Fair Value

9 Months Ended

Sep. 30, 2024

Fair Value.

Fair Value

Note 14 — 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, 2023.

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, 2024:
Assets
Derivative financial instruments	$	195,722	$	—	$	195,722	$	—
Mortgage loans held for sale		64,865		—		64,865		—
Trading securities		87,103		—		87,103		—
Securities available for sale:
U.S. Treasuries		2,685		—		2,685		—
U.S. Government agencies		175,724		—		175,724		—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,486,086		—		1,486,086		—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		492,242		—		492,242		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,060,829		—		1,060,829		—
State and municipal obligations		989,303		—		989,303		—
Small Business Administration loan-backed securities		329,510		—		329,510		—
Corporate securities		27,984		—		27,984		—
Total securities available for sale		4,564,363		—		4,564,363		—
Mortgage servicing rights		83,512		—		—		83,512
SBA servicing asset		6,079		—		—		6,079
	$	5,001,644	$	—	$	4,912,053	$	89,591
Liabilities
Derivative financial instruments	$	606,194	$	—	$	606,194	$	—
December 31, 2023:
Assets
Derivative financial instruments	$	172,939	$	—	$	172,939	$	—
Mortgage loans held for sale		50,888		—		50,888		—
Trading securities		31,321		—		31,321		—
Securities available for sale:
U.S. Treasuries		73,890		—		73,890		—
U.S. Government agencies		224,706		—		224,706		—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,558,306		—		1,558,306		—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		527,422		—		527,422		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,024,170		—		1,024,170		—
State and municipal obligations		977,461		—		977,461		—
Small Business Administration loan-backed securities		371,686		—		371,686		—
Corporate securities		26,747		—		26,747		—
Total securities available for sale		4,784,388		—		4,784,388		—
Mortgage servicing rights		85,164		—		—		85,164
SBA servicing asset		5,952		—		—		5,952
	$	5,130,652	$	—	$	5,039,536	$	91,116
Liabilities
Derivative financial instruments	$	804,486	$	—	$	804,486	$	—

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 Company also has opted for the fair value option for the SBA servicing asset, as it is the industry-preferred method for valuing such assets.

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)	2024		2023
Fair value	$	64,865	$	50,888
Unpaid principal balance		62,770		49,025
Fair value less aggregated unpaid principal balance	$	2,095	$	1,863

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2024		2023		2024		2023		Income Statement Location
Mortgage loans held for sale	$	(776)	$	(574)	$	232	$	(508)	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, 2024. 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, 2024, is as follows:

(Dollars in thousands)	MSRs
Fair value, January 1, 2024	$	85,164
Servicing assets that resulted from transfers of financial assets		7,209
Changes in fair value due to valuation inputs or assumptions		(2,346)
Changes in fair value due to decay		(6,515)
Fair value, September 30, 2024	$	83,512

The Company applies 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, 2024, is as follows:

(Dollars in thousands)	SBA Servicing Asset
Fair value, January 1, 2024	$	5,952
Servicing assets that resulted from transfers of financial assets		1,612
Changes in fair value due to decay		(1,686)
Changes in fair value due to valuation inputs or assumptions		201
Fair value, September 30, 2024	$	6,079

There were no unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at September 30, 2024.

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, 2024:
OREO	$	1,199	$	—	$	—	$	1,199
Bank properties held for sale		5,227		—		—		5,227
Individually evaluated loans		63,415		—		—		63,415
December 31, 2023:
OREO	$	837	$	—	$	—	$	837
Bank properties held for sale		12,401		—		—		12,401
Individually evaluated loans		73,518		—		—		73,518

For an individually evaluated loan, the fair value of collateral is measured based on appraisal or third-party valuation when the loan is placed on nonaccrual. For OREO and bank properties held for sale, the fair value is initially recorded based on external appraisals at the time of transfer. These assets recorded at fair value on a nonrecurring basis are updated on at least an annual basis.

Quantitative Information about Level 3 Fair Value Measurement

			Weighted Average Discount
			September 30,		December 31,
	Valuation Technique	Unobservable Input	2024		2023
Nonrecurring measurements:
Individually evaluated loans	Discounted appraisals and discounted cash flows	Collateral discounts	22	%	13	%
OREO and Bank properties held for sale	Discounted appraisals	Collateral discounts and estimated costs to sell	9	%	12	%

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 in the table below are based on pertinent information available to management as of September 30, 2024 and December 31, 2023. 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, 2023.

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, 2024
Financial assets:
Cash and cash equivalents	$	1,212,679	$	1,212,679	$	1,212,679	$	—	$	—
Trading securities		87,103		87,103		—		87,103		—
Investment securities		7,077,128		6,739,567		201,569		6,528,109		9,889
Loans held for sale		287,043		287,043		—		287,043		—
Loans, net of allowance for credit losses		33,080,211		31,879,975		—		—		31,879,975
Accrued interest receivable		165,533		165,533		—		24,818		140,715
Mortgage servicing rights		83,512		83,512		—		—		83,512
SBA servicing asset		6,079		6,079		—		—		6,079
Interest rate swap – non-designated hedge		194,037		194,037		—		194,037		—
Other derivative financial instruments (mortgage banking related)		1,685		1,685		—		1,685		—
Financial liabilities:
Deposits
Noninterest-bearing		10,376,531		10,376,531		—		10,376,531		—
Interest-bearing other than time deposits		22,607,022		22,607,022		—		22,607,022		—
Time deposits		4,654,642		4,636,870		—		4,636,870		—
Federal funds purchased and securities sold under agreements to repurchase		538,322		538,322		—		538,322		—
Corporate and subordinated debentures		391,626		390,833		—		390,833		—
Other borrowings		300,000		300,000		—		300,000		—
Accrued interest payable		52,625		52,625		—		52,625		—
Interest rate swap – non-designated hedge		605,918		605,918		—		605,918		—
Other derivative financial instruments (mortgage banking related)		276		276		—		276		—
December 31, 2023
Financial assets:
Cash and cash equivalents	$	998,877	$	998,877	$	998,877	$	—	$	—
Trading securities		31,321		31,321		—		31,321		—
Investment securities		7,463,871		7,061,167		192,043		6,869,124		—
Loans held for sale		50,888		50,888		—		50,888		—
Loans, net of allowance for credit losses		31,931,916		30,709,513		—		—		30,709,513
Accrued interest receivable		154,400		154,400		—		26,706		127,694
Mortgage servicing rights		85,164		85,164		—		—		85,164
SBA servicing asset		5,952		5,952		—		—		5,952
Interest rate swap – non-designated hedge		169,180		169,180		—		169,180		—
Other derivative financial instruments (mortgage banking related)		3,759		3,759		—		3,759		—
Financial liabilities:
Deposits
Noninterest-bearing		10,649,274		10,649,274		—		10,649,274		—
Interest-bearing other than time deposits		22,149,682		22,149,682		—		22,149,682		—
Time deposits		4,249,953		4,208,498		—		4,208,498		—
Federal funds purchased and securities sold under agreements to repurchase		489,185		489,185		—		489,185		—
Corporate and subordinated debentures		391,904		388,909		—		388,909		—
Other borrowings		100,000		100,000		—		100,000		—
Accrued interest payable		56,808		56,808		—		56,808		—
Interest rate swap – non-designated hedge		803,539		803,539		—		803,539		—
Other derivative financial instruments (mortgage banking related)		947		947		—		947		—