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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 defined as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows: •Level 1 - Quoted prices in active markets for identical assets or liabilities •Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities •Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities The methodologies used by the Company in determining the fair values of each class of financial instruments are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected in an orderly transaction between market participants at the measurement date, and therefore are classified within Level 2 of the valuation hierarchy. There have been no significant changes in the valuation techniques during the three and nine months ended September 30, 2020 and 2019. The Company’s policy is to recognize transfers between levels as of the end of the reporting period. Transfers in and out of Level 1, Level 2, and Level 3 are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the three and nine months ended September 30, 2020 and 2019. Further details on the methods used to estimate the fair value of each class of financial instruments above are discussed below: Investment Debt Securities Available-for-Sale. The Company obtains fair value measurements for investment securities from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the investment’s terms and conditions, among other things. Vendors chosen by the Company are widely recognized vendors whose evaluations support the pricing functions of financial institutions, investment and mutual funds, and portfolio managers. If needed, a broker may be utilized to determine the reported fair value of investment securities. Loans Held for Sale. Fair value measurements for loans held for sale are obtained from an independent pricing service. The fair value measurements consider observable data that may include binding contracts or quotes or bids from third party investors as well as loan level pricing adjustments. Interest Rate Swap Contracts. Fair values for derivative interest rate swap contracts are based upon the estimated amounts to settle the contracts considering current interest rates and are calculated using discounted cash flows that are observable or that can be corroborated by observable market data. The inputs used to determine fair value include the three-month LIBOR forward curve to estimate variable rate cash inflows and the federal funds effective swap rate to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such difference is discounted to a present value to estimate the fair value of the interest rate swaps. The change in the value of derivative assets attributable to basis risk, or the risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other, was not significant in the reported periods. The Company also obtains and compares the reasonableness of the pricing from an independent third party. Interest Rate Lock Commitments. Fair value measurements for interest rate lock commitments are obtained from an independent pricing service. The fair value measurements consider observable data that may include prices available from secondary market investors taking into consideration various characteristics of the loan, including the loan amount, interest rate, value of the servicing, and loan to value ratio, among other things. Observable data is then adjusted to reflect changes in interest rates, the Company’s estimated pull-through rate, and estimated direct costs necessary to complete the commitment into a closed loan net of origination and processing fees collected from the borrower. Forward Loan Sales Contracts. The fair value measurements for forward loan sales contracts are obtained from an independent pricing service. The fair value measurements consider observable data that includes sales of similar loans. Deferred Compensation Plan Assets and Liabilities. The fair values of deferred compensation plan assets are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected in an orderly transaction between market participants at the measurement date. These investments are in the same funds and purchased in the same amounts as the participants’ selected investments, which represent the underlying liabilities to plan participants. Deferred compensation plan liabilities are recorded at amounts due to participants, based on the fair value of participants’ selected investments. Financial assets and liabilities measured at fair value on a recurring basis are as follows:
|  | Fair Value Measurements at Reporting Date Using
As of September 30, 2020 | Balance | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3)
Investment debt securities available-for-sale: |  |  |  |  |  |
U.S. Treasury Notes | $ | 8.0 |  | $ | — | $ | 8.0 |  | $ | —
State, county and municipal securities | 236.1 |  |  | — | 236.1 |  |  | —
Obligations of U.S. government agencies | 278.8 |  |  | — | 278.8 |  |  | —
U.S. agencies mortgage-backed securities & collateralized mortgage obligations | 2,611.7 |  |  | — | 2,611.7 |  |  | —
Private mortgage-backed securities | 20.1 |  |  | — | 20.1 |  |  | —
Corporate securities | 297.8 |  |  | — | 297.8 |  |  | —
Other investments | 1.0 |  |  | — | 1.0 |  |  | —
Loans held for sale | 102.0 |  |  | — | 102.0 |  |  | —
Derivative assets: |  |  |  |  |  |
Interest rate swap contracts | 61.3 |  |  | — | 61.3 |  |  | —
Interest rate lock commitments | 7.0 |  |  | — | 7.0 |  |  | —
Derivative liabilities: |  |  |  |  |  |
Interest rate swap contracts | 61.5 |  |  | — | 61.5 |  |  | —
Forward loan sale contracts | 1.6 |  |  | — | 1.6 |  |  | —
Deferred compensation plan assets | 18.9 |  |  | — | 18.9 |  |  | —
Deferred compensation plan liabilities | 18.9 |  |  | — | 18.9 |  |  | —
|  | Fair Value Measurements at Reporting Date Using
As of December 31, 2019 | Balance | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3)
Investment debt securities available-for-sale: |  |  |  |  |  |
U.S. Treasury notes | $ | 9.0 |  | $ | — | $ | 9.0 |  | $ | —
State, county and municipal securities | 80.9 |  |  | — | 80.9 |  |  | —
Obligations of U.S. government agencies | 366.8 |  |  | — | 366.8 |  |  | —
U.S. agencies mortgage-backed securities & collateralized mortgage obligations | 2,317.2 |  |  | — | 2,317.2 |  |  | —
Private mortgage-backed securities | 47.2 |  |  | — | 47.2 |  |  | —
Corporate securities | 135.7 |  |  | — | 135.7 |  |  | —
Other investments | 3.2 |  |  | — | 3.2 |  |  | —
Loans held for sale | 100.9 |  |  | — | 100.9 |  |  | —
Derivative assets: |  |  |  |  |  |
Interest rate swap contracts | 21.9 |  |  | — | 21.9 |  |  | —
Interest rate lock commitments | 1.3 |  |  | — | 1.3 |  |  | —
Derivative liabilities |  |  |  |  |  |
Interest rate swap contracts | 21.9 |  |  | — | 21.9 |  |  | —
Forward loan sales contracts | 0.3 |  |  | — | 0.3 |  |  | —
Deferred compensation plan assets | 18.2 |  |  | — | 18.2 |  |  | —
Deferred compensation plan liabilities | 18.2 |  |  | — | 18.2 |  |  | —
Additionally, from time to time, certain assets are measured at fair value on a non-recurring basis. Adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to credit deterioration. The following table presents information about the Company’s assets and liabilities measured at fair value on a non-recurring basis:
|  |  | Fair Value Measurements at Reporting Date Using
As of September 30, 2020 | Balance | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3)
Collateral dependent loans* | $ | 11.4 |  | $ | — | $ | — | $ | 11.4 |
Other real estate owned | 1.1 |  |  | — |  | — | 1.1 |
Long-lived assets to be disposed of by sale | 5.0 |  |  | — |  | — | 5.0 |
|  |  | Fair Value Measurements at Reporting Date Using
As of December 31, 2019 | Balance | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3)
Impaired Loans* | $ | 27.6 |  | $ | — | $ | — | $ | 27.6 |
Other real estate owned | 2.2 |  |  | — |  | — | 2.2 |
Long-lived assets to be disposed of by sale | 6.2 |  |  | — |  | — | 6.2 |
*The Company adopted ASC 326 as of January 1, 2020 which changes the methodology of impaired loans. The comparable period presents impaired loans under previously applicable GAAP.
Collateral-dependent Loans. Collateral-dependent loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral. The collateral-dependent loans are reported at fair value through specific valuation allowance allocations. In addition, when it is determined that the fair value of a collateral-dependent loan is less than the recorded investment in the loan, the carrying value of the loan is adjusted to fair value through a charge to the allowance for credit losses. Collateral values are estimated using independent appraisals and management estimates of current market conditions. As of September 30, 2020, certain collateral dependent loans with a carrying value of $16.0 million were reduced by specific valuation allowance allocations of $4.6 million with no material loan charge-offs resulting in a reported fair value of $11.4 million. As of December 31, 2019, certain impaired loans with a carrying value of $41.3 million were reduced by specific valuation allowance allocations of $3.6 million and partial loan charge-offs of $10.1 million resulting in a reported fair value of $27.6 million. OREO. The fair values of OREO are estimated using independent appraisals and management estimates of current market conditions. Upon initial recognition, write-downs based on the foreclosed asset’s fair value at foreclosure are reported through charges to the allowance for credit losses. Periodically, the fair value of foreclosed assets is remeasured with any subsequent write-downs charged to OREO expense in the period in which they are identified. The Company had $0.1 million and $0.7 million of write downs on OREO properties during the nine months ended September 30, 2020 and 2019, respectively. Long-lived Assets to be Disposed of by Sale. Long-lived assets to be disposed of by sale are carried at the lower of carrying value or fair value less estimated costs to sell. The fair values of long-lived assets to be disposed of by sale are based upon observable market data and management estimates of current market conditions. As of September 30, 2020, the Company had long-lived assets to be disposed of by sale with carrying values aggregating $5.2 million, which was reduced by write-downs of $0.2 million, resulting in a fair value of $5.0 million. As of December 31, 2019, the Company had long-lived assets to be disposed of by sale with carrying values aggregating $6.4 million, reduced by write-downs of $0.2 million, resulting in a fair value of $6.2 million. The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair values:
| Fair Value As of |  |  |  |  |  |
| September 30, 2020 | December 31, 2019 | Valuation Technique | Unobservable Inputs | Range (Weighted Average)
Collateral dependent loans | $ | 11.4 |  | $ | 27.6 |  | Appraisal | Appraisal adjustment | 0% | - | 56% | (22%)
Other real estate owned | 1.1 |  | 2.2 |  | Appraisal | Appraisal adjustment | 8% | - | 65% | (27%)
Long-lived assets to be disposed of by sale | 5.0 |  | 6.2 |  | Appraisal | Appraisal adjustment | 0% | - | 37% | (3%)
The Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. The methodologies for estimating the fair value of financial instruments that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for estimating the fair value of other financial instruments are discussed below. For financial instruments bearing a variable interest rate where no credit risk exists, it is presumed that recorded book values are reasonable estimates of fair value. Financial Assets. Carrying values of cash, cash equivalents, and accrued interest receivable approximate fair values due to the liquid and/or short-term nature of these instruments. Fair values for investment securities held-to-maturity are obtained from an independent pricing service, which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the investment’s terms and conditions, among other things. Fair values of fixed rate loans and variable rate loans that reprice on an infrequent basis are estimated by discounting future cash flows using current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality using an exit price notion. Carrying values of variable rate loans that reprice frequently, and with no change in credit risk, approximate the fair values of these instruments. Financial Liabilities. The fair values of demand deposits, savings accounts, securities sold under repurchase agreements, and accrued interest payable are the amounts payable on demand at the reporting date. The fair values of fixed-maturity certificates of deposit are estimated using external market rates currently offered for deposits with similar remaining maturities. The fair values of derivative liabilities are obtained from an independent pricing service, which considers observable data that may include the three-month LIBOR forward curve, the federal funds effective swap rate and cash flows, among other things. The carrying values of the interest-bearing demand notes to the United States Treasury are deemed an approximation of fair values due to the frequent repayment and repricing at market rates. The fixed and floating rate subordinated debentures, floating rate subordinated term loan, notes payable to the FHLB, fixed rate subordinated term debt, and capital lease obligation are estimated by discounting future cash flows using current rates for advances with similar characteristics. Commitments to Extend Credit and Standby Letters of Credit. The fair value of commitments to extend credit and standby letters of credit, based on fees currently charged to enter into similar agreements, is not significant. The estimated fair values of financial instruments that are reported in the Company’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows:
|  |  | Fair Value Measurements at Reporting Date Using
As of September 30, 2020 | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3)
Financial assets: |  |  |  |  |
Cash and cash equivalents | $ | 1,860.6 |  | $ | 1,860.6 |  | $ | 1,860.6 |  | $ | — |  | $ | — |
Investment debt securities available-for-sale | 3,453.5 |  | 3,453.5 |  | — |  | 3,453.5 |  | — |
Investment debt securities held-to-maturity | 55.0 |  | 58.4 |  | — |  | 58.4 |  | — |
Accrued interest receivable | 56.7 |  | 56.7 |  | — |  | 56.7 |  | — |
Mortgage servicing rights, net | 24.1 |  | 24.1 |  | — |  | 24.1 |  | — |
Loans held for sale | 102.0 |  | 102.0 |  | — |  | 102.0 |  | — |
Net loans held for investment | 10,006.7 |  | 9,927.4 |  | — |  | 9,916.0 |  | 11.4 |
Derivative assets | 68.3 |  | 68.3 |  | — |  | 68.3 |  | — |
Deferred compensation plan assets | 18.9 |  | 18.9 |  | — |  | 18.9 |  | — |
Total financial assets | $ | 15,645.8 |  | $ | 15,569.9 |  | $ | 1,860.6 |  | $ | 13,697.9 |  | $ | 11.4 |
Financial liabilities: |  |  |  |  |
Total deposits, excluding time deposits | $ | 12,770.3 |  | $ | 12,770.3 |  | $ | 12,770.3 |  | $ | — |  | $ | — |
Time deposits | 1,112.1 |  | 1,115.4 |  | — |  | 1,115.4 |  | — |
Securities sold under repurchase agreements | 820.3 |  | 820.3 |  | — |  | 820.3 |  | — |
Accrued interest payable | 8.1 |  | 8.1 |  | — |  | 8.1 |  | — |
Long-term debt | 112.4 |  | 111.6 |  | — |  | 111.6 |  | — |
Subordinated debentures held by subsidiary trusts | 87.0 |  | 82.0 |  | — |  | 82.0 |  | — |
Derivative liabilities | 63.1 |  | 63.1 |  | — |  | 63.1 |  | — |
Deferred compensation plan liabilities | 18.9 |  | 18.9 |  | — |  | 18.9 |  | — |
Total financial liabilities | $ | 14,992.2 |  | $ | 14,989.7 |  | $ | 12,770.3 |  | $ | 2,219.4 |  | $ | — |
|  |  | Fair Value Measurements at Reporting Date Using
As of December 31, 2019 | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3)
Financial assets: |  |  |  |  |
Cash and cash equivalents | $ | 1,076.8 |  | $ | 1,076.8 |  | $ | 1,076.8 |  | $ | — |  | $ | — |
Investment debt securities available-for-sale | 2,960.0 |  | 2,960.0 |  | — |  | 2,960.0 |  | — |
Investment debt securities held-to-maturity | 92.3 |  | 94.5 |  | — |  | 94.5 |  | — |
Accrued interest receivable | 46.7 |  | 46.7 |  | — |  | 46.7 |  | — |
Mortgage servicing rights, net | 30.2 |  | 34.8 |  | — |  | 34.8 |  | — |
Loans held for sale | 100.9 |  | 100.9 |  | — |  | 100.9 |  | — |
Net loans held for investment | 8,857.7 |  | 8,930.7 |  | — |  | 8,906.7 |  | 24.0 |
Derivative assets | 23.2 |  | 23.2 |  | — |  | 23.2 |  | — |
Deferred compensation plan assets | 18.2 |  | 18.2 |  | — |  | 18.2 |  | — |
Total financial assets | $ | 13,206.0 |  | $ | 13,285.8 |  | $ | 1,076.8 |  | $ | 12,185.0 |  | $ | 24.0 |
Financial liabilities: |  |  |  |  |
Total deposits, excluding time deposits | $ | 10,213.5 |  | $ | 10,213.5 |  | $ | 10,213.5 |  | $ | — |  | $ | — |
Time deposits | 1,450.0 |  | 1,446.6 |  | — |  | 1,446.6 |  | — |
Securities sold under repurchase agreements | 697.6 |  | 697.6 |  | — |  | 697.6 |  | — |
Accrued interest payable | 12.1 |  | 12.1 |  | — |  | 12.1 |  | — |
Long-term debt | 13.9 |  | 10.4 |  | — |  | 10.4 |  | — |
Subordinated debentures held by subsidiary trusts | 86.9 |  | 81.3 |  | — |  | 81.3 |  | — |
Derivative liabilities | 22.2 |  | 22.2 |  | — |  | 22.2 |  | — |
Deferred compensation plan liabilities | 18.2 |  | 18.2 |  | — |  | 18.2 |  | — |
Total financial liabilities | $ | 12,514.4 |  | $ | 12,501.9 |  | $ | 10,213.5 |  | $ | 2,288.4 |  | $ | — |

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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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