Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2022

Balances of Assets and Liabilities Measured at Fair Value on Recurring Basis

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis as of September 30, 2022, and December 31, 2021:

	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, 2022
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	140,644	$	103,709	$	—	$	244,353
Debt Securities Issued by States and Political Subdivisions		—		61,062		—		61,062
Debt Securities Issued by U.S. Government-Sponsored Enterprises		—		1,618		—		1,618
Debt Securities Issued by Corporations		—		370,718		—		370,718
Mortgage-Backed Securities:
Residential - Government Agencies		—		775,687		—		775,687
Residential - U.S. Government-Sponsored Enterprises		—		819,685		—		819,685
Commercial - Government Agencies		—		151,485		—		151,485
Total Mortgage-Backed Securities		—		1,746,857		—		1,746,857
Total Investment Securities Available-for-Sale		140,644		2,283,964		—		2,424,608
Loans Held for Sale		—		418		—		418
Mortgage Servicing Rights		—		—		732		732
Other Assets		44,182		—		—		44,182
Derivatives ¹		—		150		38,106		38,256
Total Assets Measured at Fair Value on a Recurring Basis as of September 30, 2022	$	184,826	$	2,284,532	$	38,838	$	2,508,196
Liabilities:
Derivatives ¹	$	—	$	3,450	$	170,270	$	173,720
Total Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2022	$	—	$	3,450	$	170,270	$	173,720
December 31, 2021
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	114,845	$	135,242	$	—	$	250,087
Debt Securities Issued by States and Political Subdivisions		—		75,818		—		75,818
Debt Securities Issued by U.S. Government-Sponsored Enterprises		—		1,780		—		1,780
Debt Securities Issued by Corporations		—		383,113		—		383,113
Mortgage-Backed Securities:
Residential - Government Agencies		—		1,319,042		—		1,319,042
Residential - U.S. Government-Sponsored Enterprises		—		2,090,326		—		2,090,326
Commercial - Government Agencies		—		155,890		—		155,890
Total Mortgage-Backed Securities		—		3,565,258		—		3,565,258
Total Investment Securities Available-for-Sale		114,845		4,161,211		—		4,276,056
Loans Held for Sale		—		26,746		—		26,746
Mortgage Servicing Rights		—		—		800		800
Other Assets		56,411		—		—		56,411
Derivatives ¹		—		194		41,817		42,011
Total Assets Measured at Fair Value on a Recurring Basis as of December 31, 2021	$	171,256	$	4,188,151	$	42,617	$	4,402,024
Liabilities:
Derivatives ¹	$	—	$	903	$	17,913	$	18,816
Total Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2021	$	—	$	903	$	17,913	$	18,816

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 Recurring Basis

For the three and nine months ended September 30, 2022, and September 30, 2021, 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, 2022
Balance as of July 1, 2022	$	747		$	(82,948	)
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(15	)		36
Transfers to Loans Held for Sale		—			(284	)
Variation Margin Payments		—			(48,968	)
Balance as of September 30, 2022	$	732		$	(132,164	)
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2022	$	—		$	(132,164	)

Three Months Ended September 30, 2021
Balance as of July 1, 2021	$	875		$	37,957
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(49	)		2,095
Transfers to Loans Held for Sale		—			(3,068	)
Variation Margin Payments		—			(5,875	)
Balance as of September 30, 2021	$	826		$	31,109
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2021	$	—		$	31,109

Nine Months Ended September 30, 2022
Balance as of January 1, 2022	$	800			23,904
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(68	)		(961	)
Transfers to Loans Held for Sale		—			(111	)
Variation Margin Payments		—			(154,996	)
Balance as of September 30, 2022	$	732			(132,164	)
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2022	$	—		$	(132,164	)

Nine Months Ended September 30, 2021
Balance as of January 1, 2021	$	958		$	77,880
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(132	)		7,008
Transfers to Loans Held for Sale		—			(10,652	)
Variation Margin Payments		—			(43,127	)
Balance as of September 30, 2021	$	826		$	31,109
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2021	$	—		$	31,109

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.

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, 2022, and December 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:


(dollars in thousands)	Valuation Technique	Description	Range						Weighted Average¹			Fair Value
September 30, 2022
Mortgage Servicing Rights	Discounted Cash Flow	Constant Prepayment Rate		3.21	%	-	10.46	%		4.11	%	$	28,410
		Discount Rate		9.02	%	-	10.02	%		10.01	%	$	—
Net Derivative Assets and Liabilities:
Interest Rate Lock Commitments	Pricing Model	Closing Ratio		84.10	%	-	95.70	%		91.64	%	$	(40	)
Interest Rate Swap Agreements	Discounted Cash Flow	Credit Factor		0.00	%	-	0.49	%		0.01	%	$	(132,124	)

December 31, 2021
Mortgage Servicing Rights	Discounted Cash Flow	Constant Prepayment Rate		6.51	%	-	11.48	%		10.70	%	$	22,251
		Discount Rate		6.49	%	-	7.08	%		7.04	%	$	—
Net Derivative Assets and Liabilities:
Interest Rate Lock Commitments	Pricing Model	Closing Ratio		75.40	%	-	100.00	%		90.47	%	$	1,084
Interest Rate Swap Agreements	Discounted Cash Flow	Credit Factor		0.00	%	-	0.49	%		0.14	%	$	22,820

¹	Unobservable inputs for mortgage servicing rights and interest rate lock commitments were weighted by loan amount. Unobservable inputs for interest rate swap agreements were weighted by fair value.

Schedule of Assets Measured at Fair Value on Nonrecurring Basis

The Company may be required periodically to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost-or-fair value accounting or impairment write-downs of individual assets. The following table represents the assets measured at fair value on a nonrecurring basis as of September 30, 2022, and December 31, 2021.

(dollars in thousands)	Fair Value Hierarchy	Net Carrying Amount		Valuation Allowance
September 30, 2022
Mortgage Servicing Rights - amortization method	Level 3	$	22,372	$	—

December 31, 2021
Mortgage Servicing Rights - amortization method	Level 3	$	21,451	$	(1,829	)

Schedule of Difference between Aggregate Fair Value and Aggregate Unpaid Principal Balance

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, 2022, and December 31, 2021.

(dollars in thousands)	Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal
September 30, 2022
Loans Held for Sale	$	418	$	433	$	(15	)

December 31, 2021
Loans Held for Sale	$	26,746	$	26,309	$	437

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, 2022, and December 31, 2021. 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 of Des Moines 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, 2022
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	5,461,160	$	4,668,074	$	112,407	$	4,555,667	$	—
Loans ¹		13,037,703		12,003,760		—		—		12,003,760
Financial Instruments - Liabilities
Time Deposits		1,234,985		1,208,445		—		1,208,445		—
Securities Sold Under Agreements to Repurchase		425,490		409,772		—		409,772		—
December 31, 2021
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	4,694,780	$	4,646,619	$	131,139	$	4,515,480	$	—
Loans ¹		11,921,869		12,094,631		—		—		12,094,631
Financial Instruments - Liabilities
Time Deposits		1,000,089		998,134		—		998,134		—
Securities Sold Under Agreements to Repurchase		450,490		469,293		—		469,293		—

¹	Carrying amount is net of unearned income and the Allowance.