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FAIR VALUE MEASUREMENTS | 12 Months Ended
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Dec. 31, 2018
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS The Company follows ASC 820, Fair Value Measurements and Disclosures, to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. This codification 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.
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. Derivative instruments As discussed in Note 10 “Derivatives,” 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. 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 Bloomberg Valuation Service’s derivative pricing functions. No material differences were identified during the validation as of December 31, 2018 and 2017. 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. In the second quarter of 2018, the Bank announced that it had entered into an agreement with a third-party mortgage company to allow TFSB to offer residential mortgages from certain Bank locations on the terms and conditions set forth in the agreement. Concurrently with this arrangement, the Bank began the process of winding down the operations of UMG, the Company's reportable mortgage segment. Prior to this announcement, during the normal course of business, the Company entered into interest rate lock commitments related to the origination of mortgage loans held for sale, as well as best effort forward delivery commitments to mitigate interest rate risk; these instruments were recorded at estimated fair value based on the value of the underlying loan, which in turn was based on quoted prices for similar loans in the secondary market. This value, however, was adjusted by a pull-through rate, which considered the likelihood that the loan in a lock position would ultimately close. The pull-through rate was derived from the Company’s internal data and was adjusted using significant management judgment. The pull-through rate was largely dependent on the loan processing stage that a loan was currently in and the change in prevailing interest rates from the time of the rate lock. As such, interest rate lock commitments are classified as Level 3. An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative resulted in positive fair value adjustments, while a decrease in the pull-through rate resulted in a negative fair value adjustment. As a result of the UMG wind down, at December 31, 2018, the Company had no interest rate locks. Interest rate locks had a weighted average pull-through rate of approximately 80% as of December 31, 2017. Interest rate lock commitments as of December 31, 2017 were reported as a component of "Assets of discontinued operations" in the Company’s Consolidated Balance Sheets. AFS Securities AFS securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity, then the security would fall to the lowest level of the hierarchy (Level 3). The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third-party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is IDC, which evaluates securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. The vendor utilizes proprietary valuation matrices for valuing all municipals securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance, and rating to incorporate additional spreads to the industry benchmark curves. The Company primarily uses Bloomberg Valuation Service, an independent information source that draws on quantitative models and market data contributed from over 4,000 market participants, to validate third party valuations. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of December 31, 2018 and 2017. The carrying value of restricted Federal Reserve Bank and FHLB stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the following table. Loans held for sale Loans held for sale are carried at fair value. These loans consist of residential loans originated for sale in the secondary market. 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). As a result of the UMG wind down, at December 31, 2018, the Company had no loans held for sale. Loans held for sale at December 31, 2017 are included in "Assets of discontinued operations" on the Company's Consolidated Balance Sheets. Refer to Note 18 "Segment Reporting & Discontinued Operations" for further discussion. The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis at December 31, 2018 and 2017 (dollars in thousands):
| Fair Value Measurements at December 31, 2018 using
| Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Balance
ASSETS |  |  |  |  |  |  |  |  |  |  |
AFS securities: |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions | $ | — |  |  | $ | 468,491 |  |  | $ | — |  |  | $ | 468,491 |
Corporate bonds | — |  |  | 167,696 |  |  | — |  |  | 167,696 |
Mortgage-backed securities | — |  |  | 1,129,865 |  |  | — |  |  | 1,129,865 |
Other securities | — |  |  | 8,769 |  |  | — |  |  | 8,769 |
Derivatives: |  |  |  |  |  |  |  |  |  |
Interest rate swap | — |  |  | 19,426 |  |  | — |  |  | 19,426 |
Fair value hedges | — |  |  | 1,872 |  |  | — |  |  | 1,872 |
LIABILITIES |  |  |  |  |  |  |  |  |  |
Derivatives: |  |  |  |  |  |  |  |  |  |
Interest rate swap | $ | — |  |  | $ | 19,426 |  |  | $ | — |  |  | $ | 19,426 |
Cash flow hedges | — |  |  | 4,786 |  |  | — |  |  | 4,786 |
Fair value hedges | — |  |  | 1,684 |  |  | — |  |  | 1,684 |
| Fair Value Measurements at December 31, 2017 using
| Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Balance
ASSETS |  |  |  |  |  |  |  |  |  |  |
AFS securities: |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions | $ | — |  |  | $ | 301,824 |  |  | $ | — |  |  | $ | 301,824 |
Corporate bonds | — |  |  | 113,880 |  |  | — |  |  | 113,880 |
Mortgage-backed securities | — |  |  | 548,858 |  |  | — |  |  | 548,858 |
Other securities | — |  |  | 9,660 |  |  | — |  |  | 9,660 |
Loans held for sale | — |  |  | 40,662 |  |  | — |  |  | 40,662 |
Derivatives: |  |  |  |  |  |  |  |  |  |
Interest rate swap | — |  |  | 1,350 |  |  | — |  |  | 1,350 |
Cash flow hedges | — |  |  | 49 |  |  | — |  |  | 49 |
Fair value hedges | — |  |  | 1,598 |  |  | — |  |  | 1,598 |
Interest rate lock commitments | — |  |  | — |  |  | 559 |  |  | 559 |
Best efforts forward delivery commitments | — |  |  | — |  |  | 12 |  |  | 12 |
LIABILITIES |  |  |  |  |  |  |  |  |  |
Derivatives: |  |  |  |  |  |  |  |  |  |
Interest rate swap | $ | — |  |  | $ | 1,350 |  |  | $ | — |  |  | $ | 1,350 |
Cash flow hedges | — |  |  | 8,005 |  |  | — |  |  | 8,005 |
Fair value hedges | — |  |  | 76 |  |  | — |  |  | 76 |
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. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements. Impaired loans Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreements will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is solely from the underlying value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Company’s collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. When evaluating the fair value, management may discount the appraisal further if, based on their understanding of the market conditions, it is determined the collateral is further impaired below the appraised value (Level 3). For the years ended December 31, 2018 and 2017, the Level 3 weighted average adjustments related to impaired loans were 5.3% and 3.0%, respectively. The value of business equipment is based upon an outside appraisal, of one year or less, if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Collateral dependent impaired loans allocated to the ALL are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Company’s Consolidated Statements of Income. Foreclosed Properties & Former Bank Premises Foreclosed properties and former bank premises are evaluated for impairment at least quarterly by the Bank’s Special Asset Loan Committee and any necessary write downs to fair values are recorded as impairment and included as a component of noninterest expense. Fair values of foreclosed properties and former bank premises are carried at fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as Level 3 valuation. For the years ended December 31, 2018 and 2017, the Level 3 weighted average adjustments related to foreclosed property were approximately 3.7% and 22.5%, respectively. For the years ended December 31, 2018 and 2017, there were no Level 3 weighted average adjustments related to bank premises. Total valuation expenses related to foreclosed properties for the years ended December 31, 2018, 2017, 2016 were $1.3 million, $1.6 million, and $1.0 million, respectively. Total valuation expenses related to former bank premises for the years ended December 31, 2018, 2017 and 2016 were $0, $339,000 and $0, respectively. The following tables summarize the Company’s financial assets that were measured at fair value on a nonrecurring basis at December 31, 2018 and 2017 (dollars in thousands):
| Fair Value Measurements at December 31, 2018 using
| Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Balance
ASSETS |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | — |  |  | $ | — |  |  | $ | 3,734 |  |  | $ | 3,734 |
Foreclosed properties | — |  |  | — |  |  | 6,722 |  |  | 6,722 |
Former bank premises | — |  |  | — |  |  | 2,090 |  |  | 2,090 |
| Fair Value Measurements at December 31, 2017 using
| Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs |  |
| Level 1 |  | Level 2 |  | Level 3 |  | Balance
ASSETS |  |  |  |  |  |  |  |  |  |  |
Impaired loans | $ | — |  |  | $ | — |  |  | $ | 3,229 |  |  | $ | 3,229 |
Foreclosed properties | — |  |  | — |  |  | 5,253 |  |  | 5,253 |
Former bank premises | — |  |  | — |  |  | 1,383 |  |  | 1,383 |
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. Cash and cash equivalents For those short-term instruments, 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. The Company has contracted with a third-party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is IDC, which evaluates securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. The vendor utilizes proprietary valuation matrices for valuing all municipals securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance, and rating to incorporate additional spreads to the industry benchmark curves. The Company primarily uses Bloomberg Valuation Service, an independent information source that draws on quantitative models and market data contributed from over 4,000 market participants, to validate third party valuations. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of December 31, 2018 and 2017. Loans With the adoption of ASU No. 2016-01 during the first quarter of 2018, the fair value of loans at December 31, 2018 were estimated using an exit price, representing the amount that would be expected to be received if the Company sold the loans. At December 31, 2017, the fair value of performing loans were estimated by discounting expected future cash flows using a yield curve that is constructed by adding a loan spread to a market yield curve. Loan spreads are based on spreads currently observed in the market for loans of similar type and structure. Fair value for impaired loans and their respective level within the fair value hierarchy are described in the previous disclosure related to fair value measurements of assets that are measured on a nonrecurring basis. 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, and certain money market deposits is the amount payable on demand at the reporting date. With the adoption of ASU No. 2016-01 during the first quarter of 2018, the fair value of certificates of deposits at December 31, 2018 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. At December 31, 2017, the fair value of certificates of deposit was estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. Borrowings The carrying value of the Company’s repurchase agreements is a reasonable estimate of fair value. With the adoption of ASU No. 2016-01 during the first quarter of 2018, subordinated debt and trust preferred cash flows at December 31, 2018 are forecasted at the stated coupon rate and discounted back to the measurement date using the prevailing market rate. The prevailing market rate is based on implied market yields for recently issued debt with similar durations by institutions of similar size. Other borrowings, including subordinated debt and trust preferred at December 31, 2017 are discounted using the current yield curve for the same type of borrowing. For borrowings with embedded optionality, a third-party source is used to value the instrument. Accrued interest The carrying amounts of accrued interest approximate fair value. The carrying values and estimated fair values of the Company’s financial instruments as of December 31, 2018 and 2017 are as follows (dollars in thousands):
|  |  | Fair Value Measurements at December 31, 2018 using
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs |  | Total Fair Value
| Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Balance
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 261,199 |  |  | $ | 261,199 |  |  | $ | — |  |  | $ | — |  |  | $ | 261,199 |
AFS securities | 1,774,821 |  |  | — |  |  | 1,774,821 |  |  | — |  |  | 1,774,821 |
HTM securities | 492,272 |  |  | — |  |  | 499,501 |  |  | — |  |  | 499,501 |
Restricted stock | 124,602 |  |  | — |  |  | 124,602 |  |  | — |  |  | 124,602 |
Net loans | 9,675,162 |  |  | — |  |  | — |  |  | 9,534,717 |  |  | 9,534,717 |
Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap | 19,426 |  |  | — |  |  | 19,426 |  |  | — |  |  | 19,426 |
Fair value hedges | 1,872 |  |  | — |  |  | 1,872 |  |  | — |  |  | 1,872 |
Accrued interest receivable | 46,062 |  |  | — |  |  | 46,062 |  |  | — |  |  | 46,062 |
BOLI | 263,034 |  |  | — |  |  | 263,034 |  |  | — |  |  | 263,034 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits | $ | 9,970,960 |  |  | $ | — |  |  | $ | 9,989,788 |  |  | $ | — |  |  | $ | 9,989,788 |
Borrowings | 1,756,278 |  |  | — |  |  | 1,742,038 |  |  | — |  |  | 1,742,038 |
Accrued interest payable | 5,284 |  |  | — |  |  | 5,284 |  |  | — |  |  | 5,284 |
Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap | 19,426 |  |  | — |  |  | 19,426 |  |  | — |  |  | 19,426 |
Cash flow hedges | 4,786 |  |  | — |  |  | 4,786 |  |  | — |  |  | 4,786 |
Fair value hedges | 1,684 |  |  | — |  |  | 1,684 |  |  | — |  |  | 1,684 |
|  |  | Fair Value Measurements at December 31, 2017 using
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs |  | Total Fair Value
| Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Balance
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 199,373 |  |  | $ | 199,373 |  |  | $ | — |  |  | $ | — |  |  | $ | 199,373 |
AFS securities | 974,222 |  |  | — |  |  | 974,222 |  |  | — |  |  | 974,222 |
HTM securities | 199,639 |  |  | — |  |  | 203,483 |  |  | — |  |  | 203,483 |
Restricted stock | 75,283 |  |  | — |  |  | 75,283 |  |  | — |  |  | 75,283 |
Loans held for sale | 40,662 |  |  | — |  |  | 40,662 |  |  | — |  |  | 40,662 |
Net loans | 7,103,344 |  |  | — |  |  | — |  |  | 7,117,593 |  |  | 7,117,593 |
Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap | 1,350 |  |  | — |  |  | 1,350 |  |  | — |  |  | 1,350 |
Cash flow hedges | 49 |  |  | — |  |  | 49 |  |  | — |  |  | 49 |
Fair value hedges | 1,598 |  |  | — |  |  | 1,598 |  |  | — |  |  | 1,598 |
Interest rate lock commitments | 559 |  |  | — |  |  | — |  |  | 559 |  |  | 559 |
Best efforts forward delivery commitments | 12 |  |  | — |  |  | — |  |  | 12 |  |  | 12 |
Accrued interest receivable | 26,427 |  |  | — |  |  | 26,427 |  |  | — |  |  | 26,427 |
BOLI | 182,854 |  |  | — |  |  | 182,854 |  |  | — |  |  | 182,854 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits | $ | 6,991,718 |  |  | $ | — |  |  | $ | 6,977,845 |  |  | $ | — |  |  | $ | 6,977,845 |
Borrowings | 1,219,414 |  |  | — |  |  | 1,198,645 |  |  | — |  |  | 1,198,645 |
Accrued interest payable | 2,538 |  |  | — |  |  | 2,538 |  |  | — |  |  | 2,538 |
Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap | 1,350 |  |  | — |  |  | 1,350 |  |  | — |  |  | 1,350 |
Cash flow hedges | 8,005 |  |  | — |  |  | 8,005 |  |  | — |  |  | 8,005 |
Fair value hedges | 76 |  |  | — |  |  | 76 |  |  | — |  |  | 76 |
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.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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