
	(In Thousands)
Other comprehensive income:
Unrealized holding gains arising during period from securities available for sale	$	94,627		$	33,343		$	61,284
Less: reclassification adjustment for net gains on sale of securities in net income	53,042			18,690			34,352
Net change in unrealized gains on securities available for sale	41,585			14,653			26,932
Change in unamortized net holding losses on investment securities held to maturity	13,732			4,705			9,027
Less: non-credit related impairment on investment securities held to maturity	235			84			151
Change in unamortized non-credit related impairment on investment securities held to maturity	3,096			1,225			1,871
Net change in unamortized holding losses on securities held to maturity	16,593			5,846			10,747
Unrealized holding losses arising during period from cash flow hedge instruments	(4,980		)	(2,575		)	(2,405		)
Change in defined benefit plans	1,238			438			800
Other comprehensive income	$	54,436		$	18,362		$	36,074

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

	Unrealized Gains (Losses) on Securities Available for Sale and Transferred to Held to Maturity			Accumulated Gains (Losses) on Cash Flow Hedging Instruments			Defined Benefit Plan Adjustment			Unamortized Impairment Losses on Investment Securities Held to Maturity			Total
	(In Thousands)
Balance, January 1, 2015	$	4,469		$	(7,694	)	$	(41,121	)	$	(7,516	)	$	(51,862	)
Other comprehensive income (loss)before reclassifications	(16,635		)	3,148			—			(55		)	(13,542		)
Amounts reclassified from accumulated other comprehensive income (loss)	(44,160		)	(1,861		)	11,955			134			(33,932		)
Net current period other comprehensive income (loss)	(60,795		)	1,287			11,955			79			(47,474		)
Balance, December 31, 2015	$	(56,326	)	$	(6,407	)	$	(29,166	)	$	(7,437	)	$	(99,336	)
Balance, January 1, 2016	$	(56,326	)	$	(6,407	)	$	(29,166	)	$	(7,437	)	$	(99,336	)
Other comprehensive income (loss) before reclassifications	(48,038		)	(1,337		)	—			(96		)	(49,471		)
Amounts reclassified from accumulated other comprehensive income (loss)	(15,198		)	(2,336		)	(2,862		)	951			(19,445		)
Net current period other comprehensive income (loss)	(63,236		)	(3,673		)	(2,862		)	855			(68,916		)
Balance, December 31, 2016	$	(119,562	)	$	(10,080	)	$	(32,028	)	$	(6,582	)	$	(168,252	)

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

Details About Accumulated Other Comprehensive Income Components	Amounts Reclassified From Accumulated Other Comprehensive Income(1)									Consolidated Statement of Income Caption
	December 31, 2016			December 31, 2015			December 31, 2014
	(In Thousands)
Unrealized Gains (Losses) on Securities Available for Sale and Transferred to Held to Maturity	$	30,037		$	81,656		$	53,042		Investment securities gains, net
	(5,848		)	(10,948		)	(13,732		)	Interest on investment securities held to maturity
	24,189			70,708			39,310
	(8,991		)	(26,548		)	(13,985		)	Income tax expense
	$	15,198		$	44,160		$	25,325		Net of tax
Accumulated Gains (Losses) on Cash Flow Hedging Instruments	$	8,370		$	13,056		$	5,536		Interest and fees on loans
	(4,629		)	(6,934		)	(7,113		)	Interest and fees on FHLB advances
	3,741			6,122			(1,577		)
	(1,405		)	(4,261		)	907			Income tax (expense) benefit
	$	2,336		$	1,861		$	(670	)	Net of tax
Defined Benefit Plan Adjustment	$	4,826		$	(18,971	)	$	(1,238	)	(2)
	(1,964		)	7,016			438			Income tax (expense) benefit
	$	2,862		$	(11,955	)	$	(800	)	Net of tax
Unamortized Impairment Losses on Investment Securities Held to Maturity	$	(1,438	)	$	(1,661	)	$	(3,096	)	Interest on investment securities held to maturity
	487			1,527			1,225			Income tax benefit
	$	(951	)	$	(134	)	$	(1,871	)	Net of tax

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

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 19, Benefit Plans, for additional details).

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(14)Derivatives and Hedging

The Company is a party to derivative instruments in the normal course of business for trading purposes and for purposes other than trading 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 to not offset derivative fair value amounts under master netting agreements. See Note 1, Summary of Significant Accounting Policies, for additional information on the Company’s accounting policies related to derivative instruments and hedging activities. The following table reflects the notional amount and fair value of derivative instruments included on the Company’s Consolidated Balance Sheets on a gross basis.

	December 31, 2016						December 31, 2015
			Fair Value						Fair Value
	Notional Amount		Derivative Assets (1)		Derivative Liabilities (2)		Notional Amount		Derivative Assets (1)		Derivative Liabilities (2)
	(In Thousands)
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate swaps related to long-term debt	$	2,123,950	$	38,890	$	14,226	$	2,123,950	$	59,975	$	9,405
Total fair value hedges			38,890		14,226				59,975		9,405
Cash flow hedges:
Interest rate contracts:
Swaps related to commercial loans	7,625,000		2,340		11,570		1,900,000		1,574		782
Swaps related to FHLB advances	120,000		—		7,093		320,000		—		10,858
Foreign currency contracts:
Forwards related to currency fluctuations	3,618		—		380		8,318		—		40
Total cash flow hedges			2,340		19,043				1,574		11,680
Total derivatives designated as hedging instruments			$	41,230	$	33,269			$	61,549	$	21,085
Free-standing derivatives not designated as hedging instruments:
Interest rate contracts:
Forward contracts related to held for sale mortgages	$	251,500	$	2,479	$	493	$	216,500	$	502	$	217
Interest rate lock commitments	150,616		2,424		32		175,002		2,880		6
Equity contracts:
Purchased equity option related to equity-linked CDs	833,763		57,198		—		876,649		59,375		—
Written equity option related to equity-linked CDs	770,632		—		53,044		831,480		—		56,559
Foreign exchange contracts:
Forwards related to commercial loans	424,155		3,741		1,723		479,072		3,821		752
Spots related to commercial loans	54,599		134		—		54,511		6		372
Swap associated with sale of Visa, Inc. Class B shares	68,308		—		1,708		67,896		—		1,697
Futures contracts (3)	104,000		—		—		390,000		—		—
Trading account assets and liabilities:
Interest rate contracts for customers	28,000,014		290,238		228,748		23,370,927		303,944		238,611
Commodity contracts for customers	—		—		—		114,336		14,127		14,110
Foreign exchange contracts for customers	870,084		28,367		26,317		425,946		9,899		8,578
Total trading account assets and liabilities			318,605		255,065				327,970		261,299
Total free-standing derivative instruments not designated as hedging instruments			$	384,581	$	312,065			$	394,554	$	320,902

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

(2) Derivative liabilities are recorded in accrued expenses and other liabilities on the Company’s 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 the

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derivative instrument. See Note 1, Summary of Significant Accounting Policies, for additional information on the Company’s accounting policies related to derivative instruments and hedging activities.

Fair Value Hedges

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

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

The Company recognized no gains or losses for the years ended December 31, 2016, 2015 and 2014 related to hedged firm commitments no longer qualifying as a fair value hedge. At December 31, 2016, the fair value hedges had a weighted average expected remaining term of 4.1 years.

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

		Gain (Loss) for the Years Ended
		December 31,
	Consolidated Statements of Income Caption	2016			2015			2014
		(In Thousands)
Change in fair value of interest rate contracts:
Interest rate swaps hedging long term debt	Interest on FHLB and other borrowings	$	(25,906	)	$	(19,130	)	$	2,078
Hedged long term debt	Interest on FHLB and other borrowings	25,411			15,395			(2,559		)
Other gains on interest rate contracts:
Interest and amortization related to interest rate swaps on hedged long term debt	Interest on FHLB and other borrowings	41,391			46,559			27,882

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 the money transfer expense being denominated in foreign currency. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. The initial assessment of expected hedge effectiveness is based on regression analysis. The ongoing periodic measures of hedge ineffectiveness are based on the expected change in cash flows of the hedged item caused by changes in the benchmark interest rate. There was $714 thousand of losses recognized because of hedge ineffectiveness for the year ended December 31, 2016 and there were no material cash flow hedging gains or losses recognized because of hedge ineffectiveness for the years ended December 31, 2015 and 2014. There were no gains or losses reclassified from other comprehensive income (loss) because of the discontinuance of cash flow hedges related to certain forecasted transactions that are probable of not occurring for the years ended December 31, 2016, 2015 and 2014.

At December 31, 2016, cash flow hedges not terminated had a net fair value of $(16.7) million and a weighted average life of 1.7 years. Net losses of $790 thousand 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 4.6 years.

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

	Gain (Loss) for the Years Ended
	December 31,
	2016			2015		2014
	(In Thousands)
Interest rate and foreign currency exchange contracts:
Net change in amount recognized in other comprehensive income	$	(3,673	)	$	1,287	$	(2,405	)
Amount reclassified from accumulated other comprehensive income (loss) into net income	3,741			6,122		(1,577		)
Amount of ineffectiveness recognized in net income	(714		)	—		—

Derivatives Not Designated As Hedges

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

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

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

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

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

The Company offers its customers equity-linked CDs that have a return linked to individual equities and equity indices. Under appropriate accounting guidance, a CD that pays interest based on changes in an equity index is a hybrid instrument that requires separation into a host contract (the CD) and an embedded derivative contract (written equity call option). The Company has entered into an offsetting derivative contract in order to economically hedge the exposure related to the issuance of equity-linked CDs. Both the embedded derivative and derivative contract entered into by the Company are classified as free-standing derivative instruments.

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

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

		Gain (Loss) for the Years Ended
		December 31,
	Consolidated Statements of Income Caption	2016			2015			2014
		(In Thousands)
Futures contracts	Mortgage banking income and corporate and correspondent investment sales	$	(138	)	$	(12	)	$	(635	)
Option contracts related to mortgage servicing rights	Mortgage banking income and corporate and correspondent investment sales	(264		)	(195		)	420
Interest rate contracts:
Forward contracts related to residential mortgage loans held for sale	Mortgage banking income	857			3,801			(3,229		)
Interest rate lock commitments	Mortgage banking income	(482		)	556			1,428
Interest rate contracts for customers	Corporate and correspondent investment sales	24,507			28,533			21,552
Commodity contracts:
Commodity contracts for customers	Corporate and correspondent investment sales	(6		)	6			105
Equity contracts:
Purchased equity option related to equity-linked CDs	Other expense	(2,178		)	(17,112		)	28,612
Written equity option related to equity-linked CDs	Other expense	3,515			17,761			(27,746		)
Foreign currency contracts:
Swap and forward contracts related to commercial loans	Other income	12,368			54,441			55,544
Spot contracts related to commercial loans	Other income	451			(9,366		)	(7,556		)
Foreign currency exchange contracts for customers	Corporate and correspondent investment sales	3,971			2,656			1,125

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 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 continually reviewed. 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 and foreign currency rates or implied volatility rates has on the value of a financial instrument. The Company manages the market risk associated with interest rate and foreign currency 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 strategy.

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 December 31, 2016, interest rate swap agreements and options classified as trading were substantially matched. The Company had credit risk of $319 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 $2.5 million, $9 thousand and $888 thousand in net credit losses associated with derivative instruments classified as trading for the

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years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016 and 2015, there were no material nonperforming derivative positions classified as trading.

The Company’s derivative positions held for hedging purposes are primarily executed in the over-the-counter market. These positions have credit risk of $41 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 years ended December 31, 2016, 2015 and 2014. At December 31, 2016 and 2015, there were no nonperforming derivative positions classified as nontrading.

As of December 31, 2016 and 2015, the Company had recorded the right to reclaim cash collateral of $103 million and $162 million, respectively, within other assets on the Company’s Consolidated Balance Sheets and had recorded the obligation to return cash collateral of $37 million and $40 million, respectively, within deposits on the Company’s Consolidated Balance Sheets.

Contingent Features

Certain of the Company’s derivative instruments contain provisions that require the Company’s debt to 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 December 31, 2016 was $30 million for which the Company has collateral requirements of $29 million in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2016, the Company’s collateral requirements to its counterparties would increase by $1 million. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on December 31, 2015 was $46 million for which the Company had collateral requirements of $45 million in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2015, the Company’s collateral requirements to its counterparties would have increased by $1 million.

Netting of Derivative Instruments

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

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The following 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 Consolidated Balance Sheets		Net Amount Presented in the Consolidated Balance Sheets		Financial Instruments Collateral Received/ Pledged (1)		Cash Collateral Received/ Pledged (1)		Net Amount
	(In Thousands)
December 31, 2016
Derivative financial assets:
Subject to a master netting arrangement	$	234,002	$	—	$	234,002	$	—	$	33,212	$	200,790
Not subject to a master netting arrangement	191,809		—		191,809		—		—		191,809
Total derivative financial assets	$	425,811	$	—	$	425,811	$	—	$	33,212	$	392,599
Derivative financial liabilities:
Subject to a master netting arrangement	$	248,669	$	—	$	248,669	$	9,685	$	102,603	$	136,381
Not subject to a master netting arrangement	96,665		—		96,665		—		—		96,665
Total derivative financial liabilities	$	345,334	$	—	$	345,334	$	9,685	$	102,603	$	233,046
December 31, 2015
Derivative financial assets:
Subject to a master netting arrangement	$	191,061	$	—	$	191,061	$	—	$	33,517	$	157,544
Not subject to a master netting arrangement	265,042		—		265,042		—		—		265,042
Total derivative financial assets	$	456,103	$	—	$	456,103	$	—	$	33,517	$	422,586
Derivative financial liabilities:
Subject to a master netting arrangement	$	269,295	$	—	$	269,295	$	23,856	$	159,594	$	85,845
Not subject to a master netting arrangement	72,692		—		72,692		—		—		72,692
Total derivative financial liabilities	$	341,987	$	—	$	341,987	$	23,856	$	159,594	$	158,537

(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.

(15) Securities Financing Activities

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

The Company has various financial asset and liabilities that are subject to enforceable master netting agreements or similar agreements. The Company's derivatives that are subject to enforceable master netting agreements or similar transactions are discussed in Note 14, 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 and other U.S. government agencies, mortgage-backed securities and collateralized mortgage obligations.

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Securities purchased under agreements to resell and securities sold under agreements to repurchase are governed by an 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 Consolidated Balance Sheets		Net Amount Presented in the Consolidated Balance Sheets		Financial Instruments Collateral Received/ Pledged (1)		Cash Collateral Received/ Pledged (1)		Net Amount
	(In Thousands)
December 31, 2016
Securities purchased under agreement to resell:
Subject to a master netting arrangement	$	3,164,039	$	3,069,489	$	94,550	$	94,550	$	—	$	—
Securities sold under agreements to repurchase:
Subject to a master netting arrangement	$	3,095,655	$	3,069,488	$	26,167	$	26,167	$	—	$	—
December 31, 2015
Securities purchased under agreement to resell:
Subject to a master netting arrangement	$	5,282,661	$	5,003,555	$	279,106	$	279,106	$	—	$	—
Securities sold under agreements to repurchase:
Subject to a master netting arrangement	$	5,080,164	$	5,003,555	$	76,609	$	76,609	$	—	$	—

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

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Collateral Associated with Securities Financing Activities

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

	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater Than 90 Days		Total
	(In Thousands)
December 31, 2016
Securities sold under agreements repurchase:
U.S. Treasury and other U.S. government agencies	$	1,408,736	$	806,526	$	798,089	$	—	$	3,013,351
Mortgage-backed securities	—		—		82,304		—		82,304
Total	$	1,408,736	$	806,526	$	880,393	$	—	$	3,095,655
December 31, 2015
Securities sold under agreements repurchase:
U.S. Treasury and other U.S. government agencies	$	3,214,085	$	232,924	$	518,623	$	—	$	3,965,632
Mortgage-backed securities	—		—		976,449		—		976,449
Collateralized mortgage obligations	—		—		138,083		—		138,083
Total	$	3,214,085	$	232,924	$	1,633,155	$	—	$	5,080,164

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 December 31, 2016, the fair value of collateral received related to securities purchased under agreements to resell was $3.1 billion and the fair value of collateral pledged for securities sold under agreements to repurchase was $3.1 billion. At December 31, 2015, the fair value of collateral received related to securities purchased under agreements to resell was $5.2 billion and the fair value of collateral pledged for securities sold under agreements to repurchase was $4.9 billion.

(16)Commitments, Contingencies and Guarantees

Lease Commitments

The Company leases certain facilities and equipment for use in its businesses. The leases for facilities are generally for periods of 10 to 20 years with various renewal options, while leases for equipment generally have terms not in excess of five years. The majority of the leases for facilities contain rental escalation clauses tied to changes in price indices. Certain real property leases contain purchase options. Management expects that most leases will be renewed or replaced with new leases in the normal course of business. At December 31, 2016, the Company had $27.3 million of assets recorded as capital leases for which $14.1 million of accumulated depreciation had been recognized.

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The following table provides the annual future minimum payments under capital leases and noncancelable operating leases at December 31, 2016:

	Operating Lease		Capital Lease
	(In Thousands)
2017	$	67,034	$	2,272
2018	62,182		2,336
2019	56,183		2,372
2020	48,152		2,408
2021	43,055		2,317
Thereafter	170,531		11,487
Total	$	447,137	$	23,192

The Company incurred lease expense of $81.0 million, $75.0 million and $73.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. The Company received lease income of $6.6 million, $5.4 million and $5.9 million for the years ended December 31, 2016, 2015 and 2014, respectively, related to space leased to third parties.

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.

	December 31,
	2016		2015
	(In Thousands)
Commitments to extend credit	$	27,070,935	$	27,853,409
Standby and commercial letters of credit	1,474,405		1,709,145

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 December 31, 2016 and 2015, the recorded amount of these deferred fees was $8 million and $6 million, respectively. The Company holds various assets as collateral supporting those commitments for which collateral is deemed necessary. At December 31, 2016, the maximum potential amount of future undiscounted payments the Company could be required to make under outstanding standby letters of credit was $1.5 billion. At December 31, 2016 and 2015, the Company had reserves related to letters of credit and unfunded commitments recorded in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheet of $77 million and $85 million, respectively.

Loan Sale Recourse

The Company has potential recourse related to FNMA securitizations. At both December 31, 2016 and 2015, the amount of potential recourse was $19 million, of which the Company had reserved $681 thousand and $869 thousand, respectively, which is recorded in accrued expenses and other liabilities on its Consolidated Balance Sheets for the respective years.

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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 warranties would materially change the financial condition or results of operations of the Company. At December 31, 2016 and 2015, the Company recorded $1 million and $2 million, respectively, of reserves in accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets related to potential losses from loans sold.

Loss Sharing Agreement

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

The provisions of the loss sharing agreements may also require a payment by the Bank to the FDIC on October 15, 2019. On that date, the Bank is required to pay the FDIC 60% of the excess, if any, of (i) $457 million over (ii) the sum of (a) 25% of the total net amounts paid to the Bank under both of the loss share agreements plus (b) 20% of the deemed total cost to the Bank of administering the covered assets under the loss sharing agreements. The deemed total cost to the Bank of administering the covered assets is the sum of 2% of the average of the principal amount of covered assets based on the beginning and end of year balances for each of the 10 years during which the loss share agreements are in effect. At December 31, 2016 and 2015, the Company estimated the potential amount of payment due to the FDIC in 2019, at the end of the loss share agreements, to be $147 million and $145 million, respectively. The ultimate settlement amount of this payment due to the FDIC is dependent upon the performance of the underlying covered assets, the passage of time and actual claims submitted to the FDIC.

The Company has chosen to net the amounts due from the FDIC and due to the FDIC into the FDIC indemnification liability. At December 31, 2016 and 2015, the FDIC indemnification liability was $136 million and $131 million, respectively, and was recorded in accrued expenses and other liabilities in the Company's Consolidated Balance Sheets.

Low Income Housing Tax Credit Partnerships

The Company has committed to make certain equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments will be to facilitate the sale of additional affordable housing product offerings and to assist in achieving goals associated with the Community Reinvestment Act, and to achieve a satisfactory return on capital. The total unfunded commitment associated with these investments at December 31, 2016 and 2015 were $289 million and $109 million, respectively.

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 against such legal proceedings.

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Set forth below are descriptions of certain of the Company’s legal proceedings.

In February 2011, BSI was named as a defendant in a lawsuit filed in the United States District Court for the Northern District of California, The California Public Employees’ Retirement System v. BBVA Securities, Inc., et al., wherein the claims arise out of securities offerings in which Lehman Brothers was the issuer and BSI, among others, was an underwriter. The plaintiff alleges that Lehman Brothers made material misstatements in the offering materials, and that the underwriter defendants failed to conduct appropriate due diligence to discover the alleged misstatements. The plaintiff seeks unspecified monetary relief. The District Court granted the underwriter defendants’ motion to dismiss and the plaintiff has appealed. On July 8, 2016, the appellate court affirmed the dismissal of the claims against the underwriter defendants and, on September 22, 2016, the plaintiff filed a petition for writ of certiorari with the United States Supreme Court which was subsequently granted. The Company believes there are substantial defenses to these claims and intends to defend them vigorously.

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

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

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

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

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

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

The Company owns all of the outstanding stock of BSI, a registered broker-dealer. Applicable law limits BSI from deriving more than 25 percent of its gross revenues from underwriting or dealing in bank-ineligible securities (“ineligible revenue”). Prior to the contribution of BSI to the Company in April 2013, BSI’s ineligible revenues in certain periods exceeded the 25 percent limit. The Company cooperated with the Federal Reserve Board as it considered potential enforcement action against BSI and the Company, including the imposition of civil money penalties or other actions. In December 2016, the FRB imposed a civil money penalty on BSI in the amount of $27 million. No other sanctions were imposed. The fine has been paid and the matter has been closed.

There are other litigation matters that arise in the normal course of business. The Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments. Where a loss is not probable or the amount of loss is not reasonably estimable, the Company does not accrue legal reserves. At December 31, 2016, the Company had accrued legal reserves in the amount of $3.8 million. Additionally, for those matters where a loss is both reasonably estimable and reasonably possible, the Company estimates losses that it could incur beyond the accrued legal reserves. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote if “the chance of the future event or events occurring is slight.” At December 31, 2016, there were no such matters where a loss was both reasonably estimable and reasonably possible beyond the accrued legal reserve.

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. Refer to Note 20, Income Taxes, for additional information on various tax audits.

(17) Regulatory Capital Requirements and Dividends from Subsidiaries

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s Consolidated Financial Statements. Under capital adequacy guidelines, the regulatory framework for prompt corrective action and the Gramm-Leach-Bliley Act, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of each entity's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are also subject to qualitative judgments by the regulators about capital components, risk weightings and other factors.

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At December 31, 2016, the Company and the Bank, remain above the applicable U.S. regulatory capital requirements. Under the U.S. Basel III capital rule, the current minimum required regulatory capital ratios under Transition Requirements to which the Company and the Bank were subject are as follows:

	2016 (1)		2015
CET1 Risk-Based Capital Ratio	5.125	%	4.500	%
Tier 1 Risk-Based Capital Ratio	6.625	%	6.000	%
Total Risk-Based Capital Ratio	8.625	%	8.000	%
Tier 1 Leverage Ratio	4.000	%	4.000	%

(1) At December 31, 2016, under transition requirements, the CET1, tier 1 and total capital minimum ratio requirements include a capital conservation buffer of 0.625%.

The following table presents the Transitional Basel III regulatory capital ratios at December 31, 2016 and 2015 for the Company and the Bank.

	Amount				Ratios
	2016		2015		2016		2015
	(Dollars in Thousands)
Risk-based capital
CET1:
BBVA Compass Bancshares, Inc.	$	7,669,118	$	7,363,961	11.49	%	10.70	%
Compass Bank	7,272,273		7,118,071		10.93	%	10.39	%
Tier 1:
BBVA Compass Bancshares, Inc.	7,907,518		7,631,561		11.85	%	11.08	%
Compass Bank	7,280,673		7,130,671		10.95	%	10.41	%
Total:
BBVA Compass Bancshares, Inc.	9,550,482		9,417,750		14.31	%	13.68	%
Compass Bank	9,020,099		9,002,015		13.56	%	13.14	%
Leverage:
BBVA Compass Bancshares, Inc.	7,907,518		7,631,561		9.46	%	8.95	%
Compass Bank	7,280,673		7,130,671		9.14	%	8.89	%

Dividends paid by the Bank are the primary source of funds available to the Parent for payment of dividends to its shareholder and other needs. Applicable federal and state statutes and regulations impose restrictions on the amount of dividends that may be declared by the Bank. In addition to the formal statutes and regulations, regulatory authorities also consider the adequacy of each bank’s total capital in relation to its assets, deposits and other such items. Capital adequacy considerations could further limit the availability of dividends from the Bank. The Bank could have paid additional dividends to the Parent in the amount of $1.9 billion while continuing to meet the capital requirements for “well-capitalized” banks at December 31, 2016; however, due to the net earnings restrictions on dividend distributions, the Bank did not have the ability to pay any dividends at December 31, 2016 without regulatory approval.

The Bank is required to maintain cash balances with the Federal Reserve. The average amount of these balances approximated $1.9 billion and $3.1 billion for the years ended December 31, 2016 and 2015, respectively.

(18)Stock Based Compensation

The Company awards restricted share units to certain of the Company’s employees payable in BBVA American Depository Shares. The vesting period for the restricted share units range from one to three years after the date of grant. Accordingly, the fair value of the restricted share units is expensed over the appropriate vesting period. Fair value represents the closing price of the BBVA American Depository Shares on the date of grant. The Company purchases

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shares from BBVA at fair value to fulfill its obligations with the employee upon vesting. The Company recognized compensation expense in connection with restricted share units awarded of $3.9 million, $4.1 million and $4.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016, 2015 and 2014, the Company had $303 thousand, $5.9 million and $7.5 million, respectively, of unrecognized compensation costs related to nonvested restricted share units granted and expected to vest.

The following summary sets forth the activity related to the restricted share units.

	Years Ended December 31,
	2016			2015			2014
	Restricted Share Units	Weighted Average Grant Price		Restricted Share Units	Weighted Average Grant Price		Restricted Share Units	Weighted Average Grant Price
Nonvested, January 1	1,120,925	$	9.73	1,439,957	$	10.23	1,549,111	$	10.53
Granted	37,921	7.58		380,231	7.88		677,373	10.06
Vested	(649,569)	9.20		(655,211)	9.80		(667,898)	10.35
Forfeited	(187,880)	10.50		(44,052)	9.10		(118,629)	9.60
Nonvested, December 31	321,397	$	10.10	1,120,925	$	9.73	1,439,957	$	10.23

(19)Benefit Plans

Defined Benefit Plan

The Company sponsors a defined benefit pension plan that is intended to qualify under the Internal Revenue Code. At the beginning of 2003, the pension plan was closed to new participants, with existing participants being offered the option to remain in the pension plan or move to an employer funded defined contribution plan. Benefits under the pension plan are based on years of service and the employee's highest consecutive five years of compensation during employment.

During 2014, the Company announced to all active participants the sunsetting of the pension plan on December 31, 2017. On this date, active participants will no longer be credited with future service but rather will be transitioned into the employer funded portion of the Company's defined contribution plan.

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The following tables summarize the Company’s defined benefit pension plan.

Obligations and Funded Status

	Years Ended December 31,
	2016			2015
	(In Thousands)
Change in benefit obligation:
Benefit obligation, January 1	$	329,736		$	370,572
Service cost	3,784			4,754
Interest cost	11,668			14,459
Actuarial (gain) loss	8,374			(28,846		)
Benefits paid	(13,371		)	(31,203		)
Benefit obligation, December 31	340,191			329,736
Change in plan assets:
Fair value of plan assets, January 1	338,266			373,062
Actual return on plan assets	11,732			(3,593		)
Benefits paid	(13,371		)	(31,203		)
Fair value of plan assets, December 31	336,627			338,266
Funded status	(3,565		)	8,530
Net actuarial loss	37,445			30,357
Net amount recognized	$	33,880		$	38,887

Amounts recognized on the Company’s Consolidated Balance Sheets consist of:

	December 31,
	2016			2015
	(In Thousands)
Prepaid benefit cost - other assets	$	—		$	8,530
Accrued expenses and other liabilities	(3,565		)	—
Deferred tax – other assets	13,907			11,235
Accumulated other comprehensive loss	23,538			19,122
Net amount recognized	$	33,880		$	38,887

The accumulated benefit obligation for the Company’s defined benefit pension plan was $338 million and $324 million at December 31, 2016 and 2015, respectively. The Company anticipates amortizing $267 thousand of the actuarial loss from accumulated other comprehensive income over the next twelve months.

The components of net periodic benefit cost recognized in the Company’s Consolidated Statements of Income are as follows.

	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
Service cost	$	3,784		$	4,754		$	5,227
Interest cost	11,668			14,459			14,941
Expected return on plan assets	(10,446		)	(10,537		)	(11,961		)
Recognized actuarial loss	—			563			1,802
Net periodic benefit cost	$	5,006		$	9,239		$	10,009

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The following table provides additional information related to the Company’s defined benefit pension plan.

	Years Ended December 31,
	2016			2015
	(Dollars in Thousands)
Change in defined benefit plan included in other comprehensive income	$	4,416		$	(9,706	)
Weighted average assumptions used to determine benefit obligation at December 31:
Discount rate	4.04		%	4.30		%
Rate of compensation increase	3.00		%	3.00		%
Weighted average assumptions used to determine net pension income for year ended December 31:
Discount rate - benefit obligations	4.29		%	3.97		%
Discount rate - service cost	4.52		%	3.97		%
Discount rate - interest cost	3.62		%	3.97		%
Expected return on plan assets	3.15		%	2.87		%
Rate of compensation increase	3.00		%	3.25		%

To establish the discount rate utilized, the Company performs an analysis of matching anticipated cash flows for the duration of the plan liabilities to third party forward discount curves. To develop the expected return on plan assets, the Company considers the current level of expected returns on risk free investments (primarily government bonds), the historical level of risk premium associated with other asset classes in which plan assets are invested, and the expectations for future returns of each asset class. The expected return for each asset class is then weighted based on the target asset allocation, and a range of expected return on plan assets is developed. Based on this information, the plan’s Retirement Committee sets the discount rate and expected rate of return assumption.

Future Benefit Payments

The following table summarizes the estimated benefits to be paid in the following periods.

	(In Thousands)
2017	$	13,888
2018	14,751
2019	15,349
2020	16,216
2021	17,026
2022-2026	96,227

The expected benefits above were estimated based on the same assumptions used to measure the Company’s benefit obligation at December 31, 2016 and include benefits attributable to estimated future employee service.

Plan Assets

The Company’s Retirement Committee sets the investment policy for the defined benefit pension plan and reviews investment performance and asset allocation on a quarterly basis. The current asset allocation for the plan is entirely allocated to fixed income securities, including U.S Treasury and other U.S. government securities, corporate debt securities and municipal debt securities, as well as cash and cash equivalent securities.

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The following table presents the fair value of the Company’s defined benefit pension plan assets.

			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
December 31, 2016
Assets:
Cash and cash equivalents	$	12,463	$	12,463	$	—	$	—
Fixed income securities:
U.S. Treasury and other U.S government agencies	221,242		200,391		20,851		—
States and political subdivisions	6,771		—		6,771		—
Corporate bonds	96,151		—		96,151		—
Total fixed income securities	324,164		200,391		123,773		—
Fair value of plan assets	$	336,627	$	212,854	$	123,773	$	—
December 31, 2015
Assets:
Cash and cash equivalents	$	5,167	$	5,167	$	—	$	—
Fixed income securities:
U.S. Treasury and other U.S. government agencies	223,197		203,050		20,147		—
States and political subdivisions	6,818		—		6,818		—
Corporate bonds	103,084		—		103,084		—
Total fixed income securities	333,099		203,050		130,049		—
Fair value of plan assets	$	338,266	$	208,217	$	130,049	$	—

In general, the fair value applied to the Company’s defined benefit pension plan assets is based upon quoted market prices or Level 1 measurements, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use observable market based parameters as inputs, or Level 2 measurements. Level 3 measurements include discounted cash flow analyses based on assumptions that are not readily observable in the market place, such as projections of future cash flows, loss assumptions and discount rates. See Note 21, Fair Value of Financial Instruments, for a further discussion of the fair value hierarchy.

Supplemental Retirement Plans

The Company maintains unfunded defined benefit plans for certain key executives that are intended to meet the requirements of Section 409A of the Internal Revenue Code and provide additional retirement benefits not otherwise provided through the Company’s basic retirement benefit plans. These plans had unfunded projected benefit obligations and net plan liabilities of $33 million and $34 million at December 31, 2016 and 2015, respectively, which are reflected on the Company’s Consolidated Balance Sheets as accrued expenses and other liabilities. Net periodic expenses of these plans were $2.0 million, $2.0 million and $1.9 million for each of the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016 and 2015, the Company had $9.0 million and $9.3 million, respectively, recognized in accumulated other comprehensive income, net of tax, related to these plans.

Defined Contribution Plan

The Company sponsors a defined contribution plan comprised of a traditional employee defined contribution component with matching employer contributions and an employer funded defined contribution component. Under the traditional employee portion of the defined contribution plan, employees may contribute up to 75% of their compensation on a pretax basis subject to statutory limits. The Company makes matching contributions equal to 100% of the first 3% of compensation deferred plus 50% of the next 2% of compensation deferred. The Company may also make voluntary non-matching contributions to the plan.

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Under the employer funded portion of the defined contribution plan, the Company makes contributions on behalf of certain employees based on pay and years of service. The Company's contributions range from 2% to 4% of the employee's base pay based on the employee's years of service. Participation in this portion of the defined contribution plan was limited to employees hired after January 1, 2002 and those participants in the defined benefit pension plan who, in 2002, chose to forgo future accumulation of benefit service.

In aggregate, the Company recognized $37.2 million, $34.8 million, and $32.8 million of expense recorded in salaries, benefits and commissions in the Company's Consolidated Statements of Income related to this defined contribution plan for the years ended December 31, 2016, 2015, and 2014, respectively.

(20) Income Taxes

Income tax expense consisted of the following:

	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
Current income tax expense:
Federal	$	154,572		$	275,135		$	155,182
State	13,322			12,409			9,449
Total	167,894			287,544			164,631
Deferred income tax benefit:
Federal	(19,973		)	(102,070		)	(8,834		)
State	(1,900		)	(8,972		)	(34		)
Total	(21,873		)	(111,042		)	(8,868		)
Total income tax expense	$	146,021		$	176,502		$	155,763

Income tax expense differed from the amount computed by applying the federal statutory income tax rate to pretax earnings for the following reasons:

	Years Ended December 31,
	2016					2015					2014
	Amount			Percent of Pretax Earnings		Amount			Percent of Pretax Earnings		Amount			Percent of Pretax Earnings
	(Dollars in Thousands)
Income tax expense at federal statutory rate	$	181,140		35.0	%	$	239,351		35.0	%	$	224,048		35.0	%
Increase (decrease) resulting from:
Goodwill impairment	20,965			4.0		5,950			0.9		4,375			0.7
Tax-exempt interest income	(51,246		)	(9.9	)	(49,170		)	(7.2	)	(47,794		)	(7.5	)
Change in valuation allowance	402			0.1		(2,029		)	(0.3	)	(19,118		)	(3.0	)
Bank owned life insurance	(6,035		)	(1.2	)	(6,082		)	(0.9	)	(6,515		)	(1.0	)
Income tax credits	(11,257		)	(2.2	)	(10,238		)	(1.5	)	(5,779		)	(0.9	)
State income tax, net of federal income taxes	7,106			1.4		4,154			0.6		6,740			1.1
Other	4,946			1.0		(5,434		)	(0.8	)	(194		)	(0.1	)
Income tax expense	$	146,021		28.2	%	$	176,502		25.8	%	$	155,763		24.3	%

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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below.

	December 31,
	2016			2015
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	309,655		$	279,774
Accrued expenses	121,459			123,780
Loan valuation	48,880			52,240
Net unrealized losses on investment securities available for sale, hedging instruments and defined benefit plan adjustment	98,916			57,517
Other real estate owned	567			1,009
Non accrual interest	22,707			14,194
Federal net operating loss carryforwards	15,041			18,570
Other	57,216			54,808
Gross deferred taxes	674,441			601,892
Valuation allowance	(14,639		)	(13,838		)
Total deferred tax assets	659,802			588,054
Deferred tax liabilities:
Premises and equipment	243,113			228,096
Core deposit and other acquired intangibles	13,117			17,146
Capitalized loan costs	47,527			45,179
Other	24,309			28,715
Total deferred tax liabilities	328,066			319,136
Net deferred tax asset	$	331,736		$	268,918

As of December 31, 2016 and 2015, the Company has approximately $24.1 million and $34.2 million of federal net operating loss carryforwards for future utilization, primarily attributable to Simple in 2016 and 2015. These losses begin to expire in 2034. The Company believes that it is more likely than not that the benefit from these deferred tax assets will be realized.

A real estate investment subsidiary of the Company has net operating loss carryforwards of approximately $18.8 million at both December 31, 2016 and 2015. These losses begin to expire in 2030.  The Company has determined that it is more likely than not the benefit from this deferred tax asset will not be realized in the carryforward period and has recorded a full valuation allowance of approximately $6.6 million against the asset at both December 31, 2016 and 2015.

Additionally, the Company has state net operating loss carryforwards of approximately $238.0 million and $213.0 million at December 31, 2016 and 2015, respectively.  These state net operating losses expire in years 2017 through 2034.  The Company believes it is more likely than not the benefit from certain state net operating loss carryforwards will not be realized, and, accordingly, has established a valuation allowance associated with these net operating loss carryforwards.  The Company had recorded a valuation allowance of approximately $8.0 million and $7.2 million at December 31, 2016 and 2015, respectively, related to these state net operating loss carryforwards.

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The following is a tabular reconciliation of the total amounts of the gross unrecognized tax benefits.

	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
Unrecognized income tax benefits, January 1	$	16,552		$	28,286		$	31,991
Increases for tax positions related to:
Prior years	—			58			1,182
Current year	1,933			1,537			1,189
Decreases for tax positions related to:
Prior years	(2,185		)	(85		)	(6,076		)
Current year	—			—			—
Settlement with taxing authorities	(1,174		)	(583		)	—
Expiration of applicable statutes of limitation	(1,511		)	(12,661		)	—
Unrecognized income tax benefits, December 31	$	13,615		$	16,552		$	28,286

During the years ended December 31, 2016, 2015 and 2014, the Company recognized $(1.8) million, $(3.2) million and $1.2 million of interest and penalties related to the unrecognized tax benefits noted above, respectively. At December 31, 2016 and 2015, the Company had approximately $5.1 million and $7.0 million, respectively, of accrued interest and penalties recognized related to unrecognized tax benefits within accrued expenses and other liabilities. Included in the balance of unrecognized tax benefits at December 31, 2016, 2015 and 2014 were $13.6 million, $16.6 million and $28.3 million, respectively, of tax benefits that, if recognized after the balance sheet date, would affect the effective tax rate.

The Company and its subsidiaries are routinely examined by various taxing authorities. The following table summarizes the tax years that are either currently under examination or remain open under the statute of limitations and subject to examination by the major tax jurisdictions in which the Company operates:

Jurisdictions	Open Tax Years
Federal	2012-2016
Various states (1)	2006-2016

(1)Major state tax jurisdictions include Alabama, California, Texas and New York.

The Company believes that it has adequately reserved on federal and state issues and any variance on final resolution, whether over or under the reserve amount, would be immaterial to the financial statements.

It is reasonably possible that the above unrecognized tax benefits could be reduced by approximately $9 million in 2017 due to statute expiration and audit settlement.

(21)Fair Value of Financial Instruments

The Company applies the fair value accounting guidance required under ASC Topic 820 which establishes a framework for measuring fair value. This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within this fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows.

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

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

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

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

Financial Instruments Measured at Fair Value on a Recurring Basis

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

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

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

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

• Collateralized mortgage obligations are valued using market-based pricing matrices that are based on observable inputs including reported trades, bids, offers, dealer quotes, U.S. Treasury yields, U.S. dollar swap yields, market convention prepayment speeds, tranche-specific characteristics, prepayment history, and collateral characteristics. Fair value measurements for collateralized mortgage obligations are classified as Level 2.

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

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

• Other derivative assets and liabilities consist primarily of interest rate and commodity contracts. The Company’s interest rate contracts are valued utilizing Level 2 observable inputs (yield curves and volatilities) to determine a

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

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

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

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

At both December 31, 2016 and 2015, 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 Consolidated Statements of Income. Net gains (losses) of $(658) thousand, $(4.2) million and $3.8 million resulting from changes in fair value of these loans were recorded in noninterest income during the years ended December 31, 2016, 2015, and 2014, respectively.

The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately $857 thousand, $3.8 million and $(3.2) million for the years ended December 31, 2016, 2015, and 2014, respectively. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

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

	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference
	(In Thousands)
December 31, 2016
Residential mortgage loans held for sale	$	105,257	$	103,886	$	1,371
December 31, 2015
Residential mortgage loans held for sale	$	70,582	$	68,553	$	2,029

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

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

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

			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
Recurring fair value measurements
Assets:
Trading account assets:
U.S. Treasury and other U.S. government agencies	$	2,820,797	$	2,820,797	$	—	$	—
State and political subdivisions	219		—		219		—
Other debt securities	4,120		—		4,120		—
Interest rate contracts	290,238		—		290,238		—
Foreign exchange contracts	28,367		—		28,367		—
Other trading assets	859		—		—		859
Total trading account assets	3,144,600		2,820,797		322,944		859
Investment securities available for sale:
U.S. Treasury and other U.S. government agencies	2,374,331		1,266,564		1,107,767		—
Mortgage-backed securities	3,763,338		—		3,763,338		—
Collateralized mortgage obligations	5,098,928		—		5,098,928		—
States and political subdivisions	8,641		—		8,641		—
Other debt securities	16,185		16,185		—		—
Equity securities (1)	380		87		—		293
Total investment securities available for sale	11,261,803		1,282,836		9,978,674		293
Loans held for sale	105,257		—		105,257		—
Derivative assets:
Interest rate contracts	46,133		—		43,709		2,424
Equity contracts	57,198		—		57,198		—
Foreign exchange contracts	3,875		—		3,875		—
Total derivative assets	107,206		—		104,782		2,424
Other assets	67,067		—		—		67,067
Liabilities:
Trading account liabilities:
U.S. Treasury and other U.S. government agencies	$	2,750,085	$	2,750,085	$	—	$	—
Other debt securities	2,892		—		2,892		—
Interest rate contracts	228,748		—		228,748		—
Foreign exchange contracts	26,317		—		26,317		—
Total trading account liabilities	3,008,042		2,750,085		257,957		—
Derivative liabilities:
Interest rate contracts	33,414		—		33,382		32
Equity contracts	53,044		—		53,044		—
Foreign exchange contracts	2,103		—		2,103		—
Total derivative liabilities	88,561		—		88,529		32

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

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			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2015		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
Recurring fair value measurements
Assets:
Trading account assets:
U.S. Treasury and other U.S. government agencies	$	3,805,269	$	3,805,269	$	—	$	—
State and political subdivisions	1,275		—		1,275		—
Other debt securities	2,501		—		2,501		—
Interest rate contracts	303,944		—		303,944		—
Commodity contracts	14,127		—		14,127		—
Foreign exchange contracts	9,899		—		9,899		—
Other trading assets	1,117		—		—		1,117
Total trading account assets	4,138,132		3,805,269		331,746		1,117
Investment securities available for sale:
U.S. Treasury and other U.S. government agencies	3,211,492		1,982,408		1,229,084		—
Mortgage-backed securities	4,590,262		—		4,590,262		—
Collateralized mortgage obligations	2,705,256		—		2,705,256		—
States and political subdivisions	15,887		—		15,887		—
Other debt securities	24,045		24,045		—		—
Equity securities (1)	294		41		—		253
Total investment securities available for sale	10,547,236		2,006,494		8,540,489		253
Loans held for sale	70,582		—		70,582		—
Derivative assets:
Interest rate contracts	64,931		—		62,051		2,880
Equity contracts	59,375		—		59,375		—
Foreign exchange contracts	3,827		—		3,827		—
Total derivative assets	128,133		—		125,253		2,880
Other assets	44,541		—		—		44,541
Liabilities:
Trading account liabilities:
U.S. Treasury and other U.S. government agencies	$	3,881,925	$	3,881,925	$	—	$	—
Other debt securities	719		—		719		—
Interest rate contracts	238,611		—		238,611		—
Commodity contracts	14,110		—		14,110		—
Foreign exchange contracts	8,578		—		8,578		—
Total trading account liabilities	4,143,943		3,881,925		262,018		—
Derivative liabilities:
Interest rate contracts	21,268		—		21,262		6
Equity contracts	56,559		—		56,559		—
Foreign exchange contracts	1,164		—		1,164		—
Total derivative liabilities	78,991		—		78,985		6

(1) Excludes $503 million of FHLB and Federal Reserve stock required to be owned by the Company at December 31, 2015. These securities are carried at par.

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There were no transfers between Levels 1 or 2 of the fair value hierarchy for the years ended December 31, 2016 and 2015. It is the Company’s policy to value any transfers between levels of the fair value hierarchy based on end of period fair values.

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

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Other Trading Assets			Equity Securities			Interest Rate Contracts, net			Other Assets
	(In Thousands)
Balance, January 1, 2015	$	1,590		$	4		$	2,318		$	35,488
Transfers into Level 3	—			—			—			—
Transfers out of Level 3	—			—			—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(473		)	—			556			(6,869		)
Included in other comprehensive income	—			—			—			—
Purchases, issuances, sales and settlements:
Purchases	—			250			—			—
Issuances	—			—			—			15,922
Sales	—			—			—			—
Settlements	—			(1		)	—			—
Balance, December 31, 2015	$	1,117		$	253		$	2,874		$	44,541
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at December 31, 2015	$	(473	)	$	—		$	556		$	(6,869	)
Balance, January 1, 2016	$	1,117		$	253		$	2,874		$	44,541
Transfers into Level 3	—			—			—			—
Transfers out of Level 3	—			—			—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(258		)	—			(482		)	(3,231		)
Included in other comprehensive income	—			—			—			—
Purchases, issuances, sales and settlements:
Purchases	—			41			—			15,639
Issuances	—			—			—			10,118
Sales	—			(1		)	—			—
Settlements	—			—			—			—
Balance, December 31, 2016	$	859		$	293		$	2,392		$	67,067
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at December 31, 2016	$	(258	)	$	—		$	(482	)	$	(3,231	)

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

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Assets Measured at Fair Value on a Nonrecurring Basis

Periodically, certain assets may be recorded at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets due to impairment. The following table represents those assets that were subject to fair value adjustments during the years ended December 31, 2016 and 2015 and still held as of the end of the year, and the related losses from fair value adjustments on assets sold during the year as well as assets still held as of the end of the year.

			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)
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)		December 31, 2016
	(In Thousands)
Nonrecurring fair value measurements
Assets:
Investment securities held to maturity	$	2,550	$	—	$	—	$	2,550	$	(130	)
Loans held for sale	56,592		—		56,592		—		(8,295		)
Impaired loans (1)	59,807		—		—		59,807		(69,051		)
OREO	21,112		—		—		21,112		(3,438		)
			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)
	December 31, 2015		(Level 1)		(Level 2)		(Level 3)		December 31, 2015
	(In Thousands)
Nonrecurring fair value measurements
Assets:
Investment securities held to maturity	$	26,386	$	—	$	—	$	26,386	$	(1,660	)
Impaired loans (1)	193,954		—		—		193,954		(14,084		)
OREO	20,862		—		—		20,862		(4,205		)

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

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

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

Loans held for sale – Loans held for sale for which the fair value option has not been elected are carried at the lower of cost or fair value and are evaluated on an individual basis. The fair value of loans held for sale is based on the value included

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in the sales contract. Therefore, loans held for sale subjected to nonrecurring fair value adjustments are classified as Level 2.

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

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

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

			Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at				Range of Unobservable Inputs
	December 31, 2016		Valuation Technique	Unobservable Input(s)	(Weighted Average)
	(In Thousands)
Recurring fair value measurements:
Other trading assets	$	859	Discounted cash flow	Default rate	10.1%
				Prepayment rate	6.2% - 11.1% (8.2%)
Interest rate contracts	2,392		Discounted cash flow	Closing ratios (pull-through)	18.6% - 99.1% (68.5%)
				Cap grids	0.1% - 2.3% (1.1%)
Other assets - MSRs	51,428		Discounted cash flow	Option adjusted spread	6.1% - 18.6% (8.1%)
				Constant prepayment rate or life speed	1.3% - 62.0% (15.7%)
				Cost to service	$65 - $4,000 ($79)
Other assets - SBIC investments	15,639		Transaction price	Transaction price	N/A
Nonrecurring fair value measurements:
Investment securities held to maturity	$	2,550	Discounted cash flow	Prepayment rate	10.9%
				Default rate	9.2%
				Loss severity	63.7%
Impaired loans	59,807		Appraised value	Appraised value	0.0% - 80.0% (31.9%)
OREO	21,112		Appraised value	Appraised value	8.0% (1)

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

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

Recurring Fair Value Measurements Using Significant Unobservable Inputs

Trading Account Assets – Interest-Only Strips

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

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Interest Rate Contracts - Interest Rate Lock Commitments

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

Other Assets - MSRs

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

Other Assets - SBIC Investments

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

Fair Value of Financial Instruments

The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company’s financial instruments are as follows:

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

	December 31, 2015
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In Thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	4,496,828	$	4,496,828	$	4,496,828	$	—	$	—
Investment securities held to maturity	1,322,676		1,244,121		—		—		1,244,121
Loans, net	60,561,411		57,916,215		—		—		57,916,215
Liabilities:
Deposits	$	65,981,766	$	66,090,901	$	—	$	66,090,901	$	—
FHLB and other borrowings	5,438,620		5,405,386		—		5,405,386		—
Federal funds purchased and securities sold under agreements to repurchase	750,154		750,154		—		750,154		—
Other short-term borrowings	150,000		150,000		—		150,000		—

159

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

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

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

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

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

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

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

(22)Supplemental Disclosure for Statement of Cash Flows

The following table presents the Company’s noncash investing and financing activities.

	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
Supplemental disclosures of cash flow information:
Interest paid	$	460,766		$	405,548		$	277,698
Net income taxes paid	163,917			273,578			155,368
Supplemental schedule of noncash investing and financing activities:
Transfer of loans and loans held for sale to OREO	$	26,235		$	20,781		$	22,176
Transfer of loans to loans held for sale	828,910			906,857			21,135
Transfer of loans held for sale to loans	—			511,400			—
Change in unrealized gain (loss) on available for sale securities	(106,743		)	(107,746		)	41,585
Issuance of restricted stock, net of cancellations	(1,686		)	2,595			5,682
Business combinations:
Assets acquired	$	—		$	14,327		$	117,068
Liabilities assumed	—			977			18,329

(23) Segment Information

The Company's operating segments are based on the Company's lines of business. Each line of business is a strategic unit that serves a particular group of customers with certain common characteristics by offering various products and services. The 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

160

United States, and, accordingly, the geographic distribution of revenue and assets is not significant. There are no individual customers whose revenues exceeded 10% of consolidated revenue.

At December 31, 2016, the Company’s operating segments consist of Consumer and Commercial Banking, Corporate and Investment Banking, and Treasury. During the fourth quarter of 2016, the Company transferred certain customer relationships within its large middle market customer group from the Consumer and Commercial Bank segment to the Corporate and Investment Bank segment.

The Consumer and Commercial Banking segment serves the Company's consumer customers through its full-service banking centers, private client offices, and delivery channels such as internet, mobile, and telephone banking. It provides a full array of banking and investment services to both consumer and commercial customers in the Company's markets. In addition to traditional credit and deposit products, the Consumer and Commercial Banking segment also supports its customers with capabilities in treasury management, leasing, accounts receivable purchasing, asset-based lending, international services, and insurance and investment products. The segment also provides private banking services to high net worth individuals and wealth management services, including specialized investment portfolio management, traditional trust and estate services, investment advisory services, financial counseling. In addition the segment services the Company's small business customers and is responsible for the Company's indirect automobile portfolio.

The Corporate and Investment Banking segment is responsible for providing a full array of banking and investment services to corporate and institutional clients. In addition to traditional credit and deposit products, the Corporate and Investment Banking segment also supports its customers with capabilities in treasury management, leasing, accounts receivable purchasing, asset-based lending, international services, and interest rate protection and investment products. In addition the segment services the Company's oil and gas customers.

The Treasury segment's primary function is to manage the liquidity and funding positions of the Company, the interest rate sensitivity of the Company's balance sheet and the investment securities portfolio.

Corporate Support and Other includes activities that are not directly attributable to the operating segments, such as, the activities of the Parent and corporate support functions that are not directly attributable to a strategic business segment, as well as the elimination of intercompany transactions. Corporate Support and Other also includes activities associated with assets and liabilities of Guaranty Bank acquired by the Company in 2009 and the related FDIC indemnification asset as well as the activities associated with Simple acquired by the Company in 2014.

The following table presents the segment information for the Company’s segments.

	December 31, 2016
	Consumer and Commercial Banking		Corporate and Investment Banking		Treasury			Corporate Support and Other			Consolidated
	(In Thousands)
Net interest income (expense)	$	2,219,343	$	128,552	$	(3,408	)	$	(276,806	)	$	2,067,681
Allocated provision for loan losses	240,355		56,313		—			5,921			302,589
Noninterest income	825,881		177,211		54,228			(1,346		)	1,055,974
Noninterest expense	1,891,396		180,642		21,096			210,388			2,303,522
Net income (loss) before income tax expense (benefit)	913,473		68,808		29,724			(494,461		)	517,544
Income tax expense (benefit)	319,716		24,083		10,404			(208,182		)	146,021
Net income (loss)	593,757		44,725		19,320			(286,279		)	371,523
Less: net income attributable to noncontrolling interests	310		—		1,713			(13		)	2,010
Net income (loss) attributable to BBVA Compass Bancshares, Inc.	$	593,447	$	44,725	$	17,607		$	(286,266	)	$	369,513
Average total assets	$	56,455,650	$	11,359,837	$	16,220,449		$	7,028,424		$	91,064,360

161

	December 31, 2015
	Consumer and Commercial Banking		Corporate and Investment Banking		Treasury		Corporate Support and Other			Consolidated
	(In Thousands)
Net interest income (expense)	$	2,001,780	$	153,322	$	32,013	$	(174,138	)	$	2,012,977
Allocated provision for loan losses	138,592		58,337		—		(3,291		)	193,638
Noninterest income	825,417		156,679		91,439		5,839			1,079,374
Noninterest expense	1,829,591		158,300		20,119		206,843			2,214,853
Net income (loss) before income tax expense (benefit)	859,014		93,364		103,333		(371,851		)	683,860
Income tax expense (benefit)	300,655		32,677		36,167		(192,997		)	176,502
Net income (loss)	558,359		60,687		67,166		(178,854		)	507,358
Less: net income attributable to noncontrolling interests	488		—		1,740		—			2,228
Net income (loss) attributable to BBVA Compass Bancshares, Inc.	$	557,871	$	60,687	$	65,426	$	(178,854	)	$	505,130
Average total assets	$	54,548,166	$	12,418,698	$	14,520,289	$	6,902,026		$	88,389,179

	December 31, 2014
	Consumer and Commercial Banking		Corporate and Investment Banking		Treasury		Corporate Support and Other			Consolidated
	(In Thousands)
Net interest income (expense)	$	1,868,809	$	130,280	$	13,644	$	(27,228	)	$	1,985,505
Allocated provision for loan losses	114,850		11,962		—		(20,511		)	106,301
Noninterest income	776,451		197,585		76,699		(42,923		)	1,007,812
Noninterest expense	1,806,060		143,924		17,597		279,296			2,246,877
Net income (loss) before income tax expense (benefit)	724,350		171,979		72,746		(328,936		)	640,139
Income tax expense (benefit)	269,821		64,062		27,098		(205,218		)	155,763
Net income (loss)	454,529		107,917		45,648		(123,718		)	484,376
Less: net income attributable to noncontrolling interests	212		—		1,764		—			1,976
Net income (loss) attributable to BBVA Compass Bancshares, Inc.	$	454,317	$	107,917	$	43,884	$	(123,718	)	$	482,400
Average total assets	$	49,871,303	$	7,712,297	$	13,232,917	$	6,793,903		$	77,610,420

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. Costs for centrally managed operations are generally allocated to the lines of business based on the utilization of services provided or other appropriate indicators. 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

162

structure. The 2015 and 2014 segment information has been revised to conform to the 2016 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.

(24)Parent Company Financial Statements

The condensed financial information for BBVA Compass Bancshares, Inc. (Parent company only) is presented as follows:

Parent Company Balance Sheets
	December 31,
	2016		2015
	(In Thousands)
Assets:
Cash and cash equivalents	$	222,314	$	264,708
Investment securities available for sale	200,045		100,006
Investments in subsidiaries:
Banks	12,096,195		12,072,904
Non-banks	288,900		249,787
Other assets	48,900		37,119
Total assets	$	12,856,354	$	12,724,524
Liabilities and Shareholder’s Equity:
Accrued expenses and other liabilities	$	134,668	$	128,841
Shareholder’s equity	12,721,686		12,595,683
Total liabilities and shareholder’s equity	$	12,856,354	$	12,724,524

Parent Company Statements of Income
	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
Income:
Dividends from banking subsidiaries	$	270,000		$	101,000		$	102,000
Dividends from non-bank subsidiaries	110			20,098			22,096
Other	2,743			318			1,359
Total income	272,853			121,416			125,455
Expense:
Salaries and employee benefits	1,877			—			1,131
Other	12,521			8,927			9,591
Total expense	14,398			8,927			10,722
Income before income tax benefit and equity in undistributed earnings of subsidiaries	258,455			112,489			114,733
Income tax benefit	(5,028		)	(3,866		)	(301		)
Income before equity in undistributed earnings of subsidiaries	263,483			116,355			115,034
Equity in undistributed earnings of subsidiaries	106,030			388,775			367,366
Net income	$	369,513		$	505,130		$	482,400
Other comprehensive income (loss) (1)	(68,916		)	(47,474		)	36,074
Comprehensive income	$	300,597		$	457,656		$	518,474

(1) See Consolidated Statement of Comprehensive Income detail.

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Parent Company Statements of Cash Flows
	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
Operating Activities:
Net income	$	369,513		$	505,130		$	482,400
Adjustments to reconcile net income to cash provided by operations:
Amortization of stock based compensation	3,947			4,128			4,470
Depreciation	68			54			49
Equity in undistributed earnings of subsidiaries	(106,030		)	(388,775		)	(367,366		)
(Increase) decrease in other assets	(2,723		)	(2,832		)	407
Increase in accrued expenses and other liabilities	5,823			3,202			4,111
Net cash provided by operating activities	270,598			120,907			124,071
Investing Activities:
Purchases of investment securities available for sale	(311,441		)	(100,024		)	—
Sales and maturities of investment securities available for sale	210,000			—			—
Purchase of premises and equipment	(8,732		)	(182		)	(24		)
Contributions to subsidiaries	(24,746		)	—			(116,323		)
Net cash used in investing activities	(134,919		)	(100,206		)	(116,347		)
Financing Activities:
Vesting of restricted stock	(1,744		)	(3,603		)	(4,702		)
Restricted stock grants retained to cover taxes	(630		)	(3,016		)	(2,507		)
Issuance of preferred stock	—			229,475			—
Issuance of common stock	—			—			117,000
Dividends paid	(175,699		)	(115,000		)	(124,000		)
Net cash (used in) provided by financing activities	(178,073		)	107,856			(14,209		)
Net (decrease) increase in cash and cash equivalents	(42,394		)	128,557			(6,485		)
Cash and cash equivalents at beginning of the year	264,708			136,151			142,636
Cash and cash equivalents at end of the year	$	222,314		$	264,708		$	136,151

(25)Related Party Transactions

The Company enters into various contracts with BBVA that affect the Company’s business and operations. The following discloses the significant transactions between the Company and BBVA during 2016, 2015 and 2014.

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

Derivatives

The Company has entered into various derivative contracts as noted below with BBVA as the upstream counterparty. The total notional amount of outstanding derivative contracts between the Company and BBVA are $5.2 billion and $5.3 billion as of December 31, 2016 and December 31, 2015, respectively. The net fair value of outstanding derivative contracts between the Company and BBVA are detailed below.

164

	December 31,
	2016			2015
	(In Thousands)
Derivative contracts:
Fair value hedges	$	(14,225	)	$	(9,405	)
Cash flow hedges	(380		)	(40		)
Free-standing derivative instruments not designated as hedging instruments	(14,326		)	(20,082		)

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 agreements to resell and securities sold under agreements to repurchase where BBVA is the counterparty.

	December 31,
	2016		2015
	(In Thousands)
Securities purchased under agreements to resell	$	8,330	$	26,404
Securities sold under agreements to repurchase	23,397		74,049

Borrowings

BSI, a wholly owned subsidiary of the Company, has a $420 million revolving note and cash subordination agreement with BBVA that was executed on March 16, 2012 with a maturity date of March 16, 2018. BSI also has a $150 million line of credit with BBVA that was initiated on August 1, 2014. At December 31, 2016 there was $50 million outstanding on the line of credit agreement and no amount outstanding under the revolving note and cash subordination agreement. At December 31, 2015 there was $150 million outstanding on the line of credit agreement and no amount outstanding under the revolving note and cash subordination agreement. Interest expense related to these agreements was $3.1 million, $2.3 million, and $138 thousand for the years ended December 31, 2016, 2015 and 2014, respectively, and are included in interest on other short term borrowings within the Company's 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 $27.2 million, $21.7 million, and $13.2 million for the years ended December 31, 2016, 2015 and 2014, respectively, and is recorded as a component of noninterest income within the Company's Consolidated Statements of Income. Expenses associated with these agreements were $23.7 million, $25.4 million and $26.8 million for the years ended December 31, 2016, 2015 and 2014, respectively, and are recorded as a component of noninterest expense within the Company's 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 December 31, 2016 and 2015, the carrying amount of the Series A Preferred Stock was approximately $229 million. During the year ended December 31, 2016, the Company paid $13.7 million of preferred stock dividends to BBVA.

Loan Sales to Related Parties

During the year ended December 31, 2016, the Company sold approximately $444 million of commercial loans to BBVA and recognized a gain on sale of $1.5 million that was recorded as a component of other noninterest income within the Company's Consolidated Statements of Income.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

Item 9A.Controls and Procedures

Disclosure Controls and Procedures.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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 Annual Report on Form 10-K, 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.

Management’s Annual Report on Internal Control Over Financial Reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f).

The Company’s internal control over financial reporting is a process affected by those charged with governance, management, and other personnel designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of inherent limitations in any internal control, no matter how well designed, misstatements due to error or fraud may occur and not be detected, including the possibility of the circumvention or overriding of controls. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on that assessment, management concluded that, as of December 31, 2016, the Company’s internal control over financial reporting is effective based on the criteria established in Internal Control - Integrated Framework (2013).

This Annual Report on Form 10-K does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report on internal control over financial reporting was not subject to attestation pursuant to the rules of Securities and Exchange Commission because the Company is a non-accelerated filer.

Changes In Internal Control Over Financial Reporting.

There have been no changes in the Company’s internal controls 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.

166

Item 9B.    Other Information

Not Applicable.

167

Part III

Item 10. Directors, Executive Officers and Corporate Governance

Information for this item is not required as the Company is filing this Annual Report on Form 10-K with a reduced disclosure format. See "Explanatory Note."

Item 11. Executive Compensation

Information for this item is not required as the Company is filing this Annual Report on Form 10-K with a reduced disclosure format. See "Explanatory Note."

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information for this item is not required as the Company is filing this Annual Report on Form 10-K with a reduced disclosure format. See "Explanatory Note."

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information for this item is not required as the Company is filing this Annual Report on Form 10-K with a reduced disclosure format. See "Explanatory Note."

Item 14. Principal Accounting Fees and Services

For the years ended December 31, 2016 and 2015, professional services were performed by Deloitte & Touche LLP. The following table sets forth the aggregate fees paid to Deloitte & Touche LLP by the Company.

	Years Ended December 31,
	2016		2015
Audit fees (1)	$	4,814,664	$	4,783,379
Audit related fees (2)	244,289		181,255
Tax fees (3)	55,851		166,740
All other fees	—		—
Total fees	$	5,114,804	$	5,131,374

(1) Audit fees are fees for professional services rendered for audits of the Company's financial statements, SEC regulatory filings, employee benefit plan audits, and services that are normally provided by Deloitte & Touche LLP in connection with statutory and regulatory filings or engagements.

(2) Audit related fees generally include fees associated with reports pursuant to service organization examinations, compliance related to servicing of assets, and other compliance reports.

(3) Tax fees include fees associated with tax compliance services, tax advice and tax planning.

168

Pre-approval of Services by the Independent Registered Public Accounting Firm

Under the terms of its charter, the Audit and Compliance Committee of the Board of Directors (the “Audit Committee”) must approve all audit services and permitted non-audit services to be provided by the independent registered public accounting firm for the Company, either before the firm is engaged to render such services or pursuant to pre-approval policies and procedures established by the Audit Committee, subject to a de minimis exception for non-audit services that are approved by the Audit Committee prior to the completion of the audit and otherwise in accordance with the terms of applicable SEC rules. The de minimis exception waives the pre-approval requirements for non-audit services provided that such services: (1) do not aggregate to more than five percent of total revenues paid by the Corporation to its independent registered public accountant in the fiscal year when services are provided, (2) were not recognized as non-audit services at the time of the engagement, and (3) are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit by the Audit Committee or one or more designated representatives. Between meetings of the Audit Committee, the authority to pre-approve such services is delegated to the Chairperson of the Audit Committee. The Audit Committee may also delegate to one or more of its members the authority to grant pre-approvals of such services. The decisions of the Chairperson or any designee to pre-approve any audit or permitted non-audit service must be presented to the Audit Committee at its next scheduled meeting. In 2016, all of the non-audit services provided by the Company’s independent registered public accounting firm were approved by the Audit Committee.

169

Part IV

Item 15. Exhibits, Financial Statement Schedules

(1) Financial Statements

See Item 8.

(2) Financial Statement Schedules

None

(3) Exhibits

See the Exhibit Index below.

Exhibit Number	Description of Documents
2.1	Purchase and Assumption Agreement Whole Bank All Deposits among the Federal Deposit Insurance Corporation, Receiver of Guaranty Bank, Austin, Texas, the Federal Deposit Insurance Corporation and Compass Bank, dated as of August 21, 2009 (incorporated by reference to Exhibit 2.1 of the Company’s Registration Statement on Form 10 filed with the Commission on November 22, 2013, File No. 0-55106).
3.1	Restated Certificate of Formation of BBVA Compass Bancshares, Inc., (incorporated herein by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed with the Commission on April 13, 2015 File No. 0-55106 and as amended by the Certificate of Preferences and Rights of the Floating Non-Cumulative Perpetual Preferred Stock, Series A incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on December 3, 2015, File No. 0-55106).
3.2	Bylaws of BBVA Compass Bancshares, Inc. (incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement on Form 10 filed with the Commission on November 22, 2013, File No. 0-55106).
16.1	Letter of Deloitte & Touche dated October 31, 2016 (Incorporated by reference to Exhibit 16.1 of the Company's Current Report on Form 8-K filed with the Commission on October 31, 2016, 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.

Item 16. 10-K Summary.

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: March 1, 2017	BBVA Compass Bancshares, Inc.
	By:	/s/ Kirk P. Pressley
		Name:	Kirk P. Pressley
		Title:	Senior Executive Vice President, Chief Financial Officer and Duly Authorized Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Onur Genç	Director, President and Chief Executive Officer (principal executive officer)	March 1, 2017
Onur Genç
/s/ Kirk P. Pressley	Senior Executive Vice President and Chief Financial Officer (principal financial officer)	March 1, 2017
Kirk P. Pressley
/s/ Jonathan W. Pennington	Executive Vice President and Controller (principal accounting officer)	March 1, 2017
Jonathan W. Pennington
/s/ Manuel Sánchez Rodriguez	Director, Chairman of the Board of Directors	March 1, 2017
Manuel Sánchez Rodriguez
/s/ William C. Helms	Director, Vice Chairman of the Board of Directors	March 1, 2017
William C. Helms
/s/ Eduardo Aguirre, Jr.	Director	March 1, 2017
Eduardo Aguirre, Jr.
/s/ Shelaghmichael C. Brown	Director	March 1, 2017
Shelaghmichael C. Brown

171

/s/ Fernando Gutiérrez Junquera	Director	March 1, 2017
Fernando Gutiérrez Junquera
/s/ Charles E. McMahen	Director	March 1, 2017
Charles E. McMahen
/s/ Jorge Sáenz-Azcúnaga	Director	March 1, 2017
Jorge Sáenz-Azcúnaga
/s/ J. Terry Strange	Director	March 1, 2017
J. Terry Strange
/s/ Guillermo F. Treviño	Director	March 1, 2017
Guillermo F. Treviño
/s/ Lee Quincy Vardaman	Director	March 1, 2017
Lee Quincy Vardaman
/s/ Mario Max Yzaguirre	Director	March 1, 2017
Mario Max Yzaguirre

172