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Disclosures about Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2020

Disclosures about Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

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 supported by little or no market activity and significant to the fair value of the assets or liabilities.

Recurring Measurements

The following list presents the assets and liabilities recognized in the accompanying consolidated Balance Sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2020 and December 31, 2019:

Fair Value Description

Valuation Hierarchy Level

Where Fair Value Balance Can Be Found

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows.

Level 2

Note 3: Securities

Derivatives

Fair value of the interest rate swaps is obtained from independent pricing services based on quoted market prices for similar derivative contracts.

Level 2

Note 5: Derivatives and Hedging

Nonrecurring Measurements

The following tables present assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2020 and December 31, 2019:


			September 30, 2020
			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(Dollars in thousands)
Collateral-dependent impaired loans	$	36,378	$	—	$	—	$	36,378


Foreclosed assets held-for-sale	$	2,349	$	—	$	—	$	2,349


			December 31, 2019
			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(Dollars in thousands)
Collateral-dependent impaired loans	$	20,889	$	—	$	—	$	20,889

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated Balance Sheets.

Collateral-dependent Impaired Loans, Net of ALLL

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the Office of the Chief Credit Officer.

Appraisals are reviewed for accuracy and consistency by the Office of the Chief Credit Officer. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the Office of the Chief Credit Officer by comparison to historical results.

Foreclosed Assets Held-for-Sale

The estimated fair value of foreclosed assets held-for-sale is based on the appraised fair value of the collateral, less estimated cost to sell and are classified within Level 3 of the fair value hierarchy. The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value.

Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements at September 30, 2020 and December 31, 2019:

September 30, 2020

Fair Value

Valuation Techniques

Unobservable Inputs

Range
(Weighted Average)

(Dollars in thousands)

Collateral-dependent impaired loans

36,378

Market comparable properties

Marketability discount

10% - 15%

(12%)

Foreclosed assets held-for-sale

2,349

Market comparable properties

Marketability discount

10%

December 31, 2019

Fair Value

Valuation Techniques

Unobservable Inputs

Range
(Weighted Average)

(Dollars in thousands)

Collateral-dependent impaired loans

20,889

Market comparable properties

Marketability discount

10% - 15%

(12%)

The following tables present the estimated fair values of the Company’s financial instruments at September 30, 2020 and December 31, 2019:


	September 30, 2020
	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Financial Assets
Cash and cash equivalents	$	223,636	$	223,636	$	—	$	—	$	223,636
Available-for-sale securities	652,146		—		652,146		—		652,146
Loans, net of allowance for loan losses	4,401,774		—		—		4,386,027		4,386,027
Restricted equity securities	20,923		—		—		20,923		20,923
Interest receivable	19,003		—		19,003		—		19,003
Derivative assets	27,873		—		27,873		—		27,873
	$	5,345,355	$	223,636	$	699,022	$	4,406,950	$	5,329,608
Financial Liabilities
Deposits	$	4,492,549	$	754,172	$	—	$	3,784,666	$	4,538,838
Federal funds purchased and repurchase agreements	13,531		—		13,531		—		13,531
Federal Home Loan Bank advances	336,100		—		353,309		—		353,309
Other borrowings	952		—		1,897		—		1,897
Interest payable	2,550		—		2,550		—		2,550
Derivative liabilities	27,949		—		27,949		—		27,949
	$	4,873,631	$	754,172	$	399,236	$	3,784,666	$	4,938,074


	December 31, 2019
	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Financial Assets
Cash and cash equivalents	$	187,320	$	187,320	$	—	$	—	$	187,320
Available-for-sale securities	741,634		—		741,634		—		741,634
Loans, net of allowance for loan losses	3,795,348		—		—		3,810,818		3,810,818
Restricted equity securities	17,278		—		—		17,278		17,278
Interest receivable	15,716		—		15,716		—		15,716
Derivative assets	9,838		—		9,838		—		9,838
	$	4,767,134	$	187,320	$	767,188	$	3,828,096	$	4,782,604
Financial Liabilities
Deposits	$	3,923,759	$	521,826	$	—	$	3,407,012	$	3,928,838
Federal funds purchased and repurchase agreements	14,921		—		14,921		—		14,921
Federal Home Loan Bank advances	358,743		—		357,859		—		357,859
Other borrowings	921		—		2,147		—		2,147
Interest payable	4,584		—		4,584		—		4,584
Derivative liabilities	9,907		—		9,907		—		9,907
	$	4,312,835	$	521,826	$	389,418	$	3,407,012	$	4,318,256

- 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.

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