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Fair Value Measurement | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurement | Note 15—Fair Value Measurement Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In addition, the Company has the ability to obtain fair values for markets that are not accessible. These types of inputs create the following fair value hierarchy: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available. The Company’s own data used to develop unobservable inputs may be adjusted for market considerations when reasonably available. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to assets and liabilities. The Company used the following methods and significant assumptions to estimate fair value for certain assets measured and carried at fair value on a recurring basis: Securities available-for-sale—The Company obtains fair value measurements from an independent pricing service. Management reviews the procedures used by the third party, including significant inputs used in the fair value calculations. 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 bond’s terms and conditions, among other things. When market quotes are not readily accessible or available, alternative approaches are utilized, such as matrix or model pricing. The Company’s methodology for pricing non-rated bonds focuses on three distinct inputs: equivalent rating, yield and other pricing terms. To determine the rating for a given non-rated municipal bond, the Company references a publicly issued bond by the same issuer if available as well as other additional key metrics to support the credit worthiness. Typically, pricing for these types of bonds would require a higher yield than a similar rated bond from the same issuer. A reduction in price is applied to the rating obtained from the comparable bond, as the Company believes if liquidated, a non-rated bond would be valued less than a similar bond with a verifiable rating. The reduction applied by the Company is one notch lower (i.e. a “AA” rating for a comparable bond would be reduced to “AA-” for the Company’s valuation). In 2021 and 2020, all of the ratings derived by the Company were “BBB” or better with and without comparable bond proxies. The fair value measurement of municipal bonds is sensitive to the rating input, as a higher rating typically results in an increased valuation. The remaining pricing inputs used in the bond valuation are observable. Based on the rating determined, the Company obtains a corresponding current market yield curve available to market participants. Other terms including coupon, maturity date, redemption price, number of coupon payments per year, and accrual method are obtained from the individual bond term sheets. Equity and other securities—The Company utilizes the same fair value measurement methodology for equity and other securities as detailed in the securities available-sale portfolio above. Servicing assets—Fair value is based on a loan-by-loan basis taking into consideration the original term to maturity, the current age of the loan and the remaining term to maturity. The valuation methodology utilized for the servicing assets begins with generating estimated future cash flows for each servicing asset, based on their unique characteristics and market-based assumptions for prepayment speeds and costs to service. The present value of the future cash flows are then calculated utilizing market-based discount rate assumptions. Derivative instruments—Interest rate derivatives are valued by a third party, using models that primarily use market observable inputs, such as yield curves, and are validated by comparison with valuations provided by the respective counterparties. Derivative financial instruments are included in other assets and other liabilities in the Consolidated Statements of Financial Condition. The following tables summarize the Company’s financial assets and liabilities that were measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020:
|  |  |  |  | Fair Value Measurements Using |
September 30, 2021 |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury Notes |  | $ | 8,578 |  |  | $ | 8,578 |  |  | $ | — |  |  | $ | — |
U.S. Government agencies |  |  | 123,264 |  |  |  | — |  |  |  | 123,264 |  |  |  | — |
Obligations of states, municipalities, and political subdivisions |  |  | 105,060 |  |  |  | — |  |  |  | 105,060 |  |  |  | — |
Mortgage-backed securities; residential |  |  |  |  |  |  |  |  |  |  |  |
Agency |  |  | 785,173 |  |  |  | — |  |  |  | 785,173 |  |  |  | — |
Non-Agency |  |  | 64,009 |  |  |  | — |  |  |  | 64,009 |  |  |  | — |
Mortgage-backed securities; commercial |  |  |  |  |  |  |  |  |  |  |  |
Agency |  |  | 237,409 |  |  |  | — |  |  |  | 237,409 |  |  |  | — |
Corporate securities |  |  | 66,827 |  |  |  | — |  |  |  | 66,827 |  |  |  | — |
Asset-backed securities |  |  | 37,285 |  |  |  | — |  |  |  | 37,285 |  |  |  | — |
Equity and other securities, at fair value |  |  |  |  |  |  |  |  |  |  |  |
Mutual funds |  |  | 4,424 |  |  |  | 4,424 |  |  |  | — |  |  |  | — |
Equity securities |  |  | 5,875 |  |  |  | — |  |  |  | 5,189 |  |  |  | 686 |
Servicing assets |  |  | 23,597 |  |  |  | — |  |  |  | — |  |  |  | 23,597 |
Derivative assets |  |  | 13,463 |  |  |  | — |  |  |  | 13,463 |  |  |  | — |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  |  | 12,348 |  |  |  | — |  |  |  | 12,348 |  |  |  | — |
|  |  |  |  | Fair Value Measurements Using |
December 31, 2020 |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury Notes |  | $ | 23,812 |  |  | $ | 23,812 |  |  | $ | — |  |  | $ | — |
U.S. Government agencies |  |  | 113,551 |  |  |  | — |  |  |  | 113,551 |  |  |  | — |
Obligations of states, municipalities, and political subdivisions |  |  | 142,419 |  |  |  | — |  |  |  | 142,419 |  |  |  |
Mortgage-backed securities; residential |  |  |  |  |  |  |  |  |  |  |  |
Agency |  |  | 778,391 |  |  |  | — |  |  |  | 778,391 |  |  |  | — |
Non-Agency |  |  | 32,981 |  |  |  | — |  |  |  | 32,981 |  |  |  | — |
Mortgage-backed securities; commercial |  |  |  |  |  |  |  |  |  |  |  |
Agency |  |  | 250,152 |  |  |  | — |  |  |  | 250,152 |  |  |  | — |
Corporate securities |  |  | 60,768 |  |  |  | — |  |  |  | 60,768 |  |  |  | — |
Asset-backed securities |  |  | 45,156 |  |  |  | — |  |  |  | 45,156 |  |  |  | — |
Equity and other securities, at fair value |  |  |  |  |  |  |  |  |  |  |  |
Mutual funds |  |  | 2,983 |  |  |  | 2,983 |  |  |  | — |  |  |  | — |
Equity securities |  |  | 5,781 |  |  |  | — |  |  |  | 5,096 |  |  |  | 685 |
Servicing assets |  |  | 22,042 |  |  |  | — |  |  |  | — |  |  |  | 22,042 |
Derivative assets |  |  | 17,149 |  |  |  | — |  |  |  | 17,149 |  |  |  | — |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  |  | 18,133 |  |  |  | — |  |  |  | 18,133 |  |  |  | — |
The Company did no t have any transfers to or from Level 3 of the fair value hierarchy during the nine months ended September 30, 2021 and 2020. The following table presents additional information about financial assets measured at fair value on recurring basis for which the Company used significant unobservable inputs (Level 3):
| Nine Months Ended September 30, |
| 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
| Investment Securities |  |  | Servicing Assets |
Balance, beginning of period | $ | 685 |  |  | $ | 700 |  |  | $ | 22,042 |  |  | $ | 19,471 |
Additions, net |  | — |  |  |  | — |  |  |  | 5,703 |  |  |  | 4,449 |
Change in fair value |  | 1 |  |  |  | (16 | ) |  |  | (4,148 | ) |  |  | (2,653 | )
Balance, end of period | $ | 686 |  |  | $ | 684 |  |  | $ | 23,597 |  |  | $ | 21,267 |
The following table presents additional information about the unobservable inputs used in the fair value measurements on recurring basis that were categorized within Level 3 of the fair value hierarchy as of September 30, 2021:
Financial Instruments |  | Valuation Technique |  | Unobservable Inputs |  | Range of Inputs |  | Weighted Average Range |  |  | Impact to Valuation from an Increased or Higher Input Value
Single issuer trust preferred |  | Discounted cash flow |  | Discount rate |  | 3.1% - 6.4% |  |  | 4.5 | % |  | Decrease
Servicing assets |  | Discounted cash flow |  | Prepayment speeds |  | 0.5% - 31.8% |  |  | 14.3 | % |  | Decrease
|  |  |  | Discount rate |  | (3.0)% - 50.0% |  |  | 8.1 | % |  | Decrease
|  |  |  | Expected weighted average loan life |  | 0.2 - 8.5 years |  | 3.9 years |  |  | Increase
The Company used the following methods and significant assumptions to estimate fair value for certain assets measured and carried at fair value on a no n-recurring basis: Impaired loans (excluding acquired impaired loans)—Impaired loans, other than those existing on the date of a business acquisition, are primarily carried at the fair value of the underlying collateral, less estimated costs to sell, if the loan is collateral dependent. Valuations of impaired loans that are collateral dependent are supported by third party appraisals in accordance with the Bank’s credit policy. Other valuation methods include analysis of discounted cash flows, which measures the present value of expected future cash flows discounted at the loan’s effective interest rate. Impaired loans that are not collateral dependent are not material. Assets held for sale—Assets held for sale consist of former branch locations and real estate previously purchased for expansion. Assets are considered held for sale when management has approved to sell the assets following a branch closure or other events. The properties are being actively marketed and transferred to assets held for sale based on the lower of carrying value or its fair value, less estimated costs to sell. The Company records assets held for sale on the Consolidated Statements of Financial Condition within accrued interest receivable and other assets. Other real estate owned—Certain assets held within other real estate owned represent real estate or other collateral that has been adjusted to its estimated fair value, less cost to sell, as a result of transferring from the loan portfolio at the time of foreclosure or repossession and based on management’s periodic impairment evaluation. From time to time, non-recurring fair value adjustments to other real estate owned are recorded to reflect partial write-downs based on an observable market price or current appraised value of property. Adjustments to fair value based on such non-recurring transactions generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment. The following tables summarize the Company’s assets that were measured at fair value on a non-recurring basis, excluding acquired impaired loans, as of September 30, 2021 and December 31, 2020:
|  |  |  |  | Fair Value Measurements Using |
September 30, 2021 |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Non-recurring |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans (excluding acquired impaired loans) |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | 37,143 |  |  | $ | — |  |  | $ | — |  |  | $ | 37,143 |
Residential real estate |  |  | 3,946 |  |  |  | — |  |  |  | — |  |  |  | 3,946 |
Commercial and industrial |  |  | 21,547 |  |  |  | — |  |  |  | — |  |  |  | 21,547 |
Assets held for sale |  |  | 10,982 |  |  |  | — |  |  |  | — |  |  |  | 10,982 |
Other real estate owned |  |  | 3,033 |  |  |  | — |  |  |  | — |  |  |  | 3,033 |
|  |  |  |  | Fair Value Measurements Using |
December 31, 2020 |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Non-recurring |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans (excluding acquired impaired loans) |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | 41,135 |  |  | $ | — |  |  | $ | — |  |  | $ | 41,135 |
Residential real estate |  |  | 1,752 |  |  |  | — |  |  |  | — |  |  |  | 1,752 |
Commercial and industrial |  |  | 28,508 |  |  |  | — |  |  |  | — |  |  |  | 28,508 |
Assets held for sale |  |  | 13,023 |  |  |  | — |  |  |  | — |  |  |  | 13,023 |
Other real estate owned |  |  | 6,350 |  |  |  | — |  |  |  | — |  |  |  | 6,350 |
The following methods and assumptions were used by the Company in estimating fair values of other assets and liabilities for disclosure purposes: Cash and cash equivalents—For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Securities held-to-maturity—The Company obtains fair value measurements from an independent pricing service. Management reviews the procedures used by the third party, including significant inputs used in the fair value calculations. 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 bond’s terms and conditions, among other things. When market quotes are not readily accessible or available, alternative approaches are utilized, such as matrix or model pricing. Restricted stock—The fair value has been determined to approximate cost. Loans held for sale—The fair value of loans held for sale are based on quoted market prices, where available, and determined by discounted estimated cash flows using interest rates approximating the Company’s current origination rates for similar loans adjusted to reflect the inherent credit risk. Loan and lease receivables, net—For certain variable rate loans that reprice frequently and with no significant changes in credit risk, fair value is estimated at carrying value. The fair value of other types of loans is estimated using an exit price notion. It is estimated by discounting future cash flows, using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Deposits—The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting future cash flows, using rates currently offered for deposits of similar remaining maturities. Paycheck Protection Program Liquidity Facility—The carrying amount approximates fair value. Federal Home Loan Bank advances—The fair value of FHLB advances is estimated by discounting the agreements based on maturities using rates currently offered for FHLB advances of similar remaining maturities adjusted for prepayment penalties that would be incurred if the borrowings were paid off on the measurement date. Securities sold under agreements to repurchase—The carrying amount approximates fair value due to maturities of less than ninety days. Subordinated notes—The fair value is based on available market prices. Junior subordinated debentures—The fair value of junior subordinated debentures, in the form of trust preferred securities, is determined using rates currently available to the Company for debt with similar terms and remaining maturities. Accrued interest receivable and payable—The carrying amount approximates fair value. Commitments to extend credit and letters of credit—The fair values of these off-balance sheet commitments to extend credit and commercial and letters of credit are not considered practicable to estimate because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. The estimated fair values of financial instruments not carried at fair value and levels within the fair value hierarchy are as follows:
|  |  |  |  | September 30, |  |  | December 31, |
|  | Fair Value |  |  | 2021 |  |  | 2020 |
|  | Hierarchy Level |  |  | Carrying Amount |  |  | Estimated Fair Value |  |  | Carrying Amount |  |  | Estimated Fair Value |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  |  | 1 |  |  | $ | 46,900 |  |  | $ | 46,900 |  |  | $ | 41,432 |  |  | $ | 41,432 |
Interest bearing deposits with other banks |  |  | 2 |  |  |  | 95,978 |  |  |  | 95,978 |  |  |  | 41,988 |  |  |  | 41,988 |
Securities held-to-maturity |  |  | 2 |  |  |  | 3,887 |  |  |  | 4,033 |  |  |  | 4,395 |  |  |  | 4,573 |
Other restricted stock |  |  | 2 |  |  |  | 15,927 |  |  |  | 15,927 |  |  |  | 10,507 |  |  |  | 10,507 |
Loans held for sale |  |  | 3 |  |  |  | 48,372 |  |  |  | 54,739 |  |  |  | 7,924 |  |  |  | 8,848 |
Loans and lease receivables, net (less impaired loans at fair value) |  |  | 3 |  |  |  | 4,485,994 |  |  |  | 4,478,323 |  |  |  | 4,202,793 |  |  |  | 4,205,906 |
Accrued interest receivable |  |  | 3 |  |  |  | 18,857 |  |  |  | 18,857 |  |  |  | 20,678 |  |  |  | 20,678 |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-interest-bearing deposits |  |  | 2 |  |  |  | 2,117,749 |  |  |  | 2,117,749 |  |  |  | 1,762,676 |  |  |  | 1,762,676 |
Interest-bearing deposits |  |  | 2 |  |  |  | 3,040,529 |  |  |  | 3,041,101 |  |  |  | 2,989,355 |  |  |  | 2,990,735 |
Accrued interest payable |  |  | 2 |  |  |  | 1,687 |  |  |  | 1,687 |  |  |  | 1,478 |  |  |  | 1,478 |
Paycheck Protection Program Liquidity Facility |  |  | 2 |  |  |  | 156,404 |  |  |  | 156,404 |  |  |  | 371,907 |  |  |  | 371,907 |
Federal Home Loan Bank advances |  |  | 2 |  |  |  | 355,000 |  |  |  | 355,000 |  |  |  | 234,000 |  |  |  | 234,000 |
Securities sold under repurchase agreement |  |  | 2 |  |  |  | 27,715 |  |  |  | 27,715 |  |  |  | 41,994 |  |  |  | 41,994 |
Subordinated notes |  |  | 2 |  |  |  | 73,473 |  |  |  | 83,291 |  |  |  | 73,342 |  |  |  | 76,627 |
Junior subordinated debentures |  |  | 3 |  |  |  | 36,796 |  |  |  | 40,777 |  |  |  | 36,451 |  |  |  | 40,543 |

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- 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 Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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