XML 28 R16.htm IDEA: XBRL DOCUMENT

FAIR VALUE MEASURES

3 Months Ended

Mar. 31, 2021

NOTE 8 – FAIR VALUE MEASURES

The fair value of an asset or liability is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair value is based on discounted cash flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability. The accounting standard for disclosures about the fair value measures excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The Company's loans held for sale under the fair value option are comprised of the following:


(dollars in thousands)	March 31, 2021		December 31, 2020
Mortgage loans held for sale	$	1,505,121	$	998,050
SBA loans held for sale	4,407		3,757
Total loans held for sale	$	1,509,528	$	1,001,807

The Company has elected to record mortgage loans held for sale at fair value in order to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. This election impacts the timing and recognition of origination fees and costs, as well as servicing value, which are now recognized in earnings at the time of origination. Interest income on mortgage loans held for sale is recorded on an accrual basis in the consolidated statements of income and comprehensive income under the heading interest income – interest and fees on loans. The servicing value is included in the fair value of the interest rate lock commitments (“IRLCs”) with borrowers. The mark to market adjustments related to mortgage loans held for sale and the associated economic hedges are captured in mortgage banking activities.

A net loss of $25.1 million and a net gain of $15.1 million resulting from fair value changes of these mortgage loans were recorded in income during the three months ended March 31, 2021 and 2020, respectively. A net gain of $27.5 million and net loss of $2.6 million resulting from changes in the fair value of the related derivative financial instruments used to hedge exposure to the market-related risks associated with these mortgage loans were recorded in income during the three months ended March 31, 2021 and 2020, respectively. The change in fair value of both mortgage loans held for sale and the related derivative financial instruments are recorded in mortgage banking activity in the consolidated statements of income and comprehensive income. The Company’s valuation of mortgage loans held for sale incorporates an assumption for credit risk; however, given the short-term period that the Company holds these loans, valuation adjustments attributable to instrument-specific credit risk is nominal.

The following table summarizes the difference between the fair value and the principal balance for mortgage loans held for sale measured at fair value as of March 31, 2021 and December 31, 2020:


(dollars in thousands)	March 31, 2021		December 31, 2020
Aggregate fair value of mortgage loans held for sale	$	1,505,121	$	998,050
Aggregate unpaid principal balance of mortgage loans held for sale	1,479,606		947,460
Past-due loans of 90 days or more	—		—
Nonaccrual loans	—		—
Unpaid principal balance of nonaccrual loans	—		—

The following table summarizes the difference between the fair value and the principal balance for SBA loans held for sale measured at fair value as of March 31, 2021 and December 31, 2020:


(dollars in thousands)	March 31, 2021		December 31, 2020
Aggregate fair value of SBA loans held for sale	$	4,407	$	3,757
Aggregate unpaid principal balance of SBA loans held for sale	3,849		3,393
Past-due loans of 90 days or more	—		—
Nonaccrual loans	—		—

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale, loans held for sale and derivative financial instruments are recorded at fair value on a recurring basis. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as collateral-dependent loans, loan servicing rights and OREO. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.

The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of March 31, 2021 and December 31, 2020:


	Recurring Basis Fair Value Measurements
	March 31, 2021
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
Financial assets:
U.S. government sponsored agencies	$	12,394	$	—	$	12,394	$	—
State, county and municipal securities	62,985		—		62,985		—
Corporate debt securities	46,747		—		45,577		1,170
SBA pool securities	55,691		—		55,691		—
Mortgage-backed securities	681,835		—		681,835		—
Loans held for sale	1,509,528		—		1,509,528		—

Mortgage banking derivative instruments	62,870		—		62,870		—
Total recurring assets at fair value	$	2,432,050	$	—	$	2,430,880	$	1,170


	Recurring Basis Fair Value Measurements
	December 31, 2020
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
Financial assets:
U.S. government sponsored agencies	$	17,504	$	—	$	17,504	$	—
State, county and municipal securities	66,778		—		66,778		—
Corporate debt securities	51,896		—		50,726		1,170
SBA pool securities	62,497		—		62,497		—
Mortgage-backed securities	784,204		—		784,204		—
Loans held for sale	1,001,807		—		1,001,807		—

Mortgage banking derivative instruments	51,756		—		51,756		—
Total recurring assets at fair value	$	2,036,442	$	—	$	2,035,272	$	1,170
Financial liabilities:

Mortgage banking derivative instruments	$	16,415	$	—	$	16,415	$	—
Total recurring liabilities at fair value	$	16,415	$	—	$	16,415	$	—

The following table presents the fair value measurements of assets measured at fair value on a non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy as of March 31, 2021 and December 31, 2020:


	Nonrecurring Basis Fair Value Measurements
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
March 31, 2021
Collateral-dependent loans	$	93,058	$	—	$	—	$	93,058
Other real estate owned	299		—		—		299
Mortgage servicing rights	154,746		—		—		154,746

Total nonrecurring assets at fair value	$	248,103	$	—	$	—	$	248,103

December 31, 2020
Collateral-dependent loans	$	98,426	$	—	$	—	$	98,426
Other real estate owned	4,964		—		—		4,964
Mortgage servicing rights	130,630		—		—		130,630
SBA servicing rights	5,839		—		5,839		—
Total nonrecurring assets at fair value	$	239,859	$	—	$	5,839	$	234,020

The inputs used to determine estimated fair value of collateral-dependent loans include market conditions, loan term, underlying collateral characteristics and discount rates. The inputs used to determine fair value of OREO include market conditions, estimated marketing period or holding period, underlying collateral characteristics and discount rates.

For the three months ended March 31, 2021 and the year ended December 31, 2020, there was not a change in the methods and significant assumptions used to estimate fair value.

The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets:


(dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range of Discounts	Weighted Average Discount
March 31, 2021
Recurring:
Investment securities available for sale	$	1,170	Discounted par values	Probability of default	17.1%	17.1%
				Loss given default	39%	39%
Nonrecurring:
Collateral-dependent loans	$	93,058	Third-party appraisals and discounted cash flows	Collateral discounts and discount rates	20% - 57%	44%
Other real estate owned	$	299	Third-party appraisals and sales contracts	Collateral discounts and estimated costs to sell	15% - 36%	27%
Mortgage servicing rights	$	154,746	Discounted cash flows	Discount rate	9% - 10%	9%
				Prepayment speed	11% - 38%	13%

December 31, 2020
Recurring:
Investment securities available for sale	$	1,170	Discounted par values	Probability of default	18.8%	18.8%
				Loss given default	40%	40%
Nonrecurring:
Collateral-dependent loans	$	98,426	Third-party appraisals and discounted cash flows	Collateral discounts and discount rates	20% - 90%	44%
Other real estate owned	$	4,964	Third-party appraisals and sales contracts	Collateral discounts and estimated costs to sell	15% - 59%	28%
Mortgage servicing rights	$	130,630	Discounted cash flows	Discount rate	9% - 12%	10%
				Prepayment speed	14% - 37%	19%

The carrying amount and estimated fair value of the Company’s financial instruments, not shown elsewhere in these financial statements, were as follows:


			Fair Value Measurements
			March 31, 2021
(dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	224,159	$	224,159	$	—	$	—	$	224,159
Federal funds sold and interest-bearing accounts	2,534,969		2,534,969		—		—		2,534,969
Time deposits in other banks	249		—		249		—		249

Loans, net	14,328,177		—		—		14,339,254		14,339,254
Accrued interest receivable	70,697		—		3,469		67,228		70,697
Financial liabilities:
Deposits	17,875,873		—		17,870,613		—		17,870,613
Securities sold under agreements to repurchase	9,320		9,320		—		—		9,320
Other borrowings	425,231		—		429,650		—		429,650
Subordinated deferrable interest debentures	124,833		—		117,285		—		117,285
Accrued interest payable	7,126		—		7,126		—		7,126


			Fair Value Measurements
			December 31, 2020
(dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	203,349	$	203,349	$	—	$	—	$	203,349
Federal funds sold and interest-bearing accounts	1,913,957		1,913,957		—		—		1,913,957
Time deposits in other banks	249		—		249		—		249
Loans, net	14,183,077		—		—		14,096,711		14,096,711
Accrued interest receivable	76,254		—		3,567		72,687		76,254
Financial liabilities:
Deposits	16,957,823		—		16,968,606		—		16,968,606
Securities sold under agreements to repurchase	11,641		11,641		—		—		11,641
Other borrowings	425,155		—		431,783		—		431,783
Subordinated deferrable interest debentures	124,345		—		116,280		—		116,280
Accrued interest payable	5,487		—		5,487		—		5,487

- 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 + Details