Fair Value Measurements

See Note 20, Fair Value Measurements, in the Notes to the December 31, 2017, Consolidated Financial Statements for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis.

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



			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	March 31, 2018		(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	$	91,770	$	91,770	$	—	$	—
State and political subdivisions	561		—		561		—
Other debt securities	115		—		115		—
Interest rate contracts	110,694		—		110,694		—
Foreign exchange contracts	13,325		—		13,325		—
Total trading account assets	216,465		91,770		124,695		—
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	4,794,332		3,906,091		888,241		—
Mortgage-backed securities	2,621,878		—		2,621,878		—
Collateralized mortgage obligations	4,016,289		—		4,016,289		—
States and political subdivisions	1,653		—		1,653		—
Total debt securities available for sale	11,434,152		3,906,091		7,528,061		—
Loans held for sale	76,401		—		76,401		—
Derivative assets:
Interest rate contracts	18,142		—		15,533		2,609
Equity contracts	34,248		—		34,248		—
Foreign exchange contracts	2,360		—		2,360		—
Total derivative assets	54,750		—		52,141		2,609
Other assets:
Equity securities	18,610		18,610		—		—
MSR	53,025		—		—		53,025
SBIC	47,987		—		—		47,987
Liabilities:
Trading account liabilities:
U.S. Treasury and other U.S. government agencies	$	29,999	$	29,999	$	—	$	—
Interest rate contracts	163,060		—		163,060		—
Foreign exchange contracts	11,639		—		11,639		—
Total trading account liabilities	204,698		29,999		174,699		—
Derivative liabilities:
Interest rate contracts	41,885		—		41,884		1
Equity contracts	30,435		—		30,435		—
Foreign exchange contracts	789		—		789		—
Total derivative liabilities	73,109		—		73,108		1



			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, 2017		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
Recurring fair value measurements
Assets:
Trading account assets:
U.S. Treasury and other U.S. government agencies	$	74,195	$	74,195	$	—	$	—
State and political subdivisions	557		—		557		—
Other debt securities	79		—		79		—
Interest rate contracts	133,516		—		133,516		—
Foreign exchange contracts	12,149		—		12,149		—
Total trading account assets	220,496		74,195		146,301		—
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	4,204,438		3,248,898		955,540		—
Mortgage-backed securities	2,812,800		—		2,812,800		—
Collateralized mortgage obligations	5,200,011		—		5,200,011		—
States and political subdivisions	2,383		—		2,383		—
Total debt securities available for sale	12,219,632		3,248,898		8,970,734		—
Loans held for sale	67,110		—		67,110		—
Derivative assets:
Interest rate contracts	22,263		38		19,809		2,416
Equity contracts	39,791		—		39,791		—
Foreign exchange contracts	375		—		375		—
Total derivative assets	62,429		38		59,975		2,416
Other assets:
Equity securities	13,577		13,577		—		—
MSR	49,597		—		—		49,597
SBIC	45,042		—		—		45,042
Liabilities:
Trading account liabilities:
U.S. Treasury and other U.S. government agencies	$	17,996	$	17,996	$	—	$	—
Interest rate contracts	134,073		—		134,073		—
Foreign exchange contracts	10,524		—		10,524		—
Total trading account liabilities	162,593		17,996		144,597		—
Derivative liabilities:
Interest rate contracts	21,387		—		21,387		—
Equity contracts	35,562		—		35,562		—
Foreign exchange contracts	3,890		—		3,890		—
Total derivative liabilities	60,839		—		60,839		—

There were no transfers between Levels 1 or 2 of the fair value hierarchy for the three months ended March 31, 2018 and 2017. It is the Company’s policy to value any transfers between levels of the fair value hierarchy based on end of period fair values.

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



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three Months Ended March 31,	Other Trading Assets			Interest Rate Contracts, net		Other Assets - MSR			Other Assets - SBIC
	(In Thousands)
Balance, December 31, 2016	$	859		$	2,392	$	51,428		$	15,639
Transfers into Level 3	—			—		—			—
Transfers out of Level 3	—			—		—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	(40		)	785		(2,670		)	550
Included in other comprehensive income	—			—		—			—
Purchases, issuances, sales and settlements:
Purchases	—			—		—			6,364
Issuances	—			—		2,018			—
Sales	—			—		—			—
Settlements	—			—		—			—
Balance, March 31, 2017	$	819		$	3,177	$	50,776		$	22,553
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at March 31, 2017	$	(40	)	$	785	$	(2,670	)	$	550

Balance, December 31, 2017	$	—		$	2,416	$	49,597		$	45,042
Transfers into Level 3	—			—		—			—
Transfers out of Level 3	—			—		—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	—			192		1,885			—
Included in other comprehensive income	—			—		—			—
Purchases, issuances, sales and settlements:
Purchases	—			—		—			2,945
Issuances	—			—		1,543			—
Sales	—			—		—			—
Settlements	—			—		—			—
Balance, March 31, 2018	$	—		$	2,608	$	53,025		$	47,987
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at March 31, 2018	$	—		$	192	$	1,885		$	—


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

Assets Measured at Fair Value on a Nonrecurring Basis

Periodically, certain assets may be recorded at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets due to impairment. The following tables represent those assets that were subject to fair value adjustments during the three months ended March 31, 2018 and 2017, and still held as of the end of the period, and the related gains and losses from fair value adjustments on assets sold during the period as well as assets still held as of the end of the period.



			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Gains (Losses)
	March 31, 2018		(Level 1)		(Level 2)		(Level 3)		Three Months Ended March 31, 2018
	(In Thousands)
Nonrecurring fair value measurements
Assets:
Debt securities held to maturity	$	2,260	$	—	$	—	$	2,260	$	(309	)
Impaired loans (1)	7,251		—		—		7,251		(4,559		)
OREO	16,147		—		—		16,147		(527		)

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


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

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

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

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

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

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



			Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at				Range of Unobservable Inputs
	March 31, 2018		Valuation Technique	Unobservable Input(s)	(Weighted Average)
	(In Thousands)
Recurring fair value measurements:
Interest rate contracts, net	$	2,608	Discounted cash flow	Closing ratios (pull-through)	24.9% - 99.3% (66.9%)
				Cap grids	0.0% - 2.7% (1.0%)
Other assets - MSRs	53,025		Discounted cash flow	Option adjusted spread	8.0% - 9.7% (8.1%)
				Constant prepayment rate or life speed	0.0% - 27.5% (7.7%)
				Cost to service	$65 - $4,000 ($79)
Other assets - SBIC investments	47,987		Transaction price	Transaction price	N/A
Nonrecurring fair value measurements:
Debt securities held to maturity	$	2,260	Discounted cash flow	Prepayment rate	7.2%
				Default rate	17.0%
				Loss severity	65.0%
Impaired loans	7,251		Appraised value	Appraised value	0.0% - 70.0% (16.7%)
OREO	16,147		Appraised value	Appraised value	8.0% (1)


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



			Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at				Range of Unobservable Inputs
	December 31, 2017		Valuation Technique	Unobservable Input(s)	(Weighted Average)
	(In Thousands)
Recurring fair value measurements:
Interest rate contracts, net	$	2,416	Discounted cash flow	Closing ratios (pull-through)	24.9% - 99.3% (66.1%)
				Cap grids	0.2% - 2.3% (0.9%)
Other assets - MSRs	49,597		Discounted cash flow	Option adjusted spread	4.6% - 17.2% (8.2%)
				Constant prepayment rate or life speed	0.0% - 46.7% (8.6%)
				Cost to service	$65 - $4,000 ($81)
Other assets - SBIC investments	45,042		Transaction price	Transaction price	N/A
Nonrecurring fair value measurements:
Debt securities held to maturity	$	1,659	Discounted cash flow	Prepayment rate	5.1%
				Default rate	4.8%
				Loss severity	70.6%
Impaired loans	70,749		Appraised value	Appraised value	0.0% - 100.0% (19.2%)
OREO	17,278		Appraised value	Appraised value	8.0% (1)


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

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

Recurring Fair Value Measurements Using Significant Unobservable Inputs

Interest Rate Contracts - Interest Rate Lock Commitments

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

Other Assets - MSRs

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

Other Assets - SBIC Investments

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

Fair Value of Financial Instruments

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



	March 31, 2018
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In Thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	3,523,332	$	3,523,332	$	3,523,332	$	—	$	—
Debt securities held to maturity	1,975,729		1,967,996		—		934,348		1,033,648
Loans, net	61,375,790		58,822,080		—		—		58,822,080
Liabilities:
Deposits	$	69,940,412	$	69,990,606	$	—	$	69,990,606	$	—
FHLB and other borrowings	3,322,940		3,355,549		—		3,355,549		—
Federal funds purchased and securities sold under agreements to repurchase	5,933		5,933		—		5,933		—



	December 31, 2017
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In Thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	4,082,826	$	4,082,826	$	4,082,826	$	—	$	—
Debt securities held to maturity	1,046,093		1,040,543		—		—		1,040,543
Loans, net	60,781,008		57,906,982		—		—		57,906,982
Liabilities:
Deposits	$	69,256,313	$	69,302,597	$	—	$	69,302,597	$	—
FHLB and other borrowings	3,959,930		4,010,308		—		4,010,308		—
Federal funds purchased and securities sold under agreements to repurchase	19,591		19,591		—		19,591		—

Fair Value Option

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

At both March 31, 2018 and December 31, 2017, no loans held for sale for which the fair value option was elected were 90 days or more past due or were in nonaccrual. Interest income on mortgage loans held for sale is recognized based on contractual rates and is reflected in interest and fees on loans in the Company's Unaudited Condensed Consolidated Statements of Income. Net gains or (losses) of $(173) thousand and $1.3 million resulting from changes in fair value of these loans were recorded in noninterest income during the three months ended March 31, 2018 and 2017, respectively.

The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately $80 thousand and $(2.7) million for the three months ended March 31, 2018 and 2017, respectively. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

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



	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference
	(In Thousands)
March 31, 2018
Residential mortgage loans held for sale	$	76,401	$	74,456	$	1,945
December 31, 2017
Residential mortgage loans held for sale	$	67,110	$	64,992	$	2,118