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Fair Value Measurements
12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
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. 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 Available for Sale:
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). Security valuations are obtained from third party pricing services for comparable assets or liabilities.
Impaired Loans:
At the time a loan is considered impaired, its impairment is measured based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the observable market price, or the fair
market value of the collateral (less costs to sell) if the loan is collateral-dependent. Impaired loans for which impairment is measured using the discounted cash flow approach are not considered to be measured at fair value because the loan’s effective interest rate is generally not a fair value input, and for the purposes of fair value disclosures, the fair value of these loans are measured commensurate with non-impaired loans. If the Company utilizes the fair market value of the collateral method, the fair value used to measure impairment is commonly based on recent real estate appraisals. 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. Such adjustments are usually significant and typically 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 client and client’s business (Level 3). Impaired loans are evaluated on a quarterly basis and impairment is adjusted accordingly.
Other Real Estate Owned:
Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less costs to sell. Fair value is commonly based on recent real estate appraisals. 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. Such adjustments are usually significant and typically result in Level 3 classification of the inputs for determining fair value.
Appraisals for both collateral-dependent impaired loans and other real estate owned 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 Company. Once received, the Company 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. On a quarterly basis, the Company compares the actual selling price of collateral that has been liquidated to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.
Derivative Financial Instruments:
The Company 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).


Recurring Basis
The following tables summarize the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 and December 31, 2018:
 
December 31, 2019
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets
 
 
 
 
 
 
 
Investment securities available for sale:
 
 
 
 
 
 
 
U.S. Treasury and U.S. Government-sponsored agencies
$
105,223

 
$

 
$
105,223

 
$

Municipal securities
133,014

 

 
133,014

 

Mortgage backed securities and collateralized mortgage obligations:

 
 
 
 
 
 
Residential
339,608

 

 
339,608

 

Commercial
327,095

 

 
327,095

 

Corporate obligations
24,194

 

 
24,194

 

Other asset-backed securities
23,178

 


 
23,178

 

Total investment securities available for sale
952,312




952,312



Equity security
148

 
148

 

 

Derivative assets - interest rate swaps
8,318

 

 
8,318

 

Liabilities
 
 
 
 
 
 
 
Derivative liabilities - interest rate swaps
$
8,318

 
$

 
$
8,318

 
$


 
December 31, 2018
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets
 
 
 
 
 
 
 
Investment securities available for sale:
 
 
 
 
 
 
 
U.S. Treasury and U.S. Government-sponsored agencies
$
101,603

 
$
15,936

 
$
85,667

 
$

Municipal securities
158,864

 

 
158,864

 

Mortgage backed securities and collateralized mortgage obligations:

 
 
 
 
 
 
Residential
331,602

 

 
331,602

 

Commercial
333,761

 

 
333,761

 

Corporate obligations
25,563

 

 
25,563

 

Other asset-backed securities
24,702

 

 
24,702

 

Total investment securities available for sale
976,095


15,936


960,159



Equity security
114

 
114

 

 

Derivative assets - interest rate swaps
5,095

 

 
5,095

 

Liabilities
 
 
 
 
 
 
 
Derivative liabilities - interest rate swaps
$
5,095

 
$

 
$
5,095

 
$


There were no transfers between Level 1 and Level 2 during the years ended December 31, 2019 and 2018.

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 December 31, 2019 and December 31, 2018 and the net losses recorded in earnings during years ended December 31, 2019 and 2018:
 
Basis(1)
 
Fair Value at December 31, 2019
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Net Losses
Recorded in
Earnings 
During
the Year Ended December 31, 2019
 
(In thousands)
Impaired loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
4,111

 
$
3,380

 
$

 
$

 
$
3,380

 
$
78

Total assets measured at fair value on a nonrecurring basis
$
4,111


$
3,380


$


$


$
3,380


$
78

(1) 
Basis represents the unpaid principal balance of impaired loans.

 
Basis(1)
 
Fair Value at December 31, 2018
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Net Losses
Recorded in
Earnings 
During
the Year Ended December 31, 2018
 
(In thousands)
Impaired loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
117

 
$
107

 
$

 
$

 
$
107

 
$
10

Non-owner occupied commercial real estate
1,378

 
1,102

 

 

 
1,102

 
150

 Total commercial business
1,495

 
1,209

 




1,209

 
160

Consumer
9

 
7

 

 

 
7

 
8

Total assets measured at fair value on a nonrecurring basis
$
1,504


$
1,216


$


$


$
1,216


$
168

(1) 
Basis represents the unpaid principal balance of impaired loans.
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 December 31, 2019 and December 31, 2018:
 
December 31, 2019
 
Fair
Value
 
Valuation
Technique(s)
 
Unobservable Input(s)
 
Range of Inputs; Weighted
Average
 
(Dollars in thousands)
Impaired loans
$
3,380

 
Market approach
 
Adjustment for differences between the comparable sales
 
173.5% - (18.5%); 36.8%

 
December 31, 2018
 
Fair
Value
 
Valuation
Technique(s)
 
Unobservable Input(s)
 
Range of Inputs; Weighted
Average
 
(Dollars in thousands)
Impaired loans
$
1,216

 
Market approach
 
Adjustment for differences between the comparable sales
 
10.4% - (37.3%); (10.9%)


(b) Fair Value of Financial Instruments
Because broadly traded markets do not exist for most of the Company’s financial instruments, 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 December 31, 2019 and December 31, 2018:
 
December 31, 2019
 
Carrying
Value
 
Fair Value
 
Fair Value Measurements Using:
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Financial Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
228,568

 
$
228,568

 
$
228,568

 
$

 
$

Investment securities available for sale
952,312

 
952,312

 

 
952,312

 

Loans held for sale
5,533

 
5,704

 

 

 
5,704

Total loans receivable, net
3,731,708

 
3,791,557

 

 

 
3,791,557

Accrued interest receivable
14,446

 
14,446

 
79

 
3,668

 
10,699

Derivative assets - interest rate swaps
8,318

 
8,318

 


8,318

 

Equity security
148

 
148

 
148

 

 

Financial Liabilities:
 
 
 
 
 
 
 
 
 
Noninterest deposits, interest bearing demand deposits, money market accounts and savings accounts
$
4,058,098

 
$
4,058,098

 
$
4,058,098

 
$

 
$

Certificate of deposit accounts
524,578

 
529,679

 

 
529,679

 

Securities sold under agreement to repurchase
20,169

 
20,169

 
20,169

 

 

Junior subordinated debentures
20,595

 
20,000

 

 

 
20,000

Accrued interest payable
199

 
199

 
95

 
64

 
40

Derivative liabilities - interest rate swaps
8,318

 
8,318

 

 
8,318

 


 
December 31, 2018
 
Carrying Value
 
Fair Value
 
Fair Value Measurements Using:
 
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Financial Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
161,910

 
$
161,910

 
$
161,910

 
$

 
$

Investment securities available for sale
976,095

 
976,095

 
15,936

 
960,159

 

Federal Home Loan Bank stock
6,076

 
N/A

 
N/A

 
N/A

 
N/A

Loans held for sale
1,555

 
1,605

 

 
1,605

 

Total loans receivable, net
3,619,118

 
3,613,076

 

 

 
3,613,076

Accrued interest receivable
15,403

 
15,403

 
68

 
4,091

 
11,244

Derivative assets - interest rate swaps
5,095

 
5,095

 

 
5,095

 

Equity security
114

 
114

 
114

 

 

Financial Liabilities:
 
 
 
 
 
 
 
 
 
Noninterest deposits, interest bearing demand deposits, money market accounts and savings accounts
$
3,965,510

 
$
3,965,510

 
$
3,965,510

 
$

 
$

Certificate of deposit accounts
466,892

 
470,222

 

 
470,222

 

Securities sold under agreement to repurchase
31,487

 
31,487

 
31,487

 

 

Junior subordinated debentures
20,302

 
20,500

 

 

 
20,500

Accrued interest payable
191

 
191

 
63

 
81

 
47

Derivative liabilities - interest rate swaps
5,095

 
5,095

 

 
5,095