Fair Value Accounting and Measurement

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Accounting and Measurement [Text Block]

Fair Value Accounting and Measurement

The Fair Value Measurements and Disclosures topic of the FASB ASC defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value. We hold fixed and variable rate interest-bearing securities, investments in marketable equity securities and certain other financial instruments, which are carried at fair value. Fair value is determined based upon quoted prices when available or through the use of alternative approaches, such as matrix or model pricing, when market quotes are not readily accessible or available.

The valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our own market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets that are accessible at the measurement date.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

Fair values are determined as follows:

Debt securities at fair value are priced using a combination of market activity, industry recognized information sources, yield curves, discounted cash flow models and other factors. These fair value calculations are considered a Level 2 input method under the provisions of the Fair Value Measurements and Disclosures topic of the FASB ASC for all debt securities.

Loans held for sale include the fair value of residential mortgage loans originated as held for sale determined based on quoted secondary market prices for similar loans, including the implicit fair value of embedded servicing rights. The change in fair value of loans held for sale is primarily driven by changes in interest rates subsequent to loan funding and changes in the fair value of the related servicing asset, resulting in revaluation adjustments to the recorded fair value.

The fair value of the interest rate lock commitments and interest rate forward loan sales contracts are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3.

Interest rate swap contracts and the interest rate collar are valued in models, which use as their basis, readily observable market parameters and are classified within Level 2 of the valuation hierarchy.

The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis at December 31, 2021 and 2020 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

	Fair Value at December 31, 2021		Fair Value Measurements at Reporting Date Using
			Level 1		Level 2		Level 3
	(in thousands)
Assets
Debt securities available for sale:
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	3,745,601	$	—	$	3,745,601	$	—
Other asset-backed securities	463,063		—		463,063		—
State and municipal securities	997,291		—		997,291		—
U.S. government agency and government-sponsored enterprise securities	252,576		—		252,576		—
U.S. government securities	157,536		157,536		—		—
Non-agency collateralized mortgage obligations	$	294,932	$	—	$	294,932	$	—
Total debt securities available for sale	$	5,910,999	$	157,536	$	5,753,463	$	—
Loans held for sale	$	9,570	$	—	$	9,570	$	—
Other assets:
Interest rate lock commitments	$	356	$	—	$	—	$	356
Interest rate swap contracts	$	24,257	$	—	$	24,257	$	—
Liabilities
Other liabilities:
Interest rate forward loan sales contracts	$	27	$	—	$	27	$	—
Interest rate swap contracts	$	24,257	$	—	$	24,257	$	—

	Fair Value at December 31, 2020		Fair Value Measurements at Reporting Date Using
			Level 1		Level 2		Level 3
	(in thousands)
Assets
Debt securities available for sale:
U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations	$	3,814,387	$	—	$	3,814,387	$	—
Other asset-backed securities	357,479		—		357,479		—
State and municipal securities	753,572		—		753,572		—
U.S. government agency and government-sponsored enterprise securities	284,696		—		284,696		—
Total debt securities available for sale	$	5,210,134	$	—	$	5,210,134	$	—
Loans held for sale	$	14,760	$	—	$	14,760	$	—
Other assets:
Interest rate lock commitments	$	1,096	$	—	$	—	$	1,096
Interest rate swap contracts	$	46,184	$	—	$	46,184	$	—
Liabilities
Other liabilities:
Interest rate forward loan sales contracts	$	165	$	—	$	165	$	—
Interest rate swap contracts	$	46,637	$	—	$	46,637	$	—

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

The following table provides a description of the valuation technique, significant unobservable inputs, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at December 31, 2021.

	Fair Value at December 31, 2021		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(dollars in thousands)
Interest rate lock commitments	$	356	Internal pricing model	Pull-through rate	80.22% - 96.59% (87.84%)
	Fair Value at December 31, 2020		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(dollars in thousands)
Interest rate lock commitments	$	1,096	Internal pricing model	Pull-through rate	75.43% - 96.63% (88.13%)

An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in positive fair value adjustments (and an increase in the fair value measurement). Conversely, a decrease in the pull-through rate will result in a negative fair value adjustment (and a decrease in the fair value measurement).

The following table includes a rollforward of interest rate lock commitments which utilize Level 3 inputs to determine the fair value on a recurring basis.

	Years Ended December 31,
	2021		2020
	(in thousands)
Balance at the beginning of the period	$	1,096	$	—
Change included in earnings	7,051		2,795
Settlements	(7,791)		(1,699)
Balance at the end of the period	$	356	$	1,096

Nonrecurring Measurements

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as collateral dependent loans. The following valuation techniques and inputs were used to estimate the fair value of collateral dependent loans and equity securities without readily determinable fair value.

Collateral dependent loans - A collateral dependent loan is a loan in which repayment is expected to be provided solely by the underlying collateral. The fair market value of the collateral is determined by either the discounted expected future cash flows from the operation of the collateral or the appraised value of the collateral, less costs to sell. The collateral dependent loan valuations are performed in conjunction with the allowance for credit losses process on a quarterly basis.

OREO - OREO is real property that the Bank has taken ownership of in partial or full satisfaction of a loan or loans. OREO is generally measured based on the property’s fair market value as indicated by an appraisal or a letter of intent to purchase. OREO is initially recorded at the fair value less estimated costs to sell. This amount becomes the property’s new basis. Any fair value adjustments based on the property’s fair value less estimated costs to sell at the date of acquisition are charged to the allowance for credit losses, or in the event of a write-up without previous losses charged to the allowance for credit losses, a credit to earnings is recorded. Management periodically reviews OREO in an effort to ensure the property is recorded at its fair value, net of estimated costs to sell. Any fair value adjustments subsequent to acquisition are charged or credited to earnings.

Equity securities without readily determinable fair value - The Company measures equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with such changes recognized in earnings. Our equity securities without readily determinable fair values consist of 77,683 Visa Class B shares. These shares are currently subject to certain transfer restrictions and will be convertible into Visa Class A shares upon final resolution of certain litigation matters involving Visa. Please see Note 4 "Securities," for additional information.

The following table presents the carrying value of equity securities, without readily determinable fair values, still held as of December 31, 2021, that are measured under the measurement alternative and related adjustments recorded during the periods presented for those securities with observable price changes. These securities are included in the nonrecurring fair value tables when applicable price changes are observable.

	Years Ended December 31,
	2021		2020
Equity securities without readily determinable fair values	in thousands
Carrying value, beginning of period	$	13,425	$	—
Upward carrying value changes	—		13,425
Carrying value, end of period	$	13,425	$	13,425

The following table sets forth the Company’s assets that were measured using fair value estimates on a nonrecurring basis during the years ended December 31, 2021 and 2020:

	Fair Value at December 31, 2021		Fair Value Measurements at Reporting Date Using						Gains (Losses) During the Year Ended December 31, 2021
			Level 1		Level 2		Level 3
	(in thousands)
Collateral dependent loans	$	7,615	$	—	$	—	$	7,615	$	(1,976)
OREO	$	375	$	—	$	—	$	375	$	(140)

	Fair Value at December 31, 2020		Fair Value Measurements at Reporting Date Using						Gains (Losses) During the Year Ended December 31, 2020
			Level 1		Level 2		Level 3
	(in thousands)
Collateral dependent loans	$	15,569	$	—	$	—	$	15,569	$	(8,700)
OREO	525		—		—		525		(70)
Equity securities	13,425		—		13,425		—		13,425

The losses on collateral dependent loans disclosed above represent the amount of the allowance for credit losses and/or charge-offs during the period applicable to loans held at period end. The amount of the allowance is included in the ACL. The losses on OREO disclosed above represent the write-downs taken after foreclosure as a result of subsequent changes in valuation from updated appraisals that were recorded to earnings.

Quantitative information about Level 3 fair value measurements

The range and weighted average of the significant unobservable inputs used to fair value our Level 3 nonrecurring assets during 2021 and 2020, along with the valuation techniques used, are shown in the following tables:

	Fair Value at December 31, 2021		Valuation Technique	Unobservable Input	Range (Weighted Average) (1)
	(dollars in thousands)
Collateral dependent loans (2)	$	7,615	Fair Market Value of Collateral	Adjustment to Stated Value	0.00% - 100.00% (48.00%)
OREO	$	375	Fair Market Value of Collateral	Adjustment to Appraisal Value	N/A (3)

__________

(1) Adjustment applied to appraisal value and stated value (in the case of fixed assets, accounts receivable and inventory).

(2) Collateral consists of accounts receivable, inventory, fixed assets, intangible assets and real estate.

(3) Quantitative disclosures are not provided for OREO because there were no adjustments made to the appraisal values or stated values during the period.

	Fair Value at December 31, 2020		Valuation Technique	Unobservable Input	Range (Weighted Average) (1)
	(dollars in thousands)
Collateral dependent loans (2)	$	15,569	Fair Market Value of Collateral	Adjustment to Stated Value	0.00% - 100.00% (41.36%)
OREO	$	525	Fair Market Value of Collateral	Adjustment to Appraisal Value	N/A (3)

__________

(1) Adjustment applied to appraisal value and stated value (in the case of fixed assets, accounts receivable and inventory).

(2) Collateral consists of accounts receivable, inventory, fixed assets, real estate and cash.

(3) Quantitative disclosures are not provided for OREO because there were no adjustments made to the appraisal values or stated values during the period.

The following tables summarize carrying amounts and estimated fair values of selected financial instruments for the periods indicated:

	December 31, 2021
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash and due from banks	$	153,414	$	153,414	$	153,414	$	—	$	—
Interest-earning deposits with banks	671,300		671,300		671,300		—		—
Debt securities available for sale	5,910,999		5,910,999		157,536		5,753,463		—
Debt securities held to maturity	2,148,327		2,122,606		—		2,122,606		—
FHLB stock	10,280		10,280		—		10,280		—
Loans held for sale	9,774		9,774		—		9,774		—
Loans	10,486,359		10,679,349		—		—		10,679,349
Interest rate contracts	24,257		24,257		—		24,257		—
Interest rate lock commitments	356		356		—		—		356
Liabilities
Time deposits	$	445,957	$	430,682	$	—	$	430,682	$	—
FHLB advances and FRB borrowings	7,359		8,752		—		8,752		—
Repurchase agreements	86,013		86,013		—		86,013		—
Subordinated debentures	10,000		10,125		—		10,125		—
Junior subordinated debentures	10,310		9,927		—		9,927		—
Interest rate contracts	24,257		24,257		—		24,257		—
Interest rate forward loan sales contracts	27		27		—		27		—

	December 31, 2020
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash and due from banks	$	218,899	$	218,899	$	218,899	$	—	$	—
Interest-earning deposits with banks	434,867		434,867		434,867		—		—
Debt securities available for sale	5,210,134		5,210,134		—		5,210,134		—
FHLB stock	10,280		10,280		—		10,280		—
Loans held for sale	26,481		26,481		—		26,481		—
Loans	9,278,520		9,720,592		—		—		9,720,592
Interest rate contracts	46,184		46,184		—		46,184		—
Interest rate lock commitments	1,096		1,096		—		—		1,096
Liabilities
Time deposits	$	338,845	$	338,815	$	—	$	338,815	$	—
FHLB advances and FRB borrowings	7,414		9,295		—		9,295		—
Repurchase agreements	73,859		73,859		—		73,859		—
Subordinated debentures	35,092		35,414		—		35,414		—
Interest rate contracts	46,637		46,637		—		46,637		—
Interest rate forward loan sales contracts	165		165		—		165		—

The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale sold under the mandatory delivery method and accounted for under the fair value option as of December 31, 2021 and 2020:

December 31,
2021						2020
Fair Value		Aggregate Unpaid Principal Balance		Fair Value Less Aggregate Unpaid Principal Balance		Fair Value		Aggregate Unpaid Principal Balance		Fair Value Less Aggregate Unpaid Principal Balance
(in thousands)
$	9,570	$	9,401	$	169	$	14,760	$	14,252	$	508

Residential mortgage loans held for sale that are sold under the mandatory delivery method and accounted for under the fair value option are measured initially at fair value with subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are reported in loan revenue. For the year ended December 31, 2021, the Company recorded a net decrease in fair value of $339 thousand, and for the year ended December 31, 2020, the Company recorded a net increase in fair value of $508 thousand, representing the change in fair value reflected in earnings. For the year ended December 31, 2019, there were no such loans held for sale under the mandatory delivery method. At December 31, 2021, there were no residential mortgage loans held for sale for which the fair value option was elected that were 90 days or more past due, in nonaccrual status or both.