Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2017

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 September 30, 2017 and December 31, 2016:



	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
September 30, 2017
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	541	$	448,663	$	—	$	449,204
Debt Securities Issued by States and Political Subdivisions	—		641,963		—		641,963
Debt Securities Issued by Corporations	—		265,846		—		265,846
Mortgage-Backed Securities:
Residential - Government Agencies	—		249,976		—		249,976
Residential - U.S. Government-Sponsored Enterprises	—		642,113		—		642,113
Commercial - Government Agencies	—		73,566		—		73,566
Total Mortgage-Backed Securities	—		965,655		—		965,655
Total Investment Securities Available-for-Sale	541		2,322,127		—		2,322,668
Loans Held for Sale	—		9,752		—		9,752
Mortgage Servicing Rights	—		—		1,509		1,509
Other Assets	28,064		—		—		28,064
Derivatives ¹	—		102		11,484		11,586
Total Assets Measured at Fair Value on a Recurring Basis as of September 30, 2017	$	28,605	$	2,331,981	$	12,993	$	2,373,579

Liabilities:
Derivatives ¹	$	—	$	760	$	10,169	$	10,929
Total Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2017	$	—	$	760	$	10,169	$	10,929

December 31, 2016
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	539	$	408,176	$	—	$	408,715
Debt Securities Issued by States and Political Subdivisions	—		671,799		—		671,799
Debt Securities Issued by Corporations	—		269,179		—		269,179
Mortgage-Backed Securities:
Residential - Government Agencies	—		243,844		—		243,844
Residential - U.S. Government-Sponsored Enterprises	—		506,987		—		506,987
Commercial - Government Agencies	—		85,517		—		85,517
Total Mortgage-Backed Securities	—		836,348		—		836,348
Total Investment Securities Available-for-Sale	539		2,185,502		—		2,186,041
Loans Held for Sale	—		62,499		—		62,499
Mortgage Servicing Rights	—		—		1,655		1,655
Other Assets	21,952		—		—		21,952
Derivatives ¹	—		926		12,805		13,731
Total Assets Measured at Fair Value on a Recurring Basis as of December 31, 2016	$	22,491	$	2,248,927	$	14,460	$	2,285,878

Liabilities:
Derivatives ¹	$	—	$	836	$	11,752	$	12,588
Total Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2016	$	—	$	836	$	11,752	$	12,588


¹	The fair value of each class of derivatives is shown in Note 11 Derivative Financial Instruments.

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

For the three and nine months ended September 30, 2017 and 2016, 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 September 30, 2017
Balance as of July 1, 2017	$	1,548		$	1,369
Realized and Unrealized Net Gains (Losses):
Included in Net Income	(39		)	1,561
Transfers to Loans Held for Sale	—			(1,631		)
Variation Margin Payments	—			16
Balance as of September 30, 2017	$	1,509		$	1,315
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2017	$	—		$	1,315

Three Months Ended September 30, 2016
Balance as of July 1, 2016	$	1,819		$	1,908
Realized and Unrealized Net Gains (Losses):
Included in Net Income	(79		)	4,149
Transfers to Loans Held for Sale	—			(3,696		)
Balance as of September 30, 2016	$	1,740		$	2,361
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2016	$	—		$	2,361

Nine Months Ended September 30, 2017
Balance as of January 1, 2017	$	1,655		$	1,053
Realized and Unrealized Net Gains (Losses):
Included in Net Income	(146		)	4,469
Transfers to Loans Held for Sale	—			(4,581		)
Variation Margin Payments	—			374
Balance as of September 30, 2017	$	1,509		$	1,315
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2017	$	—		$	1,315

Nine Months Ended September 30, 2016
Balance as of January 1, 2016	$	1,970		$	240
Realized and Unrealized Net Gains (Losses):
Included in Net Income	(230		)	8,003
Transfers to Loans Held for Sale	—			(5,882		)
Balance as of September 30, 2016	$	1,740		$	2,361
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2016	$	—		$	2,361


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.


²	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 September 30, 2017 and December 31, 2016, the significant unobservable inputs used in the fair value measurements were as follows:



		Significant Unobservable Inputs (weighted-average)					Fair Value
(dollars in thousands)	Valuation Technique	Description	Sept. 30, 2017		Dec. 31, 2016		Sept. 30, 2017		Dec. 31, 2016
Mortgage Servicing Rights	Discounted Cash Flow	Constant Prepayment Rate ¹	9.21	%	8.13	%	$	25,270	$	26,803
		Discount Rate ²	8.89	%	9.33	%

Net Derivative Assets and Liabilities:
Interest Rate Lock Commitments	Pricing Model	Closing Ratio	93.40	%	92.26	%	$	958	$	1,067
Interest Rate Swap Agreements	Discounted Cash Flow	Credit Factor	0.16	%	0.13	%	$	357	$	(14	)


¹	Represents annualized loan repayment rate assumption.


²	Derived from multiple interest rate scenarios that incorporate a spread to a market yield curve and market volatilities.

Assets and liabilities measured at fair value on a nonrecurring basis

The following table represents the assets measured at fair value on a nonrecurring basis as of September 30, 2017. There were no assets measured at fair value on a nonrecurring basis as of December 31, 2016.



(dollars in thousands)	Fair Value Hierarchy	Net Carrying Amount		Valuation Allowance
September 30, 2017
Mortgage Servicing Rights - amortization method	Level 3	$	22,927	$	210

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 September 30, 2017 and December 31, 2016.



(dollars in thousands)	Aggregate Fair Value		Aggregate Unpaid Principal			Aggregate Fair Value Less Aggregate Unpaid Principal
September 30, 2017
Loans Held for Sale	$	9,752		$	9,458		$	294

December 31, 2016
Loans Held for Sale	$	62,499		$	61,782		$	717

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 September 30, 2017 and December 31, 2016. 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)
September 30, 2017
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	3,960,598	$	3,960,956	$	424,731	$	3,536,225	$	—
Loans ¹	9,193,837		9,361,879		—		—		9,361,879

Financial Instruments - Liabilities
Time Deposits	1,962,092		1,956,957		—		1,956,957		—
Securities Sold Under Agreements to Repurchase	505,293		505,278		—		505,278		—
Other Debt ²	257,153		256,548		—		256,548		—

December 31, 2016
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	3,832,997	$	3,827,527	$	530,940	$	3,296,587	$	—
Loans ¹	8,583,726		8,743,191		—		—		8,743,191

Financial Instruments - Liabilities
Time Deposits	1,217,707		1,213,705		—		1,213,705		—
Securities Sold Under Agreements to Repurchase	523,378		523,374		—		523,374		—
Other Debt ²	257,153		256,718		—		256,718		—


¹	Net of unearned income and the Allowance.


²	Excludes capitalized lease obligations.

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

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