Fair Value Measurements

6 Months Ended

Jun. 30, 2019

The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities and to determine fair value disclosures. Various financial instruments such as available for sale debt securities, equity securities, trading debt securities, certain investments relating to private equity activities, and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets and liabilities on a nonrecurring basis, such as mortgage servicing rights and certain other investment securities. These nonrecurring fair value adjustments typically involve lower of cost or fair value accounting or write-downs of individual assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:


•	Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.


•	Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds).


•	Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider.

The valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis are described in the Fair Value Measurements note in the Company's 2018 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then.

Instruments Measured at Fair Value on a Recurring Basis

The table below presents the June 30, 2019 and December 31, 2018 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first six months of 2019 or the year ended December 31, 2018.



			Fair Value Measurements Using
(In thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2019
Assets:
Residential mortgage loans held for sale	$	9,285	$	—	$	9,285	$	—
Available for sale debt securities:
U.S. government and federal agency obligations	845,939		845,939		—		—
Government-sponsored enterprise obligations	200,137		—		200,137		—
State and municipal obligations	1,237,456		—		1,225,815		11,641
Agency mortgage-backed securities	3,729,632		—		3,729,632		—
Non-agency mortgage-backed securities	1,010,667		—		1,010,667		—
Asset-backed securities	1,326,178		—		1,326,178		—
Other debt securities	332,294		—		332,294		—
Trading debt securities	36,508		—		36,508		—
Equity securities	2,847		2,847		—		—
Private equity investments	86,411		—		—		86,411
Derivatives *	106,430		—		105,321		1,109
Assets held in trust for deferred compensation plan	15,445		15,445		—		—
Total assets	8,939,229		864,231		7,975,837		99,161
Liabilities:
Derivatives *	10,012		—		9,786		226
Liabilities held in trust for deferred compensation plan	15,445		15,445		—		—
Total liabilities	$	25,457	$	15,445	$	9,786	$	226
December 31, 2018
Assets:
Residential mortgage loans held for sale	$	13,529	$	—	$	13,529	$	—
Available for sale debt securities:
U.S. government and federal agency obligations	907,652		907,652		—		—
Government-sponsored enterprise obligations	195,778		—		195,778		—
State and municipal obligations	1,328,039		—		1,313,881		14,158
Agency mortgage-backed securities	3,214,985		—		3,214,985		—
Non-agency mortgage-backed securities	1,047,716		—		1,047,716		—
Asset-backed securities	1,511,614		—		1,511,614		—
Other debt securities	332,257		—		332,257		—
Trading debt securities	27,059		—		27,059		—
Equity securities	2,585		2,585		—		—
Private equity investments	85,659		—		—		85,659
Derivatives *	41,210		—		40,627		583
Assets held in trust for deferred compensation plan	12,968		12,968		—		—
Total assets	8,721,051		923,205		7,697,446		100,400
Liabilities:
Derivatives *	13,421		—		13,328		93
Liabilities held in trust for deferred compensation plan	12,968		12,968		—		—
Total liabilities	$	26,389	$	12,968	$	13,328	$	93

* The fair value of each class of derivative is shown in Note 11.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In thousands)	State and Municipal Obligations			Private Equity Investments			Derivatives			Total
For the three months ended June 30, 2019
Balance March 31, 2019	$	14,529		$	85,877		$	805		$	101,211
Total gains or losses (realized/unrealized):
Included in earnings	—			(1,176		)	125			(1,051		)
Included in other comprehensive income *	(5		)	—			—			(5		)
Investment securities called	(2,920		)	—			—			(2,920		)
Discount accretion	37			—			—			37
Purchases of private equity investments	—			7,829			—			7,829
Sale/pay down of private equity investments	—			(6,150		)	—			(6,150		)
Capitalized interest/dividends	—			31			—			31
Purchase of risk participation agreement	—			—			26			26
Sale of risk participation agreement	—			—			(73		)	(73		)
Balance June 30, 2019	$	11,641		$	86,411		$	883		$	98,935
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2019	$	—		$	(1,176	)	$	962		$	(214	)
For the six months ended June 30, 2019
Balance January 1, 2019	$	14,158		$	85,659		$	490		$	100,307
Total gains or losses (realized/unrealized):
Included in earnings	—			(3,018		)	440			(2,578		)
Included in other comprehensive income *	359			—			—			359
Investment securities called	(2,920		)	—			—			(2,920		)
Discount accretion	44			—			—			44
Purchases of private equity investments	—			9,889			—			9,889
Sale/pay down of private equity investments	—			(6,150		)	—			(6,150		)
Capitalized interest/dividends	—			31			—			31
Purchase of risk participation agreement	—			—			26			26
Sale of risk participation agreement	—			—			(73		)	(73		)
Balance June 30, 2019	$	11,641		$	86,411		$	883		$	98,935
Total gains or losses for the six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2019	$	—		$	(4,468	)	$	990		$	(3,478	)



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In thousands)	State and Municipal Obligations			Private Equity Investments			Derivatives			Total
For the three months ended June 30, 2018
Balance March 31, 2018	$	17,158		$	64,951		$	520		$	82,629
Total gains or losses (realized/unrealized):
Included in earnings	—			3,791			164			3,955
Included in other comprehensive income *	(379		)	—			—			(379		)
Investment securities sold	(1,715		)	—			—			(1,715		)
Discount accretion	9			—			—			9
Purchases of private equity investments	—			364			—			364
Sale/pay down of private equity investments	—			(166		)	—			(166		)
Balance June 30, 2018	$	15,073		$	68,940		$	684		$	84,697
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2018	$	—		$	3,791		$	747		$	4,538
For the six months ended June 30, 2018
Balance January 1, 2018	$	17,016		$	55,752		$	503		$	73,271
Total gains or losses (realized/unrealized):
Included in earnings	—			8,096			329			8,425
Included in other comprehensive income *	(246		)	—			—			(246		)
Investment securities sold	(1,715		)	—			—			(1,715		)
Discount accretion	18			—			—			18
Purchases of private equity investments	—			5,243			—			5,243
Sale/pay down of private equity investments	—			(186		)	—			(186		)
Capitalized interest/dividends	—			35			—			35
Sale of risk participation agreement	—			—			(148		)	(148		)
Balance June 30, 2018	$	15,073		$	68,940		$	684		$	84,697
Total gains or losses for the six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2018	$	—		$	8,096		$	910		$	9,006

* Included in "net unrealized gains (losses) on other securities" in the consolidated statements of comprehensive income.

Gains and losses included in earnings for the Level 3 assets and liabilities in the previous table are reported in the following line items in the consolidated statements of income:



(In thousands)	Loan Fees and Sales		Other Non-Interest Income		Investment Securities Gains (Losses), Net			Total
For the three months ended June 30, 2019
Total gains or losses included in earnings	$	112	$	13	$	(1,176	)	$	(1,051	)
Change in unrealized gains or losses relating to assets still held at June 30, 2019	$	935	$	27	$	(1,176	)	$	(214	)
For the six months ended June 30, 2019
Total gains or losses included in earnings	$	399	$	41	$	(3,018	)	$	(2,578	)
Change in unrealized gains or losses relating to assets still held at June 30, 2019	$	935	$	55	$	(4,468	)	$	(3,478	)
For the three months ended June 30, 2018
Total gains or losses included in earnings	$	147	$	17	$	3,791		$	3,955
Change in unrealized gains or losses relating to assets still held at June 30, 2018	$	730	$	17	$	3,791		$	4,538
For the six months ended June 30, 2018
Total gains or losses included in earnings	$	149	$	180	$	8,096		$	8,425
Change in unrealized gains or losses relating to assets still held at June 30, 2018	$	730	$	180	$	8,096		$	9,006

Level 3 Inputs

The Company's significant Level 3 measurements which employ unobservable inputs that are readily quantifiable pertain to auction rate securities (ARS) held by the Bank, investments in portfolio concerns held by the Company's private equity subsidiaries, and held for sale residential mortgage loan commitments. ARS are included in state and municipal securities and totaled $11.6 million at June 30, 2019, while private equity investments, included in other securities, totaled $86.4 million.

Information about these inputs is presented in the table and discussions below.



Quantitative Information about Level 3 Fair Value Measurements						Weighted
	Valuation Technique	Unobservable Input	Range			Average
Auction rate securities	Discounted cash flow	Estimated market recovery period			5 years
		Estimated market rate	3.1%	-	4.0%
Private equity investments	Market comparable companies	EBITDA multiple	4.0	-	6.0
Mortgage loan commitments	Discounted cash flow	Probability of funding	41.6%	-	99.7%	79.8%
		Embedded servicing value	.7%	-	1.9%	1.2%

Instruments Measured at Fair Value on a Nonrecurring Basis

For assets measured at fair value on a nonrecurring basis during the first six months of 2019 and 2018, and still held as of June 30, 2019 and 2018, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at June 30, 2019 and 2018.



			Fair Value Measurements Using
(In thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses) Recognized During the Six Months Ended June 30
June 30, 2019
Collateral dependent impaired loans	$	135	$	—	$	—	$	135	$	(58	)
Mortgage servicing rights	6,730		—		—		6,730		(309		)
Long-lived assets	820		—		—		820		(318		)

June 30, 2018
Collateral dependent impaired loans	$	175	$	—	$	—	$	175	$	(118	)
Mortgage servicing rights	5,463		—		—		5,463		9
Foreclosed assets	47		—		—		47		(47		)
Long-lived assets	914		—		—		914		(552		)