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FAIR VALUES OF FINANCIAL INSTRUMENTS | 3 Months Ended
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Mar. 31, 2015
Fair Value Disclosures [Abstract] |
FAIR VALUES OF FINANCIAL INSTRUMENTS | FAIR VALUES OF FINANCIAL INSTRUMENTS Fair Value Hierarchy ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The topic describes three levels of inputs that may be used to measure fair value:
• | Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
• | Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
• | Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Assets and Liabilities Measured on a Recurring Basis Securities Available for Sale: The fair values of securities available for sale are generally determined by quoted market prices in active market, if available (Level 1). If quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and respective terms and conditions for debt instruments. The Company employs procedures to monitor the pricing service's assumptions and establishes processes to challenge the pricing service's valuations that appear unusual or unexpected. Level 2 securities include SBA loan pool securities, U.S. GSE and agency securities, Private label residential MBS, and Agency MBS. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the securities are classified as Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation. The Company had no securities available for sale classified as Level 3 at March 31, 2015 and December 31, 2014. Loans Held for Sale, carried at fair value: The fair value of loans held for sale is based on commitments outstanding from investors as well as what secondary markets are currently offering for portfolios with similar characteristics. Therefore, loans held for sale subjected to recurring fair value adjustments are classified as Level 2. The fair value includes the servicing value of the loans as well as any accrued interest. Derivative Assets and Liabilities: The Company’s derivative assets and liabilities are carried at fair value as required by GAAP and are accounted for as freestanding derivatives. The Company has entered into pay-fixed, receive-variable interest rate swap contracts with institutional counterparties to hedge against variability in cash flow attributable to interest rate risk caused by changes in the LIBOR benchmark interest rate on the Company’s ongoing LIBOR-based variable rate deposits. The Company is accounting for the swaps as cash flow hedges under ASC 815. The other derivative assets are interest rate lock commitments (IRLCs) with prospective residential mortgage borrowers. These commitments are carried at fair value based on the fair value of the underlying mortgage loans which are based on observable market data. The Company adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. Changes in fair value are recorded in earnings as a component of net revenue on mortgage banking activities. These commitments are classified as Level 2 in the fair value disclosures, as the valuations are based on market observable inputs. Additional derivative assets and liabilities, typically mortgage-backed to-be-announced (TBA) securities, are used to hedge fair value changes, driven by changes in interest rates, on the Company’s mortgage assets. The Company hedges the period from the interest rate lock (assuming a fall-out factor) to the date of the loan sale. The estimated fair value is based on current market prices for similar instruments. Given the meaningful level of secondary market activity for derivative contracts, active pricing is available for similar assets and accordingly, the Company classifies its derivative assets and liabilities as Level 2. Mortgage Servicing Rights: The Company retains servicing on some of its mortgage loans sold and elected the fair value option for valuation of these mortgage servicing rights (MSRs). The value is based on a third party provider that calculates the present value of the expected net servicing income from the portfolio based on key factors that include interest rates, prepayment assumptions, discount rate and estimated cash flows. Because of the significance of unobservable inputs, these servicing rights are classified as Level 3. At March 31, 2015 and December 31, 2014, $0 and $5.9 million of the mortgage servicing rights were valued based on a market bid that settled subsequent to each period end, which is included as Level 3, respectively. The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated:
|  |  | Fair Value Measurement Level
| Carrying Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| (In thousands)
March 31, 2015 |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Available for sale securities: |  |  |  |  |  |  |
SBA loan pools securities | $ | 1,635 |  |  | $ | — |  |  | $ | 1,635 |  |  | $ | — |
U.S. government-sponsored entities and agency securities | 2,001 |  |  | — |  |  | 2,001 |  |  | — |
Private label residential mortgage-backed securities | 2,615 |  |  | — |  |  | 2,615 |  |  | — |
Agency mortgage-backed securities | 387,335 |  |  | — |  |  | 387,335 |  |  | — |
Loans held for sale | 355,746 |  |  | — |  |  | 355,746 |  |  | — |
Derivative assets (1) | 13,555 |  |  | — |  |  | 13,555 |  |  | — |
Mortgage servicing rights (2) | 21,165 |  |  | — |  |  | — |  |  | 21,165 |
Liabilities |  |  |  |  |  |  |
Derivative liabilities (3) | 4,552 |  |  | — |  |  | 4,552 |  |  | — |
December 31, 2014 |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Available for sale securities: |  |  |  |  |  |  |
SBA loan pools securities | $ | 1,715 |  |  | $ | — |  |  | $ | 1,715 |  |  | $ | — |
U.S. government-sponsored entities and agency securities | 1,982 |  |  | — |  |  | 1,982 |  |  | — |
Private label residential mortgage-backed securities | 3,168 |  |  | — |  |  | 3,168 |  |  | — |
Agency mortgage-backed securities | 338,830 |  |  | — |  |  | 338,830 |  |  | — |
Loans held for sale | 278,749 |  |  | — |  |  | 278,749 |  |  | — |
Derivative assets (1) | 6,379 |  |  | — |  |  | 6,379 |  |  | — |
Mortgage servicing rights (2) | 19,082 |  |  | — |  |  | — |  |  | 19,082 |
Liabilities |  |  |  |  |  |  |
Derivative liabilities (3) | 3,235 |  |  | — |  |  | 3,235 |  |  | — |
(1) | Included in Other Assets on the Consolidated Statements of Financial Condition
(2) | Included in Servicing Rights, Net and Servicing Rights Held For Sale on the Consolidated Statements of Financial Condition
(3) | Included in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Condition
The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods indicated:
| Three Months Ended March 31,
| 2015 |  | 2014
| (In thousands)
Mortgage servicing rights |  |  |
Balance at beginning of period | $ | 19,082 |  |  | $ | 13,535 |
Transfers out of Level 3 (1) | — |  |  | (9,185 | )
Total gains or losses (realized/unrealized): |  |  |
Included in earnings—realized | — |  |  | — |
Included in earnings—fair value adjustment | (528 | ) |  | 315 |
Included in other comprehensive income | — |  |  | — |
Amortization of premium (discount) | — |  |  | — |
Additions | 10,192 |  |  | 4,326 |
Sales and settlements | (7,581 | ) |  | (584 | )
Balance at end of period | $ | 21,165 |  |  | $ | 8,407 |
(1) | The Company’s policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstances that cause the transfer.
The following table presents quantitative information about Level 3 fair value measurements on a recurring basis as of the dates indicated:
| Fair Value (In thousands) |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range (Weighted Average)
March 31, 2015 |  |  |  |  |  |  |
Mortgage servicing rights | $ | 21,165 |  |  | Discounted cash flow |  | Discount rate |  | 9.00% to 13.20% (9.84%)
|  |  |  |  | Prepayment rate |  | 5.15% to 34.28% (12.98%)
December 31, 2014 |  |  |  |  |  |  |
Mortgage servicing rights | $ | 13,135 |  |  | Discounted cash flow |  | Discount rate |  | 9.00% to 19.50% (10.09%)
|  |  |  |  | Prepayment rate |  | 4.59% to 31.02% (13.22%)
March 31, 2014 |  |  |  |  |  |  |
Mortgage servicing rights | $ | 8,407 |  |  | Discounted cash flow |  | Discount rate |  | 10.00% to 17.89% (10.81%)
|  |  |  |  | Prepayment rate |  | 3.92% to 34.54% (13.17%)
The significant unobservable inputs used in the fair value measurement of the Company’s servicing rights include the discount rate and prepayment rate. 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. Assets and Liabilities Measured on a Non-Recurring Basis Impaired Loans and Leases: The fair value of impaired loans and leases with specific allocations of the allowance for loan and lease losses based on collateral values is generally 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 the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Loans Held for Sale, carried at lower of cost or fair value: The Company records non-conforming jumbo mortgage loans held for sale at the lower of cost or fair value. The Company obtains fair values from a third party independent valuation service provider. Loans held for sale are accounted for at the lower of cost or market and are considered to be recognized at fair value when they are recorded at below cost and are classified as Level 2. SBA Servicing Assets: SBA servicing assets represents the value associated with servicing SBA loans that have been sold. The fair value for SBA servicing assets is determined through discounted cash flow analysis and utilizes discount rates and prepayment speed assumptions as inputs. All of these assumptions require a significant degree of management estimation and judgment. The fair market valuation is performed on a quarterly basis for SBA servicing assets. SBA servicing assets are accounted for at the lower of cost or market and considered to be recognized at fair value when they are recorded at below cost and are classified as Level 3. Other Real Estate Owned Assets: Other real estate owned assets (OREO) are recorded at the fair value less estimated costs to sell at the time of foreclosure. The fair value of other real estate owned assets is generally based on recent real estate appraisals adjusted for estimated selling costs. 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 the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and result in a Level 3 classification of the inputs for determining fair value. Only OREO with a valuation allowance are considered to be carried at fair value. The Company recorded valuation allowance expense for OREO of $22 thousand and $0 for the three months ended March 31, 2015 and 2014, respectively. Alternative Investments (Affordable Housing Fund Investment & SBIC): The Company generally accounts for its percentage ownership of alternative investment funds at cost, subject to impairment testing. These are non-public investments that cannot be redeemed since the Company’s investment is distributed as the underlying investments are liquidated, which generally takes 10 years. There are currently no plans to sell any of these investments prior to their liquidation. The alternative investments carried at cost are considered to be measured at fair value on a non-recurring basis when there is impairment. The Company had unfunded commitments of $487 thousand and $7.2 million for Affordable House Fund Investment and SBIC at March 31, 2015, respectively. The following table presents the Company’s financial assets and liabilities measured at fair value on a non-recurring basis as of the dates indicated:
|  |  | Fair Value Measurement Level
| Carrying Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| (In thousands)
March 31, 2015 |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |
Single family residential mortgage | $ | 5,065 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,065 |
Commercial and industrial | 4,134 |  |  | — |  |  | — |  |  | 4,134 |
Other real estate owned: |  |  |  |  |  |  |
Single family residential | 498 |  |  | — |  |  | — |  |  | 498 |
December 31, 2014 |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |
Single family residential mortgage | $ | 6,206 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,206 |
Commercial and industrial | 4,313 |  |  | — |  |  | — |  |  | 4,313 |
SBA servicing rights | 484 |  |  | — |  |  | — |  |  | 484 |
Other real estate owned: |  |  |  |  |  |  |
Single family residential | 423 |  |  | — |  |  | — |  |  | 423 |
The following table presents the gains and (losses) recognized on assets measured at fair value on a non-recurring basis for the periods indicated:
| Three Months Ended March 31,
| 2015 |  | 2014
| (In thousands)
Impaired loans: |  |  |
Single family residential mortgage | $ | — |  |  | $ | (151 | )
Other consumer | — |  |  | (2 | )
Other real estate owned: |  |  |
Single family residential | (5 | ) |  | — |
The following table presents the carrying amounts and estimated fair values of financial assets and liabilities as of the dates indicated:
| Carrying |  | Fair Value Measurement Level
Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
| (In thousands)
March 31, 2015 |  |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 265,402 |  |  | $ | 265,402 |  |  | $ | — |  |  | $ | — |  |  | $ | 265,402 |
Time deposits in financial institutions | 1,900 |  |  | 1,900 |  |  | — |  |  | — |  |  | 1,900 |
Securities available for sale | 393,586 |  |  | — |  |  | 393,586 |  |  | — |  |  | 393,586 |
FHLB and other bank stock | 39,844 |  |  | — |  |  | 39,844 |  |  | — |  |  | 39,844 |
Loans held for sale | 1,240,942 |  |  | — |  |  | 1,249,370 |  |  | — |  |  | 1,249,370 |
Loans and leases receivable, net of allowance | 3,904,370 |  |  | — |  |  | — |  |  | 4,008,008 |  |  | 4,008,008 |
Accrued interest receivable | 14,970 |  |  | 14,970 |  |  | — |  |  | — |  |  | 14,970 |
Derivative assets | 13,555 |  |  | — |  |  | 13,555 |  |  | — |  |  | 13,555 |
Financial liabilities |  |  |  |  |  |  |  |  |
Deposits | 4,861,992 |  |  | — |  |  | — |  |  | 4,719,344 |  |  | 4,719,344 |
Advances from Federal Home Loan Bank | 545,000 |  |  | — |  |  | 545,195 |  |  | — |  |  | 545,195 |
Other borrowings | 15,000 |  |  | — |  |  | 15,000 |  |  | — |  |  | 15,000 |
Notes payable | 92,668 |  |  | 86,750 |  |  | 12,102 |  |  | — |  |  | 98,852 |
Derivative liabilities | 4,552 |  |  | — |  |  | 4,552 |  |  | — |  |  | 4,552 |
Accrued interest payable | 2,016 |  |  | 2,016 |  |  | — |  |  | — |  |  | 2,016 |
December 31, 2014 |  |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 231,199 |  |  | $ | 231,199 |  |  | $ | — |  |  | $ | — |  |  | $ | 231,199 |
Time deposits in financial institutions | 1,900 |  |  | 1,900 |  |  | — |  |  | — |  |  | 1,900 |
Securities available for sale | 345,695 |  |  | — |  |  | 345,695 |  |  | — |  |  | 345,695 |
FHLB and other bank stock | 42,241 |  |  | — |  |  | 42,241 |  |  | — |  |  | 42,241 |
Loans held for sale | 1,187,090 |  |  | — |  |  | 1,195,834 |  |  | — |  |  | 1,195,834 |
Loans and leases receivable, net of allowance | 3,919,642 |  |  | — |  |  | — |  |  | 4,045,465 |  |  | 4,045,465 |
Accrued interest receivable | 15,113 |  |  | 15,113 |  |  | — |  |  | — |  |  | 15,113 |
Derivative assets | 6,379 |  |  | — |  |  | 6,379 |  |  | — |  |  | 6,379 |
Financial liabilities |  |  |  |  |  |  |  |  |
Deposits | 4,671,831 |  |  | — |  |  | — |  |  | 4,575,264 |  |  | 4,575,264 |
Advances from Federal Home Loan Bank | 633,000 |  |  | — |  |  | 633,083 |  |  | — |  |  | 633,083 |
Notes payable | 93,569 |  |  | 87,428 |  |  | 13,360 |  |  | — |  |  | 100,788 |
Derivative liabilities | 3,235 |  |  | — |  |  | 3,235 |  |  | — |  |  | 3,235 |
Accrued interest payable | 2,044 |  |  | 2,044 |  |  | — |  |  | — |  |  | 2,044 |
The methods and assumptions used to estimate fair value are described as follows: Cash and cash equivalents and time deposits in financial institutions: The carrying amounts of cash and cash equivalents and time deposits in financial institutions approximate fair value due to the short-term nature of these instruments (Level 1). FHLB and other bank stock: FHLB and other bank stock is recorded at cost. Ownership of FHLB stock is restricted to member banks, and purchases and sales of these securities are at par value with the issuer. Loans and leases receivable, net of allowance for loan and lease losses: The fair value of loans and leases receivable is estimated based on the discounted cash flow approach. The discount rate was derived from the associated yield curve plus spreads and reflects the offering rates offered by the Bank for loans with similar financial characteristics. Yield curves are constructed by product and payment types. These rates could be different from what other financial institutions could offer for these loans. No adjustments have been made for changes in credit within the loan portfolio. Additionally, the fair value of our loans may differ significantly from the values that would have been used had a ready market existed for such loans and may differ materially from the values that we may ultimately realize (Level 3). Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value (Level 1). Deposits: The fair value of deposits is estimated based on discounted cash flows. The cash flows for non-maturity deposits, including savings accounts and money market checking, are estimated based on their historical decaying experiences. The discount rate used for fair valuation is based on interest rates currently being offered by the Bank on comparable deposits as to amount and term (Level 3). Advances from Federal Home Loan Bank and other borrowings: The fair values of advances from FHLB and other borrowings are estimated based on the discounted cash flows approach. The discount rate was derived from the current market rates for borrowings with similar remaining maturities (Level 2). Accrued interest payable: The carrying amount of accrued interest payable approximates its fair value (Level 1).

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 + Details
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