Note

Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Equity securities and debt securities available for sale 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 on a nonrecurring basis, such as other real estate owned, impaired loans, certain loans held for investment, debt securities held to maturity, and other assets. These nonrecurring fair value adjustments typically involve the lower-of-cost or fair-value accounting of individual assets.

In accordance with the Fair Value Measurement and Disclosure topic of the FASB Accounting Standards Codification, the Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in the principal market or most advantageous market for an asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. A fair value measurement reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance.

The Company groups its assets and liabilities measured at fair value into a

three

-level hierarchy, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. When the valuation assumptions used to measure the fair value of the asset or liability are categorized within different levels of the fair value hierarchy, the asset or liability is categorized in its entirety within the lowest level of the hierarchy. These levels are:

Level

– Valuation is based upon quoted prices for identical instruments traded in active exchange markets, such as the New York Stock Exchange. Level

includes U.S. Treasury and equity securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level

– Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are

not

active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level

includes mutual funds, federal agency securities, mortgage-backed securities, corporate securities, asset-backed securities, and municipal bonds.

Level

– Valuation is generated from model-based techniques that use significant assumptions

not

observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The Company relies on independent vendor pricing services to measure fair value for equity securities, debt securities available for sale and debt securities held to maturity. The Company employs

three

pricing services. To validate the pricing of these vendors, the Company compares vendors’ pricing for each of the securities for consistency; significant pricing differences, if any, are evaluated using all available independent quotes with the quote most closely reflecting the market generally used as the fair value estimate. In addition, the Company conducts “other than temporary impairment (OTTI)” analysis on a quarterly basis; debt securities selected for OTTI analysis include all debt securities at a market price below

percent of par value. As with any valuation technique used to estimate fair value, changes in underlying assumptions used could significantly affect the results of current and future values. Accordingly, these fair value estimates

may

not

be realized in an actual sale of the securities.

The Company regularly reviews the valuation techniques and assumptions used by its vendors and determines which valuation techniques are utilized based on observable market inputs for the type of securities being measured. The Company uses the information to determine the placement in the fair value hierarchy as level

When the Company changes its valuation assumptions for measuring financial assets and financial liabilities at fair value, either due to changes in current market conditions or other factors, or reevaluates the valuation techniques and assumptions used by its vendors, it

may

need to transfer those assets or liabilities to another level in the hierarchy based on the new information. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the

six

months ended

June 30, 2018

and year ended

December 31, 2017,

there were

transfers in to or out of levels

Assets Recorded at Fair Value on a Recurring Basis

The tables below present assets measured at fair value on a recurring basis on the dates indicated.

	At June 30, 2018
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Equity securities
Mutual funds	$	1,750	$	-	$	1,750	$	-
Total equity securities		1,750		-		1,750		-
Debt securities available for sale
Securities of U.S. Government sponsored entities		117,372		-		117,372		-
Agency residential MBS		857,365		-		857,365		-
Non-agency residential MBS		128		-		128		-
Agency commercial MBS		2,178		-		2,178		-
Securities of U.S. Government entities		1,433		-		1,433		-
Obligations of states and political subdivisions		183,691		-		183,691		-
Corporate securities		1,201,027		-		1,201,027		-
Total debt securities available for sale		2,363,194		-		2,363,194		-
Total	$	2,364,944	$	-	$	2,364,944	$	-

	At December 31, 2017
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Equity securities
Mutual funds	$	1,800	$	-	$	1,800	$	-
Total equity securities		1,800		-		1,800		-
Debt securities available for sale
Securities of U.S. Government sponsored entities		119,319		-		119,319		-
Agency residential MBS		767,706		-		767,706		-
Non-agency residential MBS		154		-		154		-
Agency commercial MBS		2,219		-		2,219		-
Securities of U.S. Government entities		1,590		-		1,590		-
Obligations of states and political subdivisions		185,221		-		185,221		-
Corporate securities		1,115,498		-		1,115,498		-
Total debt securities available for sale		2,191,707		-		2,191,707		-
Total	$	2,193,507	$	-	$	2,193,507	$	-

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company

may

be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value accounting of individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheet at

June 30, 2018

and

December 31, 2017,

the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at period end.

									For the
									Six Months Ended
	At June 30, 2018								June 30, 2018
	Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)
Other real estate owned	$	939	$	-	$	-	$	939	$	-
Impaired loans:
Commercial		4,776		-		-		4,776		-
Commercial real estate		5,707		-		-		5,707		-
Total assets measured at fair value on a nonrecurring basis	$	11,422	$	-	$	-	$	11,422	$	-

									For the
									Year Ended
	At December 31, 2017								December 31, 2017
	Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)
Other real estate owned	$	1,426	$	-	$	-	$	1,426	$	(219	)
Impaired loans:
Commercial		4,950		-		-		4,950		-
Commercial real estate		5,904		-		-		5,904		-
Total assets measured at fair value on a nonrecurring basis	$	12,280	$	-	$	-	$	12,280	$	(219	)

Level

– Valuation is based upon present value of expected future cash flows, independent market prices, estimated liquidation values of loan collateral or appraised value of the collateral as determined by

third

-party independent appraisers, less

10%

for selling costs, generally. Level

includes other real estate owned that has been measured at fair value upon transfer to foreclosed assets and impaired loans collateralized by real property and other business asset collateral where a specific reserve has been established or a chargeoff has been recorded. Losses on other real estate owned represent losses recognized in earnings during the period subsequent to its initial classification as foreclosed assets. The unobservable inputs and qualitative information about the unobservable inputs are

not

presented as the inputs were

not

developed by the Company.

Disclosures about Fair Value of Financial Instruments

The following section describes the valuation methodologies used by the Company for estimating fair value of financial instruments

not

recorded at fair value in the balance sheet. The Company implemented the provisions of ASU

2016

01,

Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities

, effective

January 1, 2018.

The provisions require the Company to use the “exit price notion” when measuring the fair value of financial instruments for disclosure purposes.

Cash and Due from Banks

Cash and due from banks represent U.S. dollar denominated coin and currency, deposits at the Federal Reserve Bank and correspondent banks, and amounts being settled with other banks to complete the processing of customers’ daily transactions. Collectively, the Federal Reserve Bank and financial institutions operate in a market in which cash and due from banks transactions are processed continuously in significant daily volumes honoring the face value of the U.S. dollar.

Debt Securities Held to Maturity

The fair values of debt securities were estimated using quoted prices as described above for Level

valuation.

Loans

Loans are valued using the exit price notion. The Company uses a net present value of cash flows methodology that seeks to incorporate interest rate, credit, liquidity and prepayment risks in the fair market value estimation. Inputs to calculation include market rates for similarly offered products, market interest rate projections, credit spreads, estimated credit losses and prepayment assumptions.

Prior to adoption of ASU

2016

01,

loans were separated into

two

groups for valuation. Variable rate loans, except for those described below, which reprice frequently with changes in market rates were valued using historical cost. Fixed rate loans and variable rate loans that have reached their minimum contractual interest rates were valued by discounting the future cash flows expected to be received from the loans using current interest rates charged on loans with similar characteristics. Additionally, the allowance for loan losses of

$23,009

thousand at

December 31, 2017

was applied against the estimated fair values to recognize estimated future defaults of contractual cash flows.

Deposit Liabilities

Deposits with

stated maturity such as checking accounts, savings accounts and money market accounts can be readily converted to cash or used to settle transactions at face value through the broad financial system operated by the Federal Reserve Banks and financial institutions. The fair value of deposits with

stated maturity is equal to the amount payable on demand. The fair value of time deposits was estimated using a net present value of cash flows methodology, incorporating market interest rate projections and rates on alternative funding sources.

Prior to adoption of ASU

2016

01,

the fair value of time deposits were estimated by discounting estimated future contractual cash flows using current market rates for financial instruments with similar characteristics.

Short-Term Borrowed Funds

The carrying amount of securities sold under agreement to repurchase and other short-term borrowed funds approximate fair value due to the relatively short period of time between their origination and their expected realization.

The tables below are a summary of fair value estimates for financial instruments and the level of the fair value hierarchy within which the fair value measurements are categorized, excluding financial instruments recorded at fair value on a recurring basis. The values assigned do

not

necessarily represent amounts which ultimately

may

be realized for assets or paid to settle liabilities. In addition, these values do

not

give effect to adjustments to fair value which

may

occur when financial instruments are sold or settled in larger quantities. The carrying amounts in the following tables are recorded in the balance sheet under the indicated captions.

The Company has

not

included assets and liabilities that are

not

financial instruments, such as goodwill, long-term relationships with deposit, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other assets and liabilities. The total estimated fair values do

not

represent, and should

not

be construed to represent, the underlying value of the Company.

	At June 30, 2018
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2 )		Significant Unobservable Inputs (Level 3 )
Financial Assets:	(In thousands)
Cash and due from banks	$	629,146	$	629,146	$	629,146	$	-	$	-
Debt securities held to maturity		1,076,456		1,058,573		-		1,058,573		-
Loans		1,177,152		1,211,071		-		-		1,211,071

Financial Liabilities:
Deposits	$	4,887,122	$	4,883,659	$	-	$	4,671,201	$	212,458
Short-term borrowed funds		68,894		68,894		-		68,894		-

	At December 31, 2017
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2 )		Significant Unobservable Inputs (Level 3 )
Financial Assets:	(In thousands)
Cash and due from banks	$	575,002	$	575,002	$	575,002	$	-	$	-
Debt securities held to maturity		1,158,864		1,155,342		-		1,155,342		-
Loans		1,264,973		1,257,811		-		-		1,257,811

Financial Liabilities:
Deposits	$	4,827,613	$	4,824,586	$	-	$	4,595,795	$	228,791
Short-term borrowed funds		58,471		58,471		-		58,471		-

The majority of the Company’s standby letters of credit and other commitments to extend credit carry current market interest rates if converted to loans.

premium or discount was ascribed to these commitments because virtually all funding would be at current market rates.