Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Fair value represents the estimated price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (i.e., an exit price concept).

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 Corporation’s 2019 Annual Report on Form 10-K. There has been one significant change to the methodologies for assets and liabilities measured at fair value on a nonrecurring basis:

Individually Evaluated Loans: The Corporation individually evaluates loans when a commercial loan relationship is in nonaccrual status or when a commercial and consumer loan relationship has its terms restructured in a TDR or when a loan meets the Corporation's definition of a probable TDR. Prior to January 1, 2020, management considered a loan impaired when it was probable that the Corporation would be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. See Note 7 for additional information regarding the Corporation’s individually evaluated loans.

The table below presents the Corporation’s financial instruments measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall:


($ in Thousands)	Fair Value Hierarchy	September 30, 2020		December 31, 2019
Assets
Investment securities available for sale
U.S. Treasury securities	Level 1	$	26,650	$	—
Agency securities	Level 2	25,033		—
Obligations of state and political subdivisions (municipal securities)	Level 2	474,695		546,160
Residential mortgage-related securities
FNMA / FHLMC	Level 2	1,276,463		132,660
GNMA	Level 2	407,313		985,139

Commercial mortgage-related securities
FNMA / FHLMC	Level 2	21,877		21,728
GNMA	Level 2	688,378		1,310,207
Asset backed securities
FFELP	Level 2	325,843		263,693
SBA	Level 2	9,111		—
Other debt securities	Level 2	2,997		3,000

Total investment securities available for sale	Level 1	$	26,650	$	—
Total investment securities available for sale	Level 2	3,231,711		3,262,586

Equity securities with readily determinable fair values	Level 1	1,646		1,646
Residential loans held for sale	Level 2	130,139		136,280
Interest rate-related instruments(a)	Level 2	225,912		77,024
Foreign currency exchange forwards(a)	Level 2	4,710		4,226

Commodity contracts(a)	Level 2	25,935		20,528


Interest rate lock commitments to originate residential mortgage loans held for sale	Level 3	7,888		2,527
Liabilities
Interest rate-related instruments(a)	Level 2	$	28,960	$	13,073
Foreign currency exchange forwards(a)	Level 2	4,563		4,048
Commodity contracts(a)	Level 2	24,476		19,624


Forward commitments to sell residential mortgage loans	Level 3	—		710

(a) Figures are presented gross before netting. See Note 10 and Note 11 for information relating to the impact of offsetting derivative assets and liabilities and cash collateral with the same counterparty where there is a legally enforceable master netting agreement in place.

The table below presents a rollforward of the consolidated balance sheets amounts for the nine months ended September 30, 2020 and the year ended December 31, 2019, for the Corporation's mortgage derivatives measured on a recurring basis and classified within Level 3 of the fair value hierarchy:


($ in Thousands)	Interest rate lock commitments to originate residential mortgage loans held for sale		Forward commitments to sell residential mortgage loans		Total
Balance December 31, 2018	$	2,208	$	2,072	$	140
New production	24,164		(2,367)		26,531
Closed loans / settlements	(29,375)		(5,968)		(23,407)
Other	5,530		6,973		(1,443)
Mortgage derivative gain (loss)	319		(1,362)		1,681

Balance December 31, 2019	$	2,527	$	710	$	1,817
New production	$	59,550	$	(1,790)	$	61,340
Closed loans / settlements	(60,000)		(14,169)		(45,831)
Other	5,703		15,140		(9,437)
Mortgage derivative gain (loss)	5,253		(819)		6,072

Balance September 30, 2020	$	7,780	$	(108)	$	7,888

The closing ratio on interest rate lock commitments to originate residential mortgage loans held for sale is a Level 3 measurement, and was 88% at September 30, 2020.

The following table presents the carrying value of equity securities without readily determinable fair values still held as of September 30, 2020 that are measured under the measurement alternative and the related adjustments recorded during the periods presented for those securities with observable price changes. These securities are included in the nonrecurring fair value tables when applicable price changes are observable. Also shown are the cumulative upward and downward adjustments for the Corporation's equity securities without readily determinable fair values as of September 30, 2020:


($ in Thousands)
Equity securities without readily determinable fair values
Carrying value as of December 31, 2019	$	13,444
Carrying value changes	—

Carrying value as of September 30, 2020	$	13,444

Cumulative upward carrying value changes between January 1, 2018 and September 30, 2020	$	13,444
Cumulative downward carrying value changes/impairment between January 1, 2018 and September 30, 2020	$	—

The table below presents the Corporation’s assets measured at fair value on a nonrecurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall:

Consolidated Statements of Income
Category of Adjustment
Recognized in Income

Adjustment Recognized on the Consolidated Statements of Income

($ in Thousands)

Fair Value Hierarchy

Fair Value

September 30, 2020

Assets

Individually evaluated loans(a)

Level 3

117,451

Provision for credit losses

(96,856)

OREO(b)

Level 2

10,953

Other noninterest expense

(7,339)

Mortgage servicing rights

Level 3

45,303

Mortgage banking, net

(18,481)

December 31, 2019

Assets

Impaired loans(c)

Level 3

45,792

Provision for credit losses(d)

(66,172)

OREO(b)

Level 2

3,565

Other noninterest expense

(1,860)

Mortgage servicing rights

Level 3

72,532

Mortgage banking, net

(63)

Equity securities

Level 3

13,444

Investment securities gains (losses), net

13,444

(a) Includes probable TDRs which are individually analyzed, net of the related allowance for loan losses.

(b) If the fair value of the collateral exceeds the carrying amount of the asset, no charge off or adjustment is necessary, the asset is not considered to be carried at fair value, and is therefore not included in the table.

(d) Represents provision for credit losses on individually evaluated impaired loans.

Certain nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis include the fair value analysis in the goodwill impairment test, and intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment.

The Corporation's significant Level 3 measurements which employ unobservable inputs that are readily quantifiable pertain to MSRs and individually evaluated loans.

The table below presents information about these inputs and further discussion is found above:


September 30, 2020	Valuation Technique	Significant Unobservable Input	Range of Inputs			Weighted Average Input Applied
Mortgage servicing rights	Discounted cash flow	Discount rate	9%	-	14%	9%
Mortgage servicing rights	Discounted cash flow	Constant prepayment rate	14%	-	46%	20%
Individually evaluated loans	Appraisals / Discounted cash flow	Collateral / Discount factor	0%	-	42%	37%

Fair Value of Financial Instruments

The Corporation is required to disclose estimated fair values for its financial instruments.

Fair value estimates are set forth below for the Corporation’s financial instruments:


		September 30, 2020				December 31, 2019
($ in Thousands)	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Financial assets
Cash and due from banks	Level 1	$	401,151	$	401,151	$	373,380	$	373,380
Interest-bearing deposits in other financial institutions	Level 1	712,416		712,416		207,624		207,624
Federal funds sold and securities purchased under agreements to resell	Level 1	95		95		7,740		7,740
Investment securities held to maturity, net	Level 1	999		1,030		999		1,018
Investment securities held to maturity, net	Level 2	1,989,870		2,123,351		2,204,084		2,275,447
Investment securities available for sale	Level 1	26,650		26,650		—		—
Investment securities available for sale	Level 2	3,231,711		3,231,711		3,262,586		3,262,586

Equity securities with readily determinable fair values	Level 1	1,646		1,646		1,646		1,646
Equity securities without readily determinable fair values	Level 3	13,444		13,444		13,444		13,444
FHLB and Federal Reserve Bank stocks	Level 2	168,280		168,280		227,347		227,347
Residential loans held for sale	Level 2	130,139		130,139		136,280		136,280
Commercial loans held for sale	Level 2	19,360		19,360		15,000		15,000
Loans, net	Level 3	24,619,041		24,532,881		22,620,068		22,399,621
Bank and corporate owned life insurance	Level 2	679,257		679,257		671,948		671,948

Derivatives (other assets)(a)	Level 2	256,557		256,557		101,778		101,778
Interest rate lock commitments to originate residential mortgage loans held for sale (other assets)	Level 3	7,888		7,888		2,527		2,527
Financial liabilities
Noninterest-bearing demand, savings, interest-bearing demand, and money market accounts	Level 3	$	24,685,695	$	24,685,695	$	21,156,261	$	21,156,261
Brokered CDs and other time deposits(b)	Level 2	2,026,852		2,039,995		2,622,803		2,622,803
Short-term funding(c)	Level 2	206,316		206,316		465,113		465,113
Long-term funding (excluding PPPLF)	Level 2	549,201		589,717		549,343		572,873
PPPLF	Level 2	1,022,217		1,022,399		—		—
FHLB advances	Level 2	1,706,763		1,851,567		3,180,967		3,207,793
Standby letters of credit(d)	Level 2	2,489		2,489		2,710		2,710

Derivatives (accrued expenses and other liabilities)(a)	Level 2	57,999		57,999		36,745		36,745
Forward commitments to sell residential mortgage loans (accrued expenses and other liabilities)	Level 3	—		—		710		710

(b) When the estimated fair value is less than the carrying value, the carrying value is reported as the fair value.

(d) The commitment on standby letters of credit was $252 million at September 30, 2020 and $278 million at December 31, 2019. See Note 12 for additional information on the standby letters of credit and for information on the fair value of lending-related commitments.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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