Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2020

Balances of assets and liabilities measured at fair value on a recurring basis

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis as of June 30, 2020, and December 31, 2019:



	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
June 30, 2020
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	1,116	$	186,833	$	—	$	187,949
Debt Securities Issued by States and Political Subdivisions	—		55,602		—		55,602
Debt Securities Issued by U.S. Government-Sponsored Enterprises	—		1,014		—		1,014
Debt Securities Issued by Corporations	—		225,380		—		225,380
Mortgage-Backed Securities:
Residential - Government Agencies	—		1,312,347		—		1,312,347
Residential - U.S. Government-Sponsored Enterprises	—		663,275		—		663,275
Commercial - Government Agencies	—		280,911		—		280,911
Total Mortgage-Backed Securities	—		2,256,533		—		2,256,533
Total Investment Securities Available-for-Sale	1,116		2,725,362		—		2,726,478
Loans Held for Sale	—		20,711		—		20,711
Mortgage Servicing Rights	—		—		1,068		1,068
Other Assets	43,461		—		—		43,461
Derivatives ¹	—		336		109,304		109,640
Total Assets Measured at Fair Value on a Recurring Basis as of June 30, 2020	$	44,577	$	2,746,409	$	110,372	$	2,901,358

Liabilities:
Derivatives ¹	$	—	$	780	$	20,309	$	21,089
Total Liabilities Measured at Fair Value on a Recurring Basis as of June 30, 2020	$	—	$	780	$	20,309	$	21,089

December 31, 2019
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	1,155	$	219,976	$	—	$	221,131
Debt Securities Issued by States and Political Subdivisions	—		55,097		—		55,097
Debt Securities Issued by U.S. Government-Sponsored Enterprises	—		22,147		—		22,147
Debt Securities Issued by Corporations	—		336,321		—		336,321
Mortgage-Backed Securities:
Residential - Government Agencies	—		1,172,826		—		1,172,826
Residential - U.S. Government-Sponsored Enterprises	—		586,761		—		586,761
Commercial - Government Agencies	—		224,720		—		224,720
Total Mortgage-Backed Securities	—		1,984,307		—		1,984,307
Total Investment Securities Available-for-Sale	1,155		2,617,848		—		2,619,003
Loans Held for Sale	—		39,062		—		39,062
Mortgage Servicing Rights	—		—		1,126		1,126
Other Assets	41,464		—		—		41,464
Derivatives ¹	—		308		28,623		28,931
Total Assets Measured at Fair Value on a Recurring Basis as of December 31, 2019	$	42,619	$	2,657,218	$	29,749	$	2,729,586

Liabilities:
Derivatives ¹	$	—	$	327	$	6,050	$	6,377
Total Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2019	$	—	$	327	$	6,050	$	6,377


¹	The fair value of each class of derivatives is shown in Note 12 Derivative Financial Instruments.

Changes in Level 3 assets and liabilities measured at fair value on a recurring basis

For the three and six months ended June 30, 2020, and June 30, 2019, the changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:



(dollars in thousands)	Mortgage Servicing Rights ¹			Net Derivative Assets and Liabilities ²
Three Months Ended June 30, 2020
Balance as of April 1, 2020	$	1,101		$	80,680
Realized and Unrealized Net Gains (Losses):
Included in Net Income	(33		)	4,290
Transfers to Loans Held for Sale	—			(5,625		)
Variation Margin Payments	—			9,650
Balance as of June 30, 2020	$	1,068		$	88,995
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of June 30, 2020	$	—		$	88,995

Three Months Ended June 30, 2019
Balance as of April 1, 2019	$	1,268		$	9,175
Realized and Unrealized Net Gains (Losses):
Included in Net Income	(56		)	3,530
Transfers to Loans Held for Sale	—			(2,517		)
Variation Margin Payments	—			9,768
Balance as of June 30, 2019	$	1,212		$	19,956
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of June 30, 2019	$	—		$	19,956

Six Months Ended June 30, 2020
Balance as of January 1, 2020	$	1,126		22,573
Realized and Unrealized Net Gains (Losses):
Included in Net Income	(58		)	10,462
Transfers to Loans Held for Sale	—			(9,278		)
Variation Margin Payments	—			65,238
Balance as of June 30, 2020	$	1,068		88,995
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of June 30, 2020	$	—		$	88,995

Six Months Ended June 30, 2019
Balance as of January 1, 2019	$	1,290		$	4,416
Realized and Unrealized Net Gains (Losses):
Included in Net Income	(78		)	5,243
Transfers to Loans Held for Sale	—			(4,014		)
Variation Margin Payments	—			14,311
Balance as of June 30, 2019	$	1,212		$	19,956
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of June 30, 2019	$	—		$	19,956


¹	Realized and unrealized gains and losses related to mortgage servicing rights are reported as a component of mortgage banking income in the Company’s consolidated statements of income.

Realized and unrealized gains and losses related to interest rate lock commitments are reported as a component of mortgage banking income in the Company’s consolidated statements of income. Realized and unrealized gains and losses related to interest rate swap agreements are reported as a component of other noninterest income in the Company’s consolidated statements of income.

Summary of the significant unobservable inputs

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2020, and December 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:



		June 30, 2020										December 31, 2019
(dollars in thousands)	Valuation Technique	Description	Range					Weighted Average¹		Fair Value		Weighted Average¹		Fair Value
Mortgage Servicing Rights	Discounted Cash Flow	Constant Prepayment Rate	9.47	%	-	15.99	%	14.20	%	$	22,904	10.76	%	$	26,840
		Discount Rate	5.50	%	-	6.22	%	5.94	%			7.33	%

Net Derivative Assets and Liabilities:
Interest Rate Lock Commitments	Pricing Model	Closing Ratio	82.10	%	-	99.00	%	89.96	%	$	2,656	92.24	%	$	1,280
Interest Rate Swap Agreements	Discounted Cash Flow	Credit Factor	0.02	%	-	0.58	%	0.23	%	$	86,339	0.20	%	$	21,293


¹	Unobservable inputs for mortgage servicing rights and interest rate lock commitments were weighted by loan amount. Unobservable inputs for interest rate swap agreements were weighted by fair value.

Assets and liabilities measured at fair value on a nonrecurring basis

The Company may be required periodically to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost-or-fair value accounting or impairment write-downs of individual assets. The following table represents the assets measured at fair value on a nonrecurring basis as of June 30, 2020. There were no assets measured at fair value on a nonrecurring basis as of

December 31, 2019.



(dollars in thousands)	Fair Value Hierarchy	Net Carrying Amount		Valuation Allowance
June 30, 2020
Mortgage Servicing Rights - amortization method	Level 3	$	21,836	$	(1,817	)

Schedule of difference between the aggregate fair value and the aggregate unpaid principal balance of the Company's residential mortgage loans held for sale

The following table reflects the difference between the aggregate fair value and the aggregate unpaid principal balance of the Company’s residential mortgage loans held for sale as of June 30, 2020, and December 31, 2019.



(dollars in thousands)	Aggregate Fair Value		Aggregate Unpaid Principal			Aggregate Fair Value Less Aggregate Unpaid Principal
June 30, 2020
Loans Held for Sale	$	20,711		$	19,605		$	1,106

December 31, 2019
Loans Held for Sale	$	39,062		$	38,293		$	769

Schedule of carrying amount, fair value, and fair value hierarchy of financial instruments

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments not recorded at fair value on a recurring basis as of June 30, 2020, and December 31, 2019. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For non-marketable equity securities such as Federal Home Loan Bank and Federal Reserve Bank stock, the carrying amount is a reasonable estimate of fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government supported institution or to another member institution. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.



					Fair Value Measurements
	Carrying				Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
(dollars in thousands)	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2020
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	3,276,829	$	3,374,294	$	145,733	$	3,228,561	$	—
Loans ¹	11,435,573		12,041,071		—		—		12,041,071

Financial Instruments - Liabilities
Time Deposits	1,678,776		1,689,258		—		1,689,258		—
Securities Sold Under Agreements to Repurchase	603,206		652,859		—		652,859		—
Other Debt ²	50,000		51,785		—		51,785		—

December 31, 2019
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	3,042,294	$	3,062,882	$	275,663	$	2,787,219	$	—
Loans ¹	10,664,885		10,873,208		—		—		10,873,208

Financial Instruments - Liabilities
Time Deposits	1,802,431		1,800,773		—		1,800,773		—
Securities Sold Under Agreements to Repurchase	604,306		627,780		—		627,780		—
Other Debt ²	75,000		75,581		—		75,581		—


¹	Carrying amount is net of unearned income and the Allowance.


²	Excludes finance lease obligations.