XML 159 R31.htm IDEA: XBRL DOCUMENT

Fair Value

12 Months Ended

Dec. 31, 2019

FAIR VALUE

Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the Consolidated Statements of Financial Condition. Those assets and liabilities are presented below in the sections titled "Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis" and "Assets and Liabilities Required to be Measured at Fair Value on a Non-Recurring Basis."

Other assets and liabilities are not required to be measured at fair value in the Consolidated Statements of Financial Condition, but must be disclosed at fair value. See the "Fair Value Measurements of Other Financial Instruments" section of this note. Any aggregation of the estimated fair values presented in this note does not represent the value of the Company.

Depending on the nature of the asset or liability, the Company uses various valuation methodologies and assumptions to estimate fair value. GAAP provides a three-tiered fair value hierarchy based on the inputs used to measure fair value. The hierarchy is defined as follows:

•Level 1 – Quoted prices in active markets for identical assets or liabilities.

•Level 2 – Observable inputs other than level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

•Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs require significant management judgment or estimation, some of which use model-based techniques and may be internally developed.

Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods presented.

Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis

The following table provides the fair value for assets and liabilities required to be measured at fair value on a recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.

Recurring Fair Value Measurements

(Dollar amounts in thousands)


	As of December 31, 2019										As of December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets




Equity securities	$	23,703	$	13,400	$	—	$	19,658	$	11,148	$	—
Securities available-for-sale
U.S. treasury securities	34,075		—		—		37,767		—		—
U.S. agency securities	—		248,424		—		—		142,563		—
CMOs	—		1,557,671		—		—		1,315,209		—
MBSs	—		684,684		—		—		466,934		—
Municipal securities	—		234,431		—		—		227,187		—

Corporate debt securities	—		114,101		—		—		82,349		—

Total securities available-for-sale	34,075		2,839,311		—		37,767		2,234,242		—
Mortgage servicing rights ("MSRs")⁽¹⁾	—		—		5,858		—		—		6,730
Derivative assets⁽¹⁾	—		62,436		—		—		32,057		—
Liabilities
Derivative liabilities⁽²⁾	$	—	$	18,535	$	—	$	—	$	28,861	$	—

⁽¹⁾Included in other assets in the Consolidated Statements of Financial Condition.

⁽²⁾Included in other liabilities in the Consolidated Statements of Financial Condition.

The following sections describe the specific valuation techniques and inputs used to measure financial assets and liabilities at fair value.

Equity Securities

The Company's equity securities consist primarily of community development investments and certain diversified investment securities held in a grantor trust for participants in the Company's nonqualified deferred compensation plan that are invested in money market and mutual funds. The fair value of certain community development investments is based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and is classified in level 2 of the fair value hierarchy. As of December 31, 2019, the fair value of certain community development investments totaling $5.0 million was based on the net asset value per share ("NAV") practical expedient and can be redeemed at any month end with 30 days notice. Since these investments are measured at fair value using the NAV practical expedient, they are not classified in the fair value hierarchy. The fair value of the money market and mutual funds is based on quoted market prices in active exchange markets and is classified in level 1 of the fair value hierarchy.

Securities Available-for-Sale

The Company's securities available-for-sale are primarily fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair values for these securities are based on quoted prices in active markets or market prices for similar securities obtained from external pricing services or dealer market participants and are classified in level 2 in the fair value hierarchy. The fair value of U.S. treasury securities is based on quoted market prices in active exchange markets and is classified in level 1 of the fair value hierarchy. Quarterly, the Company evaluates the methodologies used by its external pricing services to estimate the fair value of these securities to determine whether the valuations represent an exit price in the Company's principal markets.

The Company liquidated all of its remaining CDOs during 2017. A rollforward of the carrying value of CDOs for the year ended December 31, 2017 is presented in the following table.

Carrying Value of CDOs

(Dollar amounts in thousands)


	Years Ended December 31,
	2017
Beginning balance	$	33,260
Additions	—
Change in other comprehensive income⁽¹⁾	14,421
Paydowns and sales	(47,681)
Ending balance	$	—

⁽¹⁾Included in unrealized holding gains (losses) in the Consolidated Statements of Comprehensive Income.

Mortgage Servicing Rights

The Company services loans for others totaling $653.7 million and $627.3 million as of December 31, 2019 and 2018, respectively. These loans are owned by third-parties and are not included in the Consolidated Statements of Financial Condition. The Company determines the fair value of MSRs by estimating the present value of expected future cash flows associated with the mortgage loans being serviced and classifies them in level 3 of the fair value hierarchy. The following table presents the ranges of significant, unobservable inputs used by the Company to determine the fair value of MSRs as of December 31, 2019 and 2018.

Significant Unobservable Inputs Used in the Valuation of MSRs


	As of December 31,
	2019							2018
Prepayment speed	6.7	%	-	12.0%	6.5	%	-	13.5%
Maturity (months)	18		-	94	20		-	104
Discount rate	9.3	%	-	12.0%	9.5	%	-	12.0%

The impact of changes in these key inputs could result in a significantly higher or lower fair value measurement for MSRs. Significant increases in expected prepayment speeds and discount rates have negative impacts on the valuation. Higher maturity assumptions have a favorable effect on the estimated fair value.

A rollforward of the carrying value of MSRs for the three years ended December 31, 2019 is presented in the following table.

Carrying Value of MSRs

(Dollar amounts in thousands)


	Years Ended December 31,
	2019		2018		2017
Beginning balance	$	6,730	$	5,894	$	6,120

New MSRs	1,228		1,080		673
Total (losses) gains included in earnings⁽¹⁾:
Changes in valuation inputs and assumptions	(1,559)		475		(41)
Other changes in fair value⁽²⁾	(541)		(719)		(858)
Ending balance⁽³⁾	$	5,858	$	6,730	$	5,894
Contractual servicing fees earned during the year⁽¹⁾	$	1,586	$	1,517	$	1,536
Total amount of loans being serviced for the benefit of others at the end of the year	653,656		627,323		607,016

⁽¹⁾Included in mortgage banking income in the Consolidated Statements of Income and related to assets held as of December 31, 2019, 2018, and 2017.

⁽²⁾Primarily represents changes in expected future cash flows over time due to payoffs and paydowns.

⁽³⁾Included in other assets in the Consolidated Statements of Financial Condition.

Derivative Assets and Derivative Liabilities

The Company enters into interest rate swaps and derivative transactions with commercial customers. These derivative transactions are executed in the dealer market, and pricing is based on market quotes obtained from the counterparties. The market quotes were developed using market observable inputs, which primarily include LIBOR. Therefore, derivatives are classified in level 2 of the fair value hierarchy. For its derivative assets and liabilities, the Company also considers non-performance risk, including the likelihood of default by itself and its counterparties, when evaluating whether the market quotes from the counterparties are representative of an exit price.

Pension Plan Assets

Although Pension Plan assets are not consolidated in the Company's Consolidated Statements of Financial Condition, they are required to be measured at fair value on an annual basis. The fair value of Pension Plan assets is presented in the following table by level in the fair value hierarchy.

Annual Fair Value Measurements for Pension Plan Assets

(Dollar amounts in thousands)


	As of December 31, 2019										As of December 31, 2018
	Level 1		Level 2		Total		Level 1		Level 2		Total
Pension plan assets:
Mutual funds⁽¹⁾	$	34,231	$	—	$	34,231	$	27,246	$	—	$	27,246
U.S. government and government agency securities	3,720		3,685		7,405		4,389		3,626		8,015
Corporate bonds	—		10,865		10,865		—		10,472		10,472
Common stocks	34,693		—		34,693		26,882		—		26,882
Common trust funds	N/A		N/A		5,096		N/A		N/A		3,595
Total pension plan assets	$	72,644	$	14,550	$	92,290	$	58,517	$	14,098	$	76,210

N/A – Not applicable for investments measured at fair value using net asset value ("NAV") as a practical expedient which are not classified in the fair value hierarchy.

⁽¹⁾Includes mutual funds, money market funds, cash, cash equivalents, and accrued interest.

Mutual funds, certain U.S. government agency securities, and common stocks are based on quoted market prices in active exchange markets and classified in level 1 of the fair value hierarchy. Corporate bonds and certain U.S. government and government agency securities are valued at quoted prices from independent sources that are based on observable market trades or observable prices for similar bonds where a price for the identical bond is not observable and, therefore, are classified in level 2 of the fair value hierarchy. Common trust funds are valued at NAV on the last business day of the Pension Plan's year end, which is used as a practical expedient to estimate fair value. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, divided by the number of units outstanding. Since these investments are measured at

fair value using the NAV as a practical expedient, they are not classified in the fair value hierarchy. There were no Pension Plan assets classified in level 3 of the fair value hierarchy.

Assets and Liabilities Required to be Measured at Fair Value on a Non-Recurring Basis

The following table provides the fair value for each class of assets and liabilities required to be measured at fair value on a non-recurring basis in the Consolidated Statements of Financial Condition by level in the fair value hierarchy.

Non-Recurring Fair Value Measurements

(Dollar amounts in thousands)


	As of December 31, 2019										As of December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Collateral-dependent impaired loans⁽¹⁾	$	—	$	—	$	41,326	$	—	$	—	$	24,565
OREO⁽²⁾	—		—		3,325		—		—		6,012
Loans held-for-sale⁽³⁾	—		—		36,032		—		—		3,478
Assets held-for-sale⁽⁴⁾	—		—		6,824		—		—		3,722

⁽¹⁾Includes impaired loans with charge-offs and impaired loans with a specific reserve during the periods presented.

⁽²⁾Includes OREO with fair value adjustments subsequent to initial transfer that occurred during the periods presented.

⁽³⁾Included in other assets in the Consolidated Statements of Financial Condition.

⁽⁴⁾Included in premises, furniture, and equipment in the Consolidated Statements of Financial Condition.

Collateral-Dependent Impaired Loans

Certain collateral-dependent impaired loans are subject to fair value adjustments to reflect the difference between the carrying value of the loan and the value of the underlying collateral. The fair values of collateral-dependent impaired loans are primarily determined by current appraised values of the underlying collateral. Based on the age and/or type, appraisals may be adjusted in the range of 0% to 15%. In certain cases, an internal valuation may be used when the underlying collateral is located in areas where comparable sales data is limited or unavailable. Accordingly, collateral-dependent impaired loans are classified in level 3 of the fair value hierarchy.

Collateral-dependent impaired loans for which the fair value is greater than the recorded investment are not measured at fair value in the Consolidated Statements of Financial Condition and are not included in this disclosure.

OREO

The fair value of OREO is measured using the current appraised value of the properties. In certain circumstances, a current appraisal may not be available or may not represent an accurate measurement of the property's fair value due to outdated market information or other factors. In these cases, the fair value is determined based on the lower of the (i) most recent appraised value, (ii) broker price opinion, (iii) current listing price, or (iv) signed sales contract. Given these valuation methods, OREO is classified in level 3 of the fair value hierarchy.

Loans Held-for-Sale

Loans held-for-sale consists of 1-4 family mortgage loans, which were originated with the intent to sell as of December 31, 2019 and 2018. These loans were recorded in the held-for-sale category at the contract price, which approximates fair value, and, accordingly, are classified in level 3 of the fair value hierarchy.

Assets Held-for-Sale

As of December 31, 2019, assets held-for-sale consists of former branches that are no longer in operation and parcels of land previously purchased for expansion. These properties are being actively marketed and were transferred into the held-for-sale category at their fair value as determined by current appraisals. Based on these valuation methods, they are classified in level 3 of the fair value hierarchy.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets are subject to annual impairment testing, which requires a significant degree of management judgment. If the testing had resulted in impairment, the Company would have classified goodwill and other intangible assets in level 3 of the fair value hierarchy as a non-recurring fair value measurement. Additional information regarding goodwill, other intangible assets, and impairment policies can be found in Note 1, "Summary of Significant Accounting Policies," and Note 10, "Goodwill and Other Intangible Assets."

Financial Instruments Not Required to be Measured at Fair Value

For certain financial instruments that are not required to be measured at fair value in the Consolidated Statements of Financial Condition, the Company must disclose the estimated fair values and the level within the fair value hierarchy as shown in the following table.

Fair Value Measurements of Other Financial Instruments

(Dollar amounts in thousands)


		As of December 31, 2019						As of December 31, 2018
	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Cash and due from banks	1	$	214,894	$	214,894	$	211,189	$	211,189
Interest-bearing deposits in other banks	2	84,327		84,327		78,069		78,069
Securities held-to-maturity	2	21,997		21,234		10,176		9,871
FHLB and FRB stock	2	115,409		115,409		80,302		80,302
Loans	3	12,733,200		12,535,848		11,346,668		11,052,040
Investment in BOLI	3	296,351		296,351		296,733		296,733
Accrued interest receivable	3	59,716		59,716		54,847		54,847
Other interest-earning assets	3	—		—		5		5
Liabilities
Deposits	2	$	13,251,278	$	13,247,871	$	12,084,112	$	12,064,604
Borrowed funds	2	1,658,758		1,658,758		906,079		906,079
Senior and subordinated debt	2	233,948		277,203		203,808		211,207
Accrued interest payable	2	10,502		10,502		10,005		10,005

Management uses various methodologies and assumptions to determine the estimated fair values of the financial instruments in the table above. The fair value estimates are made at a discrete point in time based on relevant market information and consider management's judgments regarding future expected economic conditions, loss experience, and specific risk characteristics of the financial instruments. Loans include the FDIC indemnification asset and net loans, which consists of loans held-for-investment, acquired loans, and the allowance for loan losses. As of both December 31, 2019 and 2018, the Company estimated the fair value of lending commitments outstanding to be immaterial.

- 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