Fair Value Measurements

6 Months Ended

Jun. 30, 2023

Note 7—Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain financial and non-financial assets and liabilities and to determine fair value disclosures. Various financial instruments such as available-for-sale securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets and liabilities on a non-recurring basis, such as collateral dependent loans and other real estate owned. These non-recurring fair value adjustments typically involve lower of cost or fair value accounting or write-down of individual assets.

Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

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Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

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Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds).

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Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider.

The carrying amounts and estimated fair values of financial instruments held by the Company are set forth below. Fair value estimates are made at a specific point in time based on relevant market information. They 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 many of the Company’s financial instruments, fair value estimates are based on judgements regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis are described in the Fair Value note in the Company’s 2022 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then.

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.

June 30, 2023			Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial Assets:
Cash and cash equivalents	$	586,972	$	586,972	$	-	$	-	$	586,972
Held-to-maturity securities		837,996		-		628,149		56,356		684,505
Non-marketable securities		15,549		-		-		15,549		15,549
Loans and leases, net		3,420,611		-		-		3,224,473		3,224,473
Bank-owned life insurance		66,582		66,582		-		-		66,582

Financial Liabilities:
Total deposits	$	4,638,313	$	-	$	4,085,533	$	543,784	$	4,629,317
Subordinated debentures		10,310		-		12,717		-		12,717

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

The following tables present 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.

June 30, 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	$	3,841	$	-	$	3,841	$	-	$	3,841
Mortgage-backed securities		100,068		-		100,068		-		100,068
Collateralized mortgage obligations		586		-		586		-		586
Corporate securities		9,838		-		9,838		-		9,838
Other		310		-		310		-		310

Fair valued on a non-recurring basis:
Collateral Dependent loans	$	14,030	$	-	$	-	$	14,030	$	14,030
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