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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis Investment securities available for sale and marketable equity securities: Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Servicing rights: MSR and CSR are measured at fair value on a recurring basis. These assets are classified as Level 3 as quoted prices are not available. In order to determine the fair value of MSR and CSR, the present value of net expected future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, escrow calculations, delinquency rates, and ancillary fee income net of servicing costs. Derivative instruments: The fair value of the interest rate lock commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment derivatives are classified as Level 3. Interest rate contracts are valued in a model, which uses as its basis a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value. Although the Company has determined that the majority of inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2023, the Company has assessed the significance of the impact of these adjustments on the overall valuation of its interest rate positions and has determined that they are not significant to the overall valuation of its interest rate derivatives. As a result, the Company has classified its interest rate derivative valuations in Level 2 of the fair value hierarchy. Commitments to extend credit and standby letters of credit: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date. Assets Subject to Nonrecurring Adjustment to Fair Value The Company is also required to measure certain assets such as equity method investments, goodwill, intangible assets, impaired loans, and Other Real Estate Owned (“OREO”) at fair value on a nonrecurring basis in accordance with GAAP. Any nonrecurring adjustments to fair value usually result from the write-down of individual assets. The Company uses either in-house evaluations or external appraisals to estimate the fair value of OREO and impaired loans as of each reporting date. In-house appraisals are considered Level 3 inputs and external appraisals are considered Level 2 inputs. The Company’s determination of which method to use is based upon several factors. The Company takes into account compliance with legal and regulatory guidelines, the amount of the loan, the size of the assets, the location and type of property to be valued and how critical the timing of completion of the analysis is to the assessment of value. Those factors are balanced with the level of internal expertise, internal experience and market information available, versus external expertise available such as qualified appraisers, brokers, auctioneers and equipment specialists. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Estimated fair values as of the periods indicated are as follows:
| September 30, 2023 |  | December 31, 2022
(In Thousands) | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Financial assets: |  |  |  |  |  |  |
Level 1 inputs: |  |  |  |  |  |  |
Cash, due from banks and deposits in other banks | $111,228 |  |  | $111,228 |  |  | $259,350 |  |  | $259,350 |
Investment securities available for sale | 327,468 |  |  | 327,468 |  |  | 356,837 |  |  | 356,837 |
Marketable equity securities | 10,615 |  |  | 10,615 |  |  | 10,740 |  |  | 10,740 |
Level 2 inputs: |  |  |  |  |  |  |
Investment securities available for sale | 324,682 |  |  | 324,682 |  |  | 320,192 |  |  | 320,192 |
Investment in Federal Home Loan Bank stock | 6,334 |  |  | 6,334 |  |  | 3,816 |  |  | 3,816 |
Loans held for sale | 63,151 |  |  | 63,151 |  |  | 27,538 |  |  | 27,538 |
Interest rate swaps | 17,279 |  |  | 17,279 |  |  | 14,179 |  |  | 14,179 |
Retail interest rate contracts | 145 |  |  | 145 |  |  | — |  |  | — |
Level 3 inputs: |  |  |  |  |  |  |
Investment securities held to maturity | 36,750 |  |  | 32,233 |  |  | 36,750 |  |  | 32,639 |
Loans | 1,720,091 |  |  | 1,594,495 |  |  | 1,501,785 |  |  | 1,408,350 |
Purchased receivables, net | 34,578 |  |  | 34,578 |  |  | 19,994 |  |  | 19,994 |
Interest rate lock commitments | 518 |  |  | 518 |  |  | 440 |  |  | 440 |
Mortgage servicing rights | 19,396 |  | 19,396 |  | 18,635 |  |  | 18,635 |
Commercial servicing rights | 2,118 |  | 2,118 |  | 2,129 |  |  | 2,129 |
Financial liabilities: |  |  |  |  |  |  |
Level 2 inputs: |  |  |  |  |  |  |
Deposits | $2,427,930 |  |  | $2,424,081 |  |  | $2,387,211 |  |  | $2,383,975 |
Borrowings | 63,781 |  |  | 61,374 |  |  | 14,095 |  |  | 12,382 |
Interest rate swaps | 15,797 |  |  | 15,797 |  |  | 12,725 |  |  | 12,725 |
Retail interest rate contracts | — |  |  | — |  |  | 3 |  |  | 3 |
Level 3 inputs: |  |  |  |  |  |  |
Junior subordinated debentures | 10,310 |  |  | 11,391 |  |  | 10,310 |  |  | 11,266 |
The following table sets forth the balances as of the periods indicated of assets and liabilities measured at fair value on a recurring basis:
(In Thousands) | Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
September 30, 2023 |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |
Available for sale securities |  |  |  |  |  |  |
U.S. Treasury and government sponsored entities | $578,635 |  |  | $313,990 |  |  | $264,645 |  |  | $— |
Municipal securities | 809 |  |  | — |  |  | 809 |  |  | — |
Corporate bonds | 13,478 |  |  | 13,478 |  |  | — |  |  | — |
Collateralized loan obligations | 59,228 |  |  | — |  |  | 59,228 |  |  | — |
Total available for sale securities | $652,150 |  |  | $327,468 |  |  | $324,682 |  |  | $— |
Marketable equity securities | $10,615 |  |  | $10,615 |  |  | $— |  |  | $— |
Total marketable equity securities | $10,615 |  |  | $10,615 |  |  | $— |  |  | $— |
Interest rate swaps | $17,872 |  |  | $— |  |  | $17,872 |  |  | $— |
Interest rate lock commitments | 518 |  |  | — |  |  | — |  |  | 518 |
Mortgage servicing rights | 19,396 |  |  | — |  |  | — |  |  | 19,396 |
Commercial servicing rights | 2,118 |  |  | — |  |  | — |  |  | 2,118 |
Retail interest rate contracts | 145 |  |  | — |  |  | 145 |  |  | — |
Total other assets | $40,049 |  |  | $— |  |  | $18,017 |  |  | $22,032 |
Liabilities: |  |  |  |  |  |  |
Interest rate swaps | $15,797 |  |  | $— |  |  | $15,797 |  |  | $— |
Total other liabilities | $15,797 |  |  | $— |  |  | $15,797 |  |  | $— |
December 31, 2022 |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |
Available for sale securities |  |  |  |  |  |  |
U.S. Treasury and government sponsored entities | $595,161 |  |  | $333,193 |  |  | $261,968 |  |  | $— |
Municipal securities | 795 |  |  | — |  |  | 795 |  |  | — |
Corporate bonds | 23,644 |  |  | 23,644 |  |  | — |  |  | — |
Collateralized loan obligations | 57,429 |  |  | — |  |  | 57,429 |  |  | — |
Total available for sale securities | $677,029 |  |  | $356,837 |  |  | $320,192 |  |  | $— |
Marketable equity securities | $10,740 |  |  | $10,740 |  |  | $— |  |  | $— |
Total marketable securities | $10,740 |  |  | $10,740 |  |  | $— |  |  | $— |
Interest rate swaps | $14,178 |  |  | $— |  |  | $14,178 |  |  | $— |
Interest rate lock commitments | 440 |  |  | — |  |  | — |  |  | 440 |
Mortgage servicing rights | 18,635 |  |  | — |  |  | — |  |  | 18,635 |
Commercial servicing rights | 2,129 |  |  | — |  |  | — |  |  | 2,129 |
Total other assets | $35,382 |  |  | $— |  |  | $14,178 |  |  | $21,204 |
Liabilities: |  |  |  |  |  |  |
Interest rate swaps | $12,725 |  |  | $— |  |  | $12,725 |  |  | $— |
Retail interest rate contracts | 3 |  |  | — |  |  | 3 |  |  | — |
Total other liabilities | $12,728 |  |  | $— |  |  | $12,728 |  |  | $— |
The following tables provide a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine-month periods ended September 30, 2023 and 2022:
(In Thousands) | Beginning balance | Change included in earnings | Purchases and issuances | Sales and settlements | Ending balance | Net change in unrealized gains (losses) relating to items held at end of period
Three Months Ended September 30, 2023 |  |  |  |  |  |
Interest rate lock commitments | $851 |  | ($267) |  | $2,021 |  | ($2,087) |  | $518 |  | $518 |
Mortgage servicing rights | 18,248 |  | (310) |  | 1,458 |  | — |  | 19,396 |  | — |
Commercial servicing rights | 2,139 |  | (39) |  | 18 |  | — |  | 2,118 |  | — |
Total | $21,238 |  | ($616) |  | $3,497 |  | ($2,087) |  | $22,032 |  | $518 |
Three Months Ended September 30, 2022 |  |  |  |  |  |
Interest rate lock commitments | $2,567 |  | ($370) |  | $2,976 |  | ($4,819) |  | $354 |  | $354 |
Mortgage servicing rights | 16,301 |  | 145 |  | 1,263 |  | — |  | 17,709 |  | — |
Commercial servicing rights | 1,069 |  | (75) |  | 73 |  | — |  | 1,067 |  | — |
Total | $19,937 |  | ($300) |  | $4,312 |  | ($4,819) |  | $19,130 |  | $354 |
(In Thousands) | Beginning balance | Change included in earnings | Purchases and issuances | Sales and settlements | Ending balance | Net change in unrealized gains (losses) relating to items held at end of period
Nine Months Ended September 30, 2023 |  |  |  |  |  |
Interest rate lock commitments | $440 |  | ($819) |  | $6,253 |  | ($5,356) |  | $518 |  | $518 |
Mortgage servicing rights | 18,635 |  | (1,679) |  | 2,440 |  | — |  | 19,396 |  | — |
Commercial servicing rights | 2,129 |  | (144) |  | 133 |  | — |  | 2,118 |  | — |
Total | $21,204 |  | ($2,642) |  | $8,826 |  | ($5,356) |  | $22,032 |  | $518 |
Nine Months Ended September 30, 2022 |  |  |  |  |  |
Interest rate lock commitments | $1,387 |  | ($1,399) |  | $11,189 |  | ($10,823) |  | $354 |  | $354 |
Mortgage servicing rights | 13,724 |  | 607 |  | 3,378 |  | — |  | 17,709 |  | — |
Commercial servicing rights | 1,084 |  | (123) |  | 106 |  | — |  | 1,067 |  | — |
Total | $16,195 |  | ($915) |  | $14,673 |  | ($10,823) |  | $19,130 |  | $354 |
There were no changes in unrealized gains and losses for the three and nine-month periods ending September 30, 2023 and 2022 included in other comprehensive income for recurring Level 3 fair value measurements. As of and for the periods ending September 30, 2023 and December 31, 2022, except for certain assets as shown in the following table, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis. For loans individually measured for credit losses, the Company classifies fair value measurements using observable inputs, such as external appraisals, as Level 2 valuations in the fair value hierarchy, and unobservable inputs, such as in-house evaluations, as Level 3 valuations in the fair value hierarchy.
(In Thousands) | Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
September 30, 2023 |  |  |  |  |  |  |
Other real estate owned | $150 |  |  | $— |  |  | $150 |  |  | $— |
Total | $150 |  |  | $— |  |  | $150 |  |  | $— |
December 31, 2022 |  |  |  |  |  |  |
Loans individually measured for credit losses | $— |  |  | $— |  |  | $— |  |  | $— |
Total | $— |  |  | $— |  |  | $— |  |  | $— |
The following table presents the (gains) losses resulting from nonrecurring fair value adjustments for the three and nine-month periods ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30,
(In Thousands) | 2023 |  | 2022 | 2023 |  | 2022
Other real estate owned | $123 |  |  | $— |  | $123 |  |  | $— |
Total loss from nonrecurring measurements | $123 |  |  | $— |  | $123 |  |  | $— |
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and nonrecurring basis at September 30, 2023 and December 31, 2022:
Financial Instrument | Valuation Technique - Recurring Basis | Unobservable Input | Weighted Average Rate Range
September 30, 2023 |  |  |
Interest rate lock commitment | External pricing model | Pull through rate | 93.62 | %
Mortgage servicing rights | Discounted cash flow | Constant prepayment rate | 7.48% - 15.13%
|  | Discount rate | 9.50% - 11.00%
Commercial servicing rights | Discounted cash flow | Constant prepayment rate | 4.19% - 22.87%
|  | Discount rate | 12.00 | %
December 31, 2022 |  |  |
Interest rate lock commitment | External pricing model | Pull through rate | 93.18 | %
Mortgage servicing rights | Discounted cash flow | Constant prepayment rate | 6.62% - 7.43%
|  | Discount rate | 11.25%
Commercial servicing rights | Discounted cash flow | Constant prepayment rate | 4.19% - 22.87%
|  | Discount rate | 12.00 | %
Financial Instrument | Valuation Technique - Nonrecurring Basis | Unobservable Input | Weighted Average Rate Range
September 30, 2023 |  |  |
Other real estate owned | Fair value of collateral | Estimated capital costs to complete improvements | 45 | %

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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 -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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