Fair Value Measurements

12 Months Ended

Dec. 31, 2023

FAIR VALUE MEASUREMENTS

The fair value of an asset or liability is the exchange price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

•Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

•Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Fair value on a recurring basis

The following table summarizes financial instruments measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.


	December 31, 2023
($ in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Securities available-for-sale
Obligations of U.S. Government-sponsored enterprises	$	—	$	296,446	$	—	$	296,446
Obligations of states and political subdivisions	—		432,171		—		432,171
Residential mortgage-backed securities	—		700,381		—		700,381
Corporate debt securities	—		181,701		—		181,701
U.S. Treasury Bills	—		7,574		—		7,574
Total securities available-for-sale	—		1,618,273		—		1,618,273







Other investments	—		2,941		—		2,941
Derivatives	—		17,789		—		17,789
Total assets	$	—	$	1,639,003	$	—	$	1,639,003

Liabilities
Derivatives	$	—	$	16,184	$	—	$	16,184
Total liabilities	$	—	$	16,184	$	—	$	16,184


	December 31, 2022
($ in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Securities available-for-sale
Obligations of U.S. Government-sponsored enterprises	$	—	$	237,785	$	—	$	237,785
Obligations of states and political subdivisions	—		417,444		—		417,444
Residential mortgage-backed securities	—		659,404		—		659,404
Corporate debt securities	—		12,640		—		12,640
U.S. Treasury Bills	—		208,534		—		208,534
Total securities available-for-sale	—		1,535,807		—		1,535,807







Other investments	—		2,667		—		2,667
Derivative financial instruments	—		22,958		—		22,958
Total assets	$	—	$	1,561,432	$	—	$	1,561,432

Liabilities
Derivative financial instruments	$	—	$	21,581	$	—	$	21,581
Total liabilities	$	—	$	21,581	$	—	$	21,581

•Securities available-for-sale. Fair values for available-for-sale securities are based upon dealer quotes, market spreads, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions at the security level. Changes in fair value are recognized through accumulated other comprehensive income.

•Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains counterparty quotations to value its interest rate swaps and caps. In addition, the Company validates the counterparty quotations with third-party valuation sources. Derivatives with negative fair values are included in Other liabilities in the consolidated balance sheets. Derivatives with positive fair value are included in Other assets in the consolidated balance sheets. Changes in the fair value of client-related derivative instruments are recognized through net income. For the years ended December 31, 2023 and 2022, the gains and losses substantially offset each other due to the Company’s hedging of the client swaps with other bank counterparties.

Fair value on a non-recurring basis

Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

•Individually-evaluated loans. On a quarterly basis, fair value adjustments are recorded as necessary on loans that no longer exhibit risk characteristics similar to other loans to account for (1) partial write-downs based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. In addition, the Company may adjust the valuations based on other relevant market conditions or information. Accordingly, fair value estimates, including those obtained from real estate brokers or other third-party consultants, for collateral-dependent loans are classified in Level 3 of the valuation hierarchy. Fair value estimates on individually-evaluated loans utilizing a discounted cash flow approach are also classified as Level 3.

•Other real estate. These assets are initially reported at fair value, less cost to sell, and subsequently at the lower of cost or fair value, less cost to sell. Fair value is based on third party appraisals of each property and the Company’s judgment of other relevant market conditions. These are considered Level 3 inputs.

•Loan servicing asset. The loan servicing asset is included in Other assets on the Company’s consolidated balance sheets and assessed for impairment on a quarterly basis. Market-based cash flow modeling and discounting models specific to the SBA industry are provided by a third-party valuation service and are considered Level 2 inputs.

The following tables present financial instruments and non-financial assets still held as of the reporting date measured at fair value on a non-recurring basis.


	December 31, 2023
	(1)		(1)		(1)		(1)
($ 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)
Individually-evaluated loans	$	5,138	$	—	$	—	$	5,138
Other real estate	5,736		—		—		5,736

Total	$	10,874	$	—	$	—	$	10,874


	December 31, 2022
	(1)		(1)		(1)		(1)
($ 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)

Other real estate	269		—		—		269
Loan servicing asset	1,027		—		1,027		—
Total	$	1,296	$	—	$	1,027	$	269

(1) The amounts represent balances measured at fair value during the period and still held as of the reporting date.

Carrying amount and fair value

Following is a summary of the carrying amounts and fair values of the Company’s financial instruments on the consolidated balance sheets at December 31, 2023 and 2022. This summary excludes certain financial assets and liabilities for which carrying value approximates fair value and financial instruments that are recorded at fair value on a recurring basis disclosed above. Financial instruments for which carrying values approximate fair value include cash and due from banks, federal funds sold, interest bearing deposits, accrued interest receivable/payable, demand, savings and money market deposits.


	December 31, 2023					December 31, 2022
($ in thousands)	Carrying Amount		Estimated fair value		Level	Carrying Amount		Estimated fair value		Level
Balance sheet assets




Securities held-to-maturity	$	750,434	$	696,647	Level 2	$	709,915	$	628,517	Level 2
Other investments	63,255		63,255		Level 2	61,123		61,123		Level 2
Loans held-for-sale	359		359		Level 2	1,228		1,228		Level 2

Loans, net	10,749,347		10,392,551		Level 3	9,600,206		9,328,844		Level 3
State tax credits, held-for-sale	22,115		23,897		Level 3	27,700		28,880		Level 3
Servicing asset	2,861		3,799		Level 2	3,648		3,905		Level 2

Balance sheet liabilities
Certificates of deposit	$	1,272,914	$	1,265,905	Level 3	$	530,708	$	512,229	Level 3
Subordinated debentures and notes	155,984		154,354		Level 2	155,433		152,679		Level 2
FHLB advances	—		—		Level 2	100,000		100,004		Level 2
Other borrowings	297,829		274,658		Level 2	324,119		324,119		Level 2

Limitations

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Such estimates include the valuation of loans, goodwill, intangible assets, and other long-lived assets, along with assumptions used in the calculation of income taxes, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using experience and other factors, including the current economic environment. Such estimates and assumptions are adjusted when facts and circumstances dictate. Changing real estate values, illiquid credit markets, volatile equity markets, and changes in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. In addition, these estimates do not reflect any premium or discount that could result from offering for sale the Company’s entire holdings of a particular financial instrument at one time. Fair value estimates are based on existing on-balance and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not

considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.

- 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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