(18) Fair Value Measurements

Fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market for the given asset or liability at the measurement date based on market conditions at that date. An orderly transaction assumes exposure to the market for a customary period for marketing activities prior to the measurement date and not a forced liquidation or distressed sale. Certain assets and liabilities are recorded in the Company’s financial statements at fair value. Some are recorded on a recurring basis and some on a non-recurring basis.

For some assets and liabilities, observable market transactions and market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. A hierarchy for fair value has been established which categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels are as follows:

Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) - fair value is based on unadjusted quoted prices in active markets for identical assets or liabilities.

Significant Other Observable Inputs (Level 2) - fair value is based on significant other observable inputs which are generally determined based on a single price for each financial instrument provided to us by an applicable third-party pricing service and is based on one or more of the following:


•	Quoted prices for similar, but not identical, assets or liabilities in active markets;


•	Quoted prices for identical or similar assets or liabilities in inactive markets;


•	Inputs other than quoted prices that are observable, such as interest rate and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates;


•	Other inputs derived from or corroborated by observable market inputs.

Significant Unobservable Inputs (Level 3) - fair value is based upon model-based valuation techniques for which at least one significant assumption is not observable in the market.

Transfers between levels are recognized as of the end of the reporting period. During 2015, $2.2 million of residential mortgage loans held for sale were transferred from significant other observable inputs to significant unobservable inputs. These loans cannot be sold to U.S. government agencies due to origination defects. An unobservable liquidity discount is applied to determine fair value. There were no other transfers in or out of quoted prices in active markets for identical instruments, significant other observable inputs or significant unobservable inputs during the year ended December 31, 2015 and 2014, respectively.

The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to determine fair values. Management has evaluated the methodologies employed by the third-party pricing services by comparing the price provided by the pricing service with other sources, including brokers' quotes, sales or purchases of similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for their values. Based on all observable inputs, management may adjust prices obtained from third-party pricing services to more appropriately reflect the prices that would be received to sell assets or paid to transfer liabilities in orderly transactions in the current market. No significant adjustments were made to prices provided by third-party pricing services at December 31, 2015 and 2014.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value of financial assets and liabilities that are measured on a recurring basis is as follows as of December 31, 2015 (in thousands):



	Total		Quoted Prices in Active Markets for Identical Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:
Trading securities:
U.S. government agency debentures	$	61,295	$	—	$	61,295	$	—
U.S. agency residential mortgage-backed securities	10,989		—		10,989		—
Municipal and other tax-exempt securities	31,901		—		31,901		—
Other trading securities	18,219		—		18,219		—
Total trading securities	122,404		—		122,404		—
Available for sale securities:
U.S. Treasury securities	995		995		—		—
Municipal and other tax-exempt securities	56,817		—		47,207		9,610
U.S. government agency residential mortgage-backed securities	5,898,351		—		5,898,351		—
Privately issued residential mortgage-backed securities	139,118		—		139,118		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	2,905,796		—		2,905,796		—
Other debt securities	4,151		—		—		4,151
Perpetual preferred stock	19,672		—		19,672		—
Equity securities and mutual funds	17,833		3,265		14,568		—
Total available for sale securities	9,042,733		4,260		9,024,712		13,761
Fair value option securities – U.S. government agency residential mortgage-backed securities	444,217		—		444,217		—
Residential mortgage loans held for sale	308,439		—		300,565		7,874
Mortgage servicing rights, net¹	218,605		—		—		218,605
Derivative contracts, net of cash margin²	586,270		38,530		547,740		—
Other assets – private equity funds	22,472		—		—		22,472
Liabilities:
Derivative contracts, net of cash margin²	581,701		—		581,701		—


¹	A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 7, Mortgage Banking Activities.

See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in a net asset position that were valued based on quoted prices in active markets or identical instruments (Level 1) are exchange-traded energy derivative contracts, net of cash margin. Derivative contracts in a net liability position that were valued using quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate and agricultural derivative contracts fully offset by cash margin.

The fair value of financial assets and liabilities that are measured on a recurring basis is as follows as of December 31, 2014 (in thousands):



	Total		Quoted Prices in Active Markets for Identical Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:
Trading securities:
U.S. Government agency debentures	$	85,092	$	—	$	85,092	$	—
U.S. government agency residential mortgage-backed securities	31,199		—		31,199		—
Municipal and other tax-exempt securities	38,951		—		38,951		—
Other trading securities	33,458		—		33,458		—
Total trading securities	188,700		—		188,700		—
Available for sale securities:
U.S. Treasury securities	1,005		1,005		—		—
Municipal and other tax-exempt securities	63,557		—		53,464		10,093
U.S. government agency residential mortgage-backed securities	6,646,884		—		6,646,884		—
Privately issued residential mortgage-backed securities	165,957		—		165,957		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	2,048,609		—		2,048,609		—
Other debt securities	9,212		—		5,062		4,150
Perpetual preferred stock	24,277		—		24,277		—
Equity securities and mutual funds	19,444		4,927		14,517		—
Total available for sale securities	8,978,945		5,932		8,958,770		14,243
Fair value option securities – U.S. government agency residential mortgage-backed securities	311,597		—		311,597		—
Residential mortgage loans held for sale	304,182		—		292,326		11,856
Mortgage servicing rights, net¹	171,976		—		—		171,976
Derivative contracts, net of cash margin²	361,874		17,607		344,267		—
Other assets – private equity funds	25,627		—		—		25,627
Liabilities:
Derivative contracts, net of cash margin ²	354,554		541		354,013		—


¹	A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 7, Mortgage Banking Activities.

See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts in a net asset position that were valued based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded energy derivative contracts, net of cash margin. Derivative contracts in a net liability position that were valued using quoted prices in active markets for identical instruments based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate and agricultural derivative contracts, net of cash margin.

Following is a description of the Company's valuation methodologies used for assets and liabilities measured on a recurring basis:

Securities

The fair values of trading, available for sale and fair value option securities are based on quoted prices for identical instruments in active markets, when available. If quoted prices for identical instruments are not available, fair values are based on significant other observable inputs such as quoted prices of comparable instruments or interest rates and credit spreads, yield curves, volatilities, prepayment speeds and loss severities.

The fair value of certain available for sale municipal and other debt securities may be based on significant unobservable inputs. These significant unobservable inputs include limited observed trades, projected cash flows, current credit rating of the issuers and, when applicable, the insurers of the debt and observed trades of similar debt. Discount rates are primarily based on reference to interest rate spreads on comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies adjusted for a lack of trading volume. Significant unobservable inputs are developed by investment securities professionals involved in the active trading of similar securities. A summary of significant inputs used to value these securities follows. A management committee composed of senior members from the Company's Capital Markets, Risk Management and Finance departments assess the appropriateness of these inputs monthly.

Derivatives

All derivative instruments are carried on the balance sheet at fair value. Fair values for exchange-traded contracts are based on quoted prices. Fair values for over-the-counter interest rate, commodity and foreign exchange contracts are based on valuations provided either by third-party dealers in the contracts, quotes provided by independent pricing services, or a third-party provided pricing model that uses significant other observable market inputs.

Credit risk is considered in determining the fair value of derivative instruments. Management determines fair value adjustments based on various risk factors including but not limited to counterparty credit rating or equivalent loan grading, derivative contract notional size, price volatility of the underlying commodity, duration of the derivative contracts and expected loss severity. Expected loss severity is based on historical losses for similarly risk graded commercial loan customers. Decreases in counterparty credit rating or grading and increases in price volatility and expected loss severity all tend to increase the credit quality adjustment which reduces the fair value of asset contracts. The reduction in fair value is recognized in earnings during the current period.

We also consider our own credit risk in determining the fair value of derivative contracts. Changes in our credit rating would affect the fair value of our derivative liabilities. In the event of a credit downgrade, the fair value of our derivative liabilities would increase. The change in the fair value would be recognized in earnings in the current period.

Residential Mortgage Loans Held for Sale

Residential mortgage loans held for sale are carried on the balance sheet at fair value. The fair values of conforming residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments. The fair value of mortgage loans that are unable to be sold to U.S. government agencies is determined using quoted prices of loans that are sold in securitization transactions with a liquidity discount applied.

Other Assets - Private Equity Funds

The fair value of the portfolio investments of the Company's two private equity funds are based upon net asset value reported by the underlying funds, as adjusted by the general partner when necessary to represent the price that would be received to sell the assets. The Company's private equity funds provide customers alternative investment opportunities as limited partners of the funds. As fund of funds, the private equity funds invest in other limited partnerships or limited liability companies that invest substantially all of their assets in U.S. companies pursuing diversified investment strategies including early-stage venture capital, distressed securities and corporate or asset buy-outs. Private equity fund assets are long-term, illiquid investments. No secondary market exists for these assets. The private equity funds typically invest in funds that provide no redemption rights to investors. The fair value of the private equity investments may only be realized through cash distributions from the underlying funds.

The following represents the changes related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):



	Available for Sale Securities									Residential mortgage loans held for sale			Other assets – private equity funds
	Municipal and other tax-exempt			Other debt securities			Equity securities and mutual funds			Residential mortgage loans held for sale			Other assets – private equity funds
Balance, December 31, 2013	$	17,805		$	4,712		$	4,207		$	—		$	27,341
Transfer to Level 3 from Level 2	—			—			—			13,644			—
Purchases and capital calls	—			—			—			—			1,012
Redemptions and distributions	(7,487		)	(500		)	—			—			(7,473		)
Proceeds from sales	—			—			—			(1,176		)	—
Gain (loss) recognized in earnings:
Mortgage banking revenue	—			—			—			(612		)	—
Gain on assets, net	—			—			—			—			4,747
Gain on available for sale securities, net	(235		)	—			—			—			—
Charitable contributions to BOKF Foundation	—			—			(2,420		)	—			—
Other comprehensive income (loss):
Net change in unrealized gain (loss)	10			(62		)	(1,787		)	—			—
Balance, December 31, 2014	10,093			4,150			—			11,856			25,627
Transfer to Level 3 from Level 2	—			—			—			2,193			—
Purchases and capital calls	—			—			—			—			1,027
Redemptions and distributions	—			—			—			—			(6,955		)
Proceeds from sales	—			—			—			(6,283		)	—
Gain (loss) recognized in earnings:
Mortgage banking revenue	—			—			—			108			—
Gain on assets, net	—			—			—			—			2,773
Gain on available for sale securities, net	—			—			—			—			—
Charitable contributions to BOKF Foundation	—			—			—			—			—
Other comprehensive income (loss):
Net change in unrealized gain (loss)	(483		)	1			—			—			—
Balance, December 31, 2015	$	9,610		$	4,151		$	—		$	7,874		$	22,472

A summary of quantitative information about assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2015 follows (in thousands):

Quantitative Information about Level 3 Recurring Fair Value Measurements

Par

Value

Amortized

Cost/Unpaid Principal Balance

Fair

Value

Valuation Technique(s)

Significant Unobservable Input

Range

(Weighted Average)

Available for sale securities:

Municipal and other tax-exempt securities

10,370

10,311

9,610

Discounted cash flows

Interest rate spread

5.47%-5.77% (5.73%)

92.34%-92.93% (92.67%)

Other debt securities

4,400

4,151

Discounted cash flows

Interest rate spread

5.80% - 5.92% (5.90%)

⁴

94.33% - 94.34% (94.34%)

Residential mortgage loans held for sale

N/A

8,395

7,874

Quoted prices of loans sold in securitization transactions, with a liquidity discount applied

Liquidity discount applied to the market value of mortgage loans qualifying for sale to U.S. government agencies

93.79%

Other assets - private equity funds

N/A

22,742

Net asset value reported by underlying fund

N/A


¹	Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.


²	Interest rate yields used to value investment grade tax-exempt securities represent a spread of 499 to 541 basis points over average yields for comparable tax-exempt securities.


³	Represents fair value as a percentage of par value.


⁴	Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1%.

A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of December 31, 2014 follows (in thousands):

Quantitative Information about Level 3 Recurring Fair Value Measurements

Par

Value

Amortized

Cost⁶

Fair

Value

Valuation Technique(s)

Significant Unobservable Input

Range

(Weighted Average)

Available for sale securities:

Municipal and other tax-exempt securities

10,870

10,805

10,093

Discounted cash flows

Interest rate spread

4.96%-5.26% (5.21%)

92.65%-94.32% (93.09%)

Other debt securities

4,400

4,150

Discounted cash flows

Interest rate spread

5.62% - 5.67% (5.66%)

⁴

92.65% - 92.95% (92.77%)

Residential mortgage loans held for sale

N/A

12,468

11,856

Quoted prices of loans sold in securitization transactions, with a liquidity discount applied

Liquidity discount applied to the market value of mortgage loans qualifying for sale to U.S. government agencies

95.09%

Other assets - private equity funds

N/A

25,627

Net asset value reported by underlying fund

N/A


¹	Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume.


²	Interest rate yields used to value investment grade tax-exempt securities represent a spread of 488 to 516 basis points over average yields for comparable tax-exempt securities.


³	Represents fair value as a percentage of par value.


⁴	Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1%.

Fair Value of Assets and Liabilities Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis include pension plan assets, which are based on quoted prices in active markets for identical instruments, collateral for certain impaired loans and real property and other assets acquired to satisfy loans, which are based primarily on comparisons to completed sales of similar assets.

The following represents the carrying value of assets measured at fair value on a non-recurring basis and related losses recorded during the year. The carrying value represents only those assets with the balance sheet date for which the fair value was adjusted during the year:



	Carrying Value at December 31, 2015						Fair Value Adjustments for the Year Ended December 31, 2015 Recognized In:
	Quoted Prices in Active Markets for Identical Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs		Gross charge-offs against allowance for loan losses		Net losses and expenses of repossessed assets, net
Impaired loans	$	—	$	252	$	20,805	$	4,042	$	—
Real estate and other repossessed assets	—		13,611		245		—		1,820



	Carrying Value at December 31, 2014						Fair Value Adjustments for the Year Ended December 31, 2014 Recognized In:
	Quoted Prices in Active Markets for Identical Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs		Gross charge-offs against allowance for loan losses		Net losses and expenses of repossessed assets, net
Impaired loans	$	—	$	8,198	$	635	$	4,044	$	—
Real estate and other repossessed assets	—		22,594		3,691		—		3,563

The fair value of collateral-dependent impaired loans and real estate and other repossessed assets and the related fair value adjustments are generally based on unadjusted third-party appraisals. Our appraisal review policies require appraised values to be supported by observed inputs derived principally from or corroborated by observable market data. Appraisals that are not based on observable inputs or that require significant adjustments or fair value measurements that are not based on third-party appraisals are considered to be based on significant unobservable inputs. Non-recurring fair value measurements of collateral-dependent impaired loans and real estate and other repossessed assets based on significant unobservable inputs are generally due to estimates of current fair values between appraisal dates. Significant unobservable inputs include listing prices for comparable assets, uncorroborated expert opinions or management's knowledge of the collateral or industry. These inputs are developed by asset management and workout professionals and approved by senior Credit Administration executives.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of December 31, 2015 follows (in thousands):



Quantitative Information about Level 3 Non-recurring Fair Value Measurements
	Fair Value		Valuation Technique(s)	Significant Unobservable Input	Range (Weighted Average)

Impaired loans	$	20,805	Appraised value, as adjusted	Broker quotes and management's knowledge of industry and collateral.	N/A
Real estate and other repossessed assets	245		Appraised value, as adjusted	Marketability adjustments off appraised value¹	66%-81% (74%)


¹	Marketability adjustments include consideration of estimated costs to sell which is approximately 10% of the fair value.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of December 31, 2014 follows (in thousands):



Quantitative Information about Level 3 Non-recurring Fair Value Measurements
	Fair Value		Valuation Technique(s)	Significant Unobservable Input	Range (Weighted Average)

Impaired loans	$	635	Appraised value, as adjusted	Broker quotes and management's knowledge of industry and collateral.	N/A
Real estate and other repossessed assets	3,691		Appraised value, as adjusted	Marketability adjustments off appraised value	65%

The fair value of pension plan assets was approximately $44 million at December 31, 2015 and $49 million at December 31, 2014, determined by significant other observable inputs. Fair value adjustments of pension plan assets along with changes in the projected benefit obligation are recognized in other comprehensive income.

Fair Value of Financial Instruments

The following table presents the carrying values and estimated fair values of all financial instruments, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring (dollars in thousands):



	December 31, 2015
	Carrying Value			Range of Contractual Yields			Average Re-pricing (in years)	Discount Rate			Estimated Fair Value
Cash and due from banks	$	573,699									$	573,699
Interest-bearing cash and cash equivalents	2,069,900										2,069,900
Trading securities:
U.S. Government agency debentures	61,295										61,295
U.S. government agency residential mortgage-backed securities	10,989										10,989
Municipal and other tax-exempt securities	31,901										31,901
Other trading securities	18,219										18,219
Total trading securities	122,404										122,404
Investment securities:
Municipal and other tax-exempt securities	365,258										368,910
U.S. government agency residential mortgage-backed securities	26,833										27,874
Other debt securities	205,745										232,375
Total investment securities	597,836										629,159
Available for sale securities:
U.S. Treasury securities	995										995
Municipal and other tax-exempt securities	56,817										56,817
U.S. government agency residential mortgage-backed securities	5,898,351										5,898,351
Privately issued residential mortgage-backed securities	139,118										139,118
Commercial mortgage-backed securities guaranteed by U.S. government agencies	2,905,796										2,905,796
Other debt securities	4,151										4,151
Perpetual preferred stock	19,672										19,672
Equity securities and mutual funds	17,833										17,833
Total available for sale securities	9,042,733										9,042,733
Fair value option securities – U.S. government agency residential mortgage-backed securities	444,217										444,217
Residential mortgage loans held for sale	308,439										308,439
Loans:
Commercial	10,252,531			0.25	% -	30.00%	0.62	0.52	% -	4.34%	10,053,952
Commercial real estate	3,259,033			0.38	% -	18.00%	0.73	0.95	% -	3.93%	3,233,476
Residential mortgage	1,876,893			1.67	% -	18.00%	2.42	0.86	% -	4.25%	1,902,976
Personal	552,697			0.38	% -	21.00%	0.37	1.19	% -	4.11%	549,068
Total loans	15,941,154										15,739,472
Allowance for loan losses	(225,524		)								—
Loans, net of allowance	15,715,630										15,739,472
Mortgage servicing rights	218,605										218,605
Derivative instruments with positive fair value, net of cash margin	586,270										586,270
Other assets – private equity funds	22,472										22,472
Deposits with no stated maturity	18,682,094										18,682,094
Time deposits	2,406,064			0.02	% -	5.50%	1.78	1.11	% -	1.57%	2,394,562
Other borrowings	6,051,515			0.25	% -	3.40%	0.00	0.20	% -	2.89%	5,600,932
Subordinated debentures	226,350			1.05%			1.37	2.12%			223,758
Derivative instruments with negative fair value, net of cash margin	581,701										581,701



	December 31, 2014
	Carrying Value			Range of Contractual Yields			Average Re-pricing (in years)	Discount Rate			Estimated Fair Value
Cash and due from banks	$	550,576									$	550,576
Interest-bearing cash and cash equivalents	1,925,266										1,925,266
Trading securities:
U.S. Government agency debentures	85,092										85,092
U.S. government agency residential mortgage-backed securities	31,199										31,199
Municipal and other tax-exempt securities	38,951										38,951
Other trading securities	33,458										33,458
Total trading securities	188,700										188,700
Investment securities:
Municipal and other tax-exempt	405,090										408,344
U.S. government agency residential mortgage-backed securities	35,750										37,463
Other debt securities	211,520										227,819
Total investment securities	652,360										673,626
Available for sale securities:
U.S. Treasury	1,005										1,005
Municipal and other tax-exempt	63,557										63,557
U.S. government agency residential mortgage-backed securities	6,646,884										6,646,884
Privately issued residential mortgage-backed securities	165,957										165,957
Commercial mortgage-backed securities guaranteed by U.S. government agencies	2,048,609										2,048,609
Other debt securities	9,212										9,212
Perpetual preferred stock	24,277										24,277
Equity securities and mutual funds	19,444										19,444
Total available for sale securities	8,978,945										8,978,945
Fair value option securities – U.S. government agency residential mortgage-backed securities	311,597										311,597
Residential mortgage loans held for sale	304,182										304,182
Loans:
Commercial	9,095,670			0.17	% -	30.00%	0.65	0.51	% -	4.34%	8,948,870
Commercial real estate	2,728,150			0.38	% -	18.00%	0.84	1.09	% -	3.78%	2,704,454
Residential mortgage	1,949,512			1.20	% -	18.00%	2.50	0.64	% -	3.99%	1,985,870
Personal	434,705			0.38	% -	21.00%	0.45	1.04	% -	3.98%	431,274
Total loans	14,208,037										14,070,468
Allowance for loan losses	(189,056		)								—
Loans, net of allowance	14,018,981										14,070,468
Mortgage servicing rights	171,976										171,976
Derivative instruments with positive fair value, net of cash margin	361,874										361,874
Other assets – private equity funds	25,627										25,627
Deposits with no stated maturity	18,532,143										18,532,143
Time deposits	2,608,716			0.02	% -	9.64%	1.92	0.76	% -	1.33%	2,612,576
Other borrowings	3,378,294			0.21	% -	1.52%	0.12	0.06	% -	2.64%	3,331,771
Subordinated debentures	347,983			0.92	% -	5.00%	1.67	2.14%			344,687
Derivative instruments with negative fair value, net of cash margin	354,554										354,554

Because no market exists for certain of these financial instruments and management does not intend to sell these financial instruments, the fair values shown in the tables above may not represent values at which the respective financial instruments could be sold individually or in the aggregate at the given reporting date.

The following methods and assumptions were used in estimating the fair value of these financial instruments:

Cash and Cash Equivalents

The book value reported in the consolidated balance sheet for cash and short-term instruments approximates those assets’ fair values.

Securities

The fair values of securities are generally based on Significant Other Observable Inputs such as quoted prices for comparable instruments or interest rates and credit spreads, yield curves, volatilities, prepayment speeds and loss severities.

Loans

The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates and credit and liquidity spreads currently being offered for loans with similar remaining terms to maturity and risk, adjusted for the impact of interest rate floors and ceilings which are classified as Significant Unobservable Inputs. The fair values of loans were estimated to approximate their discounted cash flows less loan loss allowances allocated to these loans of $195 million at December 31, 2015 and $161 million at December 31, 2014.

Deposits

The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions which are considered Significant Unobservable Inputs. Estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, is equal to the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, adjusting fair value for the expected benefit of these deposits is prohibited. Accordingly, the positive effect of such deposits is not included in the tables above.

Other Borrowings and Subordinated Debentures

The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments which are considered Significant Unobservable Inputs.

Off-Balance Sheet Instruments

The fair values of commercial loan commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of these off-balance sheet instruments were not significant at December 31, 2015 or December 31, 2014.

Fair Value Election

As more fully disclosed in Note 2 and Note 7 to the Consolidated Financial Statements, the Company has elected to carry all residential mortgage-backed securities which have been designated as economic hedges against changes in the fair value of mortgage servicing rights, certain corporate debt securities economically hedged by derivative contracts to manage interest rate risk and all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings.