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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Fair value is the price that would be received to sell 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 at the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1: Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow the Company to sell its ownership interest back to the fund at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities, or funds. Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or valuations using methodologies with observable inputs. Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques using unobservable inputs, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. (a) Recurring and Nonrecurring Basis The Company used the following methods and significant assumptions to measure the fair value of certain assets on a recurring and nonrecurring basis: Investment Securities: The fair values of all investment securities are based upon the assumptions that market participants would use in pricing the security. If available, fair values of investment securities are determined by quoted market prices (Level 1). For investment securities where quoted market prices are not available, fair values are calculated based on market prices on similar securities (Level 2). For investment securities where quoted prices or market prices of similar securities are not available, fair values are calculated by using observable and unobservable inputs such as discounted cash flows or other market indicators (Level 3). Investment security valuations are obtained from third-party pricing services. Collateral-Dependent Loans: Collateral-dependent loans are identified for the calculation of the ACL on loans. The fair value used to measure credit loss for this type of loan is commonly based on recent real estate appraisals which are generally obtained at least every 18 months or earlier if there are changes to risk characteristics of the underlying loan. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. The Bank also incorporates an estimate of cost to sell the collateral when the sale is probable. Such adjustments may be significant and result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value based on the borrower’s financial statements or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the customer and customer’s business (Level 3). Individually evaluated loans are analyzed for credit loss on a quarterly basis and the ACL on loans is adjusted as required based on the results. Appraisals on collateral-dependent loans are performed by certified general appraisers for commercial properties or certified residential appraisers for residential properties whose qualifications and licenses have been reviewed and verified by the Bank. Once received, the Bank reviews the assumptions and approaches utilized in the appraisal as well as the resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Derivative Financial Instruments: The Bank obtains broker or dealer quotes to value its interest rate derivative contracts, which use valuation models using observable market data as of the measurement date (Level 2), and incorporates credit valuation adjustments to reflect nonperformance risk in the measurement of fair value (Level 3). Although the Bank has determined that the majority of the inputs used to value its interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as borrower risk ratings, to evaluate the likelihood of default by itself and its counterparties. As of September 30, 2021 and December 31, 2020, the Bank assessed the significance of the impact of the credit valuation adjustment on the overall valuation of its interest rate swap derivatives and determined that the credit valuation adjustment was not significant to the overall valuation of its interest rate swap derivatives. As a result, the Bank has classified its interest rate swap derivative valuations in Level 2 of the fair value hierarchy. Branches held for sale: Branches held for sale are recorded at fair value less costs to sell when transferred from Premises and equipment, net to Prepaid expenses and other assets on the Consolidated Statements of Financial Condition with any valuation adjustment recorded within Other noninterest expense on the Consolidated Statements of Income. The fair value of branches held for sale is determined based on a real estate appraisal or broker price opinion. Adjustments are routinely made in the appraisal and broker price opinion process by independent appraisers and commercial real estate brokers, respectively, to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in Level 3 classification of the inputs for determining fair value. Recurring Basis The following tables summarize the balances of assets and liabilities measured at fair value on a recurring basis at the dates indicated:
| September 30, 2021
| Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Assets |  |  |  |  |  |  |
Investment securities available for sale: |  |  |  |  |  |  |
U.S. government and agency securities | $ | 26,106 |  |  | $ | — |  |  | $ | 26,106 |  |  | $ | — |
Municipal securities | 228,166 |  |  | — |  |  | 228,166 |  |  | — |
Residential CMO and MBS | 242,693 |  |  | — |  |  | 242,693 |  |  | — |
Commercial CMO and MBS | 235,018 |  |  | — |  |  | 235,018 |  |  | — |
Corporate obligations | 2,023 |  |  | — |  |  | 2,023 |  |  | — |
Other asset-backed securities | 27,520 |  |  | — |  |  | 27,520 |  |  | — |
Total investment securities available for sale | 761,526 |  |  | — |  |  | 761,526 |  |  | — |
Equity security | 210 |  |  | 210 |  |  | — |  |  | — |
Derivative assets - interest rate swaps | 17,843 |  |  | — |  |  | 17,843 |  |  | — |
Liabilities |  |  |  |  |  |  |
Derivative liabilities - interest rate swaps | $ | 17,970 |  |  | $ | — |  |  | 17,970 |  |  | $ | — |
| December 31, 2020
| Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Assets |  |  |  |  |  |  |
Investment securities available for sale: |  |  |  |  |  |  |
U.S. government and agency securities | $ | 45,660 |  |  | $ | — |  |  | $ | 45,660 |  |  | $ | — |
Municipal securities | 209,968 |  |  | — |  |  | 209,968 |  |  | — |
Residential CMO and MBS | 201,872 |  |  | — |  |  | 201,872 |  |  | — |
Commercial CMO and MBS | 303,746 |  |  | — |  |  | 303,746 |  |  | — |
Corporate obligations | 11,096 |  |  | — |  |  | 11,096 |  |  | — |
Other asset-backed securities | 29,821 |  |  | — |  |  | 29,821 |  |  | — |
Total investment securities available for sale | 802,163 |  |  | — |  |  | 802,163 |  |  | — |
Equity security | 131 |  |  | 131 |  |  | — |  |  | — |
Derivative assets - interest rate swaps | 25,740 |  |  | — |  |  | 25,740 |  |  | — |
Liabilities |  |  |  |  |  |  |
Derivative liabilities - interest rate swaps | $ | 26,162 |  |  | $ | — |  |  | $ | 26,162 |  |  | $ | — |
Nonrecurring Basis The Company may be required to measure certain financial assets and liabilities at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following tables below represent assets measured at fair value on a nonrecurring basis at the dates indicated:
|  |  | Fair Value at September 30, 2021
| Basis(1) |  | Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Collateral-dependent loans: |  |  |  |  |  |  |  |  |
Commercial business: |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 2,058 |  |  | $ | 1,222 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,222 |
|  |  | Fair Value at September 30, 2021
| Basis(1) |  | Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Owner-occupied CRE | 613 |  |  | 486 |  |  | — |  |  | — |  |  | 486 |
Total commercial business | 2,671 |  |  | 1,708 |  |  | — |  |  | — |  |  | 1,708 |
Real estate construction and land development: |  |  |  |  |  |  |  |  |
Commercial and multifamily | 991 |  |  | 534 |  |  | — |  |  | — |  |  | 534 |
Total | $ | 3,662 |  |  | $ | 2,242 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,242 |
Prepaid expenses and other assets: |  |  |  |  |  |  |  |  |
Branch held for sale (2) | 805 |  |  | 805 |  |  | — |  |  | — |  |  | 805 |
Total assets measured at fair value on a nonrecurring basis | $ | 4,467 |  |  | $ | 3,047 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,047 |
(1) Basis represents the outstanding principal balance of collateral-dependent loans and the carrying value of the branch held for sale. (2) In July 2021, three branches were reclassified as held for sale in accordance with ASC 360-10. As part of the transfer, one branch was written down to its net realizable value at that time.
|  |  | Fair Value at December 31, 2020
| Basis(1) |  | Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Collateral-dependent loans: |  |  |  |  |  |  |  |  |
Commercial business: |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 1,305 |  |  | $ | 1,289 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,289 |
Prepaid expenses and other assets: |  |  |  |  |  |  |  |  |
Branch held for sale (2) | 1,330 |  |  | 1,330 |  |  | — |  |  | — |  |  | 1,330 |
Total assets measured at fair value on a nonrecurring basis | $ | 2,635 |  |  | $ | 2,619 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,619 |
(1) Basis represents the outstanding principal balance of collateral-dependent loans and the carrying value of the branch held for sale. (2) In October 2020, one branch was reclassified as held for sale in accordance with ASC 360-10. As part of the transfer, the branch was written down to its net realizable value at that time. The following table represents the net (loss) gain recorded in earnings as a result of nonrecurring fair value adjustments recorded during the periods indicated:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
| (In thousands)
Collateral-dependent loans: |  |  |  |  |  |  |
Commercial business: |  |  |  |  |  |  |
Commercial and industrial | $ | (54) |  |  | $ | — |  |  | $ | (563) |  |  | $ | (10) |
Owner-occupied CRE | 15 |  |  | — |  |  | (61) |  |  | — |
Total commercial business | (39) |  |  | — |  |  | (624) |  |  | (10) |
Real estate construction and land development: |  |  |  |  |  |  |
Commercial and multifamily | — |  |  | — |  |  | (38) |  |  | — |
Total | (39) |  |  | — |  |  | (662) |  |  | (10) |
Prepaid expenses and other assets: |  |  |  |  |  |  |
Branch held for sale | (38) |  |  | — |  |  | (38) |  |  | — |
Net loss from nonrecurring fair value adjustments | $ | (77) |  |  | $ | — |  |  | $ | (700) |  |  | $ | (10) |
The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the dates indicated:
| September 30, 2021
| Fair Value |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range of Inputs; Weighted Average
| (Dollars in thousands)
Collateral-dependent loans | $ | 2,242 |  |  | Market approach |  | Adjustment for differences between the comparable sales |  | 55.0% - (20.0)%; 9.6%
Branch held for sale | $ | 805 |  |  | Market approach |  | Adjustment for differences between the comparable sales |  | 51.8% - (26.0)%; 6.4%
| December 31, 2020
| Fair Value |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range of Inputs; Weighted Average
| (Dollars in thousands)
Collateral-dependent loans | $ | 1,289 |  |  | Market approach |  | Adjustment for differences between the comparable sales |  | 0.6% - (40.1%); (24.1%)
Branch held for sale | $ | 1,330 |  |  | Market approach |  | Adjustment for differences between the comparable sales |  | 140.7% - (40.3%); 33.2%
(b) Fair Value of Financial Instruments Broadly traded markets do not exist for most of the Company’s financial instruments; therefore, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. These determinations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company. The following tables present the carrying value amount of the Company’s financial instruments and their corresponding estimated fair values at the dates indicated:
| September 30, 2021
| Carrying Value |  | Fair Value |  | Fair Value Measurements Using:
|  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Financial Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 1,634,739 |  |  | $ | 1,634,739 |  |  | $ | 1,634,739 |  |  | $ | — |  |  | $ | — |
Investment securities available for sale | 761,526 |  |  | 761,526 |  |  | — |  |  | 761,526 |  |  | — |
Investment securities held to maturity | 311,074 |  |  | 307,330 |  |  | — |  |  | 307,330 |  |  | — |
Loans held for sale | 2,636 |  |  | 2,726 |  |  | — |  |  | — |  |  | 2,726 |
Loans receivable, net | 3,905,567 |  |  | 4,014,701 |  |  | — |  |  | — |  |  | 4,014,701 |
Accrued interest receivable | 14,802 |  |  | 14,802 |  |  | 51 |  |  | 3,578 |  |  | 11,173 |
Bank owned life insurance | 109,634 |  |  | 109,634 |  |  | 109,634 |  |  | — |  |  | — |
Derivative assets - interest rate swaps | 17,843 |  |  | 17,843 |  |  | — |  |  | 17,843 |  |  | — |
Equity security | 210 |  |  | 210 |  |  | 210 |  |  | — |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |  |  |
Noninterest deposits, interest bearing demand deposits, money market accounts and savings accounts | $ | 5,859,762 |  |  | $ | 5,859,762 |  |  | $ | 5,859,762 |  |  | $ | — |  |  | $ | — |
Certificates of deposit | 355,796 |  |  | 357,266 |  |  | — |  |  | 357,266 |  |  | — |
Securities sold under agreement to repurchase | 44,096 |  |  | 44,096 |  |  | 44,096 |  |  | — |  |  | — |
Junior subordinated debentures | 21,107 |  |  | 18,250 |  |  | — |  |  | — |  |  | 18,250 |
Accrued interest payable | 74 |  |  | 74 |  |  | 31 |  |  | 25 |  |  | 18 |
Derivative liabilities - interest rate swaps | 17,970 |  |  | 17,970 |  |  | — |  |  | 17,970 |  |  | — |
| December 31, 2020
| Carrying Value |  | Fair Value |  | Fair Value Measurements Using:
|  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Financial Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 743,322 |  |  | $ | 743,322 |  |  | $ | 743,322 |  |  | $ | — |  |  | $ | — |
Investment securities available for sale | 802,163 |  |  | 802,163 |  |  | — |  |  | 802,163 |  |  | — |
Loans held for sale | 4,932 |  |  | 5,156 |  |  | — |  |  | — |  |  | 5,156 |
Loans receivable, net | 4,398,462 |  |  | 4,556,862 |  |  | — |  |  | — |  |  | 4,556,862 |
Accrued interest receivable | 19,418 |  |  | 19,418 |  |  | 2 |  |  | 3,648 |  |  | 15,768 |
Bank owned life insurance | 107,580 |  |  | 107,580 |  |  | 107,580 |  |  | — |  |  | — |
Derivative assets - interest rate swaps | 25,740 |  |  | 25,740 |  |  | — |  |  | 25,740 |  |  | — |
Equity security | 131 |  |  | 131 |  |  | 131 |  |  | — |  |  | — |
Financial Liabilities: |  |  |  |  |  |  |  |  |
Noninterest deposits, interest bearing demand deposits, money market accounts and savings accounts | $ | 5,198,456 |  |  | $ | 5,198,456 |  |  | $ | 5,198,456 |  |  | $ | — |  |  | $ | — |
Certificates of deposit | 399,534 |  |  | 402,701 |  |  | — |  |  | 402,701 |  |  | — |
Securities sold under agreement to repurchase | 35,683 |  |  | 35,683 |  |  | 35,683 |  |  | — |  |  | — |
Junior subordinated debentures | 20,887 |  |  | 18,500 |  |  | — |  |  | — |  |  | 18,500 |
Accrued interest payable | 94 |  |  | 94 |  |  | 42 |  |  | 33 |  |  | 19 |
Derivative liabilities - interest rate swaps | 26,162 |  |  | 26,162 |  |  | — |  |  | 26,162 |  |  | — |

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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