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Fair Value

9 Months Ended

Sep. 30, 2023

Fair Value.

Note 15 — Fair Value

GAAP defines fair value and establishes a framework for measuring and disclosing fair value. Fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale and trading securities, derivative contracts, mortgage loans held for sale, SBA servicing rights, and mortgage servicing rights (“MSRs”) are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, OREO, bank properties held for sale, and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

FASB ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1	Observable inputs such as quoted prices in active markets;
Level 2	Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

A description of valuation methodologies used for assets recorded at fair value is disclosed in Note 25 — Fair Value of our Annual Report on Form 10-K for the year ended December 31, 2022.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis:


					Quoted Prices
					In Active			Significant
					Markets			Other			Significant
					for Identical			Observable			Unobservable
					Assets			Inputs			Inputs
(Dollars in thousands)		Fair Value			(Level 1)			(Level 2)			(Level 3)
September 30, 2023:
Assets
Derivative financial instruments		$	212,345		$	—		$	212,345		$	—
Loans held for sale			27,443			—			27,443			—
Trading securities			114,154			—			114,154			—
Securities available for sale:
U.S. Treasuries			172,259			—			172,259			—
U.S. Government agencies			216,754			—			216,754			—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises			1,488,706			—			1,488,706			—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises			519,427			—			519,427			—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises			949,532			—			949,532			—
State and municipal obligations			873,007			—			873,007			—
Small Business Administration loan-backed securities			377,470			—			377,470			—
Corporate securities			26,463			—			26,463			—
Total securities available for sale			4,623,618			—			4,623,618			—
Mortgage servicing rights			89,476			—			—			89,476
SBA servicing asset			5,654			—			—			5,654
		$	5,072,690		$	—		$	4,977,560		$	95,130
Liabilities
Derivative financial instruments		$	1,251,878		$	—		$	1,251,878		$	—

December 31, 2022:
Assets
Derivative financial instruments		$	211,016		$	—		$	211,016		$	—
Loans held for sale			28,968			—			28,968			—
Trading securities			31,263			—			31,263			—
Securities available for sale:
U.S. Treasuries			265,638			—			265,638			—
U.S. Government agencies			219,088			—			219,088			—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises			1,698,353			—			1,698,353			—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises			601,045			—			601,045			—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises			1,000,398			—			1,000,398			—
State and municipal obligations			1,064,852			—			1,064,852			—
Small Business Administration loan-backed securities			444,810			—			444,810			—
Corporate securities			32,638			—			32,638			—
Total securities available for sale			5,326,822			—			5,326,822			—
Mortgage servicing rights			86,610			—			—			86,610
SBA servicing asset			6,068			—			—			6,068
		$	5,690,747		$	—		$	5,598,069		$	92,678
Liabilities
Derivative financial instruments		$	1,034,143		$	—		$	1,034,143		$	—

Fair Value Option

The Company has elected the fair value option for mortgage loans held for sale primarily to ease the operational burden required to maintain hedge accounting for these loans.

The following table summarizes the difference between the fair value and the unpaid principal balance of mortgage loans held for sale and the changes in fair value of these loans.


		September 30,			December 31,
(Dollars in thousands)		2023			2022
Fair value		$	27,443		$	28,968
Unpaid principal balance			26,921			27,937
Fair value less aggregated unpaid principal balance		$	522		$	1,031

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

2023

2022

2023

2022

Income Statement Location

Mortgage loans held for sale

$

(574)

$

(2,149)

$

(508)

$

(7,604)

Mortgage banking income

Changes in Level 1, 2 and 3 Fair Value Measurements

When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses below include changes in fair value due in part to observable factors that are part of the valuation methodology.

There were no changes in hierarchy classifications of Level 3 assets or liabilities for the nine months ended September 30, 2023. A reconciliation of the beginning and ending balances of Level 3 assets and liabilities recorded at fair value on a recurring basis for the nine months ended September 30, 2023 is as follows:


(Dollars in thousands)		MSRs
Fair value, January 1, 2023		$	86,610
Servicing assets that resulted from transfers of financial assets			6,752
Changes in fair value due to valuation inputs or assumptions			2,450
Changes in fair value due to decay			(6,336)
Fair value, September 30, 2023		$	89,476

In 2022, the Company elected to prospectively apply fair value accounting to the Company’s SBA servicing asset, which is considered a Level 3 asset. A reconciliation of the beginning and ending balances of the SBA servicing asset recorded at fair value on a recurring basis for the period ending September 30, 2023 is as follows:


(Dollars in thousands)		SBA Servicing Asset
Fair value, January 1, 2023		$	6,068
Servicing assets that resulted from transfers of financial assets			1,103
Changes in fair value due to decay			(1,951)
Changes in fair value due to valuation inputs or assumptions			434
Fair value, September 30, 2023		$	5,654

There were no unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at September 30, 2023.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis:


					Quoted Prices
					In Active			Significant
					Markets			Other			Significant
					for Identical			Observable			Unobservable
					Assets			Inputs			Inputs
(Dollars in thousands)		Fair Value			(Level 1)			(Level 2)			(Level 3)
September 30, 2023:
OREO		$	434		$	—		$	—		$	434
Bank properties held for sale			15,251			—			—			15,251
Individually evaluated loans			76,890			—			—			76,890
December 31, 2022:
OREO		$	1,023		$	—		$	—		$	1,023
Bank properties held for sale			17,754			—			—			17,754
Individually evaluated loans			20,802			—			—			20,802

Quantitative Information about Level 3 Fair Value Measurement


						Weighted Average Discount
						September 30,			December 31,
		Valuation Technique		Unobservable Input		2023			2022
Nonrecurring measurements:
Individually evaluated loans		Discounted appraisals and discounted cash flows		Collateral discounts		26	%		31	%
OREO and Bank properties held for sale		Discounted appraisals		Collateral discounts and estimated costs to sell		22	%		16	%

Fair Value of Financial Instruments

We used the following methods and assumptions in estimating our fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those models are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2023 and December 31, 2022. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Methods and assumptions used to estimate the fair value of each class of financial instruments are disclosed in Note 25 — Fair Value of our Annual Report on Form 10-K for the year ended December 31, 2022.

The estimated fair value, and related carrying amount, of our financial instruments are as follows:


		Carrying			Fair
(Dollars in thousands)		Amount			Value			Level 1			Level 2			Level 3
September 30, 2023
Financial assets:
Cash and cash equivalents		$	1,329,137		$	1,329,137		$	1,329,137		$	—		$	—
Trading securities			114,154			114,154			—			114,154			—
Investment securities			7,344,483			6,823,170			187,152			6,636,018			—
Loans held for sale			27,443			27,443			—			27,443			—
Loans, net of allowance for credit losses			31,568,716			29,773,087			—			—			29,773,087
Accrued interest receivable			151,259			151,259			—			26,561			124,698
Mortgage servicing rights			89,476			89,476			—			—			89,476
SBA servicing asset			5,654			5,654			—			—			5,654
Interest rate swap – non-designated hedge			211,109			211,109			—			211,109			—
Other derivative financial instruments (mortgage banking related)			1,236			1,236			—			1,236			—
Financial liabilities:
Deposits
Noninterest-bearing			11,158,431			11,158,431			—			11,158,431			—
Interest-bearing other than time deposits			21,322,840			21,322,840			—			21,322,840			—
Time deposits			4,453,927			4,391,875			—			4,391,875			—
Federal funds purchased and securities sold under agreements to repurchase			513,304			513,304			—			513,304			—
Corporate and subordinated debentures			391,997			376,373			—			376,373			—
Other borrowings			—			—			—			—			—
Accrued interest payable			45,163			45,163			—			45,163			—
Interest rate swap – non-designated hedge			1,251,059			1,251,059			—			1,251,059			—
Other derivative financial instruments (mortgage banking related)			819			819			—			819			—
Off balance sheet financial instruments:
Commitments to extend credit			—			(604,493)			—			(604,493)			—
December 31, 2022
Financial assets:
Cash and cash equivalents		$	1,312,563		$	1,312,563		$	1,312,563		$	—		$	—
Trading securities			31,263			31,263			—			31,263			—
Investment securities			8,189,780			7,756,707			179,717			7,576,990			—
Loans held for sale			28,968			28,968			—			28,968			—
Loans, net of allowance for credit losses			29,821,418			29,329,499			—			—			29,329,499
Accrued interest receivable			134,594			134,594			—			28,449			106,145
Mortgage servicing rights			86,610			86,610			—			—			86,610
SBA servicing asset			6,068			—			—			—			6,068
Interest rate swap – non-designated hedge			210,216			210,216			—			210,216			—
Other derivative financial instruments (mortgage banking related)			800			800			—			800			—
Financial liabilities:
Deposits
Noninterest-bearing			13,168,656			13,168,656			—			13,168,656			—
Interest-bearing other than time deposits			20,761,981			20,761,981			—			20,761,981			—
Time deposits			2,419,986			2,333,764			—			2,333,764			—
Federal funds purchased and securities sold under agreements to repurchase			556,417			556,417			—			556,417			—
Corporate and subordinated debentures			392,275			377,360			—			377,360			—
Accrued interest payable			6,218			6,218			—			3,345			—
Interest rate swap – non-designated hedge			1,033,980			1,033,980			—			1,033,980			—
Other derivative financial instruments (mortgage banking related)			163			163			—			163			—
Off balance sheet financial instruments:
Commitments to extend credit			—			(184,801)			—			(184,801)			—

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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