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Estimated Fair Values | 12 Months Ended
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Dec. 31, 2021
Fair Value Disclosures [Abstract] |
Estimated Fair Values | ESTIMATED FAIR VALUES Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. BancShares estimates fair value using discounted cash flows or other valuation techniques when there is no active market for a financial instrument. Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require judgment. Therefore, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange. Assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the lowest level of input significant to the fair value measurement with Level 1 inputs considered highest and Level 3 inputs considered lowest. A brief description of each input level follows: •Level 1 inputs are quoted prices in active markets for identical assets and liabilities. •Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices observable for the assets or liabilities and market corroborated inputs. •Level 3 inputs are unobservable inputs for the asset or liability. These unobservable inputs and assumptions reflect the estimates market participants would use in pricing the asset or liability. BancShares’ management reviews any changes to its valuation methodologies to ensure they are appropriate and supportable, and refines valuation methodologies as more market-based data becomes available. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period. The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below. Investment securities available for sale. The fair value of U.S. Treasury, government agency, mortgage-backed and municipal securities and a portion of our corporate bonds are generally estimated using a third-party pricing service. To obtain an understanding of the processes and methodologies used, management reviews correspondence from the third-party pricing service. Management also performs a price variance analysis process to corroborate the reasonableness of prices. The third-party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models which use a variety of inputs, such as benchmark yields, reported trades, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers using inputs that are not directly observable. These securities are considered Level 3. Marketable equity securities. Equity securities are measured at fair value using observable closing prices. The valuation also considers the amount of market activity by examining the trade volume of each security. Equity securities are classified as Level 1 if they are traded in an active market and as Level 2 if the observable closing price is from a less than active market. Loans held for sale. Certain residential real estate loans originated to be sold to investors are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are considered Level 2 inputs. Loans held for investment subsequently transferred to held for sale are carried at the lower of cost or market. The fair values for the transferred loans are based on quoted prices from the purchase commitments for the individual loans being transferred and are considered Level 1 inputs. Net loans and leases (Non-PCD and PCD). Fair value is estimated based on discounted future cash flows using the current interest rates at which loans with similar terms would be made to borrowers of similar credit quality. The inputs used in the fair value measurements for loans and leases are considered Level 3 inputs. FHLB stock. The carrying amount of FHLB stock is a reasonable estimate of fair value, as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares’ investment in FHLB stock is ultimately recoverable at par. The inputs used in the fair value measurement for FHLB stock are considered Level 2 inputs. Mortgage and other servicing rights. Mortgage and other servicing rights are initially recorded and fair value and subsequently carried at the lower of amortized cost or market. Therefore, servicing rights are carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is performed using a pooling methodology. Similar loans are pooled together and a model which relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage and other servicing rights are considered Level 3 inputs. Deposits. For deposits with no stated maturity, the carrying value is a reasonable estimate of fair value. The fair value of time deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits of similar remaining maturities. The inputs used in the fair value measurement for deposits are considered Level 2 inputs. Borrowings. For borrowings, the fair values are determined based on recent trades or sales of the actual security, if available. Otherwise, fair values are estimated by discounting future cash flows using current interest rates for similar financial instruments. The inputs used in the fair value measurement for FHLB borrowings, subordinated debentures, and other borrowings are considered Level 2 inputs. Payable to the FDIC for shared-loss agreements. The fair value of the payable to the FDIC for shared-loss agreements is determined by the projected cash flows based on expected payments to the FDIC in accordance with the shared-loss agreements. Cash flows are discounted using current discount rates to reflect the timing of the estimated amounts due to the FDIC. The inputs used in the fair value measurement for the payable to the FDIC are considered Level 3 inputs. Off-balance-sheet commitments and contingencies. Carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares’ financial position. For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of December 31, 2021 and 2020. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short-term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks is classified on the fair value hierarchy as Level 1. Overnight investments, income earned not collected and accrued interest payable are considered Level 2. The table below presents the carrying values and estimated fair values for financial instruments as of December 31, 2021 and 2020.
| December 31, 2021 |  | December 31, 2020
(Dollars in thousands) | Carrying value |  | Fair value |  | Carrying value |  | Fair value
Assets |  |  |  |  |  |  |
Cash and due from banks | $ | 337,814 |  |  | $ | 337,814 |  |  | $ | 362,048 |  |  | $ | 362,048 |
Overnight investments | 9,114,660 |  |  | 9,114,660 |  |  | 4,347,336 |  |  | 4,347,336 |
Investment securities available for sale | 9,203,427 |  |  | 9,203,427 |  |  | 7,014,243 |  |  | 7,014,243 |
Investment securities held to maturity | 3,809,453 |  |  | 3,759,650 |  |  | 2,816,982 |  |  | 2,838,499 |
Investment in marketable equity securities | 97,528 |  |  | 97,528 |  |  | 91,680 |  |  | 91,680 |
Loans held for sale | 98,741 |  |  | 98,741 |  |  | 124,837 |  |  | 124,837 |
Net loans and leases | 32,193,029 |  |  | 31,889,594 |  |  | 32,567,661 |  |  | 33,298,166 |
Income earned not collected | 134,237 |  |  | 134,237 |  |  | 145,694 |  |  | 145,694 |
Federal Home Loan Bank stock | 40,450 |  |  | 40,450 |  |  | 45,392 |  |  | 45,392 |
Mortgage and other servicing rights | 23,797 |  |  | 23,784 |  |  | 19,628 |  |  | 20,283 |
Liabilities |  |  |  |  |  |  |
Deposits with no stated maturity | 48,925,127 |  |  | 48,925,127 |  |  | 40,542,596 |  |  | 40,542,596 |
Time deposits | 2,480,967 |  |  | 2,471,116 |  |  | 2,889,013 |  |  | 2,905,577 |
Securities sold under customer repurchase agreements | 589,101 |  |  | 589,101 |  |  | 641,487 |  |  | 641,487 |
Federal Home Loan Bank borrowings | 644,659 |  |  | 654,694 |  |  | 655,175 |  |  | 677,579 |
Subordinated debt | 477,564 |  |  | 495,483 |  |  | 504,518 |  |  | 525,610 |
Other borrowings | 72,155 |  |  | 72,476 |  |  | 88,470 |  |  | 89,263 |
FDIC shared-loss payable | — |  |  | — |  |  | 15,601 |  |  | 15,843 |
Accrued interest payable | 7,922 |  |  | 7,922 |  |  | 9,414 |  |  | 9,414 |
Among BancShares’ assets and liabilities, investment securities available for sale, marketable equity securities and loans held for sale are reported at their fair values on a recurring basis. For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of December 31, 2021 and 2020.
| December 31, 2021
|  |  | Fair value measurements using:
(Dollars in thousands) | Fair value |  | Level 1 |  | Level 2 |  | Level 3
Assets measured at fair value |  |  |  |  |  |  |
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 2,004,970 |  |  | $ | — |  |  | $ | 2,004,970 |  |  | $ | — |
Government agency | 798,760 |  |  | — |  |  | 798,760 |  |  | — |
Residential mortgage-backed securities | 4,728,413 |  |  | — |  |  | 4,728,413 |  |  | — |
Commercial mortgage-backed securities | 1,062,749 |  |  | — |  |  | 1,062,749 |  |  | — |
Corporate bonds | 608,535 |  |  | — |  |  | 401,133 |  |  | 207,402 |
Total investment securities available for sale | $ | 9,203,427 |  |  | $ | — |  |  | $ | 8,996,025 |  |  | $ | 207,402 |
Marketable equity securities | $ | 97,528 |  |  | $ | 33,522 |  |  | $ | 64,006 |  |  | $ | — |
Loans held for sale | 98,741 |  |  | — |  |  | 98,741 |  |  | — |
| December 31, 2020
|  |  | Fair value measurements using:
| Fair value |  | Level 1 |  | Level 2 |  | Level 3
Assets measured at fair value |  |  |  |  |  |  |
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 499,933 |  |  | $ | — |  |  | $ | 499,933 |  |  | $ | — |
Government agency | 701,391 |  |  | — |  |  | 701,391 |  |  | — |
Residential mortgage-backed securities | 4,438,103 |  |  | — |  |  | 4,438,103 |  |  | — |
Commercial mortgage-backed securities | 771,537 |  |  | — |  |  | 771,537 |  |  | — |
Corporate bonds | 603,279 |  |  | — |  |  | 286,655 |  |  | 316,624 |
Total investment securities available for sale | $ | 7,014,243 |  |  | $ | — |  |  | $ | 6,697,619 |  |  | $ | 316,624 |
Marketable equity securities | $ | 91,680 |  |  | $ | 32,855 |  |  | $ | 58,825 |  |  | $ | — |
Loans held for sale | 124,837 |  |  | — |  |  | 124,837 |  |  | — |
During the year ended December 31, 2021, $102.1 million of corporate bonds available for sale were transferred from Level 3 to Level 2. The transfers were due to the availability of additional observable inputs for those securities. During the year ended December 31, 2020, $1.8 million of corporate bonds available for sale were transferred from Level 2 to Level 3. The transfers were due to a lack of observable inputs and trade activity for those securities. The following table summarizes activity for Level 3 assets for the years ended December 31, 2021 and 2020:
| 2021 |  | 2020
(Dollars in thousands) | Corporate bonds |  | Corporate bonds
Beginning balance | $ | 316,624 |  |  | $ | 69,685 |
Purchases | 30,878 |  |  | 242,595 |
Unrealized net losses (gains) included in other comprehensive income | 6,391 |  |  | 2,898 |
Amounts included in net income | 2,555 |  |  | (336) |
Transfers in | — |  |  | 1,782 |
Transfers out | (102,065) |  |  | — |
Sales / Calls | (46,981) |  |  | — |
Ending balance | $ | 207,402 |  |  | $ | 316,624 |
The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at December 31, 2021.
(Dollars in thousands) |  |  |  | December 31, 2021
Level 3 assets |  | Valuation technique |  | Significant unobservable input |  | Fair Value
Corporate bonds |  | Indicative bid provided by broker |  | Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer |  | $ | 207,402 |
Fair Value Option BancShares has elected the fair value option for residential real estate loans originated for sale. This election reduces certain timing differences in the Consolidated Statements of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value are recorded as a component of mortgage income and were losses of $3.0 million for the year ended December 31, 2021, and gains of $3.9 million and $289 thousand for the years ended December 31, 2020 and 2019, respectively. The following table summarizes the difference between the aggregate fair value and the unpaid principal balance for residential real estate loans originated for sale measured at fair value as of December 31, 2021 and 2020.
| December 31, 2021
(Dollars in thousands) | Fair Value |  | Unpaid Principal Balance |  | Difference
Originated loans held for sale | $ | 98,741 |  |  | $ | 95,852 |  |  | $ | 2,889 |
| December 31, 2020
| Fair Value |  | Unpaid Principal Balance |  | Difference
Originated loans held for sale | $ | 124,837 |  |  | $ | 118,902 |  |  | $ | 5,935 |
No originated loans held for sale were 90 or more days past due or on non-accrual status as of December 31, 2021 or December 31, 2020. Certain other assets are adjusted to their fair value on a non-recurring basis, including certain loans, OREO, and goodwill, which are periodically tested for impairment, and mortgage servicing rights, which are carried at the lower of amortized cost or market. Most loans held for investment, deposits, and borrowings are not reported at fair value. Following the adoption of ASC 326 on January 1, 2020, the population of loans measured at fair value on a non-recurring basis has greatly diminished and is limited to collateral-dependent loans evaluated individually. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, typically between 5% and 10%, and immaterial adjustments for other external factors that may impact the marketability of the collateral. At December 31, 2021, the weighted average discount for estimated selling costs applied was 9.00%. OREO is carried at the lower of cost or fair value. OREO asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts, generally between 6% and 15%, applied for estimated selling costs and other external factors that may impact the marketability of the property. At December 31, 2021, the weighted average discount applied was 8.79%. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals are ordered to ensure the reported values reflect the most current information. Mortgage servicing rights are carried at the lower of amortized cost or market and are, therefore, carried at fair value only when fair value is less than amortized cost. The fair value of mortgage servicing rights is determined using a pooling methodology. Similar loans are pooled together and a discounted cash flow model, which takes into consideration discount rates, prepayment rates, and the weighted average cost to service the loans, is used to determine the fair value. For financial assets carried at fair value on a non-recurring basis, the following table provides fair value information as of December 31, 2021 and December 31, 2020.
| December 31, 2021
|  |  | Fair value measurements using:
(Dollars in thousands) | Fair value |  | Level 1 |  | Level 2 |  | Level 3
Collateral-dependent loans | $ | 3,099 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,099 |
Other real estate remeasured during the year | 34,211 |  |  | — |  |  | — |  |  | 34,211 |
Mortgage servicing rights | 21,731 |  |  | — |  |  | — |  |  | 21,731 |
| December 31, 2020
|  |  | Fair value measurements using:
| Fair value |  | Level 1 |  | Level 2 |  | Level 3
Collateral-dependent loans | $ | 11,779 |  |  | $ | — |  |  | $ | — |  |  | $ | 11,779 |
Other real estate remeasured during the year | 40,115 |  |  | — |  |  | — |  |  | 40,115 |
Mortgage servicing rights | 16,966 |  |  | — |  |  | — |  |  | 16,966 |
No financial liabilities were carried at fair value on a non-recurring basis as of December 31, 2021 and December 31, 2020.

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- 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 Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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