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FAIR VALUES OF FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 30, 2022
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 markets, if available (Level 1). If quoted market prices are not available, we primarily employ independent pricing services that utilize pricing models 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 (Level 2). We adhere to established processes to monitor the pricing services' assumptions and challenge the valuations that appear unusual or unexpected. Multiple quotes or prices may be obtained in this process and we determine which fair value is most appropriate based on market information and analysis. Quotes obtained through this process are generally non-binding. We follow established procedures to ensure that assets and liabilities are properly classified in the fair value hierarchy. Level 2 securities include SBA loan pool securities, U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities, non-agency residential mortgage-backed securities, non-agency commercial mortgage-backed securities, collateralized loan obligations, and corporate debt securities. When a market is illiquid or there is a lack of transparency around the inputs to valuation, including at least one unobservable input, the securities are classified as Level 3 and reliance is placed upon internally developed models and management's judgment and evaluation for valuation. Derivative Assets and Liabilities: Interest Rate Swaps. We offer interest rate swap products to certain loan clients to allow them to hedge the risk of rising interest rates on their variable rate loans. We originate a variable rate loan and enter into a variable-to-fixed interest rate swap with the client. We also enter into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow us to originate a variable rate loan while providing a contract for fixed interest payments for the client. The net cash flow for us is equal to the interest income received from a variable rate loan originated with the client plus a fee. The fair value of these derivatives is based on a discounted cash flow approach. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate swaps is classified as Level 2. Foreign Exchange Contracts. We offer short-term foreign exchange contracts to customers to purchase and/or sell foreign currencies at set rates in the future. These products allow customers to hedge the foreign exchange rate risk of their deposits and loans denominated in foreign currencies. In conjunction with these products, we also enter into offsetting back-to-back contracts with institutional counterparties to hedge our foreign exchange rate risk. These back-to-back contracts are intended to offset each other and allow us to offer our customers foreign exchange products. The fair value of both of these offsetting asset and liability instruments is based on the change in the underlying foreign exchange rate. We are subject to counterparty risk in the event our customers or institutional counterparties default under these contracts. Given the short-term nature of the contracts, the counterparties’ credit risks are considered nominal and typically result in no adjustments to the valuation of the short-term foreign exchange contracts. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of these contracts is classified as Level 2. The following table presents our financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated:
|  |  |  | Fair Value Measurement Level
($ in thousands) |  | Carrying Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
September 30, 2022 |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |
Securities available-for-sale: |  |  |  |  |  |  |  |
SBA loan pools securities |  | $ | 12,106 |  |  | $ | — |  |  | $ | 12,106 |  |  | $ | — |
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities |  | 10,696 |  |  | — |  |  | 10,696 |  |  | — |
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations |  | 141,157 |  |  | — |  |  | 141,157 |  |  | — |
Non-agency residential mortgage-backed securities |  | 41,514 |  |  | — |  |  | 41,514 |  |  | — |
Collateralized loan obligations |  | 472,676 |  |  | — |  |  | 472,676 |  |  | — |
Corporate debt securities |  | 169,416 |  |  | — |  |  | 169,416 |  |  | — |
Derivative assets: |  |  |  |  |  |  |  |
Interest rate swaps (1) |  | 2,295 |  |  | — |  |  | 2,295 |  |  | — |
Foreign exchange contracts (1) |  | 382 |  |  | — |  |  | 382 |  |  | — |
Liabilities |  |  |  |  |  |  |  |
Derivative liabilities: |  |  |  |  |  |  |  |
Interest rate swaps (2) |  | 2,251 |  |  | — |  |  | 2,251 |  |  | — |
Foreign exchange contracts (2) |  | 377 |  |  | — |  |  | 377 |  |  | — |
December 31, 2021 |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |
Securities available-for-sale: |  |  |  |  |  |  |  |
SBA loan pools securities |  | $ | 14,591 |  |  | $ | — |  |  | $ | 14,591 |  |  | $ | — |
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities |  | 191,969 |  |  | — |  |  | 191,969 |  |  | — |
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations |  | 241,541 |  |  | — |  |  | 241,541 |  |  | — |
Municipal securities |  | 119,015 |  |  | — |  |  | 119,015 |  |  | — |
Non-agency residential mortgage-backed securities |  | 56,025 |  |  | — |  |  | 56,025 |  |  | — |
Collateralized loan obligations |  | 518,964 |  |  | — |  |  | 518,964 |  |  | — |
Corporate debt securities |  | 173,598 |  |  | — |  |  | 173,598 |  |  | — |
Derivative assets: |  |  |  |  |  |  |  |
Interest rate swaps (1) |  | 3,390 |  |  | — |  |  | 3,390 |  |  | — |
Foreign exchange contracts (1) |  | 175 |  |  | — |  |  | 175 |  |  | — |
Liabilities |  |  |  |  |  |  |  |
Derivative liabilities: |  |  |  |  |  |  |  |
Interest rate swaps (2) |  | 3,594 |  |  | — |  |  | 3,594 |  |  | — |
Foreign exchange contracts (2) |  | 146 |  |  | — |  |  | 146 |  |  | — |
(1)Included in other assets in the consolidated statements of financial condition. (2)Included in accrued expenses and other liabilities in the consolidated statements of financial condition. There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2022 and 2021. Assets and Liabilities Measured on a Non-Recurring Basis Individually Evaluated Loans: The fair value of individually evaluated loans with specific allocations of the ACL based on collateral values is generally based on recent real estate appraisals and automated valuation models (“AVMs”). 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 for differences between the comparable sales and income data available. Such adjustments are typically deemed significant unobservable inputs used for determining fair value and result in a Level 3 classification. The following table presents our financial assets and liabilities measured at fair value on a non-recurring basis as of the dates indicated:
|  |  |  | Fair Value Measurement Level
($ in thousands) |  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
September 30, 2022 |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |
Collateral dependent loans: |  |  |  |  |  |  |  |
Single family residential mortgage |  | $ | 3,735 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,735 |
Commercial and industrial |  | 8,646 |  |  | — |  |  | — |  |  | 8,646 |
SBA |  | 3,922 |  |  | — |  |  | — |  |  | 3,922 |
December 31, 2021 |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |
Collateral dependent loans: |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 12,272 |  |  | $ | — |  |  | $ | — |  |  | $ | 12,272 |
SBA |  | 3,886 |  |  | — |  |  | — |  |  | 3,886 |
The following table presents the gains (losses) recognized on assets measured at fair value on a non-recurring basis for the periods indicated:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in thousands) |  | 2022 |  | 2021 |  | 2022 |  | 2021
Collateral dependent loans: |  |  |  |  |  |  |  |
Single family residential mortgage |  | $ | 135 |  |  | $ | — |  |  | $ | (205) |  |  | $ | (211) |
Commercial and industrial |  | (441) |  |  | — |  |  | (1,639) |  |  | 38 |
SBA |  | (35) |  |  | (1,377) |  |  | (207) |  |  | (1,886) |
Other consumer |  | — |  |  | — |  |  | (243) |  |  | — |
Commercial real estate |  | — |  |  | 2 |  |  | — |  |  | (138) |
Estimated Fair Values of Financial Instruments The following table presents the carrying amounts and estimated fair values of financial assets and liabilities as of the dates indicated:
|  | Carrying Amount |  | Fair Value Measurement Level
($ in thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
September 30, 2022 |  |  |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 256,058 |  |  | $ | 256,058 |  |  | $ | — |  |  | $ | — |  |  | $ | 256,058 |
Securities held-to-maturity |  | 328,757 |  |  | — |  |  | 263,352 |  |  | — |  |  | 263,352 |
Securities available-for-sale |  | 847,565 |  |  | — |  |  | 847,565 |  |  | — |  |  | 847,565 |
Federal Home Loan Bank and other bank stock |  | 54,428 |  |  | — |  |  | 54,428 |  |  | — |  |  | 54,428 |
Loans receivable, net of allowance for credit losses |  | 7,196,876 |  |  | — |  |  | — |  |  | 6,701,627 |  |  | 6,701,627 |
Accrued interest receivable |  | 35,635 |  |  | 35,635 |  |  | — |  |  | — |  |  | 35,635 |
Derivative assets |  | 2,677 |  |  | — |  |  | 2,677 |  |  | — |  |  | 2,677 |
Financial liabilities |  |  |  |  |  |  |  |  |  |
Deposits |  | 7,280,385 |  |  | 6,343,446 |  |  | 924,503 |  |  | — |  |  | 7,267,949 |
Advances from Federal Home Loan Bank |  | 727,021 |  |  | — |  |  | 702,890 |  |  | — |  |  | 702,890 |
Other borrowings |  | 10,000 |  |  | — |  |  | 10,025 |  |  | — |  |  | 10,025 |
Long-term debt |  | 274,746 |  |  | — |  |  | 272,371 |  |  | — |  |  | 272,371 |
Derivative liabilities |  | 2,628 |  |  | — |  |  | 2,628 |  |  | — |  |  | 2,628 |
Accrued interest payable |  | 7,832 |  |  | 7,832 |  |  | — |  |  | — |  |  | 7,832 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 228,123 |  |  | $ | 228,123 |  |  | $ | — |  |  | $ | — |  |  | $ | 228,123 |
Securities available-for-sale |  | 1,315,703 |  |  | — |  |  | 1,315,703 |  |  | — |  |  | 1,315,703 |
Federal Home Loan Bank and other bank stock |  | 44,632 |  |  | — |  |  | 44,632 |  |  | — |  |  | 44,632 |
Loans receivable, net of allowance for credit losses |  | 7,158,896 |  |  | — |  |  | — |  |  | 7,150,703 |  |  | 7,150,703 |
Accrued interest receivable |  | 30,991 |  |  | 30,991 |  |  | — |  |  | — |  |  | 30,991 |
Derivative assets |  | 3,565 |  |  | — |  |  | 3,565 |  |  | — |  |  | 3,565 |
Financial liabilities |  |  |  |  |  |  |  |  |  |
Deposits |  | 7,439,435 |  |  | 6,932,717 |  |  | 506,711 |  |  | — |  |  | 7,439,428 |
Advances from Federal Home Loan Bank |  | 476,059 |  |  | — |  |  | 500,323 |  |  | — |  |  | 500,323 |
Other borrowings |  | 25,000 |  |  | — |  |  | 25,000 |  |  | — |  |  | 25,000 |
Long-term debt |  | 274,386 |  |  | — |  |  | 294,404 |  |  | — |  |  | 294,404 |
Derivative liabilities |  | 3,740 |  |  | — |  |  | 3,740 |  |  | — |  |  | 3,740 |
Accrued interest payable |  | 3,546 |  |  | 3,546 |  |  | — |  |  | — |  |  | 3,546 |

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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