ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS | 3 Months Ended |
Mar. 31, 2015 |
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ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS | ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS |
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We measure, monitor, and disclose certain of our assets and liabilities on a fair value basis. Fair value is used on a recurring basis to account for securities available-for-sale, mortgage loans held-for-sale, derivative assets, derivative liabilities, and certain other assets and other liabilities. In addition, fair value is used on a nonrecurring basis to apply lower-of-cost-or-market accounting to foreclosed real estate and certain other loans held-for-sale, evaluate assets or liabilities for impairment, including collateral-dependent impaired loans, and for disclosure purposes. 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. Depending on the nature of the asset or liability, we use various valuation techniques and input assumptions when estimating fair value. |
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U.S. GAAP requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value into three broad levels based on the reliability of the input assumptions. The hierarchy gives the highest priority to level 1 measurements and the lowest priority to level 3 measurements. The three levels of the fair value hierarchy are defined as follows: |
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• | Level 1 – Unadjusted quoted prices for identical assets or liabilities traded in active markets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Level 2 – Observable inputs other than level 1 prices, such as quoted prices for similar instruments; 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 asset or liability. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The categorization of where an asset or liability falls within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. |
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Valuation Methodology |
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We believe our valuation methods are appropriate and consistent with other market participants. However, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value. Additionally, the methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. |
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The following describes the valuation methodologies we use for assets and liabilities measured at fair value, including the general classification of the assets and liabilities pursuant to the valuation hierarchy. |
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Securities Available-for-Sale – Securities available-for-sale include U.S. Treasury, U.S. Agency, collateralized mortgage obligations, residential mortgage-backed securities, state and municipal securities, and foreign sovereign debt. Substantially all available-for-sale securities are fixed-income instruments that are not quoted on an exchange, but may be traded in active markets. The fair value of these securities is based on quoted market prices obtained from external pricing services. The principal markets for our securities portfolio are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets. U.S. Treasury securities have been classified in level 1 of the valuation hierarchy. All other remaining securities are classified in level 2 of the valuation hierarchy. On a quarterly basis, the Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from external pricing services, including evaluating pricing service inputs and methodologies, using exception reports based on analytical criteria, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on the Company’s knowledge of market liquidity and other market-related conditions. While we may challenge valuation inputs used in determining prices obtained from external pricing services based on our validation procedures, we have not altered the fair values ultimately provided by the external pricing services during the periods presented. |
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Mortgage Loans Held-for-Sale – Mortgage loans held-for-sale represent residential mortgage loan originations intended to be sold in the secondary market. We have elected the fair value option for residential mortgage loans originated with the intention of selling to a third party. The election of the fair value option aligns the accounting for these loans with the related mortgage banking derivatives used to economically hedge them. These mortgage loans are measured at fair value as of each reporting date, with changes in fair value recognized through mortgage banking non-interest income. The fair value of mortgage loans held-for-sale is determined based on prices obtained for loans with similar characteristics from third party sources. On a quarterly basis, the Company validates the overall reasonableness of the fair values obtained from third party sources by comparing prices obtained to prices received from various other pricing sources, and reviewing the reasonableness of prices based on Company knowledge of market liquidity and other market-related conditions. Mortgage loans held-for-sale are classified in level 2 of the valuation hierarchy. |
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Collateral-Dependent Impaired Loans – We do not record loans held for investment at fair value on a recurring basis. However, periodically, we record nonrecurring adjustments to reduce the carrying value of certain impaired loans based on fair value measurement. This population of impaired loans includes those for which repayment of the loan is expected to be provided solely by the underlying collateral. We measure the fair value of collateral-dependent impaired loans based on the fair value of the collateral securing these loans less estimated selling costs. A majority of collateral-dependent impaired loans are secured by real estate with the fair value generally determined based upon appraisals performed by a certified or licensed appraiser using a combination of valuation techniques such as sales comparison, income capitalization and cost approach and include inputs such as absorption rates, capitalization rates and comparables. We also consider other factors or recent developments that could result in adjustments to the collateral value estimates indicated in the appraisals. When a collateral-dependent loan is secured by non-real estate collateral such as receivables, inventory, or equipment, the fair value is generally determined based upon appraisals, field exams, or receivable reports. The valuation techniques and inputs are reviewed internally by an asset-based specialist for reasonableness of estimated liquidation costs, collectability probabilities, and other market data. Accordingly, fair value estimates for collateral-dependent impaired loans are classified in level 3 of the valuation hierarchy. The carrying value of all impaired loans and the related specific reserves are disclosed in Note 4. |
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At the time a collateral-dependent loan is initially determined to be impaired, we review the existing appraisal. If the most recent appraisal is greater than one-year old, a new appraisal of the underlying collateral is obtained. For collateral-dependent impaired loans that are secured by real estate, we generally obtain "as is" appraisal values in order to evaluate impairment. When a collateral-dependent loan is secured by non-real estate collateral such as receivables, inventory, or equipment, the fair value is generally determined based upon appraisals, field exams, or receivable reports. The valuation techniques and inputs are reviewed internally by workout and/or asset-based specialists for reasonableness of estimated liquidation costs, collectability probabilities, and other market data. Appraisals for real estate collateral-dependent impaired loans in excess of $500,000 are updated with new independent appraisals at least annually and are formally reviewed by our internal appraisal department. Additional diligence is performed at the six-month interval between annual appraisals. If during the course of the six-month review process there is evidence supporting a meaningful decline in the value of collateral, the appraised value is either adjusted downward or a new appraisal is required to support the value of the impaired loan. As part of our internal review process, we consider other factors or recent developments that could adjust the valuations indicated in the appraisals or internal reviews. The Company’s internal appraisal review process validates the reasonableness of appraisals in conjunction with analyzing sales and market data from an array of market sources. |
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Covered Asset OREO and OREO – Covered asset OREO and OREO generated from our originated book of business are valued on a nonrecurring basis using third-party appraisals of each property and our judgment of other relevant market conditions and are classified in level 3 of the valuation hierarchy. As part of our internal review process, we consider other factors or recent developments that could adjust the valuations indicated in the appraisals or internal reviews. Updated appraisals on both OREO portfolios are typically obtained every twelve months and evaluated internally at least every six months. In addition, both property-specific and market-specific factors as well as collateral type factors are taken into consideration, which may result in obtaining more frequent appraisal updates or internal assessments. Appraisals are conducted by third-party independent appraisers under internal direction and engagement using a combination of valuation techniques such as sales comparison, income capitalization and cost approach and include inputs such as absorption rates, capitalization rate and comparables. Any appraisal with a value in excess of $250,000 is subject to a compliance review. Appraisals received with a value in excess of $1.0 million are subject to a technical review. Appraisals are either reviewed internally by our appraisal department or sent to an outside technical firm if appropriate. Both levels of review involve a scope appropriate for the complexity and risk associated with the OREO. To validate the reasonableness of the appraisals obtained, the Company compares the appraised value to the actual sales price of properties sold and analyzes the reasons why a property may be sold for less than its appraised value. |
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Derivative Assets and Derivative Liabilities – Derivative instruments with positive fair values are reported as an asset and derivative instruments with negative fair value are reported as liabilities, in both cases after taking into account the effects of master netting agreements. For derivative counterparties with which we have a master netting agreement, we measure nonperformance risk on the basis of our net exposure to the counterparty. The fair value of derivative assets and liabilities is determined based on prices obtained from third party advisors using standardized industry models. Many factors affect derivative values, including the level of interest rates, the market’s perception of our nonperformance risk as reflected in our credit spread, and our assessment of counterparty nonperformance risk. The nonperformance risk assessment is based on our evaluation of credit risk, or if available, on observable external assessments of credit risk. Values of derivative assets and liabilities are primarily based on observable inputs and are classified in level 2 of the valuation hierarchy, with the exception of certain client-related derivatives and risk participation agreements, as discussed below. On a quarterly basis, the Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from third party advisors, including evaluating inputs and methodologies used by the third party advisors, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on the Company's knowledge of market liquidity and other market-related conditions. While we may challenge valuation inputs used in determining prices obtained from third party advisors based on our validation procedures, during the quarters ended March 31, 2015 and 2014, we did not alter the fair values ultimately provided by the third party advisors. |
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Level 3 derivatives include risk participation agreements and derivatives associated with clients whose loans are risk rated 6 or higher ("watch list derivative"). Refer to "Credit Quality Indicators" in Note 4 for further discussion on risk ratings. For these level 3 derivatives, the Company obtains prices from third party advisors, consistent with the valuation processes employed for the Company’s derivatives classified in level 2 of the fair value hierarchy, and then applies loss factors to adjust the prices obtained from third party advisors. The significant unobservable inputs that are employed in the valuation process for the risk participation agreements and watch list derivatives that cause these derivatives to be classified in level 3 of the fair value hierarchy are the historic loss factors specific to the particular industry segment and risk rating category. The loss factors are updated quarterly and are derived and aligned with the loss factors utilized in the calculation of the Company’s general reserve component of the allowance for loan losses. Changes in the fair value measurement of risk participation agreements and watch list derivatives are largely due to changes in the fair value of the derivative, risk rating adjustments and fluctuations in the pertinent historic average loss rate. |
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Assets and Liabilities Measured at Fair Value on a Recurring Basis |
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The following table presents the hierarchy level and fair value for each major category of assets and liabilities measured at fair value at March 31, 2015 and December 31, 2014 on a recurring basis. |
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Fair Value Measurements on a Recurring Basis |
(Amounts in thousands) |
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| 31-Mar-15 | | 31-Dec-14 |
| Quoted | | Significant | | Significant | | Total | | Quoted | | Significant | | Significant | | Total |
Prices in | Other | Unobservable | Prices in | Other | Unobservable |
Active | Observable | Inputs | Active | Observable | Inputs |
Markets for | Inputs | (Level 3) | Markets for | Inputs | (Level 3) |
Identical | (Level 2) | | Identical | (Level 2) | |
Assets | | | Assets | | |
(Level 1) | | | (Level 1) | | |
Assets: | | | | | | | | | | | | | | | |
Securities available-for sale: | | | | | | | | | | | | | | | |
U.S. Treasury | $ | 244,556 | | | $ | — | | | $ | — | | | $ | 244,556 | | | $ | 268,265 | | | $ | — | | | $ | — | | | $ | 268,265 | |
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U.S. Agency | — | | | 46,806 | | | — | | | 46,806 | | | — | | | 46,258 | | | — | | | 46,258 | |
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Collateralized mortgage obligations | — | | | 127,828 | | | — | | | 127,828 | | | — | | | 136,933 | | | — | | | 136,933 | |
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Residential mortgage-backed securities | — | | | 829,413 | | | — | | | 829,413 | | | — | | | 846,078 | | | — | | | 846,078 | |
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State and municipal securities | — | | | 382,134 | | | — | | | 382,134 | | | — | | | 347,310 | | | — | | | 347,310 | |
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Foreign sovereign debt | — | | | 500 | | | — | | | 500 | | | — | | | 500 | | | — | | | 500 | |
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Total securities available-for-sale | 244,556 | | | 1,386,681 | | | — | | | 1,631,237 | | | 268,265 | | | 1,377,079 | | | — | | | 1,645,344 | |
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Mortgage loans held-for-sale | — | | | 21,866 | | | — | | | 21,866 | | | — | | | 42,215 | | | — | | | 42,215 | |
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Derivative assets: | | | | | | | | | | | | | | | |
Interest rate contract derivatives designated as hedging instruments | — | | | 8,491 | | | — | | | 8,491 | | | — | | | 4,542 | | | — | | | 4,542 | |
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Client-related derivatives | — | | | 62,143 | | | 1,754 | | | 63,897 | | | — | | | 46,669 | | | 1,412 | | | 48,081 | |
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Other end-user derivatives | — | | | 594 | | | — | | | 594 | | | — | | | 1,027 | | | — | | | 1,027 | |
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Netting adjustments | — | | | (15,686 | ) | | (689 | ) | | (16,375 | ) | | — | | | (9,952 | ) | | (636 | ) | | (10,588 | ) |
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Total derivative assets | — | | | 55,542 | | | 1,065 | | | 56,607 | | | — | | | 42,286 | | | 776 | | | 43,062 | |
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Total assets | $ | 244,556 | | | $ | 1,464,089 | | | $ | 1,065 | | | $ | 1,709,710 | | | $ | 268,265 | | | $ | 1,461,580 | | | $ | 776 | | | $ | 1,730,621 | |
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Liabilities: | | | | | | | | | | | | | | | |
Derivative liabilities: | | | | | | | | | | | | | | | |
Interest rate contract derivatives designated as hedging instruments | $ | — | | | $ | 441 | | | $ | — | | | $ | 441 | | | $ | — | | | $ | 2,715 | | | $ | — | | | $ | 2,715 | |
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Client-related derivatives | — | | | 64,273 | | | 706 | | | 64,979 | | | — | | | 47,799 | | | 676 | | | 48,475 | |
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Other end-user derivatives | — | | | 552 | | | — | | | 552 | | | — | | | 846 | | | — | | | 846 | |
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Netting adjustments | — | | | (38,316 | ) | | (689 | ) | | (39,005 | ) | | — | | | (24,633 | ) | | (636 | ) | | (25,269 | ) |
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Total derivative liabilities | $ | — | | | $ | 26,950 | | | $ | 17 | | | $ | 26,967 | | | $ | — | | | $ | 26,727 | | | $ | 40 | | | $ | 26,767 | |
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If a change in valuation techniques or input assumptions for an asset or liability occurred between periods, we would consider whether this would result in a transfer between the three levels of the fair value hierarchy. There have been no transfers of assets or liabilities between level 1 and level 2 of the valuation hierarchy between December 31, 2014 and March 31, 2015. |
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There have been no other changes in the valuation techniques we used for assets and liabilities measured at fair value on a recurring basis from December 31, 2014 to March 31, 2015. |
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Reconciliation of Beginning and Ending Fair Value for Those |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (1) |
(Amounts in thousands) |
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| Quarter Ended March 31, | | | | | | | | | | | | | | | | |
| 2015 | | 2014 | | | | | | | | | | | | | | | | |
| Derivative | | Derivative | | Derivative | | Derivative | | | | | | | | | | | | | | | | |
Assets | (Liabilities) | Assets | (Liabilities) | | | | | | | | | | | | | | | | |
Balance at beginning of period | $ | 1,412 | | | $ | (676 | ) | | $ | 448 | | | $ | (98 | ) | | | | | | | | | | | | | | | | |
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Total gains: | | | | | | | | | | | | | | | | | | | | | | | |
Included in earnings (2) | 312 | | | (24 | ) | | 79 | | | 180 | | | | | | | | | | | | | | | | | |
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Purchases, issuances, sales and settlements: | | | | | | | | | | | | | | | | | | | | | | | |
Settlements | (500 | ) | | 147 | | | (385 | ) | | (245 | ) | | | | | | | | | | | | | | | | |
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Transfers into Level 3 (out of Level 2) (3) | 884 | | | (160 | ) | | 827 | | | (446 | ) | | | | | | | | | | | | | | | | |
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Transfers out of Level 3 (into Level 2) (3) | (354 | ) | | 8 | | | (112 | ) | | — | | | | | | | | | | | | | | | | | |
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Balance at end of period | $ | 1,754 | | | $ | (705 | ) | | $ | 857 | | | $ | (609 | ) | | | | | | | | | | | | | | | | |
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Change in unrealized gains in earnings relating to assets and liabilities still held at end of period | $ | 241 | | | $ | 24 | | | $ | 7 | | | $ | 166 | | | | | | | | | | | | | | | | | |
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(1) | Fair value is presented prior to giving effect to netting adjustments. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(2) | Amounts disclosed in this line are included in the Consolidated Statements of Income as capital markets products income for derivatives. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(3) | Transfers in and transfers out are recognized at the end of each quarterly reporting period. In general, derivative assets and liabilities are transferred into Level 3 from Level 2 due to a lack of observable market data, as there was deterioration in the credit risk of the derivative counterparty. Conversely, derivative assets and liabilities are transferred out of Level 3 into Level 2 due to an improvement in the credit risk of the derivative counterparty. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Financial Instruments Recorded Using the Fair Value Option |
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Difference Between Aggregate Fair Value and Aggregate Remaining Principal Balance |
for Mortgage Loans Held-For-Sale Elected to be Carried at Fair Value |
(Amounts in thousands) |
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| March 31, | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
Aggregate fair value | $ | 21,866 | | | $ | 42,215 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Difference (1) | (55 | ) | | (16 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
Aggregate unpaid principal balance | $ | 21,811 | | | $ | 42,199 | | | | | | | | | | | | | | | | | | | | | | | | | |
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(1) | The change in fair value is reflected in mortgage banking non-interest income. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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As of March 31, 2015, none of the mortgage loans held-for-sale were on nonaccrual or 90 days or more past due and still accruing interest. Changes in fair value due to instrument-specific credit risk for the quarter ended March 31, 2015 were not material. |
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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis |
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From time to time, we may be required to measure certain other financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower-of-cost-or-fair-value accounting or write-downs of individual assets when there is evidence of impairment. |
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The following table provides the fair value of those assets that were subject to fair value adjustments during the first quarter 2015 and 2014, and still held at March 31, 2015 and 2014, respectively. All fair value measurements on a nonrecurring basis were measured using level 3 of the valuation hierarchy. |
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Fair Value Measurements on a Nonrecurring Basis |
(Amounts in thousands) |
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| Fair Value | | Net (Gains) Losses | | | | | | | | | | | | | | | | |
| March 31, | | For the Quarter Ended March 31, | | | | | | | | | | | | | | | | |
| 2015 | | 2014 | | 2015 | | 2014 | | | | | | | | | | | | | | | | |
Collateral-dependent impaired loans (1) | $ | 27,234 | | | $ | 40,716 | | | $ | (1,653 | ) | | $ | 5,612 | | | | | | | | | | | | | | | | | |
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OREO (2) | 5,128 | | | 6,858 | | | 935 | | | 1,463 | | | | | | | | | | | | | | | | | |
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Total | $ | 32,362 | | | $ | 47,574 | | | $ | (718 | ) | | $ | 7,075 | | | | | | | | | | | | | | | | | |
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(1) | Represents the fair value of loans adjusted to the appraised value of the collateral with a write-down in fair value or change in specific reserves during the respective period. These fair value adjustments are recorded against the allowance for loan losses. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(2) | Represents the fair value of foreclosed properties that were adjusted subsequent to their initial classification as foreclosed assets. Write-downs are recognized as a component of net foreclosed real estate expense in the Consolidated Statements of Income. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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There have been no changes in the valuation techniques we used for assets and liabilities measured at fair value on a nonrecurring basis from December 31, 2014 to March 31, 2015. |
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Additional Information Regarding Level 3 Fair Value Measurements |
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The following table presents information regarding the unobservable inputs developed by the Company for its level 3 fair value measurements. |
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Quantitative Information Regarding Level 3 Fair Value Measurements |
(Dollars in thousands) |
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Financial Instrument: | | Fair Value | | Valuation Technique(s) | | Unobservable | | Range | | Weighted | | | | | | | | | | | | | | | | | | |
of Assets / | Input | Average | | | | | | | | | | | | | | | | | |
(Liabilities) at | | | | | | | | | | | | | | | | | | | |
31-Mar-15 | | | | | | | | | | | | | | | | | | | |
Watch list derivatives | | $ | 1,054 | | | Discounted cash flow | | Loss factors | | 4.5% to 16.5% | | 13.9 | % | | | | | | | | | | | | | | | | | | |
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Risk participation agreements | | $ | (6 | ) | (1) | Discounted cash flow | | Loss factors | | 0.6% to 16.5% | | 4 | % | | | | | | | | | | | | | | | | | | |
Collateral-dependent impaired loans | | $ | 27,234 | | | Sales comparison, | | Property specific | | -2.0% to -15.9% | | -8.1 | % | (2) | | | | | | | | | | | | | | | | | |
income capitalization | adjustment | | | | | | | | | | | | | | | | | |
and/or cost approach | | | | | | | | | | | | | | | | | | |
OREO | | $ | 5,128 | | | Sales comparison, | | Property specific | | -2.4% to -18.8% | | -14.8 | % | (2) | | | | | | | | | | | | | | | | | |
income capitalization | adjustment | | | | | | | | | | | | | | | | | |
and/or cost approach | | | | | | | | | | | | | | | | | | |
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(1) | Represents fair value of underlying swap. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(2) | Weighted average is calculated based on assets with a property specific adjustment. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The significant unobservable inputs used in the fair value measurement of the risk participation agreements and watch list derivatives are the historic loss factors. A significant increase (decrease) in the pertinent loss factor would result in a significantly lower (higher) fair value measurement. |
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Estimated Fair Value of Certain Financial Instruments |
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U.S. GAAP requires disclosure of the estimated fair values of certain financial instruments, both assets and liabilities, on and off-balance sheet, for which it is practical to estimate the fair value. Because the disclosure of estimated fair values provided herein excludes the fair value of certain other financial instruments and all non-financial instruments, any aggregation of the estimated fair value amounts presented would not represent total underlying value. Examples of non-financial instruments having value not disclosed herein include the future earnings potential of significant customer relationships and the value of our asset management operations and other fee-generating businesses. In addition, other significant assets including property, plant, and equipment and goodwill are not considered financial instruments and, therefore, have not been included in the disclosure. |
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Various methodologies and assumptions have been utilized in management’s determination of the estimated fair value of our financial instruments, which are detailed below. The fair value estimates are made at a discrete point in time based on relevant market information. Because no market exists for a significant portion of these financial instruments, fair value estimates are based on judgments regarding future expected economic conditions, loss experience, and risk characteristics of the financial instruments. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates. |
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In addition to the valuation methodology explained above for financial instruments recorded at fair value, the following methods and assumptions were used in estimating the fair value of financial instruments that are carried at cost in the Consolidated Statements of Financial Condition and includes the general classification of the assets and liabilities pursuant to the valuation hierarchy. |
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Short-term financial assets and liabilities – For financial instruments with a shorter-term or with no stated maturity, prevailing market rates, and limited credit risk, the carrying amounts approximate fair value. Those financial instruments include cash and due from banks, Federal funds sold and interest-bearing deposits in banks (including the receivable for cash collateral pledged), accrued interest receivable, and accrued interest payable. Accrued interest receivable and accrued interest payable are classified consistent with the hierarchy of their corresponding assets and liabilities. |
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Other loans held-for-sale - Included in loans held-for sale at March 31, 2015 and December 31, 2014 are $67.6 million and $36.6 million, respectively, of loans carried at the lower of aggregate cost or fair value. Also included in loans held-for-sale at December 31, 2014 are $36.3 million of loans held-for-sale in connection with the sale of the Company's banking office located in Norcross, Georgia, which closed in January 2015. Fair value estimates are based on the actual agreed upon price in the agreement. |
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Securities held-to-maturity – Securities held-to-maturity include collateralized mortgage obligations, residential mortgage-backed securities, agency commercial mortgage-backed securities and state and municipal securities. Substantially all held-to-maturity securities are fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair value of these securities is based on quoted market prices obtained from external pricing services. The principal markets for our securities portfolio are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets. |
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FHLB stock – The carrying value of FHLB stock approximates fair value as the stock is non-marketable, but can only be sold to the FHLB or another member institution at par. |
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Loans – The fair value of loans is calculated by discounting estimated cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. Cash flows are estimated by applying contractual payment terms to assumed interest rates. The estimate of maturity is based on contractual terms and includes assumptions that reflect our and the industry’s historical experience with repayments for each loan classification. The estimation is modified, as required, by the effect of current economic and lending conditions, collateral, and other factors. |
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Covered assets – Covered assets include acquired loans and foreclosed loan collateral covered under a loss sharing agreement with the FDIC (including the fair value of expected reimbursements from the FDIC). The fair value of covered assets is calculated by discounting contractual cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the asset. The estimate of maturity is based on contractual terms and includes assumptions that reflect our and the industry’s historical experience with repayments for each asset classification. The estimate is modified, as required, by the effect of current economic and lending conditions, collateral, and other factors. |
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Investment in BOLI – The cash surrender value of our investment in bank owned life insurance approximates the fair value. |
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Deposit liabilities – The fair values disclosed for noninterest-bearing deposits, savings deposits, interest-bearing demand deposits, and money market deposits are approximately equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for certificate of deposits and time deposits were estimated using present value techniques by discounting the future cash flows at rates based on internal models and broker quotes. |
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Deposits held-for-sale – Deposits held-for-sale are recorded at the lower of cost or fair value. Amounts held at December 31, 2014 are deposits held-for-sale in connection with the sale of the Company's banking office located in Norcross, Georgia, which closed in January 2015. Fair value estimates are based upon the price and premium per the agreement. |
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Short-term and other borrowings – The fair value of FHLB advances with remaining maturities of one year or less is estimated by discounting the obligations using the rates currently offered for borrowings of similar remaining maturities. The fair value of secured borrowings is equal to the value of the loans they are collateralizing. See "Loans" above for further information. The carrying amount of the obligation for cash collateral held is considered to be its fair value because of its short-term nature. |
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Long-term debt – The fair value of the Company's fixed-rate long-term debt was estimated using the unadjusted publicly-available market price as of period end. |
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FHLB advances with remaining maturities greater than one year and the Company's variable-rate junior subordinated debentures are estimated by discounting future cash flows. For the FHLB advances with remaining maturities greater than one year, the Company discounts cash flows using quoted interest rates for similar financial instruments. For the Company's variable-rate junior subordinated debentures, we interpolate a discount rate we believe is appropriate based on quoted interest rates and entity specific adjustments. |
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Commitments – Given the limited interest rate risk posed by the commitments outstanding at period end due to their variable rate structure, termination clauses provided in the agreements, and the market rate of fees charged, we have deemed the fair value of commitments outstanding to be immaterial. |
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Financial Instruments |
(Amounts in thousands) |
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| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2015 | | | | | | | | | | | | |
| Carrying Amount | | | | Fair Value Measurements Using | | | | | | | | | | | | |
| | Fair Value | | Level 1 | | Level 2 | | Level 3 | | | | | | | | | | | | |
Financial Assets: | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks | $ | 158,431 | | | $ | 158,431 | | | $ | 158,431 | | | $ | — | | | $ | — | | | | | | | | | | | | | |
| | | | | | | | | | | |
Federal funds sold and interest-bearing deposits in banks | 799,953 | | | 799,953 | | | — | | | 799,953 | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | |
Loans held-for-sale | 89,461 | | | 89,461 | | | — | | | 89,461 | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | |
Securities available-for-sale | 1,631,237 | | | 1,631,237 | | | 244,556 | | | 1,386,681 | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | |
Securities held-to-maturity | 1,159,853 | | | 1,173,402 | | | — | | | 1,173,402 | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | |
FHLB stock | 28,556 | | | 28,556 | | | — | | | 28,556 | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | |
Loans, net of allowance for loan losses and unearned fees | 12,013,874 | | | 11,951,864 | | | — | | | — | | | 11,951,864 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Covered assets, net of allowance for covered loan losses | 26,170 | | | 32,030 | | | — | | | — | | | 32,030 | | | | | | | | | | | | | |
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Accrued interest receivable | 41,202 | | | 41,202 | | | — | | | — | | | 41,202 | | | | | | | | | | | | | |
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Investment in BOLI | 55,561 | | | 55,561 | | | — | | | — | | | 55,561 | | | | | | | | | | | | | |
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Derivative assets | 56,607 | | | 56,607 | | | — | | | 55,542 | | | 1,065 | | | | | | | | | | | | | |
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Financial Liabilities: | | | | | | | | | | | | | | | | | | | | | |
Deposits | $ | 14,101,728 | | | $ | 14,110,642 | | | $ | — | | | $ | 11,591,322 | | | $ | 2,519,320 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Short-term and secured borrowings | 258,788 | | | 257,809 | | | — | | | 252,675 | | | 5,134 | | | | | | | | | | | | | |
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Long-term debt | 344,788 | | | 338,520 | | | 206,537 | | | 54,942 | | | 77,041 | | | | | | | | | | | | | |
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Accrued interest payable | 7,004 | | | 7,004 | | | — | | | — | | | 7,004 | | | | | | | | | | | | | |
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Derivative liabilities | 26,967 | | | 26,967 | | | — | | | 26,950 | | | 17 | | | | | | | | | | | | | |
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Financial Instruments (Continued) |
(Amounts in thousands) |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2014 | | | | | | | | | | | | |
| Carrying Amount | | | | Fair Value Measurements Using | | | | | | | | | | | | |
| | Fair Value | | Level 1 | | Level 2 | | Level 3 | | | | | | | | | | | | |
Financial Assets: | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks | $ | 132,211 | | | $ | 132,211 | | | $ | 132,211 | | | $ | — | | | $ | — | | | | | | | | | | | | | |
| | | | | | | | | | | |
Federal funds sold and interest-bearing deposits in banks | 292,341 | | | 292,341 | | | — | | | 292,341 | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | |
Loans held-for-sale | 115,161 | | | 115,161 | | | — | | | 115,161 | | | — | | | | | | | | | | | | | |
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Securities available-for-sale | 1,645,344 | | | 1,645,344 | | | 268,265 | | | 1,377,079 | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | |
Securities held-to-maturity | 1,129,285 | | | 1,132,615 | | | — | | | 1,132,615 | | | — | | | | | | | | | | | | | |
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FHLB stock | 28,666 | | | 28,666 | | | — | | | 28,666 | | | — | | | | | | | | | | | | | |
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Loans, net of allowance for loan losses and unearned fees | 11,739,721 | | | 11,736,461 | | | — | | | — | | | 11,736,461 | | | | | | | | | | | | | |
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Covered assets, net of allowance for covered loan losses | 28,941 | | | 33,988 | | | — | | | — | | | 33,988 | | | | | | | | | | | | | |
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Accrued interest receivable | 40,531 | | | 40,531 | | | — | | | — | | | 40,531 | | | | | | | | | | | | | |
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Investment in BOLI | 55,207 | | | 55,207 | | | — | | | — | | | 55,207 | | | | | | | | | | | | | |
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Derivative assets | 43,062 | | | 43,062 | | | — | | | 42,286 | | | 776 | | | | | | | | | | | | | |
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Financial Liabilities: | | | | | | | | | | | | | | | | | | | | | |
Deposits | $ | 13,089,968 | | | $ | 13,095,657 | | | $ | — | | | $ | 10,595,040 | | | $ | 2,500,617 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Deposits held-for-sale | 122,216 | | | 117,572 | | | — | | | 117,572 | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | |
Short-term and secured borrowings | 432,385 | | | 430,944 | | | — | | | 427,150 | | | 3,794 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Long-term debt | 344,788 | | | 332,374 | | | 204,320 | | | 54,092 | | | 73,962 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Accrued interest payable | 6,948 | | | 6,948 | | | — | | | — | | | 6,948 | | | | | | | | | | | | | |
| | | | | | | | | | | |
Derivative liabilities | 26,767 | | | 26,767 | | | — | | | 26,727 | | | 40 | | | | | | | | | | | | | |
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