Fair Value Measurements

3 Months Ended

Mar. 31, 2022

We use fair value measurements when recording and disclosing certain financial assets and liabilities. Debt securities, equity securities and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held for sale, individually assessed loans, other real estate owned, or OREO, and other repossessed assets, mortgage servicing rights, or MSRs, and certain other assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. 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 or liabilities; it is not a forced transaction. In determining fair value, we use various valuation approaches, including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed based on market data that we have obtained from independent sources. Unobservable inputs reflect our estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.

Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.

Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our policy is to recognize transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred.

There have been no changes in our valuation methodologies during the three months ended March 31, 2022. Refer to Note 1 of our Annual Report on Form 10-K for the year ended December 31, 2021 for more information on the valuation methodologies that we use for financial instruments recorded at fair value on a recurring or nonrecurring basis.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present our assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at the dates presented:


	March 31, 2022
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Available-for-sale debt securities:
U.S. Treasury securities	$	129,994	$	—	$	—	$	129,994
Obligations of U.S. government corporations and agencies	—		58,493		—		58,493
Collateralized mortgage obligations of U.S. government corporations and agencies	—		385,602		—		385,602
Residential mortgage-backed securities of U.S. government corporations and agencies	—		50,446		—		50,446
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		330,811		—		330,811
Corporate obligations	—		500		—		500
Obligations of states and political subdivisions	—		71,234		—		71,234
Total Available-for-sale Debt Securities	129,994		897,086		—		1,027,080
Marketable equity securities	1,060		78		—		1,138
Total Securities	131,054		897,164		—		1,028,218
Securities held in a deferred compensation plan	8,888		—		—		8,888
Derivative financial assets:
Interest rate swaps - commercial loans	—		29,056		—		29,056
Interest rate lock commitments	—		—		185		185
Forward sale contracts - mortgage loans	—		—		192		192
Interest rate swaps - cash flow hedge	—		135		—		135
Total Assets	$	139,942	$	926,355	$	377	$	1,066,674
LIABILITIES
Derivative financial liabilities:
Interest rate swaps - commercial loans	$	—	$	29,092	$	—	$	29,092

Interest rate swaps - cash flow hedge	—		2,600		—		2,600
Total Liabilities	$	—	$	31,692	$	—	$	31,692


	December 31, 2021
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Available-for-sale debt securities:
U.S. Treasury securities	$	95,327	$	—	$	—	$	95,327
Obligations of U.S. government corporations and agencies	—		70,348		—		70,348
Collateralized mortgage obligations of U.S. government corporations and agencies	—		270,294		—		270,294
Residential mortgage-backed securities of U.S. government corporations and agencies	—		56,793		—		56,793
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		341,300		—		341,300
Corporate obligations	—		500		—		500
Obligations of states and political subdivisions	—		75,089		—		75,089
Total Available-for-sale Debt Securities	95,327		814,324		—		909,651
Marketable equity securities	1,061		81		—		1,142
Total Securities	96,388		814,405		—		910,793
Securities held in a deferred compensation plan	10,230		—		—		10,230
Derivative financial assets:
Interest rate swaps - commercial loans	—		33,528		—		33,528
Interest rate lock commitments	—		—		401		401
Forward sale contracts - mortgage loans	—		—		4		4

Interest rate swaps - cash flow hedge	—		—		—		—
Total Assets	$	106,618	$	847,933	$	405	$	954,956
LIABILITIES
Derivative financial liabilities:
Interest rate swaps - commercial loans	$	—	$	33,631	$	—	$	33,631



Total Liabilities	$	—	$	33,631	$	—	$	33,631

Assets Recorded at Fair Value on a Nonrecurring Basis

We may be required to measure certain assets and liabilities at fair value on a nonrecurring basis. Nonrecurring assets are recorded at the lower of cost or fair value in our consolidated financial statements. There were no liabilities measured at fair value on a nonrecurring basis at either March 31, 2022 or December 31, 2021.

For Level 3 assets measured at fair value on a nonrecurring basis as of March 31, 2022 and December 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:


	March 31, 2022		Valuation Technique	Significant Unobservable Inputs	Range			Weighted Average (1)
(dollars in thousands)
Loans individually evaluated	$	5,919	Collateral method	Appraisal adjustment	0%	-	10.00%	0.96%




Total Assets	$	5,919

(1) Weighted averages for loans individually evaluated were weighted by loan amounts.


	December 31, 2021		Valuation Technique	Significant Unobservable Inputs	Range			Weighted Average (1) (2)
(dollars in thousands)
Loans individually evaluated	$	7,268	Collateral method	Appraisal adjustment	0%	-	20%	4.48%
Other real estate owned	1,011		Collateral method	Appraisal adjustment	2.53%			2.53%



Total Assets	$	8,279
(1) Weighted averages for loans individually evaluated were weighted by loan amounts. (2) Weighted averages for other real estate owned were weighted by OREO balances.

The following tables present the carrying values and fair values of our financial instruments at the dates presented:


	Carrying Value(1)		Fair Value Measurements at March 31, 2022
(dollars in thousands)			Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	823,757	$	823,757	$	823,757	$	—	$	—
Securities	1,028,218		1,028,218		131,054		897,164		—
Loans held for sale	1,346		1,346		—		—		1,346
Portfolio loans, net	6,863,996		6,671,212		—		—		6,671,212
Collateral receivable	—		—		—		—		—
Securities held in a deferred compensation plan	8,888		8,888		8,888		—		—
Mortgage servicing rights	7,789		9,791		—		—		9,791
Interest rate swaps - commercial loans	29,056		29,056		—		29,056		—
Interest rate swaps - cash flow hedge	135		135		—		135		—
Interest rate lock commitments	185		185		—		—		185
Forward sale contracts	192		192		—		—		192
LIABILITIES
Deposits	$	7,960,458	$	7,947,434	$	6,921,872	$	1,025,562	$	—
Collateral payable	23,501		23,501		23,501		—		—
Securities sold under repurchase agreements	70,112		70,112		70,112		—		—

Long-term borrowings	22,172		21,954		4,249		17,705		—
Junior subordinated debt securities	54,408		54,408		54,408		—		—
Interest rate swaps - commercial loans	29,092		29,092		—		29,092		—
Interest rate swaps - cash flow hedge	2,600		2,600		—		2,600		—

(1) As reported in the Consolidated Balance Sheets


	Carrying Value(1)		Fair Value Measurements at December 31, 2021
(dollars in thousands)			Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	922,215	$	922,215	$	922,215	$	—	$	—
Securities	910,793		910,793		96,388		814,405		—
Loans held for sale	1,522		1,522		—		—		1,522
Portfolio loans, net	6,901,414		6,815,468		—		—		6,815,468
Collateral receivable	37,363		37,363		37,363		—		—
Securities held in a deferred compensation plan	10,230		10,230		10,230		—		—
Mortgage servicing rights	7,677		7,677		—		—		7,677
Interest rate swaps	33,528		33,528		—		33,528		—
Interest rate lock commitments	401		401		—		—		401
Forward sale contracts	4		4		—		—		4
LIABILITIES
Deposits	$	7,996,524	$	7,992,942	$	6,908,453	$	1,084,489	$	—

Securities sold under repurchase agreements	84,491		84,491		84,491		—		—
Short-term borrowings	—		—		—		—		—
Long-term borrowings	22,430		22,678		4,300		18,378		—
Junior subordinated debt securities	54,393		54,393		54,393		—		—
Interest rate swaps - commercial loans	33,631		33,631		—		33,631		—

(1) As reported in the Consolidated Balance Sheets

- 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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