Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
3 Months Ended
Mar. 31, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

10. FAIR VALUE MEASUREMENTS

The Company follows ASC 820, Fair Value Measurement to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. ASC 820 clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants.

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy under ASC 820 based on these two types of inputs are as follows:

Level 1  Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2  Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the markets.

Level 3  Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. These unobservable inputs reflect the Company’s assumptions about what market participants would use and information that is reasonably available under the circumstances without undue cost and effort.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements. Refer to Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2023 Form 10-K for additional information on the valuation techniques used by the Company.

AFS Securities: AFS securities are recorded at fair value on a recurring basis. The Company’s investment portfolio is primarily valued using fair value measurements that are Level 2. The Company has contracted with a third-party portfolio accounting service vendor for valuation of its securities portfolio; no material differences were identified during the valuations as of March 31, 2024 and December 31, 2023.

The carrying value of restricted FRB and FHLB stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the fair value disclosure table below.

Loans Held for Sale: Residential loans originated for sale in the open market are carried at fair value. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded in current period earnings as a component of “Mortgage banking income” on the Company’s Consolidated Statements of Income.

Derivative Instruments: The Company records derivative instruments at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities, as well as to manage the Company’s exposure to credit risk related to borrower’s performance under interest rate derivatives. The Company has contracted with a third-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. Third-party valuations are validated by the Company using the Bloomberg Valuation Service’s derivative pricing functions. The Company determines the fair value of rate lock commitments, delivery contracts, and forward sales contracts of MBS by measuring the change in the value of the underlying asset, while taking into consideration the probability that the rate lock commitments will close or be funded. No significant differences were identified during the valuations as of March 31, 2024 and December 31, 2023. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of the periods ended (dollars in thousands):

    

Fair Value Measurements at March 31, 2024 using

    

    

Significant

    

    

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Level 1

Level 2

Level 3

Balance

ASSETS

  

 

  

 

  

 

  

AFS securities:

  

 

  

 

  

 

  

U.S. government and agency securities

$

60,868

$

1,868

$

$

62,736

Obligations of states and political subdivisions

 

 

461,850

 

 

461,850

Corporate and other bonds(1)

 

 

250,264

 

 

250,264

MBS

 

 

1,425,587

 

 

1,425,587

Other securities

 

 

1,779

 

 

1,779

LHFS

 

 

12,200

 

 

12,200

Financial Derivatives(2)

 

 

99,259

 

 

99,259

LIABILITIES

Financial Derivatives(2)

$

$

226,777

$

$

226,777

(1) Other bonds include asset-backed securities.

(2) Includes hedged and non-hedged derivatives.

    

Fair Value Measurements at December 31, 2023 using

    

    

Significant

    

    

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Level 1

Level 2

Level 3

Balance

ASSETS

  

 

  

 

  

 

  

AFS securities:

  

 

  

 

  

 

  

U.S. government and agency securities

$

61,311

$

2,045

$

$

63,356

Obligations of states and political subdivisions

 

 

475,447

 

 

475,447

Corporate and other bonds(1)

 

 

241,889

 

 

241,889

MBS

 

 

1,448,817

 

 

1,448,817

Other securities

 

 

1,752

 

 

1,752

LHFS

 

 

6,710

 

 

6,710

Financial Derivatives(2)

 

 

93,027

 

 

93,027

LIABILITIES

Financial Derivatives(2)

$

$

206,561

$

$

206,561

(1) Other bonds include asset-backed securities.

(2) Includes hedged and non-hedged derivatives.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets after they are evaluated for impairment. The primary assets accounted for at fair value on a nonrecurring basis are related to loans held for sale, foreclosed properties, former bank premises, and collateral-dependent loans that are individually assessed. When the asset is secured by real estate, the Company measures the fair value utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. Management may discount the value from the appraisal in determining the fair value if, based on its understanding of the market conditions, the collateral had been impaired below the appraised value (Level 3). The nonrecurring valuation adjustments for these assets did not have a significant impact on the Company’s consolidated financial statements.

Fair Value of Financial Instruments

ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. Refer to Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2023 Form 10-K for additional information on the valuation techniques used by the Company to measure fair value.

Cash and Cash Equivalents: The carrying amount is a reasonable estimate of fair value.
HTM Securities: The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2; however, there are a few investments that are considered to be Level 3. The Company has contracted with a third-party portfolio accounting service vendor for valuation of its securities portfolio; no material differences were identified during the valuations as of March 31, 2024 and December 31, 2023.

Loans and Leases: The fair value of loans and leases were estimated using an exit price, representing the amount that would be expected to be received if the Company sold the loans and leases. The fair value of performing loans and leases were estimated through use of discounted cash flows. Credit loss assumptions were based on market probability of default/loss given default for loan and lease cohorts. The discount rate was based primarily on recent market origination rates. Fair value of loans and leases individually assessed and their respective levels within the fair value hierarchy are described in the previous section related to fair value measurements of assets that are measured on a nonrecurring basis.
Accrued Interest: The carrying amounts of accrued interest approximate fair value.
Bank Owned Life Insurance: The carrying value of BOLI approximates fair value. The Company records these policies at their cash surrender value, which is estimated using information provided by insurance carriers.
Deposits: The fair value of demand deposits, savings accounts, brokered deposits, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposits were valued using a discounted cash flow calculation that includes a market rate analysis of the current rates offered by market participants for certificates of deposits that mature in the same period.
Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements and any other short-term borrowings approximate their fair value. The fair values of the Company’s long-term borrowings, including trust preferred securities are estimated using discounted cash flow analyses, based on the current incremental borrowing rates for similar types of borrowing arrangements.

The carrying values and estimated fair values of the Company’s financial instruments as of the periods ended are as follows (dollars in thousands):

Fair Value Measurements at March 31, 2024 using

    

    

Quoted Prices

    

Significant

    

    

in Active

Other

Significant

Markets for

Observable

Unobservable

Total Fair

Identical Assets

Inputs

Inputs

Value

Carrying

 

Value

Level 1

Level 2

Level 3

Balance

ASSETS

Cash and cash equivalents

$

396,670

$

396,670

$

$

$

396,670

AFS securities

 

2,202,216

 

60,868

 

2,141,348

 

 

2,202,216

HTM securities

 

828,928

 

 

790,123

 

1,222

 

791,345

Restricted stock

 

110,272

 

 

110,272

 

 

110,272

LHFS

 

12,200

 

 

12,200

 

 

12,200

LHFI, net of deferred fees and costs

 

15,851,628

 

 

 

15,235,459

 

15,235,459

Financial Derivatives (1)

 

99,259

 

 

99,259

 

 

99,259

Accrued interest receivable

 

90,299

 

 

90,299

 

 

90,299

BOLI

 

455,885

 

 

455,885

 

 

455,885

LIABILITIES

 

  

 

  

 

  

 

  

 

  

Deposits

$

17,278,435

$

$

17,254,950

$

$

17,254,950

Borrowings

 

1,057,724

 

 

990,347

 

 

990,347

Accrued interest payable

 

26,175

 

 

26,175

 

 

26,175

Financial Derivatives (1)

 

226,777

 

 

226,777

 

 

226,777

(1) Includes hedged and non-hedged derivatives.

    

Fair Value Measurements at December 31, 2023 using

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Total Fair

Identical Assets

Inputs

Inputs

Value

Carrying

Value

Level 1

Level 2

Level 3

Balance

ASSETS

Cash and cash equivalents

$

378,131

$

378,131

$

$

$

378,131

AFS securities

 

2,231,261

 

61,311

 

2,169,950

 

 

2,231,261

HTM securities

 

837,378

 

 

806,834

 

1,240

 

808,074

Restricted stock

 

115,472

 

 

115,472

 

 

115,472

LHFS

 

6,710

 

 

6,710

 

 

6,710

LHFI, net of deferred fees and costs

 

15,635,043

 

 

 

15,148,256

 

15,148,256

Financial Derivatives (1)

 

93,027

 

 

93,027

 

 

93,027

Accrued interest receivable

 

91,370

 

 

91,370

 

 

91,370

BOLI

 

452,565

 

 

452,565

 

 

452,565

LIABILITIES

 

  

 

  

 

  

 

  

 

  

Deposits

$

16,818,129

$

$

16,799,791

$

$

16,799,791

Borrowings

 

1,311,858

 

 

1,154,694

 

 

1,154,694

Accrued interest payable

 

20,528

 

 

20,528

 

 

20,528

Financial Derivatives (1)

 

206,561

 

 

206,561

 

 

206,561

(1) Includes hedged and non-hedged derivatives.

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Borrowers with fixed rate obligations, however, are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.