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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2018
Fair Value Disclosures [Abstract] |
Fair Value Measurements |
NOTE 18 – FAIR VALUE MEASUREMENTS
All assets and liabilities measured at fair value on both a recurring and nonrecurring basis have been categorized based on the method of their fair value determination. The following tables summarizes the Corporation’s assets and liabilities measured at fair value on a recurring basis and reported on the consolidated balance sheets as of December 31:
| 2018
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (in thousands)
Mortgage loans held for sale | $ | — |  |  | $ | 27,099 |  |  | $ | — |  |  | $ | 27,099 |
Available for sale investment securities: |  |  |  |  |  |  |
U.S. Government sponsored agency securities | — |  |  | 31,632 |  |  | — |  |  | 31,632 |
State and municipal securities | — |  |  | 279,095 |  |  | — |  |  | 279,095 |
Corporate debt securities | — |  |  | 106,258 |  |  | 3,275 |  |  | 109,533 |
Collateralized mortgage obligations | — |  |  | 832,080 |  |  | — |  |  | 832,080 |
Residential mortgage-backed securities | — |  |  | 463,344 |  |  | — |  |  | 463,344 |
Commercial mortgage-backed securities | — |  |  | 261,616 |  |  | — |  |  | 261,616 |
Auction rate securities | — |  |  | — |  |  | 102,994 |  |  | 102,994 |
Total available for sale investment securities | — |  |  | 1,974,025 |  |  | 106,269 |  |  | 2,080,294 |
Investments held in Rabbi Trust | 18,415 |  |  | — |  |  | — |  |  | 18,415 |
Derivative assets | 392 |  |  | 62,552 |  |  | — |  |  | 62,944 |
Total assets | $ | 18,807 |  |  | $ | 2,063,676 |  |  | $ | 106,269 |  |  | $ | 2,188,752 |
Investments held in Rabbi Trust | $ | 18,415 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,415 |
Derivative liabilities | 381 |  |  | 48,185 |  |  | — |  |  | 48,566 |
Total liabilities | $ | 18,796 |  |  | $ | 48,185 |  |  | $ | — |  |  | $ | 66,981 |
| 2017
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (in thousands)
Mortgage loans held for sale | $ | — |  |  | $ | 31,530 |  |  | $ | — |  |  | $ | 31,530 |
Available for sale investment securities: |  |  |  |  |  |  |
Equity securities | 918 |  |  | — |  |  | — |  |  | 918 |
U.S. Government sponsored agency securities | — |  |  | 5,938 |  |  | — |  |  | 5,938 |
State and municipal securities | — |  |  | 408,949 |  |  | — |  |  | 408,949 |
Corporate debt securities | — |  |  | 93,552 |  |  | 3,757 |  |  | 97,309 |
Collateralized mortgage obligations | — |  |  | 602,623 |  |  | — |  |  | 602,623 |
Residential mortgage-backed securities | — |  |  | 1,120,796 |  |  | — |  |  | 1,120,796 |
Commercial mortgage-backed securities | — |  |  | 212,755 |  |  | — |  |  | 212,755 |
Auction rate securities | — |  |  | — |  |  | 98,668 |  |  | 98,668 |
Total available for sale investment securities | 918 |  |  | 2,444,613 |  |  | 102,425 |  |  | 2,547,956 |
Investments held in Rabbi Trust | 18,982 |  |  | — |  |  | — |  |  | 18,982 |
Derivative assets | 469 |  |  | 44,539 |  |  | — |  |  | 45,008 |
Total assets | $ | 20,369 |  |  | $ | 2,520,682 |  |  | $ | 102,425 |  |  | $ | 2,643,476 |
Investments held in Rabbi Trust | $ | 18,982 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,982 |
Derivative liabilities | 375 |  |  | 39,014 |  |  | — |  |  | 39,389 |
Other liabilities | $ | 19,357 |  |  | $ | 39,014 |  |  | $ | — |  |  | $ | 58,371 |
The valuation techniques used to measure fair value for the items in the table above are as follows:
• | Mortgage loans held for sale – This category consists of mortgage loans held for sale that the Corporation has elected to measure at fair value. Fair values as of December 31, 2018 and 2017 were measured as the price that secondary market investors were offering for loans with similar characteristics. See "Note 1 - Summary of Significant Accounting Policies" for details related to the Corporation’s election to measure assets and liabilities at fair value.
• | Available for sale investment securities – Level 2 available for sale debt securities are valued by a third-party pricing service commonly used in the banking industry. The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings, and matrix pricing.
Standard market inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, including market research publications. For certain security types, additional inputs may be used, or some of the standard market inputs may not be applicable. Management tests the values provided by the pricing service by obtaining securities prices from an alternative third-party source and comparing the results. This test is done for approximately 95% of the securities valued by the pricing service. Generally, differences by security in excess of 5% are researched to reconcile the difference.
• | Equity securities – As of December 31, 2018, the Corporation did not hold any equity securities. Equity securities held as of December 31, 2017 consisted of common stocks of financial institutions and other equity investments. These Level 1 investments were measured at fair value based on quoted prices for identical securities in active markets.
• | U.S. Government securities/U.S. Government sponsored agency securities/State and municipal securities/Collateralized mortgage obligations/Residential mortgage-backed securities/Commercial mortgage-backed securities – These debt securities are classified as Level 2 investments. Fair values are determined by a third-party pricing service, as detailed above.
• | Corporate debt securities – This category consists of subordinated and senior debt issued by financial institutions ($86.1 million at December 31, 2018 and $61.9 million at December 31, 2017), single-issuer trust preferred securities issued by financial institutions ($18.6 million at December 31, 2018 and $30.7 million at December 31, 2017), pooled trust preferred securities issued by financial institutions ($875,000 at December 31, 2018 and $707,000 at December 31, 2017) and other corporate debt issued by non-financial institutions ($3.9 million at December 31, 2018 and $4.0 million at December 31, 2017).
Level 2 investments include subordinated debt and senior debt, other corporate debt issued by non-financial institutions and $16.3 million and $27.7 million of single-issuer trust preferred securities held at December 31, 2018 and 2017, respectively. The fair values for these corporate debt securities are determined by a third-party pricing service, as detailed above. Level 3 investments include the Corporation's investments in pooled trust preferred securities ($875,000 at December 31, 2018 and $707,000 at December 31, 2017) and certain single-issuer trust preferred securities ($2.4 million at December 31, 2018 and $3.1 million at December 31, 2017). The fair values of these securities were determined based on quotes provided by third-party brokers who determined fair values based predominantly on internal valuation models which were not indicative prices or binding offers. The Corporation’s third-party pricing service cannot derive fair values for these securities primarily due to inactive markets for similar investments. Level 3 values are tested by management primarily through trend analysis, by comparing current values to those reported at the end of the preceding calendar quarter, and determining if they are reasonable based on price and spread movements for this asset class.
• | Auction rate securities – Due to their illiquidity, ARCs are classified as Level 3 investments and are valued through the use of an expected cash flows model prepared by a third-party valuation expert. The assumptions used in preparing the expected cash flows model include estimates for coupon rates, time to maturity and market rates of return. The most significant unobservable input to the expected cash flows model is an assumed return to market liquidity sometime within the next five years. If the assumed return to market liquidity was lengthened beyond the next five years, this would result in a decrease in the fair value of these ARCs. The Corporation believes that the trusts underlying the ARCs will self-liquidate as student loans are repaid. Level 3 values are tested by management through the performance of a trend analysis of the market price and discount rate. Changes in the price and discount rates are compared to changes in market data, including bond ratings, parity ratios, balances and delinquency levels.
• | Derivative assets - fair value of foreign currency exchange contracts classified as Level 1 assets ($392,000 at December 31, 2018 and $460,000 at December 31, 2017). The mutual funds and foreign exchange prices used to measure these items at fair value are based on quoted prices for identical instruments in active markets.
Level 2 assets, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($1.2 million at December 31, 2018 and $1.1 million at December 31, 2017) and the fair value of interest rate swaps ($61.4 million at December 31, 2018 and $43.4 million at December 31, 2017). The fair values of the interest rate locks, forward commitments and interest rate swaps represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. See "Note 10 - Derivative Financial Instruments," for additional information.
• | Investments held in Rabbi Trust - This category consists of mutual funds that are held in trust for employee deferred compensation plans that the Corporation has elected to measure at fair value. Shares of mutual funds are valued based on net asset value, which represent quoted market prices for the underlying shares held in the mutual funds, and as such, are classified as Level 1 and are included in "other assets" on the consolidated balance sheets ($18.4 million at December 31, 2018 and $19.0 million at December 31, 2017).
• | Derivative liabilities - Level 1 liabilities, representing the fair value of foreign currency exchange contracts ($381,000 at December 31, 2018 and $374,000 at December 31, 2017). The fair values of these liabilities are determined in the same manner as the related assets.
Level 2 liabilities, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($1.1 million at December 31, 2018 and $272,000 at December 31, 2017) and the fair value of interest rate swaps ($47.1 million at December 31, 2018 and $38.7 million at December 31, 2017). The fair values of these liabilities are determined in the same manner as the related assets, which are described under the heading "Other assets" above.
• | Investments held in Rabbi Trust - fair value of amounts due to employees under deferred compensation plans classified as Level 1 liabilities ($18.4 million at December 31, 2018 and $19.0 million at December 31, 2017).
The following table presents the changes in available for sale investment securities measured at fair value on a recurring basis using unobservable inputs (Level 3) for the years ended December 31:
| Pooled Trust Preferred Securities |  | Single-issuer Trust Preferred Securities |  | Auction Rate Securities
| (in thousands)
Balance as of December 31, 2016 | $ | 422 |  |  | $ | 2,450 |  |  | $ | 97,256 |
Unrealized adjustments to fair value (1) | 285 |  |  | 588 |  |  | 1,217 |
Discount accretion (2) | — |  |  | 12 |  |  | 195 |
Balance as of December 31, 2017 | 707 |  |  | 3,050 |  |  | 98,668 |
Realized adjustments to fair value | — |  |  | 71 |  |  | — |
Unrealized adjustments to fair value (1) | 168 |  |  | 221 |  |  | 4,326 |
Settlements - calls | — |  |  | (950 | ) |  | — |
Discount accretion (2) | — |  |  | 8 |  |  | — |
Balance as of December 31, 2018 | $ | 875 |  |  | $ | 2,400 |  |  | $ | 102,994 |
(1) | Pooled trust preferred securities, single-issuer trust preferred securities and ARCs are classified as available for sale investment securities; as such, the
unrealized adjustment to fair value was recorded as an unrealized holding gain (loss) and included as a component of available for sale investment securities on the consolidated balance sheets.
(2) | Included as a component of net interest income on the consolidated statements of income.
Certain assets are not measured at fair value on an ongoing basis but are subject to fair value measurement in certain circumstances, such as upon their acquisition or when there is evidence of impairment. The following table presents the Corporation's assets measured at fair value on a nonrecurring basis and reported on the consolidated balance sheets at December 31:
| 2018 |  | 2017
| (in thousands)
Net loans |  | $ | 149,846 |  |  | $ | 149,608 |
OREO |  | 10,518 |  |  | 9,823 |
MSRs |  | 38,573 |  |  | 37,663 |
Total assets |  | $ | 198,937 |  |  | $ | 197,094 |
The valuation techniques used to measure fair value for the items in the table above are as follows:
• | Net loans – This category consists of loans that were evaluated for impairment under FASB ASC Section 310-10-35 and have been classified as Level 3 assets. The amount shown is the balance of impaired loans, net of the related allowance for loan losses. See "Note 4 - Loans and Allowance for Credit Losses," for additional details.
• | OREO – This category includes OREO ($10.5 million at December 31, 2018 and $9.8 million at December 31, 2017) classified as Level 3 assets. Fair values for OREO were based on estimated selling prices less estimated selling costs for similar assets in active markets.
• | MSRs - This category includes MSRs ($38.6 million at December 31, 2018 and $37.7 million at December 31, 2017), classified as Level 3 assets. MSRs are initially recorded at fair value upon the sale of residential mortgage loans to secondary market investors. MSRs are amortized as a reduction to servicing income over the estimated lives of the underlying loans. MSRs are stratified and evaluated for impairment by comparing each stratum's carrying amount to its estimated fair value. Fair values are determined at the end of each quarter through a discounted cash flows valuation performed by a third-party valuation expert. Significant inputs to the valuation included expected net servicing income, the discount rate and the expected life of the underlying loans. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The weighted average annual constant prepayment rate and the weighted average discount rate used in the December 31, 2018 valuation were 8.9% and 9.0%, respectively. Management tests the reasonableness of the significant inputs to the third-party valuation in comparison to market data.
As required by FASB ASC Section 825-10-50, the following table details the book values and the estimated fair values of the Corporation’s financial instruments as of December 31, 2018 and 2017. A general description of the methods and assumptions used to estimate such fair values is also provided.
| 2018
| Amortized Cost |  | Level 1 |  | Level 2 |  | Level 3 |  | Estimated Fair Value
FINANCIAL ASSETS | (in thousands)
Cash and due from banks | $ | 103,436 |  |  | $ | 103,436 |  |  | $ | — |  |  | $ | — |  |  | $ | 103,436 |
Interest-bearing deposits with other banks | 342,251 |  |  | 342,251 |  |  | — |  |  | — |  |  | 342,251 |
FRB and FHLB stock | 79,283 |  |  | — |  |  | 79,283 |  |  | — |  |  | 79,283 |
Loans held for sale | 27,099 |  |  | — |  |  | 27,099 |  |  | — |  |  | 27,099 |
Held to maturity investment securities | 606,679 |  |  | 611,419 |  |  | — |  |  | — |  |  | 611,419 |
Available for sale investment securities | 2,115,265 |  |  | — |  |  | 1,974,025 |  |  | 106,269 |  |  | 2,080,294 |
Net Loans | 16,005,263 |  |  | — |  |  | — |  |  | 15,446,895 |  |  | 15,446,895 |
Accrued interest receivable | 58,879 |  |  | 58,879 |  |  | — |  |  | — |  |  | 58,879 |
Other financial assets | 235,782 |  |  | 124,138 |  |  | 62,552 |  |  | 49,092 |  |  | 235,782 |
FINANCIAL LIABILITIES |  |  |  |  |  |  |  |  |
Demand and savings deposits | $ | 13,478,016 |  |  | $ | 13,478,016 |  |  | $ | — |  |  | $ | — |  |  | $ | 13,478,016 |
Brokered deposits | 176,239 |  |  | 176,239 |  |  | — |  |  | — |  |  | 176,239 |
Time deposits | 2,721,904 |  |  | — |  |  | 2,712,296 |  |  | — |  |  | 2,712,296 |
Short-term borrowings | 754,777 |  |  | 754,777 |  |  | — |  |  | — |  |  | 754,777 |
Accrued interest payable | 10,529 |  |  | 10,529 |  |  | — |  |  | — |  |  | 10,529 |
Other financial liabilities | 218,061 |  |  | 161,003 |  |  | 48,185 |  |  | 8,873 |  |  | 218,061 |
FHLB advances and long-term debt | 992,279 |  |  | — |  |  | 970,985 |  |  | — |  |  | 970,985 |
| 2017
| Amortized Cost |  | Level 1 |  | Level 2 |  | Level 3 |  | Estimated Fair Value
| (in thousands)
FINANCIAL ASSETS |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 108,291 |  |  | $ | 108,291 |  |  | $ | — |  |  | $ | — |  |  | $ | 108,291 |
Interest-bearing deposits with other banks | 293,805 |  |  | 293,805 |  |  | — |  |  | — |  |  | 293,805 |
FRB and FHLB stock | 60,761 |  |  | — |  |  | 60,761 |  |  | — |  |  | 60,761 |
Loans held for sale | 31,530 |  |  | — |  |  | 31,530 |  |  | — |  |  | 31,530 |
Held to maturity investment securities | — |  |  | — |  |  | — |  |  | — |  |  | — |
Available for sale investment securities | 2,547,956 |  |  | 918 |  |  | 2,444,613 |  |  | 102,425 |  |  | 2,547,956 |
Net Loans | 15,598,337 |  |  | — |  |  | — |  |  | 15,380,974 |  |  | 15,380,974 |
Accrued interest receivable | 52,910 |  |  | 52,910 |  |  | — |  |  | — |  |  | 52,910 |
Other financial assets | 215,464 |  |  | 123,439 |  |  | 44,539 |  |  | 47,486 |  |  | 215,464 |
FINANCIAL LIABILITIES |  |  |  |  |  |  |  |  |
Demand and savings deposits | $ | 13,042,147 |  |  | $ | 13,042,147 |  |  | $ | — |  |  | $ | — |  |  | $ | 13,042,147 |
Brokered deposits | 90,473 |  |  | 90,473 |  |  | — |  |  | — |  |  | 90,473 |
Time deposits | 2,664,912 |  |  | — |  |  | 2,673,359 |  |  | — |  |  | 2,673,359 |
Short-term borrowings | 617,524 |  |  | 617,524 |  |  | — |  |  | — |  |  | 617,524 |
Accrued interest payable | 9,317 |  |  | 9,317 |  |  | — |  |  | — |  |  | 9,317 |
Other financial liabilities | 227,569 |  |  | 182,381 |  |  | 39,014 |  |  | 6,174 |  |  | 227,569 |
FHLB advances and long-term debt | 1,038,346 |  |  | — |  |  | 1,025,640 |  |  | — |  |  | 1,025,640 |
Fair values of financial instruments are significantly affected by the assumptions used, principally the timing of future cash flows and discount rates. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an immediate sale or settlement of the instrument. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of the Corporation. For short-term financial instruments, defined as those with remaining maturities of 90 days or less, and excluding those recorded at fair value on the Corporation’s consolidated balance sheets, book value was considered to be a reasonable estimate of fair value. The following instruments are predominantly short-term:
Assets |  | Liabilities
Cash and due from banks |  | Demand and savings deposits
Interest-bearing deposits with other banks |  | Short-term borrowings
Accrued interest receivable |  | Accrued interest payable
Federal Reserve Bank and Federal Home Loan Bank ("FHLB") stock represent restricted investments and are carried at cost on the consolidated balance sheets. As of December 31, 2018, fair values for loans and time deposits were estimated by discounting future cash flows using the current rates, as adjusted for liquidity considerations, at which similar loans would be made to borrowers and similar deposits would be issued to customers for the same remaining maturities. Fair values of loans also include estimated credit losses that would be assumed in a market transaction. Beginning in 2018, fair values estimated in this manner are considered to represent estimated exit prices, required by ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities". As of December 31, 2017, loan fair values do not fully incorporate an exit price approach to fair value. The fair values of FHLB advances and long-term debt were estimated by discounting the remaining contractual cash flows using a rate at which the Corporation could issue debt with similar remaining maturities as of the balance sheet date. These borrowings are categorized in Level 2 liabilities under FASB ASC Topic 820.

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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