| Fair Value Measurements |
Fair Value Measurements The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities and to determine fair value disclosures. Various financial instruments such as available for sale debt securities, equity securities, trading debt securities, certain investments relating to private equity activities, and derivatives 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 and liabilities on a nonrecurring basis, such as mortgage servicing rights and certain other investment securities. These nonrecurring fair value adjustments typically involve lower of cost or fair value accounting or write-downs of individual assets.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: •Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. •Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds). •Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider. 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 Company's 2020 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then. Instruments Measured at Fair Value on a Recurring Basis The table below presents the September 30, 2021 and December 31, 2020 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first nine months of 2021 or the year ended December 31, 2020.
| | | | | | | | | | | | | | | | | Fair Value Measurements Using | | (In thousands) | Total Fair Value | Quoted Prices in Active Markets for Identical Assets
(Level 1) | Significant Other Observable Inputs
(Level 2) | Significant Unobservable Inputs
(Level 3) | | September 30, 2021 | | | | | | Assets: | | | | | | Residential mortgage loans held for sale | $ | 11,982 | | $ | — | | $ | 11,982 | | $ | — | | | Available for sale debt securities: | | | | | | U.S. government and federal agency obligations | 784,190 | | 784,190 | | — | | — | | | Government-sponsored enterprise obligations | 51,941 | | — | | 51,941 | | — | | | State and municipal obligations | 2,155,076 | | — | | 2,153,081 | | 1,995 | | | Agency mortgage-backed securities | 5,974,802 | | — | | 5,974,802 | | — | | | Non-agency mortgage-backed securities | 1,225,091 | | — | | 1,225,091 | | — | | | Asset-backed securities | 3,359,915 | | — | | 3,359,915 | | — | | | Other debt securities | 614,641 | | — | | 614,641 | | — | | | Trading debt securities | 40,114 | | — | | 40,114 | | — | | | Equity securities | 7,118 | | 7,118 | | — | | — | | | Private equity investments | 138,052 | | — | | — | | 138,052 | | | Derivatives * | 55,065 | | — | | 53,442 | | 1,623 | | | Assets held in trust for deferred compensation plan | 20,880 | | 20,880 | | — | | — | | | Total assets | 14,438,867 | | 812,188 | | 13,485,009 | | 141,670 | | | Liabilities: | | | | | Derivatives * | 12,466 | | — | | 12,183 | | 283 | | Liabilities held in trust for deferred compensation plan | 20,880 | | 20,880 | | — | | — | | | Total liabilities | $ | 33,346 | | $ | 20,880 | | $ | 12,183 | | $ | 283 | | | December 31, 2020 | | | | | | Assets: | | | | | | Residential mortgage loans held for sale | $ | 39,396 | | $ | — | | $ | 39,396 | | $ | — | | | Available for sale debt securities: | | | | | | U.S. government and federal agency obligations | 838,059 | | 838,059 | | — | | — | | | Government-sponsored enterprise obligations | 54,485 | | — | | 54,485 | | — | | | State and municipal obligations | 2,045,099 | | — | | 2,037,131 | | 7,968 | | | Agency mortgage-backed securities | 6,712,085 | | — | | 6,712,085 | | — | | | Non-agency mortgage-backed securities | 361,074 | | — | | 361,074 | | — | | | Asset-backed securities | 1,882,243 | | — | | 1,882,243 | | — | | | Other debt securities | 556,219 | | — | | 556,219 | | — | | | Trading debt securities | 35,321 | | — | | 35,321 | | — | | | Equity securities | 2,966 | | 2,966 | | — | | — | | | Private equity investments | 94,368 | | — | | — | | 94,368 | | | Derivatives * | 89,889 | | — | | 86,447 | | 3,442 | | | Assets held in trust for deferred compensation plan | 19,278 | | 19,278 | | — | | — | | | Total assets | 12,730,482 | | 860,303 | | 11,764,401 | | 105,778 | | | Liabilities: | | | | | Derivatives * | 18,675 | | — | | 17,974 | | 701 | | Liabilities held in trust for deferred compensation plan | 19,278 | | 19,278 | | — | | — | | | Total liabilities | $ | 37,953 | | $ | 19,278 | | $ | 17,974 | | $ | 701 | |
* The fair value of each class of derivative is shown in Note 11.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:
| | | | | | | | | | | | | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
(In thousands) | State and Municipal Obligations | Private Equity Investments | Derivatives | Total | | For the three months ended September 30, 2021 | | | | | | Balance June 30, 2021 | $ | 7,991 | | $ | 116,246 | | $ | 1,629 | | $ | 125,866 | | | Total gains or losses (realized/unrealized): | | | | | | Included in earnings | — | | 12,971 | | (262) | | 12,709 | | | Included in other comprehensive income * | (175) | | — | | — | | (175) | | | Investment securities called | (6,000) | | — | | — | | (6,000) | | | Discount accretion | 179 | | — | | — | | 179 | | | Purchases of private equity investments | — | | 8,835 | | — | | 8,835 | | | | | | | | | | | | | | | | | | Sale of risk participation agreements | — | | — | | (27) | | (27) | | | Balance September 30, 2021 | $ | 1,995 | | $ | 138,052 | | $ | 1,340 | | $ | 141,387 | | Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021 | $ | — | | $ | 12,971 | | $ | 1,557 | | $ | 14,528 | | Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021 | $ | 2 | | $ | — | | $ | — | | $ | 2 | | | For the nine months ended September 30, 2021 | | | | | Balance January 1, 2021 | $ | 7,968 | | $ | 94,368 | | $ | 2,741 | | $ | 105,077 | | | Total gains or losses (realized/unrealized): | | | | | | Included in earnings | — | | 38,002 | | (1,689) | | 36,313 | | | Included in other comprehensive income * | (158) | | — | | — | | (158) | | | Investment securities called | (6,000) | | — | | — | | (6,000) | | | Discount accretion | 185 | | — | | — | | 185 | | | Purchases of private equity investments | — | | 14,491 | | — | | 14,491 | | | Sale/pay down of private equity investments | — | | (8,832) | | — | | (8,832) | | | Capitalized interest/dividends | — | | 23 | | — | | 23 | | | Purchase of risk participation agreement | — | | — | | 445 | | 445 | | | Sale of risk participation agreement | — | | — | | (157) | | (157) | | | Balance September 30, 2021 | $ | 1,995 | | $ | 138,052 | | $ | 1,340 | | $ | 141,387 | | Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021 | $ | — | | $ | 38,002 | | $ | 1,367 | | $ | 39,369 | | Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021 | $ | 23 | | $ | — | | $ | — | | $ | 23 | |
| | | | | | | | | | | | | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
(In thousands) | State and Municipal Obligations | Private Equity Investments | Derivatives | Total | | For the three months ended September 30, 2020 | | | | | Balance June 30, 2020 | $ | 9,490 | | $ | 73,846 | | $ | 1,888 | | $ | 85,224 | | | Total gains or losses (realized/unrealized): | | | | | | Included in earnings | — | | 2,389 | | 504 | | 2,893 | | | Included in other comprehensive income * | 271 | | — | | — | | 271 | | | Investment securities called | (2,000) | | — | | — | | (2,000) | | | Discount accretion | 105 | | — | | — | | 105 | | | Purchases of private equity investments | — | | 2,522 | | — | | 2,522 | | | Sale/pay down of private equity investments | — | | (295) | | — | | (295) | | | | | | | | | | | | | | | | | | Balance September 30, 2020 | $ | 7,866 | | $ | 78,462 | | $ | 2,392 | | $ | 88,720 | | Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020 | $ | — | | $ | 2,409 | | $ | 3,050 | | $ | 5,459 | | Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020 | $ | 258 | | $ | — | | $ | — | | $ | 258 | | | For the nine months ended September 30, 2020 | | | | | Balance January 1, 2020 | $ | 9,853 | | $ | 94,122 | | $ | 369 | | $ | 104,344 | | | Total gains or losses (realized/unrealized): | | | | | | Included in earnings | — | | (18,116) | | 2,832 | | (15,284) | | | Included in other comprehensive income * | (101) | | — | | — | | (101) | | | Investment securities called | (2,000) | | — | | — | | (2,000) | | | Discount accretion | 114 | | — | | — | | 114 | | | Purchases of private equity investments | — | | 2,791 | | — | | 2,791 | | | Sale/pay down of private equity investments | — | | (364) | | — | | (364) | | | Capitalized interest/dividends | — | | 29 | | — | | 29 | | | | | | | | Sale of risk participation agreement | — | | — | | (809) | | (809) | | | Balance September 30, 2020 | $ | 7,866 | | $ | 78,462 | | $ | 2,392 | | $ | 88,720 | | Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020 | $ | — | | $ | (18,096) | | $ | 3,262 | | $ | (14,834) | | Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020 | $ | (52) | | $ | — | | $ | — | | $ | (52) | |
* Included in "net unrealized gains (losses) on other securities" in the consolidated statements of comprehensive income. Gains and losses included in earnings for the Level 3 assets and liabilities in the previous table are reported in the following line items in the consolidated statements of income:
| | | | | | | | | | | | | | | | (In thousands) | Loan Fees and Sales | Other Non-Interest Income | Investment Securities Gains (Losses), Net | Total | For the three months ended September 30, 2021 | | | | | | Total gains or losses included in earnings | $ | (309) | | $ | 47 | | $ | 12,971 | | $ | 12,709 | | Change in unrealized gains or losses relating to assets still held at September 30, 2021 | $ | 1,510 | | $ | 47 | | $ | 12,971 | | $ | 14,528 | | For the nine months ended September 30, 2021 | | | | | | Total gains or losses included in earnings | $ | (1,716) | | $ | 27 | | $ | 38,002 | | $ | 36,313 | | Change in unrealized gains or losses relating to assets still held at September 30, 2021 | $ | 1,510 | | $ | (143) | | $ | 38,002 | | $ | 39,369 | | For the three months ended September 30, 2020 | | | | | | Total gains or losses included in earnings | $ | 591 | | $ | (87) | | $ | 2,389 | | $ | 2,893 | | Change in unrealized gains or losses relating to assets still held at September 30, 2020 | $ | 3,137 | | $ | (87) | | $ | 2,409 | | $ | 5,459 | | For the nine months ended September 30, 2020 | | | | | | Total gains or losses included in earnings | $ | 2,679 | | $ | 153 | | $ | (18,116) | | $ | (15,284) | | Change in unrealized gains or losses relating to assets still held at September 30, 2020 | $ | 3,137 | | $ | 125 | | $ | (18,096) | | $ | (14,834) | |
Level 3 Inputs The Company's significant Level 3 measurements, which employ unobservable inputs that are readily quantifiable, pertain to auction rate securities (ARS), investments in portfolio concerns held by the Company's private equity subsidiaries, and held for sale residential mortgage loan commitments. ARS are included in state and municipal securities and totaled $2.0 million at September 30, 2021, while private equity investments, included in other securities, totaled $138.1 million.
Information about these inputs is presented in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | Quantitative Information about Level 3 Fair Value Measurements | | | | Weighted | | Valuation Technique | Unobservable Input | Range | | Average* | | Auction rate securities | Discounted cash flow | Estimated market recovery period | | | 5 years | | 5 years | | | Estimated market rate | 1.1% | - | 1.3% | | 1.2% | | Private equity investments | Market comparable companies | EBITDA multiple | 4.0 | - | 6.0 | | 5.3 | | Mortgage loan commitments | Discounted cash flow | Probability of funding | 67.2% | - | 100.0% | | 87.0% | | | Embedded servicing value | .8% | - | 1.2% | | 1.0% |
* Unobservable inputs were weighted by the relative fair value of the instruments. Instruments Measured at Fair Value on a Nonrecurring Basis For assets measured at fair value on a nonrecurring basis during the first nine months of 2021 and 2020, and still held as of September 30, 2021 and 2020, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at September 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | Fair Value Measurements Using | | | (In thousands) |
Fair Value | Quoted Prices in Active Markets for Identical Assets
(Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Gains (Losses) Recognized During the Nine Months Ended September 30 | | September 30, 2021 | | | | | | | Collateral dependent loans | $ | 2,057 | | $ | — | | $ | — | | $ | 2,057 | | $ | (349) | | | | | | | | | Mortgage servicing rights | 9,774 | | — | | — | | 9,774 | | 1,120 | | | | | | | | | Long-lived assets | 1,393 | | — | | — | | 1,393 | | (726) | | | | | | | | | September 30, 2020 | | | | | | | Collateral dependent loans | $ | 11,772 | | $ | — | | $ | — | | $ | 11,772 | | $ | (3,214) | | | | | | | | | Mortgage servicing rights | 5,731 | | — | | — | | 5,731 | | (1,823) | | | | | | | | | | | | | |
The Company's significant Level 3 measurements that are measured on a nonrecurring basis pertain to the Company's mortgage servicing rights retained on certain fixed rate personal real estate loan originations. Mortgage servicing rights are included in other assets on the consolidated balance sheet, and information about these inputs is presented in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | Quantitative Information about Level 3 Fair Value Measurements | | | | Weighted | | Valuation Technique | Unobservable Input | Range | | Average* | | Mortgage servicing rights | Discounted cash flow | Discount rate | 9.02 | % | - | 9.35 | % | | 9.15 | % | | | Prepayment speeds (CPR)* | 11.46 | % | - | 14.21 | % | | 12.55 | % | | | Loan servicing costs - annually per loan | | | | | | | | Performing loans | $ | 70 | | - | $ | 72 | | | $ | 71 | | | | Delinquent loans | $ | 200 | | - | $ | 750 | | | | | | Loans in foreclosure | $ | 1,000 | | | | | |
*Ranges and weighted averages based on interest rate tranches.
The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are updated periodically for changes in market conditions. Actual rates may differ from our estimates. Increases in prepayment speed and discount rates negatively impact the fair value of our mortgage servicing rights.
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