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Fair Value | 9 Months Ended
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Sep. 30, 2022
Fair Value Disclosures [Abstract] |
Fair Value | Fair Value Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other 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. Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at September 30, 2022.
($ in thousands) Description of Financial Instruments |  | Fair Value at September 30, 2022 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Recurring |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 168,723 |  |  | — |  |  | 168,723 |  |  | — |
Government-sponsored enterprise securities |  | 57,429 |  |  | — |  |  | 57,429 |  |  | — |
Mortgage-backed securities |  | 2,068,769 |  |  | — |  |  | 2,068,769 |  |  | — |
Corporate bonds |  | 43,294 |  |  | — |  |  | 43,294 |  |  | — |
Total available for sale securities |  | $ | 2,338,215 |  |  | — |  |  | 2,338,215 |  |  | — |
Presold mortgages in process of settlement |  | $ | 3,233 |  |  | 3,233 |  |  | — |  |  | — |
Nonrecurring |  |  |  |  |  |  |  |
Individually evaluated loans |  | $ | 9,725 |  |  | — |  |  | — |  |  | 9,725 |
The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2021.
($ in thousands) Description of Financial Instruments |  | Fair Value at December 31, 2021 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Recurring |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |
Government-sponsored enterprise securities |  | $ | 69,179 |  |  | — |  |  | 69,179 |  |  | — |
Mortgage-backed securities |  | 2,514,805 |  |  | — |  |  | 2,514,805 |  |  | — |
Corporate bonds |  | 46,430 |  |  | — |  |  | 46,430 |  |  | — |
Total available for sale securities |  | $ | 2,630,414 |  |  | — |  |  | 2,630,414 |  |  | — |
Presold mortgages in process of settlement |  | $ | 19,257 |  |  | 19,257 |  |  | — |  |  | — |
Nonrecurring |  |  |  |  |  |  |  |
Individually evaluated loans |  | $ | 11,583 |  |  | — |  |  | — |  |  | 11,583 |
Foreclosed real estate |  | 364 |  |  | — |  |  | — |  |  | 364 |
The following is a description of the valuation methodologies used for instruments measured at fair value. Presold Mortgages in Process of Settlement — The fair value is based on the committed price that an investor has agreed to pay for the loan and is considered a Level 1 input. Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 in the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by our third-party bond accounting provider using matrix pricing. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include U.S. Treasury bonds, mortgage-backed securities, commercial mortgage-backed obligations, GSEs, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Individually evaluated loans — Fair values for individually evaluated loans are measured on a non-recurring basis and are based on (1) the underlying collateral values securing the loans, adjusted for estimated selling costs, or (2) the net present value of the cash flows expected to be received for such loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is generally determined by third-party appraisers using an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3). The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the loans first became impaired, and thus the appraisals are not necessarily as of the period ends presented. Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income. Foreclosed real estate — Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value. Fair value is measured on a non-recurring basis and is based upon independent market prices or current appraisals that are generally prepared using an income or market valuation approach and conducted by an independent, licensed third party appraiser, adjusted for estimated selling costs (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the assets were acquired, and thus the appraisals are not necessarily as of the period ends presented. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the ACL. For any real estate valuations subsequent to foreclosure, any excess of the real estate recorded value over the fair value of the real estate is treated as a foreclosed real estate write-down on the Consolidated Statements of Income. For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2022, the significant unobservable inputs used in the fair value measurements were as follows:
($ in thousands) |  | Fair Value at September 30, 2022 |  | Valuation Technique |  | Significant Unobservable Inputs |  | Range (Weighted Average)
Individually evaluated loans - collateral-dependent |  | $ | 5,212 |  |  | Appraised value |  | Discounts applied for estimated costs to sell |  | 10%
Individually evaluated loans - cash-flow dependent |  | 4,513 |  |  | PV of expected cash flows |  | Discount rates used in the calculation of the present value ("PV") of expected cash flows |  | 4%-11% (6.60%)
For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:
($ in thousands) |  | Fair Value at December 31, 2021 |  | Valuation Technique |  | Significant Unobservable Inputs |  | Range (Weighted Average)
Individually evaluated loans - collateral-dependent |  | $ | 7,326 |  |  | Appraised value |  | Discounts applied for estimated costs to sell |  | 10%
Individually evaluated loans - cash-flow dependent |  | 4,257 |  |  | PV of expected cash flows |  | Discount rates used in the calculation of PV of expected cash flows |  | 4%-11% (6.22%)
Foreclosed real estate |  | 364 |  |  | Appraised value |  | Discounts applied for estimated costs to sell |  | 10%
The carrying amounts and estimated fair values of financial instruments not carried at fair value at September 30, 2022 and December 31, 2021 were as follows:
|  |  | September 30, 2022 |  | December 31, 2021
($ in thousands) | Level in Fair Value Hierarchy |  | Carrying Amount |  | Estimated Fair Value |  | Carrying Amount |  | Estimated Fair Value
Cash and due from banks, noninterest-bearing | Level 1 |  | $ | 83,050 |  |  | 83,050 |  |  | 128,228 |  |  | 128,228 |
Due from banks, interest-bearing | Level 1 |  | 186,465 |  |  | 186,465 |  |  | 332,934 |  |  | 332,934 |
Securities held to maturity | Level 2 |  | 544,193 |  |  | 418,599 |  |  | 513,825 |  |  | 511,699 |
SBA and other loans held for sale | Level 2 |  | 477 |  |  | 477 |  |  | 61,003 |  |  | 62,044 |
Total loans, net of allowance | Level 3 |  | 6,438,699 |  |  | 6,300,474 |  |  | 6,002,926 |  |  | 5,990,235 |
Accrued interest receivable | Level 1 |  | 25,332 |  |  | 25,332 |  |  | 25,896 |  |  | 25,896 |
Bank-owned life insurance | Level 1 |  | 164,793 |  |  | 164,793 |  |  | 165,786 |  |  | 165,786 |
SBA Servicing Asset | Level 3 |  | 4,392 |  |  | 5,343 |  |  | 5,472 |  |  | 5,546 |
Deposits | Level 2 |  | 9,229,271 |  |  | 9,218,071 |  |  | 9,124,629 |  |  | 9,124,701 |
Borrowings | Level 2 |  | 226,476 |  |  | 216,516 |  |  | 67,386 |  |  | 61,295 |
Accrued interest payable | Level 2 |  | 881 |  |  | 881 |  |  | 607 |  |  | 607 |
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

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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 https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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