Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2025

Fair Value Disclosures [Abstract]

Fair Value of Assets and Liabilities

Note 12. Fair Value of Assets and Liabilities

Fair Value Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

Level 1:	Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. A contractually binding sales price also provides reliable evidence of fair value.
Level 2:	Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that utilize model-based techniques for which all significant assumptions are observable in the market.
Level 3:	Inputs to the valuation methodology are unobservable and significant to the fair value measurement; inputs to the valuation methodology that utilize model-based techniques for which significant assumptions are not observable in the market; or inputs to the valuation methodology that require significant management judgment or estimation, some of which may be internally developed.

In some instances, an instrument may fall into multiple levels of the fair value hierarchy. In such instances, the instrument’s level within the fair value hierarchy is based on the lowest of the three levels (with Level 3 being the lowest) that is significant to the fair value measurement. Our assessment of the significance of an input requires judgment and considers factors specific to the instrument.

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 accounted for under the fair value measurement method 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, 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 Secured Overnight Financing Rate (“SOFR”). Thus, the fair values of interest rate swaps are classified as a Level 2 measurement. 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 March 31, 2025 and December 31, 2024, the conversion rate swap agreements were valued at zero as reductions to the conversion ratio were not reasonably estimable by management. See Note 10 Derivative Financial Instruments for more information. 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 March 31, 2025, 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.

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 March 31, 2025 and December 31, 2024.

	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
March 31, 2025
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	132,509	$	94,887	$	—	$	227,396
Debt Securities Issued by States and Political Subdivisions		—		64,996		—		64,996
Debt Securities Issued by U.S. Government-Sponsored Enterprises		—		1,336		—		1,336
Debt Securities Issued by Corporations		—		700,472		—		700,472
Collateralized Mortgage Obligations Issued by:
Residential - Government Agencies or Sponsored Enterprises		—		1,008,504		—		1,008,504
Commercial - Government Agencies or Sponsored Agencies		—		309,050		—		309,050
Total Collateralized Mortgage Obligations		—		1,317,554		—		1,317,554
Mortgage-Backed Securities:
Residential - Government Agencies or Sponsored Enterprises		—		575,265		—		575,265
Total Investment Securities Available-for-Sale		132,509		2,754,510		—		2,887,019
Loans Held for Sale		—		2,640		—		2,640
Mortgage Servicing Rights		—		—		628		628
Other Assets		15,287		—		—		15,287
Derivatives 1		—		125,625		58		125,683
Total Assets Measured at Fair Value on a Recurring Basis as of March 31, 2025	$	147,796	$	2,882,775	$	686	$	3,031,257
Liabilities:
Derivatives 1	$	—	$	132,325	$	—	$	132,325
Total Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2025	$	—	$	132,325	$	—	$	132,325
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 Agencies		—		283,474		—		283,474
Total Collateralized Mortgage Obligations		—		1,218,694		—		1,218,694
Mortgage-Backed Securities Issued by:
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	$	—	$	154,058	$	—	$	154,058
Total Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2024	$	—	$	154,058	$	—	$	154,058

1 The fair value of each class of derivatives is shown in Note 10 Derivative Financial Instruments.

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 March 31, 2025 and December 31, 2024, there were no assets or liabilities with nonrecurring fair value adjustments. Additionally, there were no nonrecurring fair value adjustments during the three months ended March 31, 2025 and 2024.

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 March 31, 2025 and December 31, 2024.

(dollars in thousands)	Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal
March 31, 2025
Loans Held for Sale	$	2,640	$	2,586	$	54
December 31, 2024
Loans Held for Sale	$	2,150	$	2,109	$	41

Changes in the estimated fair value of residential mortgage loans held for sale are reported as a component of mortgage banking income in the Company’s unaudited consolidated statements of income. For the three months ended March 31, 2025 and 2024, the net gains or losses from the change in fair value of the Company’s residential mortgage loans held for sale were immaterial.

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 March 31, 2025 and December 31, 2024. 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 the 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)
March 31, 2025
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	4,535,108	$	3,823,655	$	119,571	$	3,704,084	$	—
Loans		13,815,211		13,111,245		—		—		13,111,245
Financial Instruments - Liabilities
Time Deposits		3,038,894		3,029,831		—		3,029,831		—
Securities Sold Under Agreements to Repurchase		50,000		51,407		—		51,407		—
Other Debt 1		550,000		543,692		—		543,692		—
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		—

1.Excludes finance lease obligations