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Fair Value Accounting and Measurement | 6 Months Ended
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Jun. 30, 2016
Fair Value Disclosures [Abstract] |
Fair Value Accounting and Measurement | 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: 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 securities other than U.S. Treasury Notes, which are considered a Level 1 input method. Interest rate contract positions 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 June 30, 2016 and December 31, 2015 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 |  | Fair Value Measurements at Reporting Date Using
|  | Level 1 |  | Level 2 |  | Level 3
June 30, 2016 |  | (in thousands)
Assets |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |
U.S. government agency and government-sponsored enterprise mortgage-back securities and collateralized mortgage obligations |  | $ | 1,421,686 |  |  | $ | — |  |  | $ | 1,421,686 |  |  | $ | — |
State and municipal debt securities |  | 518,365 |  |  | — |  |  | 518,365 |  |  | — |
U.S. government agency and government-sponsored enterprise securities |  | 333,743 |  |  | — |  |  | 333,743 |  |  | — |
U.S. government securities |  | 549 |  |  | 549 |  |  | — |  |  | — |
Other securities |  | 5,209 |  |  | — |  |  | 5,209 |  |  | — |
Total securities available for sale |  | $ | 2,279,552 |  |  | $ | 549 |  |  | $ | 2,279,003 |  |  | $ | — |
Other assets (Interest rate contracts) |  | $ | 21,904 |  |  | $ | — |  |  | $ | 21,904 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |
Other liabilities (Interest rate contracts) |  | $ | 21,951 |  |  | $ | — |  |  | $ | 21,951 |  |  | $ | — |
|  | Fair value |  | Fair Value Measurements at Reporting Date Using
|  | Level 1 |  | Level 2 |  | Level 3
December 31, 2015 |  | (in thousands)
Assets |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |
U.S. government agency and government-sponsored enterprise mortgage-back securities and collateralized mortgage obligations |  | $ | 1,286,489 |  |  | $ | — |  |  | $ | 1,286,489 |  |  | $ | — |
State and municipal debt securities |  | 492,169 |  |  | — |  |  | 492,169 |  |  | — |
U.S. government agency and government-sponsored enterprise securities |  | 353,782 |  |  | — |  |  | 353,782 |  |  | — |
U.S. government securities |  | 20,137 |  |  | 20,137 |  |  | — |  |  | — |
Other securities |  | 5,117 |  |  | — |  |  | 5,117 |  |  | — |
Total securities available for sale |  | $ | 2,157,694 |  |  | $ | 20,137 |  |  | $ | 2,137,557 |  |  | $ | — |
Other assets (Interest rate contracts) |  | $ | 12,438 |  |  | $ | — |  |  | $ | 12,438 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |
Other liabilities (Interest rate contracts) |  | $ | 12,478 |  |  | $ | — |  |  | $ | 12,478 |  |  | $ | — |
There were no transfers between Level 1 and Level 2 of the valuation hierarchy during the six month periods ended June 30, 2016 and 2015. The Company recognizes transfers between levels of the valuation hierarchy based on the valuation level at the end of the reporting period. Nonrecurring Measurements Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans measured for impairment and OREO. The following methods were used to estimate the fair value of each such class of financial instrument: Impaired loans—A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, a loan’s observable market price, or the fair market value of the collateral less estimated costs to sell if the loan is a collateral-dependent loan. Generally, the Company utilizes the fair market value of the collateral to measure impairment. The impairment evaluations are performed in conjunction with the allowance process on a quarterly basis by officers in the Special Credits group, which reports to the Chief Credit Officer. The Real Estate Appraisal Services Department (“REASD”), which also reports to the Chief Credit Officer, is responsible for obtaining appraisals from third-parties or performing internal evaluations. If an appraisal is obtained from a third-party, the REASD reviews the appraisal to evaluate the adequacy of the appraisal report, including its scope, methods, accuracy, and reasonableness. Other real estate owned—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, or in the event of a write-up without previous losses charged to the allowance, 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. The initial and subsequent evaluations are performed by officers in the Special Credits group, which reports to the Chief Credit Officer. The REASD obtains appraisals from third-parties for OREO and performs internal evaluations. If an appraisal is obtained from a third-party, the REASD reviews the appraisal to evaluate the adequacy of the appraisal report, including its scope, methods, accuracy, and reasonableness. The following tables set forth information related to the Company’s assets that were measured using fair value estimates on a nonrecurring basis during the current and prior year quarterly periods:
|  | Fair value at June 30, 2016 |  | Fair Value Measurements at Reporting Date Using |  | Losses During the Three Months Ended June 30, 2016 |  | Losses During the Six Months Ended June 30, 2016
|  | Level 1 |  | Level 2 |  | Level 3 |
|  | (in thousands)
Impaired loans |  | $ | 3,218 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,218 |  |  | $ | 2,691 |  |  | $ | 2,691 |
OREO |  | 6,338 |  |  | — |  |  | — |  |  | 6,338 |  |  | 138 |  |  | 233 |
|  | $ | 9,556 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,556 |  |  | $ | 2,829 |  |  | $ | 2,924 |
|  | Fair value at June 30, 2015 |  | Fair Value Measurements at Reporting Date Using |  | Losses During the Three Months Ended June 30, 2015 |  | Losses During the Six Months Ended June 30, 2015
|  | Level 1 |  | Level 2 |  | Level 3 |
|  | (in thousands)
Impaired loans |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,138 |  |  | $ | 1,138 |
OREO |  | 1,664 |  |  | $ | — |  |  | — |  |  | 1,664 |  |  | 611 |  |  | 655 |
|  | $ | 1,664 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,664 |  |  | $ | 1,749 |  |  | $ | 1,793 |
The losses on impaired loans disclosed above represent the amount of the specific reserve and/or charge-offs during the period applicable to loans held at period end. The amount of the specific reserve is included in the allowance for loan and lease losses. The losses on OREO disclosed above represent the write-downs taken at foreclosure that were charged to the allowance for loan and lease losses, as well as subsequent changes in any valuation allowances 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, along with the valuation techniques used, are shown in the following table:
|  | Fair value at June 30, 2016 |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted Average) (1)
|  | (dollars in thousands)
Impaired loans - collateral-dependent (3) |  | $ | 303 |  |  | Fair Market Value of Collateral |  | Adjustment to Stated Value |  | N/A (2)
Impaired loans - other |  | $ | 2,915 |  |  | Discounted Cash Flow |  | Discount Rate |  | 2.99% - 10.25% (6.03%)
OREO |  | $ | 6,338 |  |  | Fair Market Value of Collateral |  | Adjustment to Appraisal Value |  | N/A (2)
(1) Discount rate used in discounted cash flow valuation.
(2) Quantitative disclosures are not provided for collateral-dependent impaired loans and OREO because there were no adjustments made to the appraisal values or stated values during the current period.
(3) Collateral consists of fixed assets and accounts receivable.
|  | Fair value at June 30, 2015 |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted Average) (1)
|  | (dollars in thousands)
Impaired loans (2) |  | $ | — |  |  | Fair Market Value of Collateral |  | Adjustment to Appraisal Value |  | 100%
OREO |  | $ | 1,664 |  |  | Fair Market Value of Collateral |  | Adjustment to Appraisal Value |  | N/A (3)
(1) Discount applied to appraisal value, letter of intent to purchase, or stated value (in the case of accounts receivable, inventory and equipment).
(2) As there was only one impaired loan remeasured, a range of discounts could not be provided. The collateral for this loan consisted of non-proprietary software.
(3) Quantitative disclosures are not provided for OREO because there were no adjustments made to the appraisal value during the current period.
Fair value of financial instruments Because broadly traded markets do not exist for most of the Company’s financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. These determinations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company. 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 due from banks and interest-earning deposits with banks—The fair value of financial instruments that are short-term or reprice frequently and that have little or no risk are considered to have a fair value that approximates carrying value (Level 1). Securities available for sale—Securities at fair value, other than U.S. Treasury Notes, are priced using a combination of market activity, industry recognized information sources, yield curves, discounted cash flow models and other factors (Level 2). U.S. Treasury Notes are priced using quotes in active markets (Level 1). Federal Home Loan Bank stock—The fair value is based upon the par value of the stock which equates to its carrying value (Level 2). Loans held for sale—The carrying amount of loans held for sale approximates their fair values due to the short period of time between the origination and sale dates (Level 2). Loans—Loans are not recorded at fair value on a recurring basis. Nonrecurring fair value adjustments are periodically recorded on impaired loans that are measured for impairment based on the fair value of collateral. For most performing loans, fair value is estimated using expected duration and lending rates that would have been offered on June 30, 2016 or December 31, 2015, for loans which mirror the attributes of the loans with similar rate structures and average maturities. The fair values resulting from these calculations are reduced by an amount representing the change in estimated fair value attributable to changes in borrowers’ credit quality since the loans were originated. For nonperforming loans, fair value is estimated by applying a valuation discount based upon loan sales data from the FDIC. For PCI loans, fair value is estimated by discounting the expected future cash flows using a lending rate that would have been offered on June 30, 2016 (Level 3). FDIC loss-sharing asset —The fair value of the FDIC loss-sharing asset is estimated based on discounting the expected future cash flows using an estimated market rate (Level 3). Interest rate contracts—Interest rate swap positions are valued in discounted cash flow models, which use readily observable market parameters as their basis (Level 2). Deposits—For deposits with no contractual maturity, the fair value is equal to the carrying value (Level 1). The fair value of fixed maturity deposits is based on discounted cash flows using the difference between the deposit rate and current market rates for deposits of similar remaining maturities (Level 2). FHLB advances—The fair value of FHLB advances is estimated based on discounting the future cash flows using the market rate currently offered (Level 2). Repurchase Agreements—The fair value of term repurchase agreements is estimated based on discounting the future cash flows using the market rate currently offered. The carrying amount of sweep repurchase agreements approximates their fair values due to the short period of time between repricing dates (Level 2). Other Financial Instruments—The majority of our commitments to extend credit and standby letters of credit carry current market interest rates if converted to loans, as such, carrying value is assumed to equal fair value. The following tables summarize carrying amounts and estimated fair values of selected financial instruments as well as assumptions used by the Company in estimating fair value at June 30, 2016 and December 31, 2015:
|  | June 30, 2016
|  | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
|  | (in thousands)
Assets |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 167,172 |  |  | $ | 167,172 |  |  | $ | 167,172 |  |  | $ | — |  |  | $ | — |
Interest-earning deposits with banks |  | 11,216 |  |  | 11,216 |  |  | 11,216 |  |  | — |  |  | — |
Securities available for sale |  | 2,279,552 |  |  | 2,279,552 |  |  | 549 |  |  | 2,279,003 |  |  | — |
FHLB stock |  | 18,161 |  |  | 18,161 |  |  | — |  |  | 18,161 |  |  | — |
Loans held for sale |  | 7,649 |  |  | 7,649 |  |  | — |  |  | 7,649 |  |  | — |
Loans |  | 6,037,839 |  |  | 6,171,314 |  |  | — |  |  | — |  |  | 6,171,314 |
FDIC loss-sharing asset |  | 4,266 |  |  | 1,229 |  |  | — |  |  | — |  |  | 1,229 |
Interest rate contracts |  | 21,904 |  |  | 21,904 |  |  | — |  |  | 21,904 |  |  | — |
Liabilities |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 7,673,213 |  |  | $ | 7,670,628 |  |  | $ | 7,251,213 |  |  | $ | 419,415 |  |  | $ | — |
FHLB Advances |  | 204,512 |  |  | 205,818 |  |  | — |  |  | 205,818 |  |  | — |
Repurchase agreements |  | 89,218 |  |  | 89,645 |  |  | — |  |  | 89,645 |  |  | — |
Interest rate contracts |  | 21,951 |  |  | 21,951 |  |  | — |  |  | 21,951 |  |  | — |
|  | December 31, 2015
|  | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
|  | (in thousands)
Assets |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 166,929 |  |  | $ | 166,929 |  |  | $ | 166,929 |  |  | $ | — |  |  | $ | — |
Interest-earning deposits with banks |  | 8,373 |  |  | 8,373 |  |  | 8,373 |  |  | — |  |  | — |
Securities available for sale |  | 2,157,694 |  |  | 2,157,694 |  |  | 20,137 |  |  | 2,137,557 |  |  | — |
FHLB stock |  | 12,722 |  |  | 12,722 |  |  | — |  |  | 12,722 |  |  | — |
Loans held for sale |  | 4,509 |  |  | 4,509 |  |  | — |  |  | 4,509 |  |  | — |
Loans |  | 5,746,855 |  |  | 5,752,423 |  |  | — |  |  | — |  |  | 5,752,423 |
FDIC loss-sharing asset |  | 6,568 |  |  | 921 |  |  | — |  |  | — |  |  | 921 |
Interest rate contracts |  | 12,438 |  |  | 12,438 |  |  | — |  |  | 12,438 |  |  | — |
Liabilities |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 7,438,829 |  |  | $ | 7,434,787 |  |  | $ | 6,979,924 |  |  | $ | 454,863 |  |  | $ | — |
FHLB Advances |  | 68,531 |  |  | 69,176 |  |  | — |  |  | 69,176 |  |  | — |
Repurchase agreements |  | 99,699 |  |  | 100,346 |  |  | — |  |  | 100,346 |  |  | — |
Interest rate contracts |  | 12,478 |  |  | 12,478 |  |  | — |  |  | 12,478 |  |  | — |

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13433-108611 + Details
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