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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2019
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements FASB ASC Topic 820 establishes a fair value hierarchy for the inputs to valuation techniques used to measure assets and liabilities at fair value using the following three categories (from highest to lowest priority):
• | Level 1 – Inputs that represent quoted prices for identical instruments in active markets.
• | Level 2 – Inputs that represent quoted prices for similar instruments in active markets, or quoted prices for identical instruments in non-active markets. Also includes valuation techniques whose inputs are derived principally from observable market data other than quoted prices, such as interest rates or other market-corroborated means.
• | Level 3 – Inputs that are largely unobservable, as little or no market data exists for the instrument being valued.
All assets and liabilities measured at fair value on both a recurring and nonrecurring basis, have been categorized into the above three levels. The following tables present assets and liabilities measured at fair value on a recurring basis and reported on the Consolidated Balance Sheets:
| September 30, 2019
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (in thousands)
Loans held for sale | $ | — |  |  | $ | 33,945 |  |  | $ | — |  |  | $ | 33,945 |
Available for sale investment securities: |  |  |  |  |  |  |
State and municipal securities | — |  |  | 547,344 |  |  | — |  |  | 547,344 |
Corporate debt securities | — |  |  | 356,036 |  |  | 2,370 |  |  | 358,406 |
Collateralized mortgage obligations | — |  |  | 700,599 |  |  | — |  |  | 700,599 |
Residential mortgage-backed securities | — |  |  | 183,785 |  |  | — |  |  | 183,785 |
Commercial mortgage-backed securities | — |  |  | 422,109 |  |  | — |  |  | 422,109 |
Auction rate securities | — |  |  | — |  |  | 103,298 |  |  | 103,298 |
Total available for sale investment securities | — |  |  | 2,209,873 |  |  | 105,668 |  |  | 2,315,541 |
Other assets: |  |  |  |  |  |  |
Investments held in Rabbi Trust | 20,853 |  |  | — |  |  | — |  |  | 20,853 |
Derivative assets | 535 |  |  | 195,263 |  |  | — |  |  | 195,798 |
Total assets | $ | 21,388 |  |  | $ | 2,439,081 |  |  | $ | 105,668 |  |  | $ | 2,566,137 |
Other liabilities: |  |  |  |  |  |  |
Deferred compensation liabilities | 20,853 |  |  | — |  |  | — |  |  | 20,853 |
Derivative liabilities | 480 |  |  | 105,016 |  |  | — |  |  | 105,496 |
Total liabilities | $ | 21,333 |  |  | $ | 105,016 |  |  | $ | — |  |  | $ | 126,349 |
| December 31, 2018
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (in thousands)
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 |
Other assets: |  |  |  |  |  |  |
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 |
Other liabilities: |  |  |  |  |  |  |
Deferred compensation liabilities | $ | 18,415 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,415 |
Derivative liabilities | 381 |  |  | 48,185 |  |  | — |  |  | 48,566 |
Total liabilities | $ | 18,796 |  |  | $ | 48,185 |  |  | $ | — |  |  | $ | 66,981 |
The valuation techniques used to measure fair value for the items in the preceding tables are as follows:
• | Mortgage loans held for sale – This category includes mortgage loans held for sale that are measured at fair value. Fair values as of September 30, 2019 and December 31, 2018 were based on the price that secondary market investors were offering for loans with similar characteristics. See "Note 7 - Derivative Financial Instruments" for details related to the Corporation’s election to measure assets and liabilities at fair value.
• | Available for sale investment securities – Included in this asset category are debt 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 performed for at least 95% of the securities valued by the pricing service. Generally, differences by security in excess of 5% are researched to reconcile the difference.
• | 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 debt and senior debt issued by financial institutions ($336.0 million at September 30, 2019 and $86.1 million at December 31, 2018), single-issuer trust preferred securities issued by financial institutions ($18.5 million at September 30, 2019 and $18.6 million at December 31, 2018), pooled trust preferred securities issued by financial institutions ($0 at September 30, 2019 and $875,000 at December 31, 2018) and other corporate debt issued by non-financial institutions ($3.9 million at September 30, 2019 and December 31, 2018).
Level 2 investments include the Corporation’s holdings of subordinated debt and senior debt, other corporate debt issued by non-financial institutions and $16.1 million and $16.3 million of single-issuer trust preferred securities held at September 30, 2019 and December 31, 2018, 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 ($0 at September 30, 2019 and $875,000 at December 31, 2018) and certain single-issuer trust preferred securities ($2.4 million at September 30, 2019 and December 31, 2018). 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 in 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 fair 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.
• | 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.
• | Derivative assets – Fair value of foreign currency exchange contracts classified as Level 1 assets ($535,000 at September 30, 2019 and $392,000 at December 31, 2018). 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 ($1.8 million at September 30, 2019 and $1.2 million at December 31, 2018) and the fair value of interest rate swaps ($193.6 million at September 30, 2019 and $61.4 million at December 31, 2018). The fair values of the Corporation’s 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 7 - Derivative Financial Instruments," for additional information.
• | Deferred compensation liabilities – Fair value of amounts due to employees under deferred compensation plans, classified as Level 1 liabilities and are included in other liabilities on the Consolidated Balance Sheets. The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Investments held in Rabbi Trust" above.
• | Derivative liabilities – Level 1 liabilities, representing the fair value of foreign currency exchange contracts ($480,000 at September 30, 2019 and $381,000 at December 31, 2018).
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 ($287,000 at September 30, 2019 and $1.1 million December 31, 2018) and the fair value of interest rate swaps ($104.7 million at September 30, 2019 and $47.1 million at December 31, 2018). The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Derivative assets" above. The following table presents the changes in the Corporation’s available for sale investment securities measured at fair value on a recurring basis using unobservable inputs (Level 3):
| Pooled Trust Preferred Securities |  | Single-issuer Trust Preferred Securities |  | ARCs
Three months ended September 30, 2019 | (in thousands)
Balance at June 30, 2019 | $ | — |  |  | $ | 2,370 |  |  | $ | 103,365 |
Unrealized adjustment to fair value (1) | — |  |  | (2 | ) |  | (67 | )
Discount accretion (2) | — |  |  | 2 |  |  | — |
Balance at September 30, 2019 | $ | — |  |  | $ | 2,370 |  |  | $ | 103,298 |
Three months ended September 30, 2018 |  |  |  |  |
Balance at June 30, 2018 | $ | 875 |  |  | $ | 3,200 |  |  | $ | 103,122 |
Realized adjustment to fair value | — |  |  | 71 |  |  | — |
Unrealized adjustment to fair value (1) | — |  |  | 153 |  |  | 11 |
Settlements - calls | — |  |  | (950 | ) |  | — |
Discount accretion (2) | — |  |  | 1 |  |  | — |
Balance at September 30, 2018 | $ | 875 |  |  | $ | 2,475 |  |  | $ | 103,133 |
Nine months ended September 30, 2019 |  |  |  |  |
Balance at December 31, 2018 | $ | 875 |  |  | $ | 2,400 |  |  | $ | 102,994 |
Sales | (770 | ) |  | — |  |  | — |
Unrealized adjustment to fair value (1) | (105 | ) |  | (32 | ) |  | 304 |
Discount accretion (2) | — |  |  | 2 |  |  | — |
Balance at September 30, 2019 | $ | — |  |  | $ | 2,370 |  |  | $ | 103,298 |
Nine months ended September 30, 2018 |  |  |  |  |
Balance at December 31, 2017 | $ | 707 |  |  | $ | 3,050 |  |  | $ | 98,668 |
Realized adjustment to fair value | — |  |  | 71 |  |  | — |
Unrealized adjustment to fair value (1) | 168 |  |  | 297 |  |  | 4,465 |
Settlements - calls | — |  |  | (950 | ) |  | — |
Discount accretion (2) | — |  |  | 7 |  |  | — |
Balance at September 30, 2018 | $ | 875 |  |  | $ | 2,475 |  |  | $ | 103,133 |
(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 at estimated fair value" 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 Level 3 financial assets measured at fair value on a nonrecurring basis:
| September 30, 2019 |  | December 31, 2018
| (in thousands)
Net loans and leases | $ | 146,682 |  |  | $ | 149,846 |
OREO | 7,706 |  |  | 10,518 |
MSRs (1) | 43,968 |  |  | 50,200 |
Total assets | $ | 198,356 |  |  | $ | 210,564 |
(1) | Amounts shown are estimated fair value. MSRs are recorded on the Corporation's Consolidated Balance Sheets at amortized cost. See "Note 5 - Mortgage Servicing Rights" for additional information.
The valuation techniques used to measure fair value for the items in the table above are as follows:
• | Net loans and leases – This category consists of loans and leases that were individually evaluated for impairment 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 consists of OREO classified as Level 3 assets, for which the fair values were based on estimated selling prices less estimated selling costs for similar assets in active markets.
• | MSRs - This category consists of MSRs, which were initially recorded at fair value upon the sale of residential mortgage loans to secondary market investors, and subsequently carried at the lower of amortized cost or fair value. 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 September 30, 2019 valuation were 10.7% and 10.0%, respectively. Management tests the reasonableness of the significant inputs to the third-party valuation in comparison to market data. See "Note 5 - Mortgage Servicing Rights," for additional information.
The following table presents the carrying amounts and estimated fair values of the Corporation’s financial instruments as of September 30, 2019 and December 31, 2018. A general description of the methods and assumptions used to estimate such fair values follows:
| September 30, 2019
|  | Estimated Fair Value
| Carrying Amount | Level 1 | Level 2 | Level 3 | Total
| (in thousands)
FINANCIAL ASSETS |  |  |  |  |
Cash and cash equivalents | $ | 598,613 |  | $ | 598,613 |  | $ | — |  | $ | — |  | $ | 598,613 |
FRB and FHLB stock | 94,557 |  | — |  | 94,557 |  | — |  | 94,557 |
Loans held for sale | 33,945 |  | — |  | 33,945 |  | — |  | 33,945 |
Available for sale investment securities | 2,315,541 |  | — |  | 2,209,873 |  | 105,668 |  | 2,315,541 |
Held to maturity investment securities | 390,069 |  | — |  | 403,957 |  | — |  | 403,957 |
Net loans and leases | 16,520,731 |  | — |  | — |  | 16,427,675 |  | 16,427,675 |
Accrued interest receivable | 60,447 |  | 60,447 |  | — |  | — |  | 60,447 |
Other assets | 478,924 |  | 236,599 |  | 195,263 |  | 51,674 |  | 483,536 |
FINANCIAL LIABILITIES |  |  |  |  |  |
Demand and savings deposits | $ | 14,105,974 |  | $ | 14,105,974 |  | $ | — |  | $ | — |  | $ | 14,105,974 |
Brokered deposits | 256,870 |  | 216,870 |  | 40,550 |  | — |  | 257,420 |
Time deposits | 2,979,873 |  | — |  | 3,002,796 |  | — |  | 3,002,796 |
Short-term borrowings | 832,860 |  | 832,860 |  | — |  | — |  | 832,860 |
Accrued interest payable | 9,622 |  | 9,622 |  | — |  | — |  | 9,622 |
FHLB advances and long-term debt | 726,714 |  | — |  | 723,194 |  | — |  | 723,194 |
Other liabilities | 288,477 |  | 176,799 |  | 105,016 |  | 6,662 |  | 288,477 |
| December 31, 2018
|  | Estimated Fair Value
| Carrying Amount | Level 1 | Level 2 | Level 3 | Total
| (in thousands)
FINANCIAL ASSETS |  |  |  |  |
Cash and cash equivalents | $ | 445,687 |  | $ | 445,687 |  | $ | — |  | $ | — |  | $ | 445,687 |
FRB and FHLB stock | 79,283 |  | — |  | 79,283 |  | — |  | 79,283 |
Loans held for sale | 27,099 |  | — |  | 27,099 |  | — |  | 27,099 |
Available for sale investment securities | 2,080,294 |  | — |  | 1,974,025 |  | 106,269 |  | 2,080,294 |
Held to maturity investment securities | 606,679 |  | — |  | 611,419 |  | — |  | 611,419 |
Net loans and leases | 16,005,263 |  | — |  | — |  | 15,446,895 |  | 15,446,895 |
Accrued interest receivable | 58,879 |  | 58,879 |  | — |  | — |  | 58,879 |
Other 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 |
FHLB advances and long-term debt | 992,279 |  | — |  | 970,985 |  | — |  | 970,985 |
Other liabilities | 218,061 |  | 161,003 |  | 48,185 |  | 8,873 |  | 218,061 |
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 cash equivalents |  | Demand and savings deposits
Accrued interest receivable |  | Short-term borrowings
|  | Accrued interest payable
FRB and FHLB stock represent restricted investments and are carried at cost on the Consolidated Balance Sheets. As of September 30, 2019, fair values for loans and leases and time deposits were estimated by discounting future cash flows using the current rates, as adjusted for liquidity considerations, at which similar loans and leases would be made to borrowers and similar deposits would be issued to customers for the same remaining maturities. Fair values of loans and leases also include estimated credit losses that would be assumed in a market transaction, which represents estimated exit prices. Brokered deposits consists of demand and saving deposits, which are classified as level 1, and time deposits, which are classified as level 2. The fair value of these deposits are determined in a manner consistent with the respective type of deposits discussed above.

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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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