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Fair Value Measurements

12 Months Ended

Dec. 31, 2022

FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The three levels of inputs that may be used to measure fair value are as follows:

• Level 1 - Quoted prices in active markets for identical assets or liabilities

• Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities

The methodologies used by the Company in determining the fair values of each class of financial instruments are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected in an orderly transaction between market participants at the measurement date, and therefore are classified within Level 2 of the valuation hierarchy. There have been no significant changes in the valuation techniques during the periods ended December 31, 2022 and 2021.

The Company’s policy is to recognize transfers between levels as of the end of the reporting period. Transfers in and out of Level 1, Level 2, and Level 3 are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the years ended December 31, 2022 and 2021. Further details on the methods used to estimate the fair value of each class of financial instruments above are discussed below:

Investment Debt Securities Available-for-Sale. The Company obtains fair value measurements for investment securities from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the investment’s terms and conditions, among other things. Vendors chosen by the Company are widely recognized vendors whose evaluations support the pricing functions of financial institutions, investment and mutual funds, and portfolio managers. If needed, a broker may be utilized to determine the reported fair value of investment securities.

Loans Held for Sale. Fair value measurements for residential real estate loans held for sale are obtained from an independent pricing service. The fair value measurements consider observable data that may include binding contracts or quotes or bids from third party investors as well as loan level pricing adjustments. Loans that are reclassified into loans held for sale from loans held for investment are recorded at the lower of cost or fair value less costs to sell, except for certain loans which are recorded at fair value, determined individually, based on discounted payoffs and quotes or bids from third party investors, or based on the terms of the loans, such as interest rate, maturity date, reset term, as well as sales, quotes, or bids of similar assets.

Interest Rate Swap Contracts. Fair values for derivative interest rate swap contracts and interest rate collars are based upon the estimated amounts to settle the contracts considering current interest rates and are calculated using discounted cash flows that are observable or that can be corroborated by observable market data. The inputs used to determine fair value include the three-month LIBOR forward curve to estimate variable rate cash inflows and the federal funds effective swap rate to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such difference is discounted to a present value to estimate the fair value of the interest rate swaps. The change in the value of derivative assets attributable to basis risk, or the risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other, was not significant in the reported periods. The Company also obtains and compares the reasonableness of the pricing from an independent third party.

For purposes of potential valuation adjustments to our derivative positions, we evaluate the credit risk of our counterparties as well as ours. Accordingly, we have considered factors such as the likelihood of our default and the default of our counterparties, our net exposures and remaining contractual life, among other things, in determining if any fair value adjustments related to credit risk are required. The change in value of derivative assets and derivative liabilities attributable to credit risk was not significant during the reported periods.

Interest Rate Lock Commitments. Fair value measurements for interest rate lock commitments are obtained from an independent pricing service. The fair value measurements consider observable data that may include prices available from secondary market investors taking into consideration various characteristics of the loan, including the loan amount, interest rate, value of the servicing, and loan to value ratio, among other things. Observable data is then adjusted to reflect changes in interest rates, the Company’s estimated pull-through rate, and estimated direct costs necessary to complete the commitment into a closed loan net of origination and processing fees collected from the borrower.

Forward Loan Sales Contracts. The fair value measurements for forward loan sales contracts are obtained from an independent pricing service. The fair value measurements consider observable data that includes sales of similar loans.

Deferred Compensation Plan Assets and Liabilities. The fair values of deferred compensation plan assets and liabilities are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected in an orderly transaction between market participants at the measurement date. These investments are in the same funds and purchased in the same amounts as the participants’ selected investments, which represent the underlying liabilities to plan participants. Deferred compensation plan liabilities are recorded at amounts due to participants, based on the fair value of participants’ selected investments.

Financial assets and financial liabilities measured at fair value on a recurring basis are as follows:


			Fair Value Measurements at Reporting Date Using
As of December 31, 2022	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment debt securities available-for-sale:
U.S. Treasury notes	$	642.7	$	—	$	642.7	$	—
State, county, and municipal securities	263.7		—		263.7		—
Obligations of U.S. government agencies	198.9		—		198.9		—
U.S. agency residential & commercial mortgage-backed securities & collateralized mortgage obligations	4,259.7		—		4,259.7		—
Private mortgage-backed securities	228.0		—		228.0		—
Collateralized loan obligations	1,111.6		—		1,111.6		—
Corporate Securities	241.5		—		241.5		—

Loans held for sale	79.9		—		79.9		—
Derivative assets:
Interest rate swap contracts	45.1		—		45.1		—

Forward loan sales contracts	0.1		—		0.1		—
Derivative liabilities:
Interest rate collars	5.4		—		5.4		—
Interest rate swap contracts	154.2		—		154.2		—

Deferred compensation plan assets	18.7		—		18.7		—
Deferred compensation plan liabilities	18.7		—		18.7		—


			Fair Value Measurements at Reporting Date Using
As of December 31, 2021	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment debt securities available-for-sale:
U.S. Treasury notes	$	684.7	$	684.7	$	—	$	—
State, county, and municipal securities	427.5		—		427.5		—
Obligations of U.S. government agencies	346.9		—		346.9		—
U.S. agency residential & commercial mortgage-backed securities & collateralized mortgage obligations	2,018.1		—		2,018.1		—
Private mortgage-backed securities	173.4		—		173.4		—
Collateralized loan obligations	899.4		—		899.4		—
Corporate securities	270.5		—		270.5		—

Loans held for sale	30.1		—		30.1		—
Derivative assets:
Interest rate swap contracts	26.3		—		26.3		—
Interest rate lock commitments	1.8		—		1.8		—

Derivative liabilities:
Interest rate swap contracts	18.2		—		18.2		—

Deferred compensation plan assets	21.4		—		21.4		—
Deferred compensation plan liabilities	21.4		—		21.4		—

Additionally, from time to time, certain assets are measured at fair value on a non-recurring basis. Adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to credit deterioration. The following table presents information about the Company’s assets and liabilities measured at fair value on a non-recurring basis:


			Fair Value Measurements at Reporting Date Using
As of December 31, 2022	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Collateral-dependent loans	$	39.1	$	—	$	—	$	39.1	$	—
Other real estate owned	12.7		—		—		12.7		—
Long-lived assets to be disposed of by sale	5.5		—		—		5.5		(0.2)


			Fair Value Measurements at Reporting Date Using
As of December 31, 2021	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Collateral-dependent loans	$	11.7	$	—	$	—	$	11.7	$	—
Other real estate owned	2.0		—		—		2.0		—
Long-lived assets to be disposed of by sale	1.3		—		—		1.3		—

Collateral-dependent Loans. Collateral-dependent loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral. The collateral-dependent loans are reported at fair value through specific valuation allowance allocations. In addition, when it is determined that the fair value of a collateral-dependent loan is less than the recorded investment in the loan, the carrying value of the loan is adjusted to fair value through a charge to the allowance for credit losses. Collateral values are estimated using independent appraisals and management estimates of current market conditions. As of December 31, 2022, the Company had collateral-dependent loans with a carrying and fair value of $39.1 million. As of December 31, 2021, the Company had collateral-dependent loans with a carrying and fair value of $11.7 million.

OREO. The fair values of OREO are estimated using independent appraisals and management estimates of current market conditions. Upon initial recognition, write-downs based on the foreclosed asset’s fair value at foreclosure are reported through charges to the allowance for credit losses. Periodically, the fair value of foreclosed assets is remeasured with any subsequent write-downs charged to OREO expense in the period in which they are identified.

Long-lived Assets to be Disposed of by Sale. Long-lived assets to be disposed of by sale are carried at the lower of carrying value or fair value less estimated costs to sell. The fair values of long-lived assets to be disposed of by sale are based upon observable market data and management estimates of current market conditions. As of December 31, 2022, the Company had long-lived assets to be disposed of by sale with carrying values of $5.7 million, reduced by write-downs of $0.2 million charged to other expense, and fair values aggregating $5.5 million. As of December 31, 2021, the Company had long-lived assets to be disposed of by sale with carrying and fair values aggregating $1.3 million, with no write-downs charged to other expense.

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair values:


As of December 31, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Collateral-dependent loans	$	39.1	Appraisal	Appraisal adjustment	0%	-	45%	(7%)
Other real estate owned	12.7		Appraisal	Appraisal adjustment	15	-	36	(22)
Long-lived assets to be disposed of by sale	5.5		Appraisal	Appraisal adjustment	0	-	6	(3)

As of December 31, 2021
Collateral-dependent loans	$	11.7	Appraisal	Appraisal adjustment	1%	-	18%	(7%)

The Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. The methodologies for estimating the fair value of financial instruments that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for estimating the fair value of other financial instruments are discussed below. For financial instruments bearing a variable interest rate where no credit risk exists, it is presumed that recorded book values are reasonable estimates of fair value.

Financial Assets. Carrying values of cash, cash equivalents, and accrued interest receivable approximate fair values due to the liquid and/or short-term nature of these instruments. Fair values for investment securities held-to-maturity are obtained from an independent pricing service, which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the investment’s terms and conditions, among other things. Fair values of fixed rate loans and variable rate loans that reprice on an infrequent basis are estimated using an exit price by discounting future cash flows using current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality using an exit price notion. Carrying values of variable rate loans that reprice frequently, and with no change in credit risk, approximate the fair values of these instruments.

Financial Liabilities. The fair values of demand deposits, savings accounts, securities sold under repurchase agreements, and accrued interest payable are the amounts payable on demand at the reporting date. The fair values of fixed-maturity certificates of deposit are estimated using external market rates currently offered for deposits with similar remaining maturities. The fair values of derivative liabilities are obtained from an independent pricing service, which considers observable data that may include the three-month LIBOR forward curve, the federal funds effective swap rate and cash flows, among other things. The carrying values of the interest-bearing demand notes to the United States Treasury are deemed an approximation of fair values due to the frequent repayment and repricing at market rates. The fixed and floating rate subordinated debentures, floating rate subordinated term loan, notes payable to the FHLB, fixed rate subordinated term debt, and capital lease obligation are estimated by discounting future cash flows using current rates for advances with similar characteristics.

Commitments to Extend Credit and Standby Letters of Credit. The fair value of commitments to extend credit and standby letters of credit, based on fees currently charged to enter into similar agreements, is not significant.

The estimated fair values of financial instruments that are reported in the Company’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows:


	`				Fair Value Measurements at Reporting Date Using
As of December 31, 2022	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	870.5	$	870.5	$	870.5	$	—	$	—
Investment debt securities available-for-sale	6,946.1		6,946.1		—		6,946.1		—
Investment debt securities held-to-maturity	3,451.8		3,052.2		—		3,052.2		—
Accrued interest receivable	118.3		118.3		—		118.3		—
Mortgage servicing rights, net	31.1		37.4		—		37.4		—
Loans held for sale	79.9		79.9		—		79.9		—
Net loans held for investment	17,879.1		17,552.1		—		17,513.0		39.1
Derivative assets	45.2		45.2		—		45.2		—
Deferred compensation plan assets	18.7		18.7		—		18.7		—
Total financial assets	$	29,440.7	$	28,720.4	$	870.5	$	27,810.8	$	39.1

Financial liabilities:
Total deposits, excluding time deposits	$	23,145.2	$	23,145.2	$	23,145.2	$	—	$	—
Time deposits	1,928.4		1,876.1		—		1,876.1		—
Securities sold under repurchase agreements	1,052.9		1,052.9		—		1,052.9		—
Other borrowed funds	2,327.0		2,327.0		—		2,327.0		—
Accrued interest payable	14.5		14.5		—		14.5		—
Long-term debt	120.8		116.3		—		116.3		—
Subordinated debentures held by subsidiary trusts	163.1		155.8		—		155.8		—
Derivative liabilities	159.6		159.6		—		159.6		—
Deferred compensation plan liabilities	18.7		18.7		—		18.7		—
Total financial liabilities	$	28,930.2	$	28,866.1	$	23,145.2	$	5,720.9	$	—


					Fair Value Measurements at Reporting Date Using
As of December 31, 2021	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	2,344.8	$	2,344.8	$	2,344.8	$	—	$	—
Investment debt securities available-for-sale	4,820.5		4,820.5		684.7		4,135.8		—
Investment debt securities held-to-maturity	1,687.6		1,667.5		—		1,667.5		—
Accrued interest receivable	47.4		47.4		—		47.4		—
Mortgage servicing rights, net	28.2		28.2		—		28.2		—
Loans held for sale	30.1		30.1		—		30.1		—
Net loans held for investment	9,209.4		9,254.3		—		9,242.6		11.7
Derivative assets	28.1		28.1		—		28.1		—
Deferred compensation plan assets	21.4		21.4		—		21.4		—
Total financial assets	$	18,217.5	$	18,242.3	$	3,029.5	$	15,201.1	$	11.7

Financial liabilities:
Total deposits, excluding time deposits	$	15,303.1	$	15,303.1	$	15,303.1	$	—	$	—
Time deposits	966.5		963.1		—		963.1		—
Securities sold under repurchase agreements	1,051.1		1,051.1		—		1,051.1		—

Accrued interest payable	3.7		3.7		—		3.7		—
Long-term debt	112.4		120.7		—		120.7		—
Subordinated debentures held by subsidiary trusts	87.0		85.5		—		85.5		—
Derivative liabilities	18.2		18.2		—		18.2		—
Deferred compensation plan liabilities	21.4		21.4		—		21.4		—
Total financial liabilities	$	17,563.4	$	17,566.8	$	15,303.1	$	2,263.7	$	—

- 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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