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Fair Value Measurement | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value Measurement | Fair Value Measurement Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants. A fair value measurement assumes the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. Valuation techniques including the market approach, the income approach and/or the cost approach are utilized to determine fair value. Inputs to valuation techniques refer to the assumptions market participants would use in pricing the asset or liability. Valuation policies and procedures are determined by our investment department and reported to our ALCO for review. An entity must consider all aspects of nonperforming risk, including the entity’s own credit standing, when measuring fair value of a liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. A fair value hierarchy for valuation inputs gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. Certain financial assets are measured at fair value in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of fair value accounting or write-downs of individual assets. A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Securities AFS and Equity Investments with readily determinable fair values – U.S. Treasury securities and equity investments with readily determinable fair values are reported at fair value utilizing Level 1 inputs. Other securities classified as AFS are reported at fair value utilizing Level 2 inputs. For most of these securities, we obtain fair value measurements from independent pricing services and obtain an understanding of the pricing methodologies used by these independent pricing services. 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 bond’s terms and conditions, among other things, as stated in the pricing methodologies of the independent pricing services. We review and validate the prices supplied by the independent pricing services for reasonableness by comparison to prices obtained from, in some cases, two additional third-party sources. For securities where prices are outside a reasonable range, we further review those securities, based on internal ALCO approved procedures, to determine what a reasonable fair value measurement is for those securities, given available data. Derivatives – Derivatives are reported at fair value utilizing Level 2 inputs. We obtain fair value measurements from two sources including an independent pricing service and the counterparty to the derivatives designated as hedges. The fair value measurements consider observable data that may include dealer quotes, market spreads, the U.S. Treasury yield curve, live trading levels, trade execution data, credit information and the derivatives’ terms and conditions, among other things. We review the prices supplied by the sources for reasonableness. In addition, we obtain a basic understanding of their underlying pricing methodology. We validate prices supplied by the sources by comparison to one another. Certain nonfinancial assets and nonfinancial liabilities measured at fair value on a recurring basis include reporting units measured at fair value and tested for goodwill impairment. Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, which means that the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a nonrecurring basis included foreclosed assets and collateral-dependent loans at September 30, 2023 and December 31, 2022. Foreclosed Assets – Foreclosed assets are initially recorded at fair value less costs to sell. The fair value measurements of foreclosed assets can include Level 2 measurement inputs such as real estate appraisals and comparable real estate sales information, in conjunction with Level 3 measurement inputs such as cash flow projections, qualitative adjustments and sales cost estimates. As a result, the categorization of foreclosed assets is Level 3 of the fair value hierarchy. In connection with the measurement and initial recognition of certain foreclosed assets, we may recognize charge-offs through the allowance for credit losses. Collateral-Dependent Loans – Certain loans may be reported at the fair value of the underlying collateral if repayment is expected substantially from the operation or sale of the collateral. Collateral values are estimated using Level 3 inputs based on customized discounting criteria or appraisals. At September 30, 2023 and December 31, 2022, the impact of the fair value of collateral-dependent loans was reflected in our allowance for loan losses. The fair value estimate of financial instruments for which quoted market prices are unavailable is dependent upon the assumptions used. Consequently, those estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented in the fair value tables do not necessarily represent their underlying value. The following tables summarize assets measured at fair value on a recurring and nonrecurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):
|  |  |  | Fair Value Measurements at the End of the Reporting Period Using
September 30, 2023 |  | Carrying Amount |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Recurring fair value measurements |  |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 224,209 |  |  | $ | 224,209 |  |  | $ | — |  |  | $ | — |
State and political subdivisions |  | 708,543 |  |  | — |  |  | 708,543 |  |  | — |
Corporate bonds and other |  | 13,396 |  |  | — |  |  | 13,396 |  |  | — |
MBS: (1) |  |  |  |  |  |  |  |
Residential |  | 379,387 |  |  | — |  |  | 379,387 |  |  | — |
Commercial |  | 10,025 |  |  | — |  |  | 10,025 |  |  | — |
Equity investments: |  |  |  |  |  |  |  |
Equity investments |  | 5,072 |  |  | 5,072 |  |  | — |  |  | — |
Derivative assets: |  |  |  |  |  |  |  |
Interest rate swaps |  | 109,514 |  |  | — |  |  | 109,514 |  |  | — |
Total asset recurring fair value measurements |  | $ | 1,450,146 |  |  | $ | 229,281 |  |  | $ | 1,220,865 |  |  | $ | — |
Derivative liabilities: |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 27,876 |  |  | $ | — |  |  | $ | 27,876 |  |  | $ | — |
Total liability recurring fair value measurements |  | $ | 27,876 |  |  | $ | — |  |  | $ | 27,876 |  |  | $ | — |
Nonrecurring fair value measurements |  |  |  |  |  |  |  |
Foreclosed assets |  | $ | 50 |  |  | $ | — |  |  | $ | — |  |  | $ | 50 |
Collateral-dependent loans (2) |  | 7,137 |  |  | — |  |  | — |  |  | 7,137 |
Total asset nonrecurring fair value measurements |  | $ | 7,187 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,187 |
|  |  |  | Fair Value Measurements at the End of the Reporting Period Using
December 31, 2022 |  | Carrying Amount |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Recurring fair value measurements |  |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |  |
State and political subdivisions |  | $ | 964,852 |  |  | $ | — |  |  | $ | 964,852 |  |  | $ | — |
Corporate bonds and other |  | 8,704 |  |  | — |  |  | 8,704 |  |  | — |
MBS: (1) |  |  |  |  |  |  |  |
Residential |  | 315,027 |  |  | — |  |  | 315,027 |  |  | — |
Commercial |  | 10,431 |  |  | — |  |  | 10,431 |  |  | — |
Equity investments: |  |  |  |  |  |  |  |
Equity investments |  | 5,235 |  |  | 5,235 |  |  | — |  |  | — |
Derivative assets: |  |  |  |  |  |  |  |
Interest rate swaps |  | 82,306 |  |  | — |  |  | 82,306 |  |  | — |
Total asset recurring fair value measurements |  | $ | 1,386,555 |  |  | $ | 5,235 |  |  | $ | 1,381,320 |  |  | $ | — |
Derivative liabilities: |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 21,217 |  |  | $ | — |  |  | $ | 21,217 |  |  | $ | — |
Total liability recurring fair value measurements |  | $ | 21,217 |  |  | $ | — |  |  | $ | 21,217 |  |  | $ | — |
Nonrecurring fair value measurements |  |  |  |  |  |  |  |
Foreclosed assets |  | $ | 167 |  |  | $ | — |  |  | $ | — |  |  | $ | 167 |
Collateral-dependent loans (2) |  | 7,815 |  |  | — |  |  | — |  |  | 7,815 |
Total asset nonrecurring fair value measurements |  | $ | 7,982 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,982 |
(1)All MBS are issued and/or guaranteed by U.S. government agencies or U.S. GSEs. (2)Consists of individually evaluated loans. Loans for which the fair value of the collateral and commercial real estate fair value of the properties is less than cost basis are presented net of allowance. Losses on these loans represent charge-offs which are netted against the allowance for loan losses. Disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, is required when it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other estimation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Such techniques and assumptions, as they apply to individual categories of our financial instruments, are as follows: Cash and cash equivalents – The carrying amount for cash and cash equivalents is a reasonable estimate of those assets’ fair value. Investment and MBS HTM – Fair values for these securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices for similar securities or estimates from independent pricing services. FHLB stock – The carrying amount of FHLB stock is a reasonable estimate of the fair value of those assets. Equity investments – The carrying value of equity investments without readily determinable fair values are measured at cost less impairment, if any, adjusted for observable price changes for an identical or similar investment of the same issuer. This carrying value is a reasonable estimate of the fair value of those assets. Loans receivable – We estimate the fair value of our loan portfolio to an exit price notion with adjustments for liquidity, credit and prepayment factors. Nonperforming loans continue to be estimated using discounted cash flow analyses or the underlying value of the collateral where applicable. Loans held for sale – The fair value of loans held for sale is determined based on expected proceeds, which are based on sales contracts and commitments. Deposit liabilities – The fair value of demand deposits, savings accounts and certain money market deposits is the amount on demand at the reporting date, which is the carrying value. Fair values for fixed rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities. Other borrowings – Federal funds purchased generally have original terms to maturity of one day and repurchase agreements generally have terms of less than one year, and therefore both are considered short-term borrowings. Consequently, their carrying value is a reasonable estimate of fair value. Borrowings from the Federal Reserve through the FRDW and BTFP have original maturities of one year or less, and the fair value is estimated by discounting the future cash flows using rates at which borrowings would be made to borrowers with similar credit ratings and for the same remaining maturities. FHLB borrowings – The fair value of these borrowings is estimated by discounting the future cash flows using rates at which borrowings would be made to borrowers with similar credit ratings and for the same remaining maturities. Subordinated notes – The fair value of the subordinated notes is estimated by discounting future cash flows using estimated rates at which long-term debt would be made to borrowers with similar credit ratings and for the remaining maturities. Trust preferred subordinated debentures – The fair value of the long-term debt is estimated by discounting future cash flows using estimated rates at which long-term debt would be made to borrowers with similar credit ratings and for the remaining maturities. The following tables present our financial assets and financial liabilities measured on a nonrecurring basis at both their respective carrying amounts and estimated fair value (in thousands):
|  |  |  | Estimated Fair Value
September 30, 2023 |  | Carrying Amount |  | Total |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 325,823 |  |  | $ | 325,823 |  |  | $ | 325,823 |  |  | $ | — |  |  | $ | — |
Investment securities: |  |  |  |  |  |  |  |  |  |
HTM, at carrying value |  | 1,185,474 |  |  | 944,586 |  |  | — |  |  | 944,586 |  |  | — |
MBS: |  |  |  |  |  |  |  |  |  |
HTM, at carrying value |  | 122,412 |  |  | 107,844 |  |  | — |  |  | 107,844 |  |  | — |
FHLB stock, at cost |  | 12,778 |  |  | 12,778 |  |  | — |  |  | 12,778 |  |  | — |
Equity investments |  | 4,382 |  |  | 4,382 |  |  | — |  |  | 4,382 |  |  | — |
Loans, net of allowance for loan losses |  | 4,378,873 |  |  | 3,962,889 |  |  | — |  |  | — |  |  | 3,962,889 |
Loans held for sale |  | 1,382 |  |  | 1,382 |  |  | — |  |  | 1,382 |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 6,349,571 |  |  | $ | 6,315,058 |  |  | $ | — |  |  | $ | 6,315,058 |  |  | $ | — |
Other borrowings |  | 395,209 |  |  | 393,551 |  |  | — |  |  | 393,551 |  |  | — |
FHLB borrowings |  | 212,829 |  |  | 198,457 |  |  | — |  |  | 198,457 |  |  | — |
Subordinated notes, net of unamortized debt issuance costs |  | 93,838 |  |  | 84,992 |  |  | — |  |  | 84,992 |  |  | — |
Trust preferred subordinated debentures, net of unamortized debt issuance costs |  | 60,269 |  |  | 52,568 |  |  | — |  |  | 52,568 |  |  | — |
|  |  |  | Estimated Fair Value
December 31, 2022 |  | Carrying Amount |  | Total |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 199,252 |  |  | $ | 199,252 |  |  | $ | 199,252 |  |  | $ | — |  |  | $ | — |
Investment securities: |  |  |  |  |  |  |  |  |  |
HTM, at carrying value |  | 1,190,108 |  |  | 1,023,376 |  |  | — |  |  | 1,023,376 |  |  | — |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |
HTM, at carrying value |  | 136,621 |  |  | 125,780 |  |  | — |  |  | 125,780 |  |  | — |
FHLB stock, at cost |  | 9,190 |  |  | 9,190 |  |  | — |  |  | 9,190 |  |  | — |
Equity investments |  | 5,946 |  |  | 5,946 |  |  | — |  |  | 5,946 |  |  | — |
Loans, net of allowance for loan losses |  | 4,111,176 |  |  | 3,880,664 |  |  | — |  |  | — |  |  | 3,880,664 |
Loans held for sale |  | 667 |  |  | 667 |  |  | — |  |  | 667 |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 6,198,019 |  |  | $ | 6,158,517 |  |  | $ | — |  |  | $ | 6,158,517 |  |  | $ | — |
Other borrowings |  | 221,153 |  |  | 221,153 |  |  | — |  |  | 221,153 |  |  | — |
FHLB borrowings |  | 153,358 |  |  | 140,976 |  |  | — |  |  | 140,976 |  |  | — |
Subordinated notes, net of unamortized debt issuance costs |  | 98,674 |  |  | 91,357 |  |  | — |  |  | 91,357 |  |  | — |
Trust preferred subordinated debentures, net of unamortized debt issuance costs |  | 60,265 |  |  | 60,594 |  |  | — |  |  | 60,594 |  |  | — |

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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 -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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