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Fair Value

3 Months Ended

Mar. 31, 2024

Fair Value.

Note 13 — Fair Value

GAAP defines fair value and establishes a framework for measuring and disclosing fair value. 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 uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale and trading securities, derivative contracts, mortgage loans held for sale, SBA servicing rights, and mortgage servicing rights (“MSRs”) are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, OREO, bank properties held for sale, 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 Topic 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.

A description of valuation methodologies used for assets recorded at fair value is disclosed in Note 25 — Fair Value of our Annual Report on Form 10-K for the year ended December 31, 2023.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents 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)
March 31, 2024:
Assets
Derivative financial instruments		$	176,784		$	—		$	176,784		$	—
Loans held for sale			56,553			—			56,553			—
Trading securities			66,188			—			66,188			—
Securities available for sale:
U.S. Treasuries			24,587			—			24,587			—
U.S. Government agencies			223,805			—			223,805			—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises			1,492,423			—			1,492,423			—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises			508,112			—			508,112			—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises			1,012,217			—			1,012,217			—
State and municipal obligations			960,359			—			960,359			—
Small Business Administration loan-backed securities			350,043			—			350,043			—
Corporate securities			26,854			—			26,854			—
Total securities available for sale			4,598,400			—			4,598,400			—
Mortgage servicing rights			87,970			—			—			87,970
SBA servicing asset			6,367			—			—			6,367
		$	4,992,262		$	—		$	4,897,925		$	94,337
Liabilities
Derivative financial instruments		$	954,788		$	—		$	954,788		$	—

December 31, 2023:
Assets
Derivative financial instruments		$	172,939		$	—		$	172,939		$	—
Loans held for sale			50,888			—			50,888			—
Trading securities			31,321			—			31,321			—
Securities available for sale:
U.S. Treasuries			73,890			—			73,890			—
U.S. Government agencies			224,706			—			224,706			—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises			1,558,306			—			1,558,306			—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises			527,422			—			527,422			—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises			1,024,170			—			1,024,170			—
State and municipal obligations			977,461			—			977,461			—
Small Business Administration loan-backed securities			371,686			—			371,686			—
Corporate securities			26,747			—			26,747			—
Total securities available for sale			4,784,388			—			4,784,388			—
Mortgage servicing rights			85,164			—			—			85,164
SBA servicing asset			5,952			—			—			5,952
		$	5,130,652		$	—		$	5,039,536		$	91,116
Liabilities
Derivative financial instruments		$	804,486		$	—		$	804,486		$	—

Fair Value Option

The Company has elected the fair value option for mortgage loans held for sale primarily to ease the operational burden required to maintain hedge accounting for these loans. The Company also has opted for the fair value option for the SBA servicing asset, as it is the industry-preferred method for valuing such assets.

The following table summarizes the difference between the fair value and the unpaid principal balance of mortgage loans held for sale and the changes in fair value of these loans.


		March 31,			December 31,
(Dollars in thousands)		2024			2023
Fair value		$	56,553		$	50,888
Unpaid principal balance			54,834			49,025
Fair value less aggregated unpaid principal balance		$	1,719		$	1,863


		Three Months Ended March 31,
(Dollars in thousands)		2024			2023			Income Statement Location
Mortgage loans held for sale		$	(144)		$	(9)		Mortgage banking income

Changes in Level 1, 2 and 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.

There were no changes in hierarchy classifications of Level 3 assets or liabilities for the three months ended March 31, 2024. A reconciliation of the beginning and ending balances of the MSR, a Level 3 asset recorded at fair value on a recurring basis, for the three months ended March 31, 2024 is as follows. The changes in fair value of the MSRs are recorded in Mortgage Banking Income on the Consolidated Statements of Income.


(Dollars in thousands)		MSRs
Fair value, January 1, 2024		$	85,164
Servicing assets that resulted from transfers of financial assets			1,864
Changes in fair value due to valuation inputs or assumptions			2,384
Changes in fair value due to decay			(1,442)
Fair value, March 31, 2024		$	87,970

A reconciliation of the beginning and ending balances of the SBA servicing asset, a Level 3, asset recorded at fair value on a recurring basis for the period ending March 31, 2024 is as follows. The changes in fair value of the SBA servicing asset are recorded in in SBA Income on the Consolidated Statements of Income.


(Dollars in thousands)		SBA Servicing Asset
Fair value, January 1, 2024		$	5,952
Servicing assets that resulted from transfers of financial assets			581
Changes in fair value due to decay			(364)
Changes in fair value due to valuation inputs or assumptions			198
Fair value, March 31, 2024		$	6,367

There were no unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at March 31, 2024.

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)
March 31, 2024:
OREO		$	1,644		$	—		$	—		$	1,644
Bank properties held for sale			8,973			—			—			8,973
Individually evaluated loans			64,191			—			—			64,191
December 31, 2023:
OREO		$	837		$	—		$	—		$	837
Bank properties held for sale			12,401			—			—			12,401
Individually evaluated loans			73,518			—			—			73,518

Quantitative Information about Level 3 Fair Value Measurement


						Weighted Average Discount
						March 31,			December 31,
		Valuation Technique		Unobservable Input		2024			2023
Nonrecurring measurements:
Individually evaluated loans		Discounted appraisals and discounted cash flows		Collateral discounts		15	%		13	%
OREO and Bank properties held for sale		Discounted appraisals		Collateral discounts and estimated costs to sell		6	%		12	%

Fair Value of Financial Instruments

We used the following methods and assumptions in estimating our 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 in the table below are based on pertinent information available to management as of March 31, 2024 and December 31, 2023. 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.

Methods and assumptions used to estimate the fair value of each class of financial instruments are disclosed in Note 25 — Fair Value of our Annual Report on Form 10-K for the year ended December 31, 2023.

The estimated fair value, and related carrying amount, of our financial instruments are as follows:


		Carrying			Fair
(Dollars in thousands)		Amount			Value			Level 1			Level 2			Level 3
March 31, 2024
Financial assets:
Cash and cash equivalents		$	1,209,457		$	1,209,457		$	1,209,457		$	—		$	—
Trading securities			66,188			66,188			—			66,188			—
Investment securities			7,232,274			6,802,252			187,285			6,614,967			—
Loans held for sale			56,553			56,553			—			56,553			—
Loans, net of allowance for credit losses			32,197,656			31,124,727			—			—			31,124,727
Accrued interest receivable			160,519			160,519			—			25,665			134,854
Mortgage servicing rights			87,970			87,970			—			—			87,970
SBA servicing asset			6,367			6,367			—			—			6,367
Interest rate swap – non-designated hedge			174,373			174,373			—			174,373			—
Other derivative financial instruments (mortgage banking related)			2,411			2,411			—			2,411			—
Financial liabilities:
Deposits
Noninterest-bearing			10,546,410			10,546,410			—			10,546,410			—
Interest-bearing other than time deposits			22,351,423			22,351,423			—			22,351,423			—
Time deposits			4,280,601			4,238,055			—			4,238,055			—
Federal funds purchased and securities sold under agreements to repurchase			554,691			554,691			—			554,691			—
Corporate and subordinated debentures			391,812			385,574			—			385,574			—
Other borrowings			—			—			—			—			—
Accrued interest payable			44,873			44,873			—			44,873			—
Interest rate swap – non-designated hedge			954,297			954,297			—			954,297			—
Other derivative financial instruments (mortgage banking related)			491			491			—			491			—
December 31, 2023
Financial assets:
Cash and cash equivalents		$	998,877		$	998,877		$	998,877		$	—		$	—
Trading securities			31,321			31,321			—			31,321			—
Investment securities			7,463,871			7,061,167			192,043			6,869,124			—
Loans held for sale			50,888			50,888			—			50,888			—
Loans, net of allowance for credit losses			31,931,916			30,709,513			—			—			30,709,513
Accrued interest receivable			154,400			154,400			—			26,706			127,694
Mortgage servicing rights			85,164			85,164			—			—			85,164
SBA servicing asset			5,952			5,952			—			—			5,952
Interest rate swap – non-designated hedge			169,180			169,180			—			169,180			—
Other derivative financial instruments (mortgage banking related)			3,759			3,759			—			3,759			—
Financial liabilities:
Deposits
Noninterest-bearing			10,649,274			10,649,274			—			10,649,274			—
Interest-bearing other than time deposits			22,149,682			22,149,682			—			22,149,682			—
Time deposits			4,249,953			4,208,498			—			4,208,498			—
Federal funds purchased and securities sold under agreements to repurchase			489,185			489,185			—			489,185			—
Corporate and subordinated debentures			391,904			388,909			—			388,909			—
Other borrowings			100,000			100,000			—			100,000			—
Accrued interest payable			56,808			56,808			—			56,808			—
Interest rate swap – non-designated hedge			803,539			803,539			—			803,539			—
Other derivative financial instruments (mortgage banking related)			947			947			—			947			—

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.

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