Fair Value

3 Months Ended

Mar. 31, 2023

Fair Value [Abstract]

Fair Value

Note 8—Fair Value

The Company follows the “Fair Value Measurement and Disclosures” topic of the FASB ASC Topic 820, which establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. This standard applies whenever other standards require, or permit assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, this standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 inputs – 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 and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs – 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.

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.

Securities classified as available-for-sale are reported at fair value on a recurring basis utilizing Level 1, 2 and 3 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.

Collateral dependent loans represent certain loans held for investment that are subject to a fair value measurement under U.S. GAAP because they are individually evaluated using a fair value measurement, such as the fair value of the underlying collateral. Credit loss is measured using a market approach based on the fair value of the collateral, less estimated costs to dispose, for loans the Company considers to be collateral dependent.  Collateral dependent loans and leases not requiring an allowance represent loans and leases for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans and leases. Collateral dependent loans and leases where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. The fair value of collateral dependent loans and leases is generally based on recent real estate appraisals.

These appraisals may utilize a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take into account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 non-recurring collateral dependent loans and leases is primarily the sales comparison approach less estimated selling costs.

Other Real Estate Owned (“OREO”) is reported at fair value on a non-recurring basis. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including sales comparison, cost and the income approach. Adjustments are often made in the appraisal process by the appraisers to take in to account differences between the comparable sales and income and other available data. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for Level 3 non-recurring OREO is primarily the sales comparison approach less estimated selling costs.

The following tables summarize the carrying amount and estimated fair values of the Company’s financial assets and liabilities not carried at fair value, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value for the periods indicated.

March 31, 2023			Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial Assets:
Cash and cash equivalents	$	529,593	$	529,593	$	-	$	-	$	529,593
Held-to-maturity securities		849,994		-		649,419		56,490		705,909
Non-marketable securities		15,549		-		-		15,549		15,549
Loans and leases, net		3,358,560		-		-		3,207,754		3,207,754
Bank-owned life insurance		66,076		66,076		-		-		66,076
Financial Liabilities:
Total deposits	$	4,539,162	$	-	$	4,153,033	$	377,969	$	4,531,002
Subordinated debentures		10,310		-		12,830		-		12,830

December 31, 2022			Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial Assets:
Cash and cash equivalents	$	588,257	$	588,257	$	-	$	-	$	588,257
Held-to-maturity securities		844,953		-		645,859		42,534		688,393
Non-marketable securities		15,549		-		-		15,549		15,549
Loans and leases, net		3,445,476		-		-		3,335,042		3,335,042
Bank-owned life insurance		73,038		73,038		-		-		73,038
Financial Liabilities:
Total deposits	$	4,759,269	$	-	$	4,427,869	$	323,572	$	4,751,441
Subordinated debentures		10,310		-		12,211		-		12,211

Non-recurring Measurements: collateral dependent loans and leases and OREO are classified with Level 3 of the fair value hierarchy. The estimated fair value of collateral dependent loans and leases is based on the fair value of the collateral, less estimated costs to sell. The Company receives an appraisal or performs an evaluation for each collateral dependent loan or lease. The key inputs used to determine the fair value of collateral dependent loans and leases include selling costs, and adjustment to comparable collateral. There were no transfers into or out of Level 3.

Valuations and significant inputs obtained by independent sources are reviewed by the Company for accuracy and reasonableness.

Appraisals are typically obtained at least on an annual basis. The Company also considers other factors and events that may affect the fair value. The appraisals or evaluations are reviewed at least on a quarterly basis to determine if any adjustments are needed. After review and acceptance of the appraisal or evaluation, adjustments to collateral dependent loans or leases may occur.

The following tables presents information about the Bank’s assets and liabilities measured at fair value on a recurring and non-recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Bank to determine such fair value for the periods indicated.

March 31, 2023			Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Fair valued on a recurring basis:
Available-for-sale securities
U.S. Government-sponsored securities	$	4,112	$	-	$	4,112	$	-	$	4,112
Mortgage-backed securities		103,697		-		103,697		-		103,697
Collateralized mortgage obligations		607		-		607		-		607
Corporate securities		9,711		-		9,711		-		9,711
Other		310		-		310		-		310
Fair valued on a non-recurring basis:
Collateral Dependent loans	$	14,065	$	-	$	-	$	14,065	$	14,065
Other real estate owned		873		-		-		873		873

December 31, 2022			Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Fair valued on a recurring basis:
Available-for-sale securities
U.S. Treasury notes	$	4,964	$	4,964	$	-	$	-	$	4,964
U.S. Government-sponsored securities		4,427		-		4,427		-		4,427
Mortgage-backed securities		132,528		-		132,528		-		132,528
Collateralized mortgage obligations		1,054		-		1,054		-		1,054
Corporate securities		9,581		-		9,581		-		9,581
Other		310		-		310		-		310
Fair valued on a non-recurring basis:
Collateral Dependent loans	$	14,473	$	-	$	-	$	14,473	$	14,473
Other real estate owned		873		-		-		873		873