XML 48 R33.htm IDEA: XBRL DOCUMENT v3.6.0.2
Fair Value
12 Months Ended
Dec. 31, 2016
Fair Value  
Fair Value

Note 25—Fair Value

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States, and enhances disclosures about fair value measurements. FASB ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale securities and derivative contracts are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, impaired loans, OREO, and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write‑downs of individual assets.

FASB ASC 820 establishes a three‑tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

 

 

Level 1

Observable inputs such as quoted prices in active markets;

Level 2

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following is a description of valuation methodologies used for assets recorded at fair value.

Investment Securities

Securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and The NASDAQ Stock Market, or U.S. Treasury securities that are traded by dealers or brokers in active over‑the‑counter markets and money market funds. Level 2 securities include mortgage‑backed securities and debentures issued by government sponsored entities, municipal bonds and corporate debt securities. Securities held to maturity are valued at quoted market prices or dealer quotes similar to securities available for sale. The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the fair market value. The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics. As such, the fair value adjustments for mortgage loans held for sale are recurring Level 2.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan may be considered impaired and an allowance for loan losses may be established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using estimated fair value methodologies. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2016, substantially all of the impaired loans were evaluated based on the fair value of the collateral because such loans were considered collateral dependent. Impaired loans, where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company considers the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company considers the impaired loan as nonrecurring Level 3.

Other Real Estate Owned (“OREO”)

Typically OREO, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 2). However, OREO is considered Level 3 in the fair value hierarchy because management has qualitatively applied a discount due to the size, supply of inventory, and the incremental discounts applied to the appraisals. Management also considers other factors, including changes in absorption rates, length of time the property has been on the market, and anticipated sales values, which have resulted in adjustments to the collateral value estimates indicated in certain appraisals. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and generally any subsequent adjustments to the value are recorded as a component of OREO expense.

Derivative Financial Instruments

Fair value is estimated using pricing models of derivatives with similar characteristics; accordingly, the derivatives are classified within Level 2 of the fair value hierarchy. See Note 28—Derivative Financial Instruments for additional information.

Mortgage servicing rights (“MSRs”)

The estimated fair value of MSRs is obtained through an independent derivatives dealer analysis of future cash flows. The evaluation utilizes assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, as well as the market’s perception of future interest rate movements. MSRs are classified as Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Quoted Prices

    

 

 

    

 

 

 

 

 

 

 

 

 

In Active

 

Significant

 

 

 

 

 

 

 

 

 

 

Markets

 

Other

 

Significant

 

 

 

 

 

 

 

for Identical

 

Observable

 

Unobservable

 

 

 

 

 

 

 

Assets

 

Inputs

 

Inputs

 

 

(Dollars in thousands)

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

2,606

 

$

 —

 

$

2,606

 

$

 —

 

 

Loans held for sale

 

 

50,572

 

 

 —

 

 

50,572

 

 

 —

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored entities debt

 

 

84,642

 

 

 —

 

 

84,642

 

 

 —

 

 

State and municipal obligations

 

 

107,402

 

 

 —

 

 

107,402

 

 

 —

 

 

Mortgage-backed securities

 

 

803,577

 

 

 —

 

 

803,577

 

 

 —

 

 

Corporate stocks

 

 

3,784

 

 

2,559

 

 

1,225

 

 

 —

 

 

Total securities available for sale

 

 

999,405

 

 

2,559

 

 

996,846

 

 

 —

 

 

Mortgage servicing rights

 

 

29,037

 

 

 —

 

 

 —

 

 

29,037

 

 

 

 

$

1,081,620

 

$

2,559

 

$

1,050,024

 

$

29,037

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

730

 

$

 —

 

$

730

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

1,415

 

$

 —

 

$

1,415

 

$

 —

 

 

Loans held for sale

 

 

41,649

 

 

 —

 

 

41,649

 

 

 —

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored entities debt

 

 

162,507

 

 

 —

 

 

162,507

 

 

 —

 

 

State and municipal obligations

 

 

131,364

 

 

 —

 

 

131,364

 

 

 —

 

 

Mortgage-backed securities

 

 

711,849

 

 

 —

 

 

711,849

 

 

 —

 

 

Corporate stocks

 

 

3,821

 

 

2,596

 

 

1,225

 

 

 —

 

 

Total securities available for sale

 

 

1,009,541

 

 

2,596

 

 

1,006,945

 

 

 —

 

 

Mortgage servicing rights

 

 

26,202

 

 

 —

 

 

 —

 

 

26,202

 

 

 

 

$

1,078,807

 

$

2,596

 

$

1,050,009

 

$

26,202

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

838

 

$

 —

 

$

838

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There were no financial instruments transferred between Level 1 and Level 2 of the valuation hierarchy for the years ended December 31, 2016, and 2015.

Changes in Level 3 Fair Value Measurements

When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses below include changes in fair value due in part to observable factors that are part of the valuation methodology.

A reconciliation of the beginning and ending balances of Level 3 assets and liabilities recorded at fair value on a recurring basis for the years ended December 31, 2016 and 2015 is as follows:

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

    

Assets

    

Liabilities

 

Fair value, January 1, 2016

 

$

26,202

 

$

 —

 

Servicing assets that resulted from transfers of financial assets

 

 

6,428

 

 

 

Changes in fair value due to valuation inputs or assumptions

 

 

560

 

 

 

Changes in fair value due to decay

 

 

(4,153)

 

 

 

Fair value , December 31, 2016

 

$

29,037

 

$

 

 

 

 

 

 

 

 

 

Fair value, January 1, 2015

 

$

21,601

 

$

 

Servicing assets that resulted from transfers of financial assets

 

 

6,957

 

 

 

Changes in fair value due to valuation inputs or assumptions

 

 

1,015

 

 

 

Changes in fair value due to decay

 

 

(3,371)

 

 

 

Fair value, December 31, 2015

 

$

26,202

 

$

 —

 

 

There were no unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at December 31, 2016 or 2015.

See Note 29 – Loan Servicing, Mortgage Obligation, and Loans Held for Sale for information about recurring Level 3 fair value measurements of mortgage servicing rights.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Quoted Prices

    

 

 

    

 

 

 

 

 

 

 

 

In Active

 

Significant

 

 

 

 

 

 

 

 

 

Markets

 

Other

 

Significant

 

 

 

 

 

 

for Identical

 

Observable

 

Unobservable

 

 

 

 

 

 

Assets

 

Inputs

 

Inputs

 

(Dollars in thousands)

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO

 

$

18,316

 

$

 

$

 

$

18,316

 

Non-acquired impaired loans

 

 

6,611

 

 

 

 

 

 

6,611

 

December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO

 

$

30,554

 

$

 

$

 

$

30,554

 

Non-acquired impaired loans

 

 

13,355

 

 

 

 

 

 

13,355

 

 

 

Quantitative Information about Level 3 Fair Value Measurements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

Weighted Average

 

 

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

Valuation Technique

 

Unobservable Input

 

2016

 

 

2015

 

 

Nonrecurring measurements:

 

 

 

 

 

 

 

 

 

 

 

Non-acquired impaired loans

 

Discounted appraisals

 

Collateral discounts

 

6

%

 

6

%

 

OREO

 

Discounted appraisals

 

Collateral discounts and estimated costs to sell

 

18

%

 

16

%

 

 

 

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those models are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2016 and 2015. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents—The carrying amount is a reasonable estimate of fair value.

Investment Securities—Securities held to maturity are valued at quoted market prices or dealer quotes. The carrying value of FHLB stock approximates fair value based on the redemption provisions. The carrying value of the Company’s investment in unconsolidated subsidiaries approximates fair value.  See Note 3-Investment Securities for additional information, as well as page F-65 regarding fair value

Loans held for sale — The fair values disclosed for loans held for sale are based on commitments from investors for loans with similar characteristics.

 

Loans—For variable‑rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (e.g., one‑to‑four family residential) and other consumer loans are estimated using discounted cash flow analyses based on the Company’s current rates offered for new loans of the same type, structure and credit quality. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered by the Company for loans with similar terms to borrowers of similar credit quality. Fair values for non‑performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

FDIC Indemnification Asset—The fair value is estimated based on discounted future cash flows using current discount rates which has been applied to the expected receipts from the FDIC (which are reduced from revised credit projections) and are less than the clawback estimate.

Deposit Liabilities—The fair values disclosed for demand deposits (e.g., interest and non‑interest bearing checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable‑rate, fixed‑term money market accounts, and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed‑rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase—The carrying amount of federal funds purchased, borrowings under repurchase agreements, and other short‑term borrowings maturing within ninety days approximate their fair values.

Other Borrowings—The fair value of other borrowings is estimated using discounted cash flow analysis on the Company’s current incremental borrowing rates for similar types of instruments.

Accrued Interest—The carrying amounts of accrued interest approximate fair value.

Derivative Financial Instruments—The fair value of derivative financial instruments (including interest rate swaps) is estimated using pricing models of derivatives with similar characteristics.

Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees—The fair values of commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed‑rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are based on fees currently charged for similar agreements or on the estimated costs to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

The estimated fair value, and related carrying amount, of the Company’s financial instruments are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Carrying

    

Fair

    

 

 

    

 

 

    

 

 

 

 

(Dollars in thousands)

 

Amount

 

Value

 

Level 1

 

Level 2

 

Level 3

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

374,448

 

$

374,448

 

$

374,448

 

$

 —

 

$

 —

 

 

Investment securities

 

 

1,014,981

 

 

1,015,137

 

 

12,041

 

 

1,003,096

 

 

 —

 

 

Loans held for sale

 

 

50,572

 

 

50,572

 

 

 —

 

 

50,572

 

 

 —

 

 

Loans, net of allowance for loan losses

 

 

6,643,326

 

 

6,649,575

 

 

 —

 

 

 —

 

 

6,649,575

 

 

FDIC receivable for loss share agreements

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

Accrued interest receivable

 

 

18,618

 

 

18,618

 

 

 —

 

 

3,642

 

 

14,976

 

 

Mortgage servicing rights

 

 

29,037

 

 

29,037

 

 

 —

 

 

 —

 

 

29,037

 

 

Other derivative financial instruments (mortgage banking related)

 

 

2,606

 

 

2,606

 

 

 —

 

 

2,606

 

 

 —

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

7,334,423

 

 

6,935,867

 

 

 —

 

 

6,935,867

 

 

 —

 

 

Federal funds purchased and securities sold under agreements to repurchase

 

 

313,773

 

 

313,773

 

 

 —

 

 

313,773

 

 

 —

 

 

Other borrowings

 

 

55,358

 

 

54,379

 

 

 —

 

 

54,379

 

 

 —

 

 

Accrued interest payable

 

 

1,359

 

 

1,359

 

 

 —

 

 

1,359

 

 

 —

 

 

Interest rate swap - cash flow hedge

 

 

498

 

 

498

 

 

 —

 

 

498

 

 

 —

 

 

Other derivative financial instruments (mortgage banking related)

 

 

232

 

 

232

 

 

 

 

232

 

 

 

 

Off balance sheet financial instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to extend credit

 

 

 —

 

 

1,587

 

 

 —

 

 

1,587

 

 

 —

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

695,794

 

$

695,794

 

$

695,794

 

$

 —

 

$

 —

 

 

Investment securities

 

 

1,027,748

 

 

1,028,157

 

 

11,489

 

 

1,016,668

 

 

 —

 

 

Loans held for sale

 

 

41,649

 

 

41,649

 

 

 —

 

 

41,649

 

 

 —

 

 

Loans, net of allowance for loan losses

 

 

5,970,044

 

 

6,068,252

 

 

 —

 

 

 —

 

 

6,068,252

 

 

FDIC receivable for loss share agreements

 

 

4,401

 

 

(2,452)

 

 

 —

 

 

 —

 

 

(2,452)

 

 

Accrued interest receivable

 

 

17,083

 

 

17,083

 

 

 —

 

 

3,883

 

 

13,200

 

 

Mortgage servicing rights

 

 

26,202

 

 

26,202

 

 

 —

 

 

 —

 

 

26,202

 

 

Other derivative financial instruments (mortgage banking related)

 

 

1,415

 

 

1,415

 

 

 —

 

 

1,415

 

 

 —

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

7,100,428

 

 

6,785,911

 

 

 —

 

 

6,785,911

 

 

 —

 

 

Federal funds purchased and securities sold under agreements to repurchase

 

 

288,231

 

 

288,231

 

 

 —

 

 

288,231

 

 

 —

 

 

Other borrowings

 

 

55,158

 

 

49,762

 

 

 —

 

 

49,762

 

 

 —

 

 

Accrued interest payable

 

 

2,190

 

 

2,190

 

 

 —

 

 

2,190

 

 

 —

 

 

Interest rate swap - cash flow hedge

 

 

718

 

 

718

 

 

 —

 

 

718

 

 

 —

 

 

Other derivative financial instruments (mortgage banking related)

 

 

120

 

 

120

 

 

 

 

120

 

 

 

 

Off balance sheet financial instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to extend credit

 

 

 —

 

 

23,927

 

 

 —

 

 

23,927

 

 

 —