Fair Value Measurements

See Note 19, Fair Value Measurements, in the Notes to the December 31, 2019, Consolidated Financial Statements for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis.

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



			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	September 30, 2020		(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	$	177,180	$	177,180	$	—	$	—
Interest rate contracts	711,389		—		711,389		—
Foreign exchange contracts	37,928		—		37,928		—
Total trading account assets	926,497		177,180		749,317		—
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	2,191,009		1,725,371		465,638		—
Mortgage-backed securities	969,922		—		969,922		—
Collateralized mortgage obligations	2,866,505		—		2,866,505		—
States and political subdivisions	636		—		636		—
Total debt securities available for sale	6,028,072		1,725,371		4,302,701		—
Loans held for sale	253,454		—		253,454		—
Derivative assets:
Interest rate contracts	29,351		—		13,046		16,305
Equity contracts	774		—		774		—
Foreign exchange contracts	2,678		—		2,678		—
Total derivative assets	32,803		—		16,498		16,305
Other assets:
Equity securities	28,035		28,035		—		—
MSR	28,731		—		—		28,731
SBIC	164,362		—		—		164,362
Liabilities:
Trading account liabilities:
Interest rate contracts	$	155,542	$	—	$	155,542	$	—
Foreign exchange contracts	35,640		—		35,640		—
Total trading account liabilities	191,182		—		191,182		—
Derivative liabilities:
Interest rate contracts	5,830		—		5,830		—
Equity contracts	625		—		625		—
Foreign exchange contracts	1,971		—		1,971		—
Total derivative liabilities	8,426		—		8,426		—



			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, 2019		(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	$	137,637	$	137,637	$	—	$	—
Interest rate contracts	313,573		—		313,573		—
Foreign exchange contracts	22,766		—		22,766		—
Total trading account assets	473,976		137,637		336,339		—
Debt securities available for sale:
U.S. Treasury and other U.S. government agencies	3,127,525		2,598,471		529,054		—
Mortgage-backed securities	1,325,857		—		1,325,857		—
Collateralized mortgage obligations	2,781,125		—		2,781,125		—
States and political subdivisions	798		—		798		—
Total debt securities available for sale	7,235,305		2,598,471		4,636,834		—
Loans held for sale	112,058		—		112,058		—
Derivative assets:
Interest rate contracts	13,907		38		10,781		3,088
Equity contracts	4,460		—		4,460		—
Foreign exchange contracts	276		—		276		—
Total derivative assets	18,643		38		15,517		3,088
Other assets:
Equity securities	19,038		19,038		—		—
MSR	42,022		—		—		42,022
SBIC	119,475		—		—		119,475
Liabilities:
Trading account liabilities:
Interest rate contracts	$	97,881	$	—	$	97,881	$	—
Foreign exchange contracts	20,678		—		20,678		—
Total trading account liabilities	118,559		—		118,559		—
Derivative liabilities:
Interest rate contracts	3,732		—		3,732		—
Equity contracts	3,765		—		3,765		—
Foreign exchange contracts	3,940		—		3,940		—
Total derivative liabilities	11,437		—		11,437		—

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



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three Months Ended September 30,	Interest Rate Contracts, net			Other Assets - MSR			Other Assets - SBIC
	(In Thousands)
Balance, June 30, 2019	$	3,847		$	41,966		$	102,065
Transfers into Level 3	—			—			—
Transfers out of Level 3	—			—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	191			(6,301		)	10,239
Included in other comprehensive income	—			—			—
Purchases, issuances, sales and settlements:
Purchases	—			—			7,944
Issuances	—			1,600			—
Sales	—			—			—
Settlements	—			—			—
Balance, September 30, 2019	$	4,038		$	37,265		$	120,248
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2019	$	191		$	(6,301	)	$	10,239

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


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



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Nine Months Ended September 30,	Interest Rate Contracts, net		Other Assets - MSR			Other Assets - SBIC
	(In Thousands)
Balance, December 31, 2018	$	2,012	$	51,539		$	80,074
Transfers into Level 3	—		—			—
Transfers out of Level 3	—		—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	2,026		(18,579		)	24,310
Included in other comprehensive income	—		—			—
Purchases, issuances, sales and settlements:
Purchases	—		—			15,864
Issuances	—		4,305			—
Sales	—		—			—
Settlements	—		—			—
Balance, September 30, 2019	$	4,038	$	37,265		$	120,248
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2019	$	2,026	$	(18,579	)	$	24,310

Balance, December 31, 2019	$	3,088	$	42,022		$	119,475
Transfers into Level 3	—		—			—
Transfers out of Level 3	—		—			—
Total gains or losses (realized/unrealized):
Included in earnings (1)	13,217		(20,945		)	30,388
Included in other comprehensive income	—		—			—
Purchases, issuances, sales and settlements:
Purchases	—		—			14,499
Issuances	—		7,654			—
Sales	—		—			—
Settlements	—		—			—
Balance, September 30, 2020	$	16,305	$	28,731		$	164,362
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2020	$	13,217	$	(20,945	)	$	30,388


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

Assets Measured at Fair Value on a Nonrecurring Basis

Periodically, certain assets may be recorded at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets due to impairment. The following tables represent those assets that were subject to fair value adjustments during the three and nine months ended September 30, 2020 and 2019, and still held as of the end of the period, and the related gains and losses from fair value adjustments on assets sold during the period as well as assets still held as of the end of the period.



			Fair Value Measurements at the End of the Reporting Period Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Gains (Losses)
	September 30, 2020		(Level 1)		(Level 2)		(Level 3)		Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
	(In Thousands)
Nonrecurring fair value measurements
Assets:
OREO	$	15,051	$	—	$	—	$	15,051	$	(5	)	$	(913	)

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


(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:

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

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



			Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at				Range of Unobservable Inputs
	September 30, 2020		Valuation Technique	Unobservable Input(s)	(Weighted Average)
	(In Thousands)
Recurring fair value measurements:
Interest rate contracts, net	$	16,305	Discounted cash flow	Closing ratios (pull-through)	1.6% - 100.0% (51.7%)
				Cap grids	0.1% - 2.7% (0.9%)
Other assets - MSRs	28,731		Discounted cash flow	Option adjusted spread	6.0% - 8.3% (6.2%)
				Constant prepayment rate or life speed	3.5% - 90.3% (19.9%)
				Cost to service	$65 - $4,000 ($94)
Other assets - SBIC investments	164,362		Transaction price	Transaction price	N/A
Nonrecurring fair value measurements:
OREO	15,051		Appraised value	Appraised value	8.0% (1)


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



			Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at				Range of Unobservable Inputs
	December 31, 2019		Valuation Technique	Unobservable Input(s)	(Weighted Average)
	(In Thousands)
Recurring fair value measurements:
Interest rate contracts, net	$	3,088	Discounted cash flow	Closing ratios (pull-through)	16.8% - 100.0% (60.1%)
				Cap grids	0.5% - 2.5% (0.9%)
Other assets - MSRs	42,022		Discounted cash flow	Option adjusted spread	6.0% - 9.0% (6.4%)
				Constant prepayment rate or life speed	0.0% - 80.0% (14.6%)
				Cost to service	$65 - $4,000 ($90)
Other assets - SBIC investments	119,475		Transaction price	Transaction price	N/A
Nonrecurring fair value measurements:
Debt securities held to maturity	$	2,177	Discounted cash flow	Prepayment rate	13.7% - 14.7% (14.2%)
				Default rate	3.1% - 4.9% (4.0%)
				Loss severity	50.3% - 61.9% (56.1%)
Impaired loans	484		Appraised value	Appraised value	0.0% - 70.0% (9.7%)
OREO	21,583		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:



	September 30, 2020
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In Thousands)
Financial Instruments:
Assets:
Cash and cash equivalents	$	15,076,845	$	15,076,845	$	15,076,845	$	—	$	—
Debt securities held to maturity	9,444,036		9,779,195		1,412,275		7,838,912		528,008
Loans	66,180,612		65,384,443		—		—		65,384,443
Liabilities:
Deposits	$	86,371,032	$	86,400,715	$	—	$	86,400,715	$	—
FHLB and other borrowings	3,560,973		3,444,859		—		3,444,859		—
Federal funds purchased and securities sold under agreements to repurchase	189,474		189,474		—		189,474		—



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

Fair Value Option

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

At both September 30, 2020 and December 31, 2019, no loans held for sale for which the fair value option was elected were 90 days or more past due or were in nonaccrual. Interest income on mortgage loans held for sale is recognized based on contractual rates and is reflected in interest and fees on loans in the Company's Unaudited Condensed Consolidated Statements of Income. Net gains of $425 thousand and $887 thousand resulting from changes in fair value of these loans were recorded in noninterest income during the three months ended September 30, 2020 and 2019, respectively. Net gains of $9.2 million and $1.6 million resulting from changes in fair value of these loans were recorded in noninterest income during the nine months ended September 30, 2020 and 2019, respectively.

The Company also had fair value changes on forward contracts related to residential mortgage loans held for sale of approximately $2.1 million and $530 thousand for the three months ended September 30, 2020 and 2019, respectively, and $(1.0) million and $481 thousand for the nine months ended September 30, 2020 and 2019, respectively. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

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



	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference
	(In Thousands)
September 30, 2020
Residential mortgage loans held for sale	$	253,454	$	240,518	$	12,936
December 31, 2019
Residential mortgage loans held for sale	$	112,058	$	108,345	$	3,713