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. 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. There were no transfers in or out of quoted prices in active markets for identical instruments to significant other observable inputs or significant unobservable inputs during the three and nine months ended September 30, 2017 and 2016, respectively. Transfers between significant other observable inputs and significant unobservable inputs during the three and nine months ended September 30, 2017 and 2016 are included in the summary of changes in recurring fair values measured using unobservable inputs.

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 September 30, 2017, December 31, 2016 or September 30, 2016.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value of financial assets and liabilities measured on a recurring basis was as follows as of September 30, 2017 (in thousands):



	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Trading securities:
U.S. government agency debentures	$	30,162	$	—	$	30,162	$	—
U.S. government agency residential mortgage-backed securities	516,760		—		516,760		—
Municipal and other tax-exempt securities	56,148		—		56,148		—
Other trading securities	11,047		—		11,047		—
Total trading securities	614,117		—		614,117		—
Available for sale securities:
U.S. Treasury	999		999		—		—
Municipal and other tax-exempt securities	28,368		—		23,583		4,785
U.S. government agency residential mortgage-backed securities	5,326,384		—		5,326,384		—
Privately issued residential mortgage-backed securities	99,994		—		99,994		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	2,889,346		—		2,889,346		—
Other debt securities	4,153		—		—		4,153
Perpetual preferred stock	16,245		—		16,245		—
Equity securities and mutual funds	17,710		2,578		15,132		—
Total available for sale securities	8,383,199		3,577		8,370,684		8,938
Fair value option securities – U.S. government agency residential mortgage-backed securities	819,531		—		819,531		—
Residential mortgage loans held for sale	275,643		—		263,543		12,100
Mortgage servicing rights¹	245,858		—		—		245,858
Derivative contracts, net of cash collateral²	352,559		8,498		344,061		—
Liabilities:
Derivative contracts, net of cash collateral²	336,327		6,903		329,424		—


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 6, Mortgage Banking Activities.

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

The fair value of financial assets and liabilities measured on a recurring basis was as follows as of December 31, 2016 (in thousands):



	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Trading securities:
U.S. government agency debentures	$	6,234	$	—	$	6,234	$	—
U.S. government agency residential mortgage-backed securities	310,067		—		310,067		—
Municipal and other tax-exempt securities	14,427		—		14,427		—
Other trading securities	6,900		—		6,900		—
Total trading securities	337,628		—		337,628		—
Available for sale securities:
U.S. Treasury	999		999		—		—
Municipal and other tax-exempt securities	40,993		—		35,204		5,789
U.S. government agency residential mortgage-backed securities	5,460,386		—		5,460,386		—
Privately issued residential mortgage-backed securities	115,535		—		115,535		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	3,017,933		—		3,017,933		—
Other debt securities	4,152		—		—		4,152
Perpetual preferred stock	18,474		—		18,474		—
Equity securities and mutual funds	18,357		3,495		14,862		—
Total available for sale securities	8,676,829		4,494		8,662,394		9,941
Fair value option securities – U.S. government agency residential mortgage-backed securities	77,046		—		77,046		—
Residential mortgage loans held for sale	301,897		—		290,280		11,617
Mortgage servicing rights¹	247,073		—		—		247,073
Derivative contracts, net of cash collateral²	689,872		7,541		682,331		—
Liabilities:
Derivative contracts, net of cash collateral²	664,531		6,972		657,559		—


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 6, Mortgage Banking Activities.

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

The fair value of financial assets and liabilities measured on a recurring basis was as follows as of September 30, 2016 (in thousands):



	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Trading securities:
U.S. government agency debentures	$	15,705	$	—	$	15,705	$	—
U.S. government agency residential mortgage-backed securities	464,749		—		464,749		—
Municipal and other tax-exempt securities	54,856		—		54,856		—
Other trading securities	11,305		—		11,305		—
Total trading securities	546,615		—		546,615		—
Available for sale securities:
U.S. Treasury	1,002		1,002		—		—
Municipal and other tax-exempt securities	42,092		—		36,379		5,713
U.S. government agency residential mortgage-backed securities	5,668,672		—		5,668,672		—
Privately issued residential mortgage-backed securities	121,603		—		121,603		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	2,986,495		—		2,986,495		—
Other debt securities	4,151		—		—		4,151
Perpetual preferred stock	19,578		—		19,578		—
Equity securities and mutual funds	18,690		3,544		15,146		—
Total available for sale securities	8,862,283		4,546		8,847,873		9,864
Fair value option securities:
U.S. Treasury	222,409		222,409		—		—
U.S. government agency residential mortgage-backed securities	—		—		—		—
Total fair value option securities	222,409		222,409		—		—
Residential mortgage loans held for sale	447,592		—		438,291		9,301
Mortgage servicing rights¹	203,621		—		—		203,621
Derivative contracts, net of cash collateral²	655,078		5,575		649,503		—
Liabilities:
Derivative contracts, net of cash collateral²	573,987		1,308		572,679		—


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 6, Mortgage Banking Activities.

See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded energy and agricultural derivative contacts, net of cash margin. Derivative contracts in liability positions that were valued using quoted prices in active markets for identical instruments (Level 1) are exchange-traded interest rate and energy derivative contracts, net 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 references 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 assesses the appropriateness of these inputs quarterly.

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 residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments and forward sales contracts. The fair value of mortgage loans that were unable to be sold to U.S. government agencies were 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 is based upon net asset value reported by the underlying funds, as adjusted by the general partner when necessary, as a practical expedient to measure the fair value of the investments in the underlying funds. 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.

See Note 7 for disclosure of the fair value of the private equity funds using the net asset value per share of the underlying investments, as a practical expedient, included in Other assets in the Consolidated Balance Sheets of the Company.

The following represents the changes for the three and nine months ended September 30, 2017 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):



	Available for Sale Securities
	Municipal and other tax-exempt securities		Other debt securities		Residential mortgage loans held for sale
Balance, June 30, 2017	$	4,655	$	4,152	$	12,735
Transfer to Level 3 from Level 2¹	—		—		176
Purchases	—		—		—
Proceeds from sales	—		—		(847		)
Redemptions and distributions	—		—		—
Gain recognized in earnings:
Mortgage banking revenue	—		—		36
Other comprehensive income:
Net change in unrealized gain	130		1		—
Balance, September 30, 2017	$	4,785	$	4,153	$	12,100


¹	Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.



	Available for Sale Securities
	Municipal and other tax-exempt			Other debt securities		Residential mortgage loans held for sale
Balance, December 31, 2016	$	5,789		$	4,152	$	11,617
Transfer to Level 3 from Level 2¹	—			—		2,916
Purchases	—			—		—
Proceeds from sales	—			—		(2,549		)
Redemptions and distributions	(1,100		)	—		—
Gain (loss) recognized in earnings:
Mortgage banking revenue	—			—		116
Other comprehensive income (loss):
Net change in unrealized gain (loss)	96			1		—
Balance, September 30, 2017	$	4,785		$	4,153	$	12,100


¹	Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.

The following represents the changes for the three and six months ended September 30, 2016 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):



	Available for Sale Securities
	Municipal and other tax-exempt securities			Other debt securities		Residential mortgage loans held for sale
Balance, June 30, 2016	$	9,600		$	4,151	$	9,749
Transfer to Level 3 from Level 2¹	—			—		442
Purchases	—			—		—
Proceeds from sales	—			—		(1,003		)
Redemptions and distributions	(3,975		)	—		—
Gain (loss) recognized in earnings:
Mortgage banking revenue	—			—		113
Other comprehensive income (loss):
Net change in unrealized gain (loss)	88			—		—
Balance, September 30, 2016	$	5,713		$	4,151	$	9,301


¹	Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.



	Available for Sale Securities
	Municipal and other tax-exempt			Other debt securities		Residential mortgage loans held for sale
Balance, December 31, 2015	$	9,610		$	4,151	$	7,874
Transfer to Level 3 from Level 2¹	—			—		3,982
Purchases	—			—		—
Proceeds from sales	—			—		(2,365		)
Redemptions and distributions	(3,975		)	—		—
Gain (loss) recognized in earnings
Mortgage banking revenue	—			—		(190		)
Other comprehensive income (loss):
Net change in unrealized gain (loss)	78			—		—
Balance, September 30, 2016	$	5,713		$	4,151	$	9,301


¹	Recurring transfers to Level 3 from Level 2 consist of residential mortgage loans intended for sale to U.S. government agencies that fail to meet conforming standards.

A summary of quantitative information about assets measured at fair value on a recurring basis using Significant Unobservable Inputs (Level 3) as of September 30, 2017 follows (in thousands):



	Par Value		Amortized Cost/Unpaid Principal Balance		Fair Value		Valuation Technique(s)		Unobservable Input	Range (Weighted Average)

Available for sale securities
Municipal and other tax-exempt securities	$	5,095	$	5,067	$	4,785	Discounted cash flows	¹	Interest rate spread	6.05%-6.05% (6.05%)	²
										92.25%-95.02% (93.91%)	³
Other debt securities	4,400		4,400		4,153		Discounted cash flows	¹	Interest rate spread	6.65%-6.73% (6.72%)	⁴
										94.38% - 94.38 (94.38%)	³

Residential mortgage loans held for sale	N/A		12,612		12,100		Quoted prices of loans sold in securitization transactions, with a liquidity discount applied		Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.	95.94%


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 352 to 467 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 3 percent.

A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of December 31, 2016 follows (in thousands):



	Par Value		Amortized Cost/Unpaid Principal Balance		Fair Value		Valuation Technique(s)		Unobservable Input	Range (Weighted Average)

Available for sale securities
Municipal and other tax-exempt securities	$	6,195	$	6,163	$	5,789	Discounted cash flows	¹	Interest rate spread	5.91%-6.21% (6.16%)	²
										90.00%-93.40% (92.20%)	³
Other debt securities	4,400		4,400		4,152		Discounted cash flows	¹	Interest rate spread	6.01%-6.26% (6.23%)	⁴
										94.34% - 94.36 (94.36%)	³
Residential mortgage loans held for sale	N/A		12,431		11,617		Quoted prices of loans sold in securitization transactions, with a liquidity discount applied		Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.	93.45%


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 467 to 525 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 percent.

A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2016 follows (in thousands):



	Par Value		Amortized Cost		Fair Value		Valuation Technique(s)		Unobservable Input	Range (Weighted Average)

Available for sale securities
Municipal and other tax-exempt securities	$	6,195	$	6,162	$	5,713	Discounted cash flows	¹	Interest rate spread	5.60%-5.90% (5.85%)	²
										90.00%-93.79% (92.22%)	³
Other debt securities	4,400		4,400		4,151		Discounted cash flows	¹	Interest rate spread	5.98%-6.03% (6.02%)	⁴
										94.34% - 94.34 (94.34%)	³

Residential mortgage loans held for sale	N/A		9,957		9,301		Quoted prices of loans sold in securitization transactions, with a liquidity discount applied		Liquidity discount applied to the market value of a mortgage loans qualifying for sale to U.S. government agencies.	93.41%


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 437 to 484 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 percent.

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

Assets measured at fair value on a non-recurring basis include 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) during the period. The carrying value represents only those assets with a balance at September 30, 2017 for which the fair value was adjusted during the nine months ended September 30, 2017:



							Fair Value Adjustments for the
	Carrying Value at September 30, 2017						Three Months Ended September 30, 2017 Recognized in:				Nine Months Ended September 30, 2017 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		Gross charge-offs against allowance for loan losses		Net losses and expenses of repossessed assets, net
Impaired loans	$	—	$	423	$	10,960	$	4,397	$	—	$	5,058	$	—
Real estate and other repossessed assets	—		4,392		6,845		—		4,683		—		4,915

The following represents the carrying value of assets measured at fair value on a non-recurring basis (and related losses) during the period. The carrying value represents only those assets with a balance at September 30, 2016 for which the fair value was adjusted during the nine months ended September 30, 2016:



	Carrying Value at September 30, 2016						Fair Value Adjustments for the Three Months Ended September 30, 2016 Recognized in:				Nine Months Ended September 30, 2016 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		Gross charge-offs against allowance for loan losses		Net losses and expenses of repossessed assets, net
Impaired loans	$	—	$	436	$	23,089	$	6,334	$	—	$	30,200	$	—
Real estate and other repossessed assets	—		6,048		1,927		—		480		—		1,260

The fair value of collateral-dependent impaired loans secured by real estate 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 the same or comparable assets, uncorroborated expert opinions or management's knowledge of the collateral or industry. Non-recurring fair value measurements of collateral dependent loans secured by mineral rights are generally determined by our internal staff of engineers on projected cash flows under current market conditions and are based on significant unobservable inputs. Projected cash flows are discounted according to risk characteristics of the underlying oil and gas properties. Assets are evaluated to demonstrate with reasonable certainty that crude oil, natural gas and natural gas liquids can be recovered from known oil and gas reservoirs under existing economic and operating conditions at current prices with existing conventional equipment, operating methods and costs. Significant unobservable 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 September 30, 2017 follows (in thousands):



	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Impaired loans	$	10,960	Discounted cash flows	Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs	64% - 88% (68%)¹
Real estate and other repossessed assets	6,845		Appraised value, as adjusted	Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs	N/A


¹	Represents fair value as a percentage of the unpaid principal balance.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2016 follows (in thousands):



	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Impaired loans	$	23,089	Discounted cash flows	Recoverable oil and gas reserves, forward-looking commodity prices, estimated operating costs	23% - 59% (43%)¹
Real estate and other repossessed assets	1,927		Appraised value, as adjusted	Marketability adjustments off appraised value2	68% - 80% (71%)


¹	Represents fair value as a percentage of the unpaid principal balance.


²	Marketability adjustments include consideration of estimated costs to sell which is approximately 10% of the fair value.

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 basis as of September 30, 2017 (dollars in thousands):



	Carrying Value			Estimated Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and due from banks	$	547,203		$	547,203	$	547,203	$	—	$	—
Interest-bearing cash and cash equivalents	1,926,779			1,926,779		1,926,779		—		—
Trading securities:								—
U.S. government agency debentures	30,162			30,162		—		30,162		—
U.S. government agency residential mortgage-backed securities	516,760			516,760		—		516,760		—
Municipal and other tax-exempt securities	56,148			56,148		—		56,148		—
Other trading securities	11,047			11,047		—		11,047		—
Total trading securities	614,117			614,117		—		614,117		—
Investment securities:
Municipal and other tax-exempt securities	246,000			249,250		—		249,250		—
U.S. government agency residential mortgage-backed securities	16,926			17,458		—		17,458		—
Other debt securities	203,636			223,187		—		223,187		—
Total investment securities	466,562			489,895		—		489,895		—
Available for sale securities:
U.S. Treasury	999			999		999		—		—
Municipal and other tax-exempt securities	28,368			28,368		—		23,583		4,785
U.S. government agency residential mortgage-backed securities	5,326,384			5,326,384		—		5,326,384		—
Privately issued residential mortgage-backed securities	99,994			99,994		—		99,994		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	2,889,346			2,889,346		—		2,889,346		—
Other debt securities	4,153			4,153		—		—		4,153
Perpetual preferred stock	16,245			16,245		—		16,245		—
Equity securities and mutual funds	17,710			17,710		2,578		15,132		—
Total available for sale securities	8,383,199			8,383,199		3,577		8,370,684		8,938
Fair value option securities – U.S. government agency residential mortgage-backed securities	819,531			819,531		—		819,531		—
Residential mortgage loans held for sale	275,643			275,643		—		263,543		12,100
Loans:
Commercial	10,795,934			10,574,720		—		—		10,574,720
Commercial real estate	3,518,142			3,467,009		—		—		3,467,009
Residential mortgage	1,945,750			1,958,632		—		—		1,958,632
Personal	947,008			938,819		—		—		938,819
Total loans	17,206,834			16,939,180		—		—		16,939,180
Allowance for loan losses	(247,703		)	—		—		—		—
Loans, net of allowance	16,959,131			16,939,180		—		—		16,939,180
Mortgage servicing rights	245,858			245,858		—		—		245,858
Derivative instruments with positive fair value, net of cash collateral	352,559			352,559		8,498		344,061		—
Deposits with no stated maturity	19,675,790			19,675,790		—		—		19,675,790
Time deposits	2,172,289			2,138,367		—		—		2,138,367
Other borrowed funds	6,631,820			6,609,642		—		—		6,609,642
Subordinated debentures	144,668			146,693		—		146,693		—
Derivative instruments with negative fair value, net of cash collateral	336,327			336,327		6,903		329,424		—



	Carrying Value			Estimated Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and due from banks	$	620,846		$	620,846	$	620,846	$	—	$	—
Interest-bearing cash and cash equivalents	1,916,651			1,916,651		1,916,651		—		—
Trading securities:								—
U.S. government agency debentures	6,234			6,234		—		6,234		—
U.S. government agency residential mortgage-backed securities	310,067			310,067		—		310,067		—
Municipal and other tax-exempt securities	14,427			14,427		—		14,427		—
Other trading securities	6,900			6,900		—		6,900		—
Total trading securities	337,628			337,628		—		337,628		—
Investment securities:
Municipal and other tax-exempt securities	320,364			321,225		—		321,225		—
U.S. government agency residential mortgage-backed securities	20,777			21,473		—		21,473		—
Other debt securities	205,004			222,795		—		222,795		—
Total investment securities	546,145			565,493		—		565,493		—
Available for sale securities:
U.S. Treasury	999			999		999		—		—
Municipal and other tax-exempt securities	40,993			40,993		—		35,204		5,789
U.S. government agency residential mortgage-backed securities	5,460,386			5,460,386		—		5,460,386		—
Privately issued residential mortgage-backed securities	115,535			115,535		—		115,535		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	3,017,933			3,017,933		—		3,017,933		—
Other debt securities	4,152			4,152		—		—		4,152
Perpetual preferred stock	18,474			18,474		—		18,474		—
Equity securities and mutual funds	18,357			18,357		3,495		14,862		—
Total available for sale securities	8,676,829			8,676,829		4,494		8,662,394		9,941
Fair value option securities – U.S. government agency residential mortgage-backed securities	77,046			77,046		—		77,046		—
Residential mortgage loans held for sale	301,897			301,897		—		290,280		11,617
Loans:
Commercial	10,390,824			10,437,016		—		—		10,437,016
Commercial real estate	3,809,046			3,850,981		—		—		3,850,981
Residential mortgage	1,949,832			2,025,159		—		—		2,025,159
Personal	839,958			864,904		—		—		864,904
Total loans	16,989,660			17,178,060		—		—		17,178,060
Allowance for loan losses	(246,159		)	—		—		—		—
Loans, net of allowance	16,743,501			17,178,060		—		—		17,178,060
Mortgage servicing rights	247,073			247,073		—		—		247,073
Derivative instruments with positive fair value, net of cash collateral	689,872			689,872		7,541		682,331		—
Deposits with no stated maturity	20,526,295			20,526,295		—		—		20,526,295
Time deposits	2,221,800			2,218,303		—		—		2,218,303
Other borrowed funds	5,572,662			5,556,327		—		—		5,556,327
Subordinated debentures	144,640			128,903		—		128,903		—
Derivative instruments with negative fair value, net of cash collateral	664,531			664,531		6,972		657,559		—



	Carrying Value			Estimated Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and due from banks	$	535,916		$	535,916	$	535,916	$	—	$	—
Interest-bearing cash and cash equivalents	2,080,978			2,080,978		2,080,978		—		—
Trading securities:								—
U.S. government agency debentures	15,705			15,705		—		15,705		—
U.S. government agency residential mortgage-backed securities	464,749			464,749		—		464,749		—
Municipal and other tax-exempt securities	54,856			54,856		—		54,856		—
Other trading securities	11,305			11,305		—		11,305		—
Total trading securities	546,615			546,615		—		546,615		—
Investment securities:
Municipal and other tax-exempt securities	323,225			327,788		—		327,788		—
U.S. government agency residential mortgage-backed securities	22,166			23,452		—		23,452		—
Other debt securities	201,066			229,070		—		229,070		—
Total investment securities	546,457			580,310		—		580,310		—
Available for sale securities:
U.S. Treasury	1,002			1,002		1,002		—		—
Municipal and other tax-exempt securities	42,092			42,092		—		36,379		5,713
U.S. government agency residential mortgage-backed securities	5,668,672			5,668,672		—		5,668,672		—
Privately issued residential mortgage-backed securities	121,603			121,603		—		121,603		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	2,986,495			2,986,495		—		2,986,495		—
Other debt securities	4,151			4,151		—		—		4,151
Perpetual preferred stock	19,578			19,578		—		19,578		—
Equity securities and mutual funds	18,690			18,690		3,544		15,146		—
Total available for sale securities	8,862,283			8,862,283		4,546		8,847,873		9,864
Fair value option securities:
U.S. Treasury	222,409			222,409		222,409		—		—
U.S. government agency residential mortgage-backed securities	—			—		—		—		—
Total fair value option securities	222,409			222,409		222,409		—		—
Residential mortgage loans held for sale	447,592			447,592		—		438,291		9,301
Loans:
Commercial	10,120,163			9,926,548		—		—		9,926,548
Commercial real estate	3,793,598			3,769,427		—		—		3,769,427
Residential mortgage	1,872,793			1,905,786		—		—		1,905,786
Personal	678,232			671,421		—		—		671,421
Total loans	16,464,786			16,273,182		—		—		16,273,182
Allowance for loan losses	(245,103		)	—		—		—		—
Loans, net of allowance	16,219,683			16,273,182		—		—		16,273,182
Mortgage servicing rights	203,621			203,621		—		—		203,621
Derivative instruments with positive fair value, net of cash collateral	655,078			655,078		5,575		649,503		—
Deposits with no stated maturity	18,925,873			18,925,873		—		—		18,925,873
Time deposits	2,169,631			2,163,947		—		—		2,163,947
Other borrowed funds	7,147,047			7,079,737		—		—		7,079,737
Subordinated debentures	144,631			148,360		—		148,360		—
Derivative instruments with negative fair value, net of cash collateral	573,987			573,987		1,308		572,679		—

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 sheets 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 $220 million at September 30, 2017, $218 million at December 31, 2016 and $217 million at September 30, 2016. A summary of assumptions used in determining the fair value of loans follows:



	Range of Contractual Yields	Average Re-pricing (in years)	Discount Rate
September 30, 2017:
Commercial	0.38% - 30.00%	0.62	0.78% - 4.59%
Commercial real estate	0.38% - 18.00%	0.77	1.04% - 4.38%
Residential mortgage	1.74% - 18.00%	2.12	1.79% - 4.09%
Personal	0.25% - 21.00%	0.24	0.55% - 4.78%

December 31, 2016:
Commercial	0.38% - 30.00%	0.70	0.64% - 4.60%
Commercial real estate	0.38% - 18.00%	0.71	0.94% - 4.27%
Residential mortgage	1.74% - 18.00%	2.27	1.71% - 4.26%
Personal	0.25% - 21.00%	0.40	1.03% - 4.59%

September 30, 2016:
Commercial	0.38% - 30.00%	0.69	0.54% - 3.93%
Commercial real estate	0.38% - 18.00%	0.72	0.80% - 3.90%
Residential mortgage	1.74% - 18.00%	1.95	1.57% - 3.55%
Personal	0.25% - 21.00%	0.35	0.75% - 4.15%

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.

A summary of assumptions used in determining the fair value of time deposits follows:



	Range of Contractual Yields	Average Re-pricing (in years)	Discount Rate
September 30, 2017	0.03% - 9.64%	1.95	1.86% - 2.18%
December 31, 2016	0.02% - 9.65%	1.96	1.57% - 2.00%
September 30, 2016	0.03% - 9.65%	2.10	1.37% - 1.66%

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. A summary of assumptions used in determining the fair value of other borrowings and subordinated debentures follows:



	Range of Contractual Yields	Average Re-pricing (in years)	Discount Rate
September 30, 2017:
Other borrowed funds	0.25% - 6.25%	0.02	1.06% - 3.70%
Subordinated debentures	5.38%	16.85	4.96%

December 31, 2016:
Other borrowed funds	0.25% - 3.50%	0.00	0.55% - 3.22%
Subordinated debentures	5.38%	16.86	6.11%

September 30, 2016:
Other borrowed funds	0.25% - 3.81%	0.02	0.29% - 2.99%
Subordinated debentures	5.38%	18.37	5.38%

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 September 30, 2017, December 31, 2016 or September 30, 2016.

Fair Value Election

As more fully disclosed in Note 2 and Note 6 to the Consolidated Financial Statements, the Company has elected to carry all residential mortgage-backed securities guaranteed by U.S. government agencies and U.S. Treasury securities held as economic hedges against changes in the fair value of mortgage servicing rights and all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings.