Fair Value Measurements

6 Months Ended

Jun. 30, 2023

Assets and liabilities measured at fair value on a recurring basis are summarized below:


	June 30, 2023
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Third-Party Models with Observable Market Inputs (Level 2)		Internal Models with Unobservable Market Inputs (Level 3)		Total Carrying Value in the Consolidated Balance Sheet
Assets
Securities
Debt securities available for sale
U.S. government-sponsored enterprise debt securities	$	—	$	414,925	$	—	$	414,925
Corporate debt securities	—		251,368		—		251,368
U.S. government agency debt securities	—		336,028		—		336,028
Collateralized loan obligations	—		4,850		—		4,850
Municipal bonds	—		1,673		—		1,673
U.S treasury securities	—		18,832		—		18,832
	—		1,027,676		—		1,027,676
Trading securities	298		—		—		298
Equity securities with readily determinable fair values not held for trading	2,500		—		—		2,500
	2,798		1,027,676		—		1,030,474
Mortgage loans held for sale (at fair value)	—		49,942		—		49,942
Bank owned life insurance	—		231,253		—		231,253
Other assets
Mortgage servicing rights (MSRs)	—		—		1,271		1,271
Derivative instruments	—		75,760		—		75,760
	$	2,798	$	1,384,631	$	1,271	$	1,388,700
Liabilities
Other liabilities
Derivative instruments	$	—	$	74,465	$	—	$	74,465


	December 31, 2022
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Third-Party Models with Observable Market Inputs (Level 2)		Internal Models with Unobservable Market Inputs (Level 3)		Total Carrying Value in the Consolidated Balance Sheet
Assets
Securities
Debt securities available for sale
U.S. government-sponsored enterprise debt securities	$	—	$	437,674	$	—	$	437,674
Corporate debt securities	—		280,700		—		280,700
U.S. government agency debt securities	—		330,821		—		330,821
Collateralized loan obligations	—		4,774		—		4,774
U.S treasury securities	—		1,996		—		1,996
Municipal bonds	—		1,656		—		1,656
	—		1,057,621		—		1,057,621
Equity securities with readily determinable fair values not held for trading	11,383		—		—		11,383
	11,383		1,057,621		—		1,069,004
Mortgage loans held for sale (at fair value)	—		62,438		—		62,438
Bank owned life insurance	—		228,412		—		228,412
Other assets
Mortgage servicing rights (MSRs)	—		—		1,307		1,307
Derivative instruments	—		78,250		—		78,250
	$	11,383	$	1,426,721	$	1,307	$	1,439,411
Liabilities
Other liabilities
Derivative instruments	$	—	$	77,160	$	—	$	77,160

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The following tables present the major categories of assets measured at fair value on a non-recurring basis at June 30, 2023 and December 31, 2022:


	June 30, 2023
(in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Write Downs
Description
Loans held for investment measured for impairments using the fair value of the collateral (1)	$	35,671	$	—	$	—	$	35,671	$	—
Other Real Estate Owned (2)	20,181		—		—		20,181		—

	$	55,852	$	—	$	—	$	55,852	$	—

_______________

(1)Loans with specific reserves of $14.3 million at June 30, 2023. There were no write downs related to these loans at June 30, 2023.

(2)Consists of commercial real estate property.


	December 31, 2022
(in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Write Downs
Description
Loans held for investment measured for impairments using the fair value of the collateral (1)	$	30,158	$	—	$	—	$	30,158	$	3,851

_______________

(1)Loans with specific reserves of $5.2 million and total write downs of $3.9 million at December 31, 2022.

The following table presents the significant unobservable inputs (Level 3) used in the valuation of assets measured at fair value on a nonrecurring basis.

Financial Instrument

Unobservable Inputs

Valuation Methods

Discount Range

Typical Discount

Collateral dependent loans

Discount to fair value

Appraisal value, as adjusted

0-30%

6-7%

Inventory

0-100%

30-50%

Accounts receivables

0-100%

20-30%

Equipment

0-100%

20-30%

Other Real Estate Owned

Discount to fair value

Appraisal value, as adjusted

N/A

6-7%

There were no other significant assets or liabilities measured at fair value on a nonrecurring basis at June 30, 2023 and December 31, 2022.

Collateral Dependent Loans Measured For Expected Credit Losses

The carrying amount of collateral dependent loans is typically based on the fair value of the underlying collateral. The Company primarily uses third party appraisals to assist in measuring expected credit losses on collateral dependent loans. The Company also uses third party appraisal reviewers for loans with an outstanding balance of $1 million and above. These appraisals generally use the market or income approach valuation technique and use market observable data to formulate an opinion of the fair value of the loan’s collateral. However, the appraiser uses professional judgment in determining the fair value of the collateral or properties and may also adjust these values for changes in market conditions subsequent to the appraisal date. When current appraisals are not available for certain loans, the Company uses judgment on market conditions to adjust the most current appraisal. The sales prices may reflect prices of sales contracts not closed and the amount of time required to sell out the real estate project may be derived from current appraisals of similar projects. As a consequence, the fair value of the collateral is considered a Level 3 valuation.

Other Real Estate Owned (“OREO”) and Repossessed Assets

The Company values OREO at the lower of cost or fair value of the property, less cost to sell. The fair value of the property is generally based upon recent appraisal values of the property, less cost to sell. The Company primarily uses third party appraisals to assist in measuring the valuation of OREO. Period revaluations are classified as level 3 as the assumptions used may not be observable. The fair value of non-real estate repossessed assets is provided by a third party based on their assumptions and quoted market prices for similar assets, when available. At March 31, 2023, the Company had other repossessed assets with a carrying value of $6.4 million. In the three and six month periods ended June 30, 2023, the Company sold these repossessed assets and recognized a loss on sale of $2.6 million which is included in the result of operations for those periods.

The Company had no OREO or repossessed asset balances as of December 31, 2022.

Fair Value of Financial Instruments

The estimated fair value of financial instruments where fair value differs from carrying value are as follows:


	June 30, 2023				December 31, 2022
(in thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Debt securities held to maturity	$	234,369	$	209,546	$	242,101	$	217,609
Loans	3,482,426		3,369,283		3,314,553		3,181,696
Financial liabilities:
Time deposits	1,450,532		1,437,522		1,119,510		1,099,294
Advances from the FHLB	770,000		760,912		906,486		873,852
Senior notes	59,368		55,652		59,210		58,755
Subordinated notes	29,369		28,481		29,284		28,481
Junior subordinated debentures	64,178		63,299		64,178		64,182

- 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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