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Fair Value Measurements
 12 Months Ended
Dec. 31, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements

(20.) FAIR VALUE MEASUREMENTS

Determination of Fair Value — Assets Measured at Fair Value on a Recurring and Nonrecurring Basis

Valuation Hierarchy

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. There have been no changes in the valuation techniques used during the current period. The fair value hierarchy is as follows:

•
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
•
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
•
Level 3 - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Transfers between levels of the fair value hierarchy are recorded as of the end of the reporting period.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, 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 at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

(20.) FAIR VALUE MEASUREMENTS (Continued)

Securities available for sale: Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Derivative instruments: The fair value of derivative instruments is determined using quoted secondary market prices for similar financial instruments and are classified as Level 2 in the fair value hierarchy.

Loans held for sale: The fair value of loans held for sale is determined using quoted secondary market prices and investor commitments. Loans held for sale are classified as Level 2 in the fair value hierarchy.

Collateral dependent loans: Fair value of collateral dependent loans with specific allocations of the allowance for credit losses - loans is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and collateral value is determined based on appraisals performed by qualified licensed appraisers hired by the Company. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

Long-lived assets held for sale: The fair value of the long-lived assets held for sale was based on estimated market prices from independently prepared current appraisals, adjusted for expected costs to sell, and are classified as Level 3 in the fair value hierarchy.

Loan servicing rights: Loan servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of loan servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The assumptions used in the discounted cash flow model are those that the Company believes market participants would use in estimating future net servicing income, including estimates of loan prepayment rates, servicing costs, ancillary income, impound account balances, and discount rates. The significant unobservable inputs used in the fair value measurement of the Company’s loan servicing rights are the constant prepayment rates and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite directions. Loan servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

Other real estate owned (foreclosed assets): Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third-party appraisals of the property, resulting in a Level 3 classification. The appraisals are sometimes further discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Commitments to extend credit and letters of credit: Commitments to extend credit and fund letters of credit are principally at current interest rates, and, therefore, the carrying amount approximates fair value. The fair value of commitments is not material.

(20.) FAIR VALUE MEASUREMENTS (Continued)

Assets Measured at Fair Value

The following tables present for each of the fair-value hierarchy levels the Company’s assets that are measured at fair value on a recurring and non-recurring basis as of December 31 (in thousands):

 

 

 

Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)

 

 

Significant Other Observable Inputs
(Level 2)

 

 

Significant Unobservable Inputs
(Level 3)

 

 

Total

 

2024

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

-

 

 

$

902,384

 

 

$

-

 

 

$

902,384

 

Other debt securities

 

 

-

 

 

 

8,721

 

 

 

-

 

 

 

8,721

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Hedging derivative instruments

 

 

-

 

 

 

4,693

 

 

 

-

 

 

 

4,693

 

Fair value adjusted through comprehensive income

 

$

-

 

 

$

915,798

 

 

$

-

 

 

$

915,798

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments–interest rate products

 

$

-

 

 

$

41,318

 

 

$

-

 

 

$

41,318

 

Derivative instruments–mortgage banking

 

 

-

 

 

 

122

 

 

 

-

 

 

 

122

 

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments–interest rate products

 

 

-

 

 

 

(41,319

)

 

 

-

 

 

 

(41,319

)

Derivative instruments–mortgage banking

 

 

-

 

 

 

(91

)

 

 

-

 

 

 

(91

)

Fair value adjusted through net income

 

$

-

 

 

$

30

 

 

$

-

 

 

$

30

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a nonrecurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

-

 

 

$

2,280

 

 

$

-

 

 

$

2,280

 

Collateral dependent loans

 

 

-

 

 

 

-

 

 

 

56,246

 

 

 

56,246

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets held for sale

 

 

-

 

 

 

-

 

 

 

596

 

 

 

596

 

Mortgage servicing rights

 

 

-

 

 

 

-

 

 

 

1,597

 

 

 

1,597

 

Other real estate owned

 

 

-

 

 

 

-

 

 

 

60

 

 

 

60

 

Total

 

$

-

 

 

$

2,280

 

 

$

58,499

 

 

$

60,779

 

 

(20.) FAIR VALUE MEASUREMENTS (Continued)

There were no transfers between Levels 1 and 2 during the years ended December 31, 2024 and 2023. There were no liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2024 and 2023.

 

 

 

Quoted Prices
in Active
Markets for
Identical
Assets or
Liabilities
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

 

Total

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies and government sponsored enterprises

 

$

-

 

 

$

21,811

 

 

$

-

 

 

$

21,811

 

Mortgage-backed securities

 

 

-

 

 

 

865,919

 

 

 

-

 

 

 

865,919

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Hedging derivative instruments

 

 

-

 

 

 

5,939

 

 

 

-

 

 

 

5,939

 

Fair value adjusted through comprehensive income

 

$

-

 

 

$

893,669

 

 

$

-

 

 

$

893,669

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments – interest rate products

 

$

-

 

 

$

37,517

 

 

$

-

 

 

$

37,517

 

Derivative instruments – mortgage banking

 

 

-

 

 

 

50

 

 

 

-

 

 

 

50

 

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments – interest rate products

 

 

-

 

 

 

(37,519

)

 

 

-

 

 

 

(37,519

)

Derivative instruments – mortgage banking

 

 

-

 

 

 

(2

)

 

 

-

 

 

 

(2

)

Fair value adjusted through net income

 

$

-

 

 

$

46

 

 

$

-

 

 

$

46

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a nonrecurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

-

 

 

$

1,370

 

 

$

-

 

 

$

1,370

 

Collateral dependent loans

 

 

-

 

 

 

-

 

 

 

37,516

 

 

 

37,516

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets held for sale

 

 

-

 

 

 

-

 

 

 

629

 

 

 

629

 

Mortgage servicing rights

 

 

-

 

 

 

-

 

 

 

1,382

 

 

 

1,382

 

Other real estate owned

 

 

-

 

 

 

-

 

 

 

142

 

 

 

142

 

Total

 

$

-

 

 

$

1,370

 

 

$

39,669

 

 

$

41,039

 

 

There were no transfers between Levels 1 and 2 during the years ended December 31, 2023 and 2022. There were no liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2023 and 2022.

The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands) at December 31, 2024.

 

Asset

 

Fair
Value

 

 

Valuation Technique

 

Unobservable Input

 

Unobservable Input
Value / Range

Collateral dependent loans

 

$

56,246

 

 

Appraisal of collateral (1)

 

Appraisal adjustments (2)

 

32.7% (3) / 0 - 77.3%

Loan servicing rights

 

$

1,597

 

 

Discounted cash flow

 

Discount rate

 

10.2% (3)

 

 

 

 

 

 

Constant prepayment rate

 

12.3% (3)

Long-lived assets held for sale

 

$

596

 

 

Appraisal of collateral (1)

 

Appraisal adjustments (2)

 

11.8% (3)

Other real estate owned

 

$

60

 

 

Appraisal of collateral (1)

 

Appraisal adjustments (2)

 

39.0%

 

(1)
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.
(2)
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.
(3)
Weighted averages.

(20.) FAIR VALUE MEASUREMENTS (Continued)

Changes in Level 3 Fair Value Measurements

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the years ended December 31, 2024 and 2023.

Disclosures about Fair Value of Financial Instruments

The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.

Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In some cases, the fair value estimates cannot be substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.

The estimated fair value approximates carrying value for cash and cash equivalents, FHLB and FRB stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable. Fair value estimates for other financial instruments not included elsewhere in this disclosure are discussed below.

Securities held to maturity: The fair value of the Company’s investment securities held to maturity is primarily measured using information from a third-party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Loans: The fair value of the Company’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made for the same remaining maturities. Loans were first segregated by type, such as commercial, residential mortgage, and consumer, and were then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Time deposits: The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.

Long-term borrowings: Long-term borrowings consist of $75 million of subordinated notes and $50 million of long-term borrowings from the FHLB. The subordinated notes are publicly traded and are valued based on market prices, which are characterized as Level 2 liabilities in the fair value hierarchy. The FHLB borrowings are valued using discounted cash flows based on current market rates for borrowings with similar remaining maturities and are characterized as Level 2 liabilities in the fair value hierarchy.

(20.) FAIR VALUE MEASUREMENTS (Continued)

The following presents the carrying amount, estimated fair value, and placement in the fair value measurement hierarchy of the Company’s financial instruments as of December 31, 2024 and 2023 (in thousands):

 

 

 

Level in Fair Value Measurement Hierarchy

 

2024

 

 

2023

 

 

 

 

 

Carrying Amount

 

 

Estimated Fair Value

 

 

Carrying Amount

 

 

Estimated Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

Level 1

 

$

87,321

 

 

$

87,321

 

 

$

124,442

 

 

$

124,442

 

Securities available for sale

 

Level 2

 

 

911,105

 

 

 

911,105

 

 

 

887,730

 

 

 

887,730

 

Securities held to maturity, net

 

Level 2

 

 

116,001

 

 

 

104,556

 

 

 

148,156

 

 

 

137,030

 

Loans held for sale

 

Level 2

 

 

2,280

 

 

 

2,280

 

 

 

1,370

 

 

 

1,370

 

Loans

 

Level 2

 

 

4,374,917

 

 

 

4,277,167

 

 

 

4,373,541

 

 

 

4,143,918

 

Loans⁽¹⁾

 

Level 3

 

 

56,246

 

 

 

56,246

 

 

 

37,516

 

 

 

37,516

 

Long-lived assets held for sale

 

Level 3

 

 

596

 

 

 

596

 

 

 

629

 

 

 

629

 

Accrued interest receivable

 

Level 1

 

 

23,748

 

 

 

23,748

 

 

 

24,481

 

 

 

24,481

 

Derivative instruments–cash flow hedge

 

Level 2

 

 

4,693

 

 

 

4,693

 

 

 

5,939

 

 

 

5,939

 

Derivative instruments–interest rate products

 

Level 2

 

 

41,318

 

 

 

41,318

 

 

 

37,517

 

 

 

37,517

 

Derivative instruments–mortgage banking

 

Level 2

 

 

122

 

 

 

122

 

 

 

50

 

 

 

50

 

FHLB and FRB stock

 

Level 2

 

 

18,261

 

 

 

18,261

 

 

 

17,406

 

 

 

17,406

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits

 

Level 1

 

 

3,559,559

 

 

 

3,559,559

 

 

 

3,808,216

 

 

 

3,808,216

 

Time deposits

 

Level 2

 

 

1,545,172

 

 

 

1,541,013

 

 

 

1,404,696

 

 

 

1,398,352

 

Short-term borrowings

 

Level 1

 

 

99,000

 

 

 

99,000

 

 

 

185,000

 

 

 

185,000

 

Long-term borrowings

 

Level 2

 

 

124,842

 

 

 

127,402

 

 

 

124,532

 

 

 

128,363

 

Accrued interest payable

 

Level 1

 

 

25,849

 

 

 

25,849

 

 

 

19,412

 

 

 

19,412

 

Derivative instruments–interest rate products

 

Level 2

 

 

41,319

 

 

 

41,319

 

 

 

37,519

 

 

 

37,519

 

Derivative instruments–mortgage banking

 

Level 2

 

 

91

 

 

 

91

 

 

 

2

 

 

 

2

 

 

(1)
Comprised of collateral dependent loans.