Fair Value Measurements

6 Months Ended

Jun. 30, 2023

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 2022 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, 2023 and December 31, 2022 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 2023 or the year ended December 31, 2022.


			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, 2023
Assets:
Residential mortgage loans held for sale	$	1,566	$	—	$	1,566	$	—
Available for sale debt securities:
U.S. government and federal agency obligations	945,815		945,815		—		—
Government-sponsored enterprise obligations	44,036		—		44,036		—
State and municipal obligations	1,227,737		—		1,226,817		920
Agency mortgage-backed securities	4,065,406		—		4,065,406		—
Non-agency mortgage-backed securities	1,174,790		—		1,174,790		—
Asset-backed securities	2,499,675		—		2,499,675		—
Other debt securities	457,166		—		457,166		—
Trading debt securities	29,412		—		29,412		—
Equity securities	5,520		5,520		—		—
Private equity investments	172,732		—		—		172,732
Derivatives *	104,936		—		104,843		93
Assets held in trust for deferred compensation plan	19,482		19,482		—		—
Total assets	10,748,273		970,817		9,603,711		173,745
Liabilities:
Derivatives *	51,998		—		51,910		88
Liabilities held in trust for deferred compensation plan	19,482		19,482		—		—
Total liabilities	$	71,480	$	19,482	$	51,910	$	88
December 31, 2022
Assets:
Residential mortgage loans held for sale	$	—	$	—	$	—	$	—
Available for sale debt securities:
U.S. government and federal agency obligations	1,035,406		1,035,406		—		—
Government-sponsored enterprise obligations	43,108		—		43,108		—
State and municipal obligations	1,767,109		—		1,765,268		1,841
Agency mortgage-backed securities	4,308,427		—		4,308,427		—
Non-agency mortgage-backed securities	1,211,607		—		1,211,607		—
Asset-backed securities	3,397,801		—		3,397,801		—
Other debt securities	474,858		—		474,858		—
Trading debt securities	43,523		—		43,523		—
Equity securities	6,210		6,210		—		—
Private equity investments	178,127		—		—		178,127
Derivatives *	60,492		—		60,458		34
Assets held in trust for deferred compensation plan	17,856		17,856		—		—
Total assets	12,544,524		1,059,472		11,305,050		180,002
Liabilities:
Derivatives *	54,984		—		54,865		119
Liabilities held in trust for deferred compensation plan	17,856		17,856		—		—
Total liabilities	$	72,840	$	17,856	$	54,865	$	119

* 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, 2023
Balance March 31, 2023	$	914	$	163,418	$	(27)	$	164,305
Total gains or losses (realized/unrealized):
Included in earnings	—		9,090		(16)		9,074
Included in other comprehensive income *	5		—		—		5

Discount accretion	1		—		—		1
Purchases of private equity investments	—		224		—		224


Purchase of risk participation agreement	—		—		61		61
Sale of risk participation agreement	—		—		(13)		(13)
Balance June 30, 2023	$	920	$	172,732	$	5	$	173,657
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, 2023	$	—	$	9,090	$	61	$	9,151
*Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2023	$	5	$	—	$	—	$	5
For the six months ended June 30, 2023
Balance January 1, 2023	$	1,841	$	178,127	$	(85)	$	179,883
Total gains or losses (realized/unrealized):
Included in earnings	—		11,341		42		11,383
Included in other comprehensive income *	31		—		—		31
Investment securities called	(1,000)		—		—		(1,000)
Discount accretion	48		—		—		48
Purchases of private equity investments	—		10,756		—		10,756
Sale/pay down of private equity investments	—		(27,492)		—		(27,492)

Purchase of risk participation agreement	—		—		61		61
Sale of risk participation agreement	—		—		(13)		(13)
Balance June 30, 2023	$	920	$	172,732	$	5	$	173,657
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, 2023	$	—	$	11,341	$	42	$	11,383
*Total gains or losses for the six months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2023	$	10	$	—	$	—	$	10


	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, 2022
Balance March 31, 2022	$	1,902	$	153,411	$	221	$	155,534
Total gains or losses (realized/unrealized):
Included in earnings	—		15,633		(131)		15,502
Included in other comprehensive income *	(87)		—		—		(87)

Discount accretion	1		—		—		1
Purchases of private equity investments	—		822		—		822
Sale/pay down of private equity investments	—		(8,095)		—		(8,095)

Purchase of risk participation agreement	—		—		314		314
Sale of risk participation agreement	—		—		(250)		(250)
Balance June 30, 2022	$	1,816	$	161,771	$	154	$	163,741
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, 2022	$	—	$	15,633	$	148	$	15,781
*Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2022	$	(87)	$	—	$	—	$	(87)
For the six months ended June 30, 2022
Balance January 1, 2022	$	1,984	$	147,406	$	571	$	149,961
Total gains or losses (realized/unrealized):
Included in earnings	—		23,083		(626)		22,457
Included in other comprehensive income *	(170)		—		—		(170)

Discount accretion	2		—		—		2
Purchases of private equity investments	—		1,122		—		1,122
Sale/pay down of private equity investments	—		(9,840)		—		(9,840)

Purchase of risk participation agreement	—		—		459		459
Sale of risk participation agreement	—		—		(250)		(250)
Balance June 30, 2022	$	1,816	$	161,771	$	154	$	163,741
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, 2022	$	—	$	23,033	$	136	$	23,169
*Total gains or losses for the six months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2022	$	(170)	$	—	$	—	$	(170)

* Included in "net unrealized gains (losses) on available for sale debt 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, 2023
Total gains or losses included in earnings	$	(19)	$	3	$	9,090	$	9,074
Change in unrealized gains or losses relating to assets still held at June 30, 2023	$	58	$	3	$	9,090	$	9,151
For the six months ended June 30, 2023
Total gains or losses included in earnings	$	58	$	(16)	$	11,341	$	11,383
Change in unrealized gains or losses relating to assets still held at June 30, 2023	$	58	$	(16)	$	11,341	$	11,383
For the three months ended June 30, 2022
Total gains or losses included in earnings	$	(49)	$	(82)	$	15,633	$	15,502
Change in unrealized gains or losses relating to assets still held at June 30, 2022	$	230	$	(82)	$	15,633	$	15,781
For the six months ended June 30, 2022
Total gains or losses included in earnings	$	(534)	$	(92)	$	23,083	$	22,457
Change in unrealized gains or losses relating to assets still held at June 30, 2022	$	230	$	(94)	$	23,033	$	23,169

Level 3 Inputs

The Company's significant Level 3 measurements, which employ unobservable inputs that are readily quantifiable, pertain to investments in portfolio concerns held by the Company's private equity subsidiaries and held for sale residential mortgage loan commitments. Information about these inputs is presented in the table below.


Quantitative Information about Level 3 Fair Value Measurements						Weighted
	Valuation Technique	Unobservable Input	Range			Average*


Private equity investments	Market comparable companies	EBITDA multiple	4.0	-	6.0	5.2
Mortgage loan commitments	Discounted cash flow	Probability of funding	64.5%	-	100.0%	81.2%
		Embedded servicing value	.7%	-	1.5%	1.1%

* Unobservable inputs were weighted by the relative fair value of the instruments.

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 2023 and 2022, and still held as of June 30, 2023 and 2022, 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, 2023 and 2022.


			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, 2023
Collateral dependent loans	$	1,647	$	—	$	—	$	1,647	$	588





June 30, 2022

Mortgage servicing rights	$	11,407	$	—	$	—	$	11,407	$	304

Long- lived assets	484		—		—		484		(965)

The Company's significant Level 3 measurements that are measured on a nonrecurring basis pertain to the Company's mortgage servicing rights retained on certain fixed rate personal real estate loan originations. Mortgage servicing rights are included in other intangible assets-net on the consolidated balance sheets, and information about these inputs at June 30, 2023 is presented in the table below.


Quantitative Information about Level 3 Fair Value Measurements										Weighted
	Valuation Technique	Unobservable Input	Range							Average*
Mortgage servicing rights	Discounted cash flow	Discount rate	9.51		%	-	9.71		%	9.58		%
		Prepayment speeds (CPR)*	6.43		%	-	7.79		%	6.65		%
		Loan servicing costs - annually per loan
		Performing loans	$	70		-	$	72		$	71
		Delinquent loans	$	200		-	$	750
		Loans in foreclosure	$	1,000

*Ranges and weighted averages based on interest rate tranches.

The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are updated periodically for changes in market conditions. Actual rates may differ from our estimates. Increases in prepayment speed and discount rates negatively impact the fair value of our mortgage servicing rights.