XML 78 R23.htm IDEA: XBRL DOCUMENT

FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2019

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. If there has been a significant decrease in the volume and level of activity for the asset or liability, regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The Company uses prices and inputs that are current as of the measurement date. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from one level to another.

The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:

Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Valuation Techniques

There have been no changes in the valuation techniques used during the current period.

Securities:

Trading and Equity Securities

These equity securities are valued based on market quoted prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.

U.S. Government Agency Securities

Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2.

Agency Mortgage-Backed Securities

Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2.

Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities

The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.

State, County, and Municipal Securities

The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent transaction, and yield relationships. These securities are categorized as Level 2.

Single and Pooled Issuer Trust Preferred Securities

The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.

Loans Held for Sale

The Company has elected the fair value option to account for originated closed loans intended for sale. The fair value is measured on an individual loan basis using quoted market prices and when not available, comparable market value or discounted cash flow analysis may be utilized. These assets are typically classified as Level 2.

Derivative Instruments

Derivatives

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Additionally, in conjunction with fair value measurement guidance, the Company has made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of December 31, 2019 and 2018, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2.

Mortgage Derivatives

The fair value of mortgage derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified as Level 2 within the fair value hierarchy.

Impaired Loans

Collateral dependent loans that are deemed to be impaired are valued based upon the lower of cost or fair value of the underlying collateral less costs to sell. The inputs used in the appraisals of the collateral are not always observable, and therefore the loans may be classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.

Other Real Estate Owned and Other Foreclosed Assets

The fair values are generally estimated based upon recent appraisal values of the property less costs to sell the property, as Other Real Estate Owned ("OREO") and Other Foreclosed Assets are valued at the lower of cost or fair value of the property, less estimated costs to sell. Certain inputs used in appraisals are not always observable, and therefore OREO and Other Foreclosed Assets are classified as Level 3 within the fair value hierarchy.

Goodwill and Other Intangible Assets

Goodwill and identified intangible assets are subject to impairment testing. The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary, and other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify the impaired goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3.

Assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows as of the dates indicated:



			Fair Value Measurements at Reporting Date Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	December 31, 2019
	(Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities	$	2,179	$	2,179	$	—	$	—
Equity securities	21,261		21,261		—		—
Securities available for sale
U.S. government agency securities	33,115		—		33,115		—
Agency mortgage-backed securities	247,000		—		247,000		—
Agency collateralized mortgage obligations	88,511		—		88,511		—
State, county, and municipal securities	1,396		—		1,396		—
Single issuer trust preferred securities issued by banks and insurers	493		—		493		—
Pooled trust preferred securities issued by banks and insurers	1,114		—		—		1,114
Small business administration pooled securities	54,795		—		54,795		—
Loans held for sale	33,307		—		33,307		—
Derivative instruments	78,385		—		78,385		—
Liabilities
Derivative instruments	53,923		—		53,923		—
Total recurring fair value measurements	$	507,633	$	23,440	$	483,079	$	1,114

Nonrecurring fair value measurements
Assets
Collateral dependent impaired loans	$	25,515	$	—	$	—	$	25,515
Total nonrecurring fair value measurements	$	25,515	$	—	$	—	$	25,515



			Fair Value Measurements at Reporting Date Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	December 31, 2018
	(Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities	$	1,504	$	1,504	$	—	$	—
Equity securities	19,477		19,477		—		—
Securities available for sale
U.S. government agency securities	32,038		—		32,038		—
Agency mortgage-backed securities	220,105		—		220,105		—
Agency collateralized mortgage obligations	134,911		—		134,911		—
State, county, and municipal securities	1,735		—		1,735		—
Single issuer trust preferred securities issued by banks and insurers	707		—		707		—
Pooled trust preferred securities issued by banks and insurers	1,329		—		—		1,329
Small business administration pooled securities	51,927		—		51,927		—
Loans held for sale	6,431		—		6,431		—
Derivative instruments	26,310		—		26,310		—
Liabilities
Derivative instruments	17,523		—		17,523		—
Total recurring fair value measurements	$	478,951	$	20,981	$	456,641	$	1,329

Nonrecurring fair value measurements:
Assets
Collateral dependent impaired loans	$	29,109	$	—	$	—	$	29,109
Total nonrecurring fair value measurements	$	29,109	$	—	$	—	$	29,109

All assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) were valued using pricing models and discounted cash flow methodologies, as of December 31, 2019, 2018 and 2017. This reconciliation is presented in the table below for the periods indicated:



	2019			2018			2017
	(Dollars in thousands)
Pooled Trust Preferred Securities
Beginning balance	$	1,329		$	1,640		$	1,584
Gain and (losses) (realized/unrealized)
Included in earnings	—			—			—
Included in other comprehensive income	(26		)	191			77
Settlements	(189		)	(502		)	(21		)
Ending Balance	$	1,114		$	1,329		$	1,640

The following table sets forth certain unobservable inputs regarding the Company's financial instruments that are classified as Level 3 as of December 31st of the years indicated:



Valuation Technique	Fair Value				Unobservable Inputs	Range		Weighted Average
	2019		2018			2019	2018	2019	2018
	(Dollars in thousands)
Discounted cash flow methodology
Pooled trust preferred securities	$	1,114	$	1,329	Cumulative prepayment	0% - 57%	0% - 59%	2.6%	2.1%
					Cumulative default	2% - 100%	5% - 100%	13.5%	16.2%
					Loss given default	85% - 100%	85% - 100%	93.6%	94.8%
					Cure given default	0% - 75%	0% - 75%	60.9%	60.9%
Appraisals of collateral (1)
Collateral dependent impaired loans	$	25,515	$	29,109


(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary.

The significant unobservable inputs used in the fair value measurement of the Company’s pooled trust preferred securities are cumulative prepayment rates, cumulative defaults, loss given defaults and cure given defaults. Significant increases (decreases) in deferrals or defaults, in isolation, would result in a significantly lower (higher) fair value measurement. Alternatively, significant increases (decreases) in cure rates, in isolation, would result in a significantly higher (lower) fair value measurement.

The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the dates indicated:



					Fair Value Measurements at Reporting Date Using
	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	December 31, 2019
	(Dollars in thousands)
Financial assets
Securities held to maturity (a)
U.S. government agency securities	$	12,874	$	12,997	$	—	$	12,997	$	—
U.S. Treasury securities	4,032		4,053		—		4,053		—
Agency mortgage-backed securities	397,414		405,802		—		405,802		—
Agency collateralized mortgage obligations	293,662		297,314		—		297,314		—
Single issuer trust preferred securities issued by banks	1,500		1,490		—		1,490		—
Small business administration pooled securities	31,324		31,607		—		31,607		—
Loans, net of allowance for loan losses (b)	8,780,384		8,613,635		—		—		8,613,635
Federal Home Loan Bank stock (c)	14,424		14,424		—		14,424		—
Cash surrender value of life insurance policies (d)	197,372		197,372		—		197,372		—
Financial liabilities
Deposit liabilities, other than time deposits (e)	$	7,752,052	$	7,752,052	$	—	$	7,752,052	$	—
Time certificates of deposits (f)	1,395,315		1,396,760		—		1,396,760		—
Federal Home Loan Bank borrowings (f)	115,748		115,881		—		115,881		—
Long-term borrowings (f)	74,906		72,219		—		72,219		—
Junior subordinated debentures (g)	62,848		65,603		—		65,603		—
Subordinated debentures (f)	49,601		52,870		—		—		52,870



					Fair Value Measurements at Reporting Date Using
	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	December 31, 2018
Financial assets	(Dollars in thousands)
Securities held to maturity (a)
U.S. Treasury securities	$	1,004	$	1,015	$	—	$	1,015	$	—
Agency mortgage-backed securities	252,484		250,928		—		250,928		—
Agency collateralized mortgage obligations	332,775		326,724		—		326,724		—
Single issuer trust preferred securities issued by banks	1,500		1,490		—		1,490		—
Small business administration pooled securities	23,727		23,483		—		23,483		—
Loans, net of allowance for loan losses (b)	6,812,792		6,635,209		—		—		6,635,209
Federal Home Loan Bank stock (c)	15,683		15,683		—		15,683		—
Cash surrender value of life insurance policies (d)	160,456		160,456		—		160,456		—
Financial liabilities
Deposit liabilities, other than time deposits (e)	$	6,716,017	$	6,716,017	$	—	$	6,716,017	$	—
Time certificates of deposits (f)	711,103		703,728		—		703,728		—
Federal Home Loan Bank borrowings (f)	147,806		147,603		—		147,603		—
Junior subordinated debentures (g)	76,173		73,827		—		73,827		—
Subordinated debentures (f)	34,728		32,509		—		—		32,509


(a)	The fair values presented are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analysis.

(b)

Fair value of loans is measured using the exit price valuation method, determined primarily by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or cash flows, while incorporating liquidity and credit assumptions. Additionally, this amount excludes collateral dependent impaired loans, which are deemed to be marked to fair value on a nonrecurring basis.


(c)	FHLB stock has no quoted market value and is carried at cost, therefore the carrying amount approximates fair value.


(d)	Cash surrender value of life insurance is recorded at its cash surrender value (or the amount that can be realized upon surrender of the policy), therefore carrying amount approximates fair value.


(e)	Fair value of demand deposits, savings and interest checking accounts and money market deposits is the amount payable on demand at the reporting date.


(f)	Fair value was determined by discounting anticipated future cash payments using rates currently available for instruments with similar remaining maturities.


(g)	Fair value was determined based upon market prices of securities with similar terms and maturities.

This summary excludes certain financial assets and liabilities for which the carrying value approximates fair value. For financial assets, these may include cash and due from banks, federal funds sold and short-term investments. For financial liabilities, these may include federal funds purchased. These instruments would all be considered to be classified as Level 1 within the fair value hierarchy. Also excluded from the summary are financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described.

The Company considers its financial instruments' current use to be the highest and best use of the instruments.

- 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.

+ References + Details