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FAIR VALUE MEASUREMENTS
6 Months Ended
Jun. 30, 2023
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
A 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. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.

Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
 June 30, 2023
 Level 1Level 2Level 3Total
(In thousands)InputsInputsInputsFair Value
Trading securities$— $— $6,405 $6,405 
Securities available for sale: 
U.S Treasuries7,981 — — 7,981 
Municipal bonds and obligations— 63,622 — 63,622 
Agency collateralized mortgage obligations— 491,340 — 491,340 
Agency residential mortgage-backed securities— 518,552 — 518,552 
Agency commercial mortgage-backed securities— 219,777 — 219,777 
Corporate bonds— 34,473 3,930 38,403 
Other bonds and obligations— 656 — 656 
Equity securities12,868 — — 12,868 
Loans held for investment at fair value— — 401 401 
Loans held for sale — 8,708 — 8,708 
Derivative assets — 52,636 100 52,736 
Capitalized servicing rights — — 1,886 1,886 
Derivative liabilities — 94,656 — 94,656 
 December 31, 2022
 Level 1Level 2Level 3Total
(In thousands)InputsInputsInputsFair Value
Trading securities$— $— $6,708 $6,708 
Securities available for sale:
U.S Treasuries11,973 — — 11,973 
Municipal bonds and obligations— 63,335 — 63,335 
Agency collateralized mortgage obligations— 531,945 — 531,945 
Agency residential mortgage-backed securities— 546,313 — 546,313 
Agency commercial mortgage-backed securities— 228,468 — 228,468 
Corporate bonds— 36,510 4,000 40,510 
Equity securities12,856 — — 12,856 
Loans held for investment at fair value— — 605 605 
Loans held for sale — 942 — 942 
Derivative assets — 54,216 25 54,241 
Capitalized servicing rights — — 1,846 1,846 
Derivative liabilities — 97,030 — 97,030 
 

There were no transfers between levels during the three and six months ended June 30, 2023.
Trading Securities at Fair Value. The Company holds one security designated as a trading security. It is a tax-advantaged economic development bond issued to the Company by a local nonprofit which provides wellness and health programs. The fair value of this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security; therefore, the security meets the definition of a Level 3 security. The discount rate used in the valuation of the security is sensitive to movements in the 3-month LIBOR rate.

Securities Available for Sale and Equity Securities. Equity securities classified as Level 1 consist of publicly-traded equity securities for which the fair values can be obtained through quoted market prices in active exchange markets. Equity securities classified as Level 2 consist of securities with infrequent trades in active exchange markets, and pricing is primarily sourced from third party pricing services. AFS securities classified as Level 1 consist of U.S. Treasury securities. AFS securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 and Level 3 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as 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 condition, among other things. Level 3 pricing includes inputs unobservable to market participants.

Loans Held for Investment. The Company’s held for investment loan portfolio includes loans originated by Company and loans acquired through business combinations. The Company intends to hold these assets until maturity as a part of its business operations. For one acquired portfolio subset, the Company previously accounted for these purchased-credit impaired loans as a pool under ASC 310, as they were determined to have common risk characteristics. These loans were recorded at fair value on acquisition date and subsequently evaluated for impairment collectively. Upon adoption of ASC 326, the Company elected the fair value option on this portfolio, recognizing an $11.2 million fair value write-down charged to retained earnings, net of deferred tax impact, as of January 1, 2020. The fair value of this loan portfolio is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable; therefore, the loans meet the definition of Level 3 assets. The discount rate used in the valuation is consistent with assets that have significant credit deterioration. The cash flow assumptions include payment schedules for loans with current payment histories and estimated collateral value for delinquent loans. All of these loans were nonperforming as of June 30, 2023.
   Aggregate Fair Value
June 30, 2023AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for investment at fair value$401 $9,285 $(8,884)

   Aggregate Fair Value
December 31, 2022AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for investment at fair value$605 $10,948 $(10,343)
Loans Held for Sale. The Company elected the fair value option for all loans held for sale (HFS) originated for sale on or after May 1, 2012. Loans HFS are classified as Level 2 as the fair value is based on input factors such as quoted prices for similar loans in active markets.
   Aggregate Fair Value
June 30, 2023AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for sale$8,708 $8,584 $124 
   Aggregate Fair Value
December 31, 2022AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for sale $942 $927 $15 
The changes in fair value of loans held for sale for the three and six months ended June 30, 2023, were gains of $100 thousand and $109 thousand, respectively. During the three and six months ended June 30, 2023, originations of loans held for sale totaled $22.4 million and $29.4 million, respectively. During the three and six months ended June 30, 2023, sales of loans originated for sale totaled $15.3 million and $21.7 million, respectively.

The changes in fair value of loans held for sale for the three and six months ended June 30, 2022, were gains of $14 thousand and losses of $161 thousand, respectively. During the three and six months ended June 30, 2022,
originations of loans held for sale totaled $2.7 million and $10.1 million, respectively. During the three and six
months ended June 30, 2022, sales of loans originated for sale totaled $2.0 million and $15.1 million, respectively.

Interest Rate Swaps. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

Although the Company has determined that the majority of the 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 June 30, 2023, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Commitments to Lend. The Company enters into commitments to lend for residential mortgage loans intended for sale, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan in a lock position will ultimately close, and by the non-refundable costs of originating the loan. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, these commitments are classified as Level 3 measurements.
Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the commitments to lend and loans originated for sale. To Be Announced (“TBA”) mortgage-backed securities forward commitment sales are used as the hedging instrument, are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of the Company’s best efforts and mandatory delivery loan sale commitments are determined similarly to the commitments to lend using quoted prices in the market place that are observable. However, costs to originate and closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are considered factors that are not observable. As such, best efforts and mandatory forward commitments are classified as Level 3 measurements.

Capitalized Servicing Rights. The Company accounts for certain capitalized servicing rights at fair value in its Consolidated Financial Statements, as the Company is permitted to elect the fair value option for each specific instrument. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three and six months ended June 30, 2023 and 2022.
 Assets (Liabilities)
  SecuritiesLoans Capitalized
 TradingAvailableHeld for CommitmentsForwardServicing
(In thousands)Securitiesfor SaleInvestmentto LendCommitments Rights
Three Months Ended June 30, 2023
March 31, 2023$6,584 $3,800 $460 $26 $15 $1,666 
Unrealized (loss)/gain, net recognized in other non-interest income34 — (18)87 48 220 
Unrealized gain included in accumulated other comprehensive income— 130 — — — — 
Paydown of asset(213)— (41)— — — 
Transfers to held for sale loans— — — (76)— — 
June 30, 2023$6,405 $3,930 $401 $37 $63 $1,886 
Six Months Ended June 30, 2023
December 31, 2022$6,708 $4,000 $605 $17 $$1,846 
Unrealized (loss)/gain, net recognized in other non-interest income123 — (147)121 55 40 
Unrealized (loss) included in accumulated other comprehensive income— (70)— — — — 
Paydown of asset(426)— (57)— — — 
Transfers to held for sale loans— — — (101)— — 
June 30, 2023$6,405 $3,930 $401 $37 $63 $1,886 
Unrealized (loss)/gain relating to instruments still held at June 30, 2023$(266)$(200)$— $37 $63 $— 
 Assets (Liabilities)
  SecuritiesLoans Capitalized
 TradingAvailableHeld for CommitmentsForwardServicing
(In thousands)Securitiesfor SaleInvestmentto LendCommitments Rights
Three Months Ended June 30, 2022
March 31, 2022$7,798 $4,020 $1,197 $18 $$1,786 
Unrealized (loss)/gain, net recognized in other non-interest income(556)— 259 60 11 120 
Unrealized gain included in accumulated other comprehensive income— — — — — — 
Paydown of asset(202)(407)— — — 
Transfers to held for sale loans— — — (52)— — 
June 30, 2022$7,040 $4,020 $1,049 $26 $18 $1,906 
Six Months Ended June 30, 2022
December 31, 2021$8,354 $4,030 $1,200 $124 $134 $1,966 
Unrealized (loss)/gain, net recognized in other non-interest income(910)— 468 130 (116)(60)
Unrealized (loss) included in accumulated other comprehensive income— (10)— — — — 
Paydown of asset(404)— (619)— — — 
Transfers to held for sale loans— — — (228)— — 
Additions to servicing rights— — 0— — — 
June 30, 2022$7,040 $4,020 $1,049 $26 $18 $1,906 
Unrealized (loss)/gain relating to instruments still held at June 30, 2022$(436)$20 $— $26 $18 $— 
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is as follows:
 Fair Value  Significant
Unobservable Input
(In thousands)June 30, 2023Valuation TechniquesUnobservable InputsValue
Assets (Liabilities)    
Trading Securities$6,405 Discounted Cash FlowDiscount Rate5.23 %
AFS Securities3,930 Indication from Market MakerPrice
98.00%
Loans held for investment401 Discounted Cash FlowDiscount Rate25.00 %
Collateral Value
$0.0 - $17.8
Commitments to lend 37 Historical TrendClosing Ratio85.01 %
  Pricing ModelOrigination Costs, per loan$
Forward commitments 63 Historical TrendClosing Ratio85.01 %
  Pricing ModelOrigination Costs, per loan$
Capitalized servicing rights 1,886 Discounted cash flowConstant Prepayment Rate (CPR)9.87 %
Discount Rate9.57 %
Total$12,722    

 Fair Value  Significant
Unobservable Input
(In thousands)December 31, 2022Valuation TechniquesUnobservable InputsValue
Assets (Liabilities)    
Trading Securities$6,708 Discounted Cash FlowDiscount Rate5.92 %
AFS Securities4,000 Indication from Market MakerPrice100.00 %
Loans held for investment605 Discounted Cash FlowDiscount Rate25.00 %
Collateral Value
$0.0- $20.4
Commitments to lend 17 Historical TrendClosing Ratio80.63 %
  Pricing ModelOrigination Costs, per loan$
Forward commitments Historical TrendClosing Ratio80.63 %
  Pricing ModelOrigination Costs, per loan$
Capitalized servicing rights1,846 Discounted Cash FlowConstant Prepayment Rate (CPR)11.07 %
Discount Rate9.56 %
Total$13,184    
Non-Recurring Fair Value Measurements
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured at fair value on a non-recurring basis.
 June 30, 2023Fair Value Measurement Date December 31, 2022Fair Value Measurement Date
 Level 3Level 3Level 3Level 3
(In thousands)InputsInputsInputsInputs
Assets  
Individually evaluated$5,773 June 2023$14,571 December 2022
Loans held for sale— June 20233,369 December 2022
Capitalized servicing rights11,223 June 202311,201 December 2022
Total$16,996 $29,141 

Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is as follows:
 Fair Value   
(In thousands)June 30, 2023Valuation TechniquesUnobservable InputsRange (Weighted Average) (1)
Assets    
Individually evaluated$5,773 Fair Value of CollateralDiscounted Cash Flow - Loss Severity
(100.00)% to 13.51% ((49.95)%)
   Appraised Value
$0 to $4,190 ($-2,611)
Capitalized servicing rights11,223 Discounted Cash FlowConstant Prepayment Rate (CPR)
4.78% to 14.01% (11.38%)
   Discount Rate
9.59% to 17.09% (13.98%)
Total$16,996    
(1)     Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.
 Fair Value   
(In thousands)December 31, 2022Valuation TechniquesUnobservable InputsRange (Weighted Average) (1)
Assets    
Individually evaluated$14,571 Fair Value of CollateralDiscounted Cash Flow - loss severity
(100.00)% to 74.74% ((40.02)%)
   Appraised Value
$0 to $2,160 ($643)
Loans held for sale3,369 Fair Value of CollateralAppraised Value$3,369
Capitalized servicing rights11,201 Discounted Cash FlowConstant Prepayment Rate (CPR)
5.81% to 13.18% (10.94%)
   Discount Rate
9.59% to 22.70% (16.83%)
Total$29,141    
(1)     Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.

There were no Level 1 or Level 2 nonrecurring fair value measurements for the periods ended June 30, 2023 and December 31, 2022.
Individually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. 

Loans Transferred to Held for Sale. Once a decision has been made to sell loans not previously classified as held for sale, these loans are transferred into the held for sale category and carried at the lower of cost or fair value. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. The choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. 

Capitalized loan servicing rightsA loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
Summary of Estimated Fair Values of Financial Instruments
The following tables summarize the estimated fair values (represents exit price), and related carrying amounts, of the Company’s financial instruments. Certain financial instruments and all non-financial instruments are excluded. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
 June 30, 2023
 CarryingFair   
(In thousands)AmountValueLevel 1Level 2Level 3
Financial Assets     
Cash and cash equivalents$640,600 $640,600 $640,600 $— $— 
Trading securities6,405 6,405 — — 6,405 
Equity securities12,868 12,868 12,868 — — 
Securities available for sale 1,340,331 1,340,331 7,981 1,328,420 3,930 
Securities held to maturity563,765 487,960 — 486,313 1,647 
Federal Home Loan Bank stock34,714 N/AN/AN/AN/A
Net loans8,782,183 8,727,074 — — 8,727,074 
Loans held for sale 8,708 8,708 — 8,708 — 
Accrued interest receivable50,580 50,580 — 50,580 — 
Derivative assets 52,736 52,736 — 52,636 100 
Financial Liabilities     
Total deposits$10,068,407 $10,035,236 $— $10,035,236 $— 
Short-term debt470,000 469,935 — 469,935 — 
Long-term Federal Home Loan Bank advances and other204,345 196,824 — 196,824 — 
Subordinated borrowings121,238 100,739 — 100,739 — 
Accrued interest payable7,096 7,096 — 7,096 — 
Derivative liabilities 94,656 94,656 — 94,656 — 
 December 31, 2022
 CarryingFair   
(In thousands)AmountValueLevel 1Level 2Level 3
Financial Assets     
Cash and cash equivalents$685,355 $685,355 $685,355 $— $— 
Trading securities6,708 6,708 — — 6,708 
Equity securities12,856 12,856 12,856 — — 
Securities available for sale and other1,423,200 1,423,200 11,973 1,407,227 4,000 
Securities held to maturity583,453 507,464 — 505,508 1,956 
Federal Home Loan Bank stock7,219 N/AN/AN/AN/A
Net loans8,239,039 8,194,110 — — 8,194,110 
Loans held for sale 4,311 4,311 — 942 3,369 
Accrued interest receivable46,868 46,868 — 46,868 — 
Derivative assets 54,241 54,241 — 54,216 25 
Financial Liabilities     
Total deposits$10,327,269 $10,283,543 $— $10,283,543 $— 
Short-term debt— — — — — 
Long-term Federal Home Loan Bank advances4,445 2,782 — 2,782 — 
Subordinated borrowings121,064 110,853 — 110,853 — 
Accrued interest payable1,610 1,610 — 1,610 — 
Derivative liabilities 97,030 97,030 — 97,030 —