XML 38 R17.htm IDEA: XBRL DOCUMENT v3.22.2.2

Fair Value Measurements

9 Months Ended

Sep. 30, 2022

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's internal appraisal department reviews and approves 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, 2022 and December 31, 2021, 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 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 unaudited Condensed Consolidated Statements of Financial Condition with any valuation adjustment recorded within other noninterest expense on the unaudited Condensed 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. Additionally, the fair value of branches held for sale can be adjusted based on executed agreements of sale to be completed at a future date.

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, 2022
			Total						Level 1						Level 2						Level 3
			(In thousands)
Assets
Investment securities available for sale:
U.S. government and agency securities			$	63,749					$	19,770					$	43,979					$	—
Municipal securities			185,713						—						185,713						—
Residential CMO and MBS			438,370						—						438,370						—

			September 30, 2022
			Total						Level 1						Level 2						Level 3
			(In thousands)
Commercial CMO and MBS			639,441						—						639,441						—
Corporate obligations			5,834						—						5,834						—
Other asset-backed securities			23,035						—						23,035						—
Total investment securities available for sale			1,356,142						19,770						1,336,372						—
Equity security			192						192						—						—
Derivative assets - interest rate swaps			32,523						—						32,523						—
Liabilities
Derivative liabilities - interest rate swaps			$	32,523					$	—					$	32,523					$	—

			December 31, 2021
			Total						Level 1						Level 2						Level 3
			(In thousands)
Assets
Investment securities available for sale:
U.S. government and agency securities			$	21,373					$	—					$	21,373					$	—
Municipal securities			221,212						—						221,212						—
Residential CMO and MBS			306,884						—						306,884						—
Commercial CMO and MBS			315,861						—						315,861						—
Corporate obligations			2,014						—						2,014						—
Other asset-backed securities			26,991						—						26,991						—
Total investment securities available for sale			894,335						—						894,335						—
Equity security			240						240						—						—
Derivative assets - interest rate swaps			15,219						—						15,219						—
Liabilities
Derivative liabilities - interest rate swaps			$	15,286					$	—					$	15,286					$	—

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 represent assets measured at fair value on a nonrecurring basis at the dates indicated:

									Fair Value at September 30, 2022
			Basis(1)						Total						Level 1						Level 2						Level 3
			(In thousands)
Collateral-dependent loans:
Commercial business:
Owner-occupied CRE			613						186						—						—						186
Total assets measured at fair value on a nonrecurring basis			$	613					$	186					$	—					$	—					$	186

(1) Basis represents the outstanding principal balance of collateral-dependent loans.

									Fair Value at December 31, 2021
			Basis(1)						Total						Level 1						Level 2						Level 3
			(In thousands)
Collateral-dependent loans:
Commercial business:
Commercial and industrial			$	1,911					$	1,049					$	—					$	—					$	1,049
Owner-occupied CRE			613						189						—						—						189
Total commercial business			2,524						1,238						—						—						1,238
Real estate construction and land development:

									Fair Value at December 31, 2021
			Basis(1)						Total						Level 1						Level 2						Level 3
			(In thousands)
Commercial and multifamily			991						$	534					—						—						534
Total			3,515						1,772						—						—						1,772
Prepaid expenses and other assets:
Branch held for sale (2)			698						698						—						—						698
Total assets measured at fair value on a nonrecurring basis			$	4,213					$	2,470					$	—					$	—					$	2,470

(1) Basis represents the outstanding principal balance of collateral-dependent loans and the carrying value of the branch held for sale.

(2) In December 2021, one branch was written down to its net realizable value concurrent with the signing of an agreement for sale and was sold during the three months ended March 31, 2022.

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,
			2022						2021						2022						2021
			(In thousands)
Collateral-dependent loans:
Commercial business:
Commercial and industrial			$	—					$	(54)					$	24					$	(563)
Owner-occupied CRE			—						15						(4)						(61)
Total commercial business			—						(39)						20						(624)
Real estate construction and land development:
Commercial and multifamily			—						—						—						(38)
Total			—						(39)						20						(662)
Prepaid expenses and other assets:
Branch held for sale			—						(38)						—						(38)
Net (loss) gain from nonrecurring fair value adjustments			$	—					$	(77)					$	20					$	(700)

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, 2022

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Range of Inputs; Weighted Average

(Dollars in thousands)

Collateral-dependent loans

$

186

Market approach

Adjustment for differences between the comparable sales

N/A(1)

(1)Quantitative disclosures are not provided for collateral-dependent loans because there were no adjustments made to the appraisal or stated values during the current period.

December 31, 2021

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Range of Inputs; Weighted Average

(Dollars in thousands)

Collateral-dependent loans

$

1,772

Market approach

Adjustment for differences between the comparable sales

35.0% - (11.0%); 13.8%

Branch held for sale

$

698

Market approach

Sale agreement

N/A

(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, 2022
			Carrying Value						Fair Value						Fair Value Measurements Using:
															Level 1						Level 2						Level 3
			(In thousands)
Financial Assets:
Cash and cash equivalents			$	407,324					$	407,324					$	407,324					$	—					$	—
Investment securities available for sale			1,356,142						1,356,142						19,770						1,336,372						—
Investment securities held to maturity			773,319						677,335						—						677,335						—
Loans held for sale			—						—						—						—						—
Loans receivable, net			3,959,206						3,848,546						—						—						3,848,546
Accrued interest receivable			17,812						17,812						351						6,962						10,499
Derivative assets - interest rate swaps			32,523						32,523						—						32,523						—
Equity security			192						192						192						—						—
Financial Liabilities:
Non-maturity deposits			$	5,950,312					$	5,950,312					$	5,950,312					$	—					$	—
Certificates of deposit			287,423						287,837						—						287,837						—
Securities sold under agreement to repurchase			40,449						40,449						40,449						—						—
Junior subordinated debentures			21,399						20,250						—						—						20,250
Accrued interest payable			101						101						36						13						52
Derivative liabilities - interest rate swaps			32,523						32,523						—						32,523						—

			December 31, 2021
			Carrying Value						Fair Value						Fair Value Measurements Using:
															Level 1						Level 2						Level 3
			(In thousands)
Financial Assets:
Cash and cash equivalents			$	1,723,292					$	1,723,292					$	1,723,292					$	—					$	—
Investment securities available for sale			894,335						894,335						—						894,335						—
Investment securities held to maturity			383,393						376,331						—						376,331						—
Loans held for sale			1,476						1,527						—						1,527						—
Loans receivable, net			3,773,301						3,849,602						—						—						3,849,602
Accrued interest receivable			14,657						14,657						14						4,582						10,061
Derivative assets - interest rate swaps			15,219						15,219						—						15,219						—
Equity security			240						240						240						—						—
Financial Liabilities:
Non-maturity deposits			$	6,051,451					$	6,051,451					$	6,051,451					$	—					$	—
Certificates of deposit			342,839						344,025						—						344,025						—
Securities sold under agreement to repurchase			50,839						50,839						50,839						—						—
Junior subordinated debentures			21,180						18,750						—						—						18,750
Accrued interest payable			73						73						33						19						21
Derivative liabilities - interest rate swaps			15,286						15,286						—						15,286						—

X

- References

No definition available.

+ Details

Name:	us-gaap_FairValueDisclosuresAbstract
Namespace Prefix:	us-gaap_
Data Type:	xbrli:stringItemType
Balance Type:	na
Period Type:	duration

X

- 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 https://asc.fasb.org/topic&trid=2155941

+ Details

Name:	us-gaap_FairValueMeasurementInputsDisclosureTextBlock
Namespace Prefix:	us-gaap_
Data Type:	dtr-types:textBlockItemType
Balance Type:	na
Period Type:	duration