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Fair Value of Assets and Liabilities
 12 Months Ended
Dec. 31, 2024
Fair Value Disclosures [Abstract]  
Fair Value of Assets and Liabilities

Note 21. Fair Value of Assets and Liabilities

Fair Value Hierarchy

The following is a description of the valuation methodologies and key inputs used to measure assets and liabilities recorded at fair value on a recurring basis. See Note 2 Summary of Significant Accounting Policies for more information on fair value measurements.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Investment Securities Available-for-Sale

Level 1 investment securities are comprised of debt securities issued by the U.S. Treasury, as quoted prices were available, unadjusted, for identical securities in active markets. Level 2 investment securities were primarily comprised of debt securities issued by the Small Business Administration, states and municipalities, corporations, as well as mortgage-backed securities and collateralized mortgage obligations issued by government agencies and government-sponsored enterprises. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Company’s third party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third party broker quotes.

Loans Held for Sale

The fair value of the Company’s residential mortgage loans held for sale was determined based on quoted prices for similar loans in active markets, and therefore, is classified as a Level 2 measurement.

Mortgage Servicing Rights

The Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The Company stratifies its mortgage servicing portfolio on the basis of loan type. The assumptions used in the discounted cash flow model are those that the Company believes market participants would use in estimating future net servicing income. Significant assumptions in the valuation of mortgage servicing rights include estimated loan repayment rates, the discount rate, servicing costs, and the timing of cash flows, among other factors. Mortgage servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

Other Assets

Other assets recorded at fair value on a recurring basis are primarily comprised of investments related to deferred compensation arrangements. Quoted prices for these investments, primarily in mutual funds, are available in active markets. Thus, the Company’s investments related to deferred compensation arrangements are classified as Level 1 measurements in the fair value hierarchy.

Derivative Financial Instruments

Derivative financial instruments recorded at fair value on a recurring basis are comprised of IRLCs, forward commitments, interest rate swap agreements, foreign exchange contracts, and Visa Class B to Class A shares conversion rate swap and makewhole agreements. The fair values of IRLCs are calculated based on the value of the underlying loan held for sale, which in turn is based on quoted prices for similar loans in the secondary market. However, this value is adjusted by a factor which considers the likelihood that the loan in a locked position will ultimately close. This factor, the closing ratio, is derived from the Bank’s internal data and is adjusted using significant management judgment. As such, IRLCs are classified as Level 3 measurements. Forward commitments are classified as Level 2 measurements as they are primarily based on quoted prices from the secondary market based on the settlement date of the contracts, interpolated or extrapolated, if necessary, to estimate a fair value as of the end of the reporting period.

The fair values of interest rate swap agreements are calculated using a discounted cash flow approach and utilize Level 2 observable inputs such as a market yield curve, effective date, maturity date, notional amount, and stated interest rate. The valuation methodology for interest rate swaps with financial institution counterparties (and the related customer interest rate swaps) is based on the SOFR. Thus, the fair values of interest rate swaps are classified as a Level 2 measurement. The fair values of foreign exchange contracts are calculated using the Bank’s multi-currency accounting system which utilizes contract specific information such as currency, maturity date, contractual amount, and strike price, along with market data information such as the spot rates of specific currency and yield curves. Foreign exchange contracts are classified as Level 2 measurements because while they are valued using the Bank’s multi-currency accounting system, significant management judgment or estimation is not required. The fair value of the Visa Class B restricted shares to Class A unrestricted common shares conversion rate swap agreements represent the amount owed by the Company to the buyer of the Visa Class B shares as a result of a reduction of the conversion ratio subsequent to the sales date. As of December 31, 2024 and 2023, the conversion rate swap agreements were valued at zero as reductions to the conversion ratio were neither probable nor reasonably estimable by management. The fair value of the makewhole agreements represent the amount owed by the Company to the buyer of the Visa Class B shares in the event Visa requires additional legal reserves to settle ongoing litigation. As of December 31, 2024, the makewhole agreements were valued at zero as the likelihood of the Company being required to make a payment to the buyer is not reasonably estimable by management. See Note 17 Derivative Financial Instruments for more information.

The Company is exposed to credit risk if borrowers or counterparties fail to perform. The Company seeks to minimize credit risk through credit approvals, limits, monitoring procedures, and collateral requirements. The Company generally enters into transactions with borrowers of high credit quality and counterparties that carry high quality credit ratings.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023:

 

(dollars in thousands)

 

Quoted Prices In Active Markets for Identical Assets or Liabilities (Level 1)

 

 

Significant Other Observable Inputs
(Level 2)

 

 

Significant Unobservable Inputs
(Level 3)

 

 

Total

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities Available-for-Sale

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury and Government Agencies

 

$

150,389

 

 

$

98,683

 

 

$

—

 

 

$

249,072

 

Debt Securities Issued by States and Political Subdivisions

 

 

—

 

 

 

63,859

 

 

 

—

 

 

 

63,859

 

Debt Securities Issued by U.S. Government-Sponsored Enterprises

 

 

—

 

 

 

1,464

 

 

 

—

 

 

 

1,464

 

Debt Securities Issued by Corporations

 

 

—

 

 

 

671,675

 

 

 

—

 

 

 

671,675

 

Collateralized Mortgage Obligations Issued by

 

 

 

 

 

 

 

 

 

 

 

 

    Residential - Government Agencies or Sponsored Enterprises

 

 

—

 

 

 

935,220

 

 

 

—

 

 

 

935,220

 

    Commercial - Government Agencies or Sponsored Enterprises

 

 

—

 

 

 

283,474

 

 

 

—

 

 

 

283,474

 

Total Collateralized Mortgage Obligations

 

 

—

 

 

 

1,218,694

 

 

 

—

 

 

 

1,218,694

 

Mortgage-Backed Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies or Sponsored Enterprises

 

 

—

 

 

 

484,764

 

 

 

—

 

 

 

484,764

 

Total Investment Securities Available-for-Sale

 

 

150,389

 

 

 

2,539,139

 

 

 

—

 

 

 

2,689,528

 

Loans Held for Sale

 

 

—

 

 

 

2,150

 

 

 

—

 

 

 

2,150

 

Mortgage Servicing Rights

 

 

—

 

 

 

—

 

 

 

647

 

 

 

647

 

Other Assets

 

 

18,155

 

 

 

—

 

 

 

—

 

 

 

18,155

 

Derivatives 1

 

 

—

 

 

 

161,439

 

 

 

34

 

 

 

161,473

 

Total Assets Measured at Fair Value on a
   Recurring Basis as of December 31, 2024

 

$

168,544

 

 

$

2,702,728

 

 

$

681

 

 

$

2,871,953

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives 1

 

$

—

 

 

$

154,060

 

 

$

—

 

 

$

154,060

 

Total Liabilities Measured at Fair Value on a
   Recurring Basis as of December 31, 2024

 

$

—

 

 

$

154,060

 

 

$

—

 

 

$

154,060

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities Available-for-Sale

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury and Government Agencies

 

$

146,214

 

 

$

66,359

 

 

$

—

 

 

$

212,573

 

Debt Securities Issued by States and Political Subdivisions

 

 

—

 

 

 

63,806

 

 

 

—

 

 

 

63,806

 

Debt Securities Issued by U.S. Government-Sponsored Enterprises

 

 

—

 

 

 

1,476

 

 

 

—

 

 

 

1,476

 

Debt Securities Issued by Corporations

 

 

—

 

 

 

657,701

 

 

 

—

 

 

 

657,701

 

Collateralized Mortgage Obligations Issued by

 

 

 

 

 

 

 

 

 

 

 

 

    Residential - Government Agencies or Sponsored Enterprises

 

 

—

 

 

 

774,363

 

 

 

—

 

 

 

774,363

 

    Commercial - Government Agencies or Sponsored Enterprises

 

 

—

 

 

 

134,923

 

 

 

—

 

 

 

134,923

 

Total Collateralized Mortgage Obligations

 

 

—

 

 

 

909,286

 

 

 

—

 

 

 

909,286

 

Mortgage-Backed Securities Issued by:

 

 

 

 

 

 

 

 

 

 

 

 

Residential - Government Agencies or Sponsored Enterprises

 

 

—

 

 

 

564,091

 

 

 

—

 

 

 

564,091

 

Total Investment Securities Available-for-Sale

 

 

146,214

 

 

 

2,262,719

 

 

 

—

 

 

 

2,408,933

 

Loans Held for Sale

 

 

—

 

 

 

3,124

 

 

 

—

 

 

 

3,124

 

Mortgage Servicing Rights

 

 

—

 

 

 

—

 

 

 

678

 

 

 

678

 

Other Assets

 

 

13,448

 

 

 

—

 

 

 

—

 

 

 

13,448

 

Derivatives 1

 

 

—

 

 

 

94,921

 

 

 

148

 

 

 

95,069

 

Total Assets Measured at Fair Value on a
   Recurring Basis as of December 31, 2023

 

$

159,662

 

 

$

2,360,764

 

 

$

826

 

 

$

2,521,252

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives 1

 

$

—

 

 

$

143,857

 

 

$

—

 

 

$

143,857

 

Total Liabilities Measured at Fair Value on a
   Recurring Basis as of December 31, 2023

 

$

—

 

 

$

143,857

 

 

$

—

 

 

$

143,857

 

 

1.
The fair value of each class of derivatives is shown in Note 17 Derivative Financial Instruments.

For the years ended December 31, 2024 and 2023, the changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:

 

(dollars in thousands)

 

Mortgage Servicing Rights 1

 

 

Net Derivative Assets and Liabilities 2

 

Year Ended December 31, 2024

 

 

 

 

 

 

Balance as of January 1, 2024

 

$

678

 

 

$

148

 

Realized and Unrealized Net Gains (Losses):

 

 

 

 

 

 

Included in Net Income

 

 

(31

)

 

 

805

 

Transfers to Loans Held for Sale

 

 

—

 

 

 

(919

)

Balance as of December 31, 2024

 

$

647

 

 

$

34

 

Total Unrealized Net Gains Included in Net Income
   Related to Assets Still Held as of December 31, 2024

 

$

—

 

 

$

805

 

 

 

 

 

 

 

Year Ended December 31, 2023

 

 

 

 

 

 

Balance as of January 1, 2023

 

$

717

 

 

$

(122,072

)

Transfer to Level 2 3

 

 

—

 

 

 

122,130

 

Realized and Unrealized Net Gains (Losses):

 

 

 

 

 

 

Included in Net Income

 

 

(39

)

 

 

828

 

Transfers to Loans Held for Sale

 

 

—

 

 

 

(738

)

Balance as of December 31, 2023

 

$

678

 

 

$

148

 

Total Unrealized Net Gains Included in Net Income
   Related to Assets Still Held as of December 31, 2023

 

$

—

 

 

$

828

 

 

1.
Realized and unrealized gains and losses related to mortgage servicing rights are reported as a component of Mortgage Banking in the Company’s consolidated statements of income.
2.
Realized and unrealized gains and losses related to IRLCs are reported as a component of Mortgage Banking in the Company’s consolidated statements of income.
3.
In 2023, the Company concluded that the impact of the credit factor adjustment, while still unobservable, is not significant to the fair value measurement of these instruments. As a result, the fair values of interest rate swaps were classified as a Level 2 measurement.

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2024 and 2023, the significant unobservable inputs used in the fair value measurements were as follows:

 

 

 

 

 

 

 

December 31, 2024

 

 

December 31, 2023

 

(dollars in thousands)

 

Valuation
Technique

 

Description

 

Range

 

Weighted
Average1

 

 

Fair
Value

 

 

Range

 

Weighted
Average1

 

 

Fair
Value

 

Mortgage Servicing Rights

 

Discounted Cash Flow

 

Constant Prepayment Rate

 

 

2.98

%

-

17.63%

 

 

4.00

%

 

$

25,636

 

 

 

2.98

%

-

21.18%

 

 

4.06

%

 

$

26,851

 

 

 

 

Discount Rate

 

 

9.17

%

-

10.03%

 

 

9.92

%

 

 

 

 

 

7.65

%

-

10.79%

 

 

9.48

%

 

 

 

Net Derivative Assets and Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate Lock Commitments

 

Pricing Model

 

Closing Ratio

 

 

93.10

%

-

99.00%

 

 

94.17

%

 

$

34

 

 

 

83.50

%

-

99.00%

 

 

85.53

%

 

$

148

 

 

1.
Unobservable inputs for mortgage servicing rights and interest rate lock commitments were weighted by the unpaid principal balance.

Significant increases (decreases) in any of these inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the constant prepayment rate and the discount rate are not directly interrelated, they generally move in opposite directions of each other.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company may be required periodically to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost-or-fair value accounting or impairment write-downs of individual assets. As of December 31, 2024 and 2023, there were no assets or liabilities

with nonrecurring fair value adjustments. Additionally, there were no nonrecurring fair value adjustments during the year ended December 31, 2024 and 2023.

Fair Value Option

The following table reflects the difference between the aggregate fair value and the aggregate unpaid principal balance of the Company’s residential mortgage loans held for sale as of December 31, 2024 and 2023.

 

(dollars in thousands)

 

Aggregate Fair Value

 

 

Aggregate Unpaid Principal

 

 

Aggregate Fair Value Less Aggregate Unpaid Principal

 

December 31, 2024

 

 

 

 

 

 

 

 

 

Loans Held for Sale

 

$

2,150

 

 

$

2,109

 

 

$

41

 

December 31, 2023

 

 

 

 

 

 

 

 

 

Loans Held for Sale

 

$

3,124

 

 

$

3,051

 

 

$

73

 

Changes in the estimated fair value of residential mortgage loans held for sale are reported as a component of Mortgage Banking in the Company’s consolidated statements of income. For the years ended December 31, 2024 and 2023, the net gains or losses from the change in fair value of the Company’s residential mortgage loans held for sale were not material.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments not recorded at fair value on a recurring basis as of December 31, 2024 and 2023. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For non-marketable equity securities such as Federal Home Loan Bank of Des Moines and Federal Reserve Bank stock, the carrying amount is a reasonable estimate of fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government-supported institution or to another member institution. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

(dollars in thousands)

 

Carrying Amount

 

 

Fair Value

 

 

Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)

 

 

Significant Other Observable Inputs (Level 2)

 

 

Significant Unobservable Inputs (Level 3)

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments – Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities Held-to-Maturity

 

$

4,618,543

 

 

$

3,820,882

 

 

$

116,941

 

 

$

3,703,941

 

 

$

—

 

Loans

 

 

13,777,756

 

 

 

12,908,626

 

 

 

—

 

 

 

—

 

 

 

12,908,626

 

Financial Instruments – Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time Deposits

 

 

3,059,575

 

 

 

3,050,583

 

 

 

—

 

 

 

3,050,583

 

 

 

—

 

Securities Sold Under Agreements to Repurchase

 

 

100,000

 

 

 

101,478

 

 

 

—

 

 

 

101,478

 

 

 

—

 

Other Debt 1

 

 

550,000

 

 

 

538,808

 

 

 

—

 

 

 

538,808

 

 

 

—

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments – Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities Held-to-Maturity

 

$

4,997,335

 

 

$

4,253,637

 

 

$

116,531

 

 

$

4,137,106

 

 

$

—

 

Loans

 

 

13,698,701

 

 

 

12,872,260

 

 

 

—

 

 

 

—

 

 

 

12,872,260

 

Financial Instruments – Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time Deposits

 

 

3,057,302

 

 

 

3,043,258

 

 

 

—

 

 

 

3,043,258

 

 

 

—

 

Securities Sold Under Agreements to Repurchase

 

 

150,490

 

 

 

155,461

 

 

 

—

 

 

 

155,461

 

 

 

—

 

Other Debt 1

 

 

550,000

 

 

 

541,466

 

 

 

—

 

 

 

541,466

 

 

 

—

 

 

1.
Excludes finance lease obligations.