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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the assumptions applied by the Company when determining fair value reflect those that the Company determines market participants would use to price the asset or liability at the measurement date. If there has been a significant decrease in the volume and level of activity for the asset or liability, regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received if the asset were to be sold or that would be or paid if the liability were to be transferred in an orderly market transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. When determining fair value, the Company considers pricing information and other inputs that are current as of the measurement date. In periods of market dislocation, the observability of prices and other inputs may be reduced for certain instruments, or not available at all. The unavailability or reduced availability of pricing or other input information could cause an instrument to be reclassified from one level to another. The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below: Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation Techniques There have been no changes in the valuation techniques used during the three and nine months ended September 30, 2020. Securities Trading and Equity Securities These equity securities are valued based on market quoted prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied. U.S. Government Agency Securities Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2. Agency Mortgage-Backed Securities Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2. Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. State, County, and Municipal Securities The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent transactions, and yield relationships. These securities are categorized as Level 2. Single and Pooled Issuer Trust Preferred Securities The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. Loans Held for Sale The Company has elected the fair value option to account for originated closed loans intended for sale. The fair value is measured on an individual loan basis using quoted market prices and when not available, comparable market value or discounted cash flow analysis may be utilized. These assets are typically classified as Level 2. Derivative Instruments Derivatives The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Additionally, in conjunction with fair value measurement guidance, the Company has made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate derivatives and risk participation agreements may also utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of September 30, 2020 and December 31, 2019, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are properly classified as Level 2. Mortgage Derivatives The fair value of mortgage derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified as Level 2 within the fair value hierarchy. Individually Assessed Collateral Dependent Loans In accordance with the CECL standard, expected credit losses on individually assessed loans deemed to be collateral dependent are valued based upon the lower of amortized cost or fair value of the underlying collateral less costs to sell. The inputs used in the appraisals of the collateral are not always observable, and in such cases the loans may be classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. Other Real Estate Owned and Other Foreclosed Assets Other Real Estate Owned ("OREO") and Other Foreclosed Assets are valued at the lower of cost or fair value of the property, less estimated costs to sell. The fair values are generally estimated based upon recent appraisal values of the property less costs to sell the property. Certain inputs used in appraisals are not always observable, and therefore OREO and Other Foreclosed Assets may be classified as Level 3 within the fair value hierarchy. Goodwill and Other Intangible Assets Goodwill and other intangible assets are subject to impairment testing. The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and a discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify the impaired goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3. Assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows as of the dates indicated:
|  |  | Fair Value Measurements at Reporting Date Using
| Balance |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| September 30, 2020
| (Dollars in thousands)
Recurring fair value measurements |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Trading securities | $ | 2,612 |  |  | $ | 2,612 |  |  | $ | — |  |  | $ | — |
Equity securities | 21,119 |  |  | 21,119 |  |  | — |  |  | — |
Securities available for sale |  |  |  |  |  |  |
U.S. government agency securities | 24,273 |  |  | — |  |  | 24,273 |  |  | — |
Agency mortgage-backed securities | 230,620 |  |  | — |  |  | 230,620 |  |  | — |
Agency collateralized mortgage obligations | 102,077 |  |  | — |  |  | 102,077 |  |  | — |
State, county, and municipal securities | 1,145 |  |  | — |  |  | 1,145 |  |  | — |
Single issuer trust preferred securities issued by banks and insurers | 469 |  |  | — |  |  | 469 |  |  | — |
Pooled trust preferred securities issued by banks and insurers | 1,021 |  |  | — |  |  | — |  |  | 1,021 |
Small business administration pooled securities | 63,873 |  |  | — |  |  | 63,873 |  |  | — |
Loans held for sale | 54,713 |  |  | — |  |  | 54,713 |  |  | — |
Derivative instruments | 210,742 |  |  | — |  |  | 210,742 |  |  | — |
Liabilities |  |  |  |  |  |  |
Derivative instruments | 151,613 |  |  | — |  |  | 151,613 |  |  | — |
Total recurring fair value measurements | $ | 561,051 |  |  | $ | 23,731 |  |  | $ | 536,299 |  |  | $ | 1,021 |
Nonrecurring fair value measurements |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Individually assessed collateral dependent loans | $ | 56,660 |  |  | $ | — |  |  | $ | — |  |  | $ | 56,660 |
Total nonrecurring fair value measurements | $ | 56,660 |  |  | $ | — |  |  | $ | — |  |  | $ | 56,660 |
|  |  | Fair Value Measurements at Reporting Date Using
| Balance |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| December 31, 2019
| (Dollars in thousands)
Recurring fair value measurements |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Trading securities | $ | 2,179 |  |  | $ | 2,179 |  |  | $ | — |  |  | $ | — |
Equity securities | 21,261 |  |  | 21,261 |  |  | — |  |  | — |
Securities available for sale |  |  |  |  |  |  |
U.S. government agency securities | 33,115 |  |  | — |  |  | 33,115 |  |  | — |
Agency mortgage-backed securities | 247,000 |  |  | — |  |  | 247,000 |  |  | — |
Agency collateralized mortgage obligations | 88,511 |  |  | — |  |  | 88,511 |  |  | — |
State, county, and municipal securities | 1,396 |  |  | — |  |  | 1,396 |  |  | — |
Single issuer trust preferred securities issued by banks and insurers | 493 |  |  | — |  |  | 493 |  |  | — |
Pooled trust preferred securities issued by banks and insurers | 1,114 |  |  | — |  |  | — |  |  | 1,114 |
Small business administration pooled securities | 54,795 |  |  | — |  |  | 54,795 |  |  | — |
Loans held for sale | 33,307 |  |  | — |  |  | 33,307 |  |  | — |
Derivative instruments | 78,385 |  |  | — |  |  | 78,385 |  |  | — |
Liabilities |  |  |  |  |  |  |
Derivative instruments | 53,923 |  |  | — |  |  | 53,923 |  |  | — |
Total recurring fair value measurements | $ | 507,633 |  |  | $ | 23,440 |  |  | $ | 483,079 |  |  | $ | 1,114 |
Nonrecurring fair value measurements: |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Collateral dependent impaired loans | $ | 25,515 |  |  | $ | — |  |  | $ | — |  |  | $ | 25,515 |
Total nonrecurring fair value measurements | $ | 25,515 |  |  | $ | — |  |  | $ | — |  |  | $ | 25,515 |
The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), which were valued using pricing models and discounted cash flow methodologies, for the periods indicated:
| Three Months Ended
| September 30
| 2020 |  | 2019
| (Dollars in thousands)
Pooled Trust Preferred Securities |  |  |
Beginning balance | $ | 986 |  |  | $ | 1,281 |
Gain and (losses) (realized/unrealized) |  |  |
Included in other comprehensive income | 41 |  |  | (14) |
Settlements | (6) |  |  | (161) |
Ending balance | $ | 1,021 |  |  | $ | 1,106 |
| Nine Months Ended
| September 30
| 2020 |  | 2019
| (Dollars in thousands)
Pooled Trust Preferred Securities |  |  |
Beginning balance | $ | 1,114 |  |  | $ | 1,329 |
Losses (realized/unrealized) |  |  |
Included in other comprehensive income | (38) |  |  | (38) |
Settlements | (55) |  |  | (185) |
Ending balance | $ | 1,021 |  |  | $ | 1,106 |
The following table sets forth certain unobservable inputs regarding the Company’s financial instruments that are classified as Level 3 as of the dates indicated:
|  | September 30 2020 |  | December 31 2019 |  |  |  | September 30 2020 |  | December 31 2019 |  | September 30 2020 |  | December 31 2019
Valuation Technique |  | Fair Value |  | Unobservable Inputs |  | Range |  | Weighted Average
|  | (Dollars in thousands) |  |
Discounted cash flow methodology |  |  |  |  |  |  |  |  |  |
Pooled trust preferred securities |  | $ | 1,021 |  |  | $ | 1,114 |  |  | Cumulative prepayment |  | 0% - 56% |  | 0% - 57% |  | 2.6% |  | 2.6%
|  |  |  |  |  | Cumulative default |  | 4% - 100% |  | 2% - 100% |  | 11.9% |  | 13.5%
|  |  |  |  |  | Loss given default |  | 85% - 100% |  | 85% - 100% |  | 94.0% |  | 93.6%
|  |  |  |  |  | Cure given default |  | 0% - 75% |  | 0% - 75% |  | 60.9% |  | 60.9%
Appraisals of collateral(1) |  |  |  |  |  |  |  |  |  |
Individually assessed collateral dependent loans |  | $ | 56,660 |  |  | n/a |  |  |  |  |  |  |  |  |  |
Collateral dependent impaired loans |  | n/a |  | $ | 25,515 |  |  |  |  |  |  |  |  |  |  |
(1)Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary. The significant unobservable inputs used in the fair value measurement of the Company’s pooled trust preferred securities are cumulative prepayment rates, cumulative default rates, loss given default rates and cure given default rates. Significant increases (decreases) in deferrals or defaults, in isolation, would result in a significantly lower (higher) fair value measurement. Alternatively, significant increases (decreases) in cure rates, in isolation, would result in a significantly higher (lower) fair value measurement. The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the dates indicated:
|  |  |  |  | Fair Value Measurements at Reporting Date Using
| Carrying Value |  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| September 30, 2020
| (Dollars in thousands)
Financial assets |  |  |
Securities held to maturity(a) |  |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 4,021 |  |  | $ | 4,100 |  |  | $ | — |  |  | $ | 4,100 |  |  | $ | — |
Agency mortgage-backed securities | 388,106 |  |  | 407,793 |  |  | — |  |  | 407,793 |  |  | — |
Agency collateralized mortgage obligations | 237,380 |  |  | 246,937 |  |  | — |  |  | 246,937 |  |  | — |
Single issuer trust preferred securities issued by banks | 1,500 |  |  | 1,498 |  |  | — |  |  | 1,498 |  |  | — |
Small business administration pooled securities | 28,566 |  |  | 30,139 |  |  | — |  |  | 30,139 |  |  | — |
Loans, net of allowance for credit losses(b) | 9,232,908 |  |  | 9,185,023 |  |  | — |  |  | — |  |  | 9,185,023 |
Federal Home Loan Bank stock(c) | 15,090 |  |  | 15,090 |  |  | — |  |  | 15,090 |  |  | — |
Cash surrender value of life insurance policies(d) | 199,453 |  |  | 199,453 |  |  | — |  |  | 199,453 |  |  | — |
Financial liabilities |  |  |  |  |  |  |  |  |
Deposit liabilities, other than time deposits(e) | $ | 9,792,667 |  |  | $ | 9,792,667 |  |  | $ | — |  |  | $ | 9,792,667 |  |  | $ | — |
Time certificates of deposits(f) | 1,058,641 |  |  | 1,065,818 |  |  | — |  |  | 1,065,818 |  |  | — |
Federal Home Loan Bank borrowings(f) | 145,765 |  |  | 145,975 |  |  | — |  |  | 145,975 |  |  | — |
Long-term borrowings(f) | 37,447 |  |  | 36,448 |  |  | — |  |  | 36,448 |  |  | — |
Junior subordinated debentures(g) | 62,850 |  |  | 67,883 |  |  | — |  |  | 67,883 |  |  | — |
Subordinated debentures(f) | 49,672 |  |  | 47,173 |  |  | — |  |  | — |  |  | 47,173 |
|  |  |  |  | Fair Value Measurements at Reporting Date Using
| Carrying Value |  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| December 31, 2019
| (Dollars in thousands)
Financial assets |
Securities held to maturity(a) |  |  |  |  |  |  |  |  |
U.S. government agency securities | $ | 12,874 |  |  | $ | 12,997 |  |  | $ | — |  |  | $ | 12,997 |  |  | $ | — |
U.S. Treasury securities | 4,032 |  |  | 4,053 |  |  | $ | — |  |  | 4,053 |  |  | — |
Agency mortgage-backed securities | 397,414 |  |  | 405,802 |  |  | — |  |  | 405,802 |  |  | — |
Agency collateralized mortgage obligations | 293,662 |  |  | 297,314 |  |  | — |  |  | 297,314 |  |  | — |
Single issuer trust preferred securities issued by banks | 1,500 |  |  | 1,490 |  |  | — |  |  | 1,490 |  |  | — |
Small business administration pooled securities | 31,324 |  |  | 31,607 |  |  | — |  |  | 31,607 |  |  | — |
Loans, net of allowance for credit losses(b) | 8,780,384 |  |  | 8,613,635 |  |  | — |  |  | — |  |  | 8,613,635 |
Federal Home Loan Bank stock(c) | 14,424 |  |  | 14,424 |  |  | — |  |  | 14,424 |  |  | — |
Cash surrender value of life insurance policies(d) | 197,372 |  |  | 197,372 |  |  | — |  |  | 197,372 |  |  | — |
Financial liabilities |  |  |  |  |  |  |  |  |
Deposit liabilities, other than time deposits(e) | $ | 7,752,052 |  |  | $ | 7,752,052 |  |  | $ | — |  |  | $ | 7,752,052 |  |  | $ | — |
Time certificates of deposits(f) | 1,395,315 |  |  | 1,396,760 |  |  | — |  |  | 1,396,760 |  |  | — |
Federal Home Loan Bank borrowings(f) | 115,748 |  |  | 115,881 |  |  | — |  |  | 115,881 |  |  | — |
Long-term borrowings (f) | 74,906 |  |  | 72,219 |  |  | — |  |  | 72,219 |  |  | — |
Junior subordinated debentures(g) | 62,848 |  |  | 65,603 |  |  | — |  |  | 65,603 |  |  | — |
Subordinated debentures(f) | 49,601 |  |  | 52,870 |  |  | — |  |  | — |  |  | 52,870 |
(a)The fair values presented are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analysis. (b)Fair value of loans is measured using the exit price valuation method, determined primarily by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or cash flows, while incorporating liquidity and credit assumptions. Additionally, this amount excludes individually assessed collateral dependent loans, which are deemed to be marked to fair value on a nonrecurring basis. (c)Federal Home Loan Bank stock has no quoted market value and is carried at cost; therefore the carrying amount approximates fair value. (d)Cash surrender value of life insurance policies is recorded at its cash surrender value (or the amount that can be realized upon surrender of the policy), therefore, carrying amount approximates fair value. (e)Fair value of demand deposits, savings and interest checking accounts and money market deposits is the amount payable on demand at the reporting date. (f)Fair value was determined by discounting anticipated future cash payments using rates currently available for instruments with similar remaining maturities. (g)Fair value was determined based upon market prices of securities with similar terms and maturities. This summary excludes certain financial assets and liabilities for which the carrying value approximates fair value. For financial assets, these may include cash and due from banks, federal funds sold and short-term investments. For financial liabilities, these may include federal funds purchased. These instruments would all be considered to be classified as Level 1 within the fair value hierarchy. Also excluded from the summary are financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described. The Company considers its current use of financial instruments to be the highest and best use of the instruments.

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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=117815213&loc=d3e19207-110258 + Details
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