XML 28 R18.htm IDEA: XBRL DOCUMENT

Disclosures about Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2024

Disclosures about Fair Value of Assets and Liabilities

Disclosures about Fair Value of Assets and Liabilities

Note 8: Disclosures about Fair Value of Assets and Liabilities

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. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 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 for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities

Recurring Measurements

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying unaudited condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2024 and December 31, 2023:


		Fair Value Measurements Using
					Quoted Prices in			Significant
					Active Markets			Other			Significant
					for Identical			Observable			Unobservable
		Fair			Assets			Inputs			Inputs
Assets		Value			(Level 1)			(Level 2)			(Level 3)

		(In thousands)
March 31, 2024
Mortgage loans in process of securitization		$	142,629		$	—		$	142,629		$	—
Securities available for sale:
Treasury notes			109,103			109,103			—			—
Federal agencies			238,501			—			238,501			—
Mortgage-backed - Agency			13,044			—			13,044			—
Mortgage-backed - Non-agency residential - fair value option			472,192			—			—			472,192
Mortgage-backed - Agency - fair value option			228,448			—			228,448			—
Loans held for sale			84,513			—			84,513			—
Servicing rights			172,200			—			—			172,200
Derivative assets:
Interest rate lock commitments			174			—			—			174
Forward contracts			9			—			9			—
Interest rate swaps			3,985			—			3,985			—
Interest rate swaps (back-to-back)			15,259			—			15,259			—
Put options			33,490			—			10,514			22,976
Interest rate floors			8,910			—			—			8,910
Derivative liabilities:
Interest rate lock commitments			22			—			—			22
Forward contracts			110			—			110			—
Interest rate swaps (back-to-back)			15,259			—			15,259			—


December 31, 2023
Mortgage loans in process of securitization		$	110,599		$	—		$	110,599		$	—
Securities available for sale:
Treasury notes			128,968			128,968			—			—
Federal agencies			247,755			—			247,755			—
Mortgage-backed - Agency			14,467			—			14,467			—
Mortgage-backed - Non-agency residential - fair value option			485,500			—			—			485,500
Mortgage-backed - Agency - fair value option			236,997			—			236,997			—
Loans held for sale			86,663			—			86,663			—
Servicing rights			158,457			—			—			158,457
Derivative assets:
Interest rate lock commitments			140			—			—			140
Forward contracts			4			—			4			—
Interest rate swaps			2,610			—			2,610			—
Interest rate swaps (back-to-back)			12,426			—			12,426			—
Put options			25,877			—			7,223			18,654
Interest rate floors			6,576			—			—			6,576
Derivative liabilities:
Interest rate lock commitments			4			—			—			4
Forward contracts			391			—			391			—
Interest rate swaps (back-to-back)			12,426			—			12,426			—

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying unaudited condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the three months ended March 31, 2024 and the year ended December 31, 2023. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Mortgage Loans in Process of Securitization, Securities Available for Sale, and Securities with a Fair Value Option Election

Where quoted market prices are available in an active market, securities, such as U.S. Treasuries, are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy including federal agencies, mortgage-backed securities, municipal securities and Federal Housing Administration participation certificates. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Loans Held for Sale

Certain loans held for sale at fair value are saleable into the secondary mortgage markets and their fair values are estimated using observable quoted market or contracted prices, or market price equivalents, which would be used by other market participants. These saleable loans are considered Level 2.

Servicing Rights

Servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed, cost of servicing, interest rates, and default rate. Due to the nature of the valuation inputs, servicing rights are classified within Level 3 of the hierarchy.

The Chief Financial Officer’s (CFO) office contracts with an independent pricing specialist to generate fair value estimates on a quarterly basis. The CFO’s office challenges the reasonableness of the assumptions used and reviews the methodology to ensure the estimated fair value complies with accounting standards generally accepted in the United States.

Derivative Financial Instruments

Interest rate lock commitments - The Company estimates the fair value of interest rate lock commitments based on the value of the underlying mortgage loan, quoted mortgage-backed security prices, estimates of the fair value of the servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net of expenses. With respect to its interest rate lock commitments, management determined that a Level 3 classification was most appropriate based on the various significant unobservable inputs utilized in estimating the fair value of its interest rate lock commitments.

Forward sales commitments - The Company estimates the fair value of forward sales commitments based on market quotes of mortgage-backed security prices for securities similar to the ones used, which are considered Level 2.

Interest rate swaps – The Company estimates the fair value of interest rate swaps based on prices that are obtained from a third party that uses observable market inputs, thereby supporting a Level 2 classification.

Put options - The fair value of put options are linked to securities available for sale that are accounted for using the fair value option and are classified as either Level 2 or Level 3 on the hierarchy. The put options are classified as Level 2 or Level 3 in the hierarchy, depending upon the magnitude of observable inputs in the valuation of the securities. These valuations are estimated by a third party.

Interest rate floors - The fair value of certain interest rate floors is linked to securities available for sale that are accounted for using the fair value option. Other interest rate floors are linked to loans with warehouse customers. The value of the interest rate floors is based on estimated discounted cash flows that are based on inputs that are not readily observable and, thus, are classified as Level 3 on the hierarchy. These valuations are estimated by a third party.

Credit Default Swap – The fair value of the credit default swap is linked to the value of its underlying mortgage loans. The Company estimates the fair value based on estimated discounted cash flows that are derived from inputs that are not readily observable and, thus, are classified as Level 3 on the hierarchy. These valuations are estimated by a third party.

The fair value of the credit default swap was equal to the transaction price of zero at inception on March 27, 2024. The Company will subsequently measure the fair value of the credit default swap each reporting period.

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:


		Three Months Ended March 31,
		2024			2023

		(In thousands)
Servicing rights
Balance, beginning of period		$	158,457		$	146,248
Additions
Originated servicing			2,166			2,173
Subtractions
Paydowns			(2,387)			(1,698)
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model			13,964			(2,856)
Balance, end of period		$	172,200		$	143,867

Available for sale securities - Mortgage-backed - Non-Agency residential - fair value option
Balance, beginning of period		$	485,500		$	—
Paydowns			(8,986)			—
Changes in fair value			(4,322)			—
Balance, end of period		$	472,192		$	—

Derivative Assets - put options
Balance, beginning of period		$	18,654		$	—
Changes in fair value			4,322			—
Balance, end of period		$	22,976		$	—

Derivative Assets - interest rate floors
Balance, beginning of period		$	6,576		$	—
Changes in fair value			2,334			—
Balance, end of period		$	8,910		$	—

Derivative Assets - interest rate lock commitments
Balance, beginning of period		$	140		$	28
Changes in fair value			34			190
Balance, end of period		$	174		$	218

Derivative Liabilities - interest rate lock commitments
Balance, beginning of period		$	4		$	23
Changes in fair value			18			(19)
Balance, end of period		$	22		$	4

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2024 and December 31, 2023.


		Fair Value Measurements Using
					Quoted Prices in			Significant			Significant
					Active Markets for			Other Observable			Unobservable
		Fair			Identical Assets			Inputs			Inputs
Assets		Value			(Level 1)			(Level 2)			(Level 3)

		(In thousands)
March 31, 2024
Collateral dependent loans		$	420		$	—		$	—		$	420
December 31, 2023
Collateral dependent loans		$	47,026		$	—		$	—		$	47,026

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying unaudited condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral Dependent Loans, Net of ACL-Loans

The estimated fair value of collateral dependent loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral dependent loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral dependent and subsequently as deemed necessary by the Chief Credit Officer’s (“CCO”) office. Appraisals and evaluations are reviewed for accuracy and consistency by the CCO’s office. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the CCO’s office by comparison to historical results.

Unobservable (Level 3) Inputs:

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than goodwill.


					Valuation						Weighted
		Fair Value			Technique		Unobservable Inputs		Range		Average
		(In thousands)
At March 31, 2024:
Available for sale securities - Mortgage-backed - Non-Agency residential - fair value option		$	472,192		Discounted cash flow		Market credit spread		2%		2%
Collateral dependent loans		$	420		Market comparable properties		Marketability discount		24% - 27%		26%
Servicing rights - Multi-family		$	135,314		Discounted cash flow		Discount rate		8% - 13%		9%
							Constant prepayment rate		0% - 73%		7%
Servicing rights - Single-family		$	31,898		Discounted cash flow		Discount rate		10% - 11%		10%
							Constant prepayment rate		6% - 15%		7%
Servicing rights - SBA		$	4,988		Discounted cash flow		Discount rate		16%		16%
							Constant prepayment rate		3% - 14%		9%
Derivative assets:
Interest rate lock commitments		$	174		Discounted cash flow		Loan closing rates		50% - 99%		82%
Put options		$	22,976		Intrinsic option value		Market credit spread		2%		2%
Interest rate floors		$	8,910		Discounted cash flow		Discount rate		6%-8%		7%
Derivative liabilities - interest rate lock commitments		$	22		Discounted cash flow		Loan closing rates		50% - 99%		82%

At December 31, 2023:
Available for sale securities - Mortgage-backed - Non-Agency residential - fair value option		$	485,500		Discounted cash flow		Market credit spread		2%		2%
Collateral dependent loans		$	47,026		Market comparable properties		Marketability discount		0% - 100%		2%
Servicing rights - Multi-family		$	122,218		Discounted cash flow		Discount rate		8% - 13%		9%
							Constant prepayment rate		0% - 50%		7%
Servicing rights - Single-family		$	30,959		Discounted cash flow		Discount rate		10% - 11%		10%
							Constant prepayment rate		6% - 16%		7%
Servicing rights - SBA		$	5,280		Discounted cash flow		Discount rate		16%		16%
							Constant prepayment rate		3% - 14%		9%
Derivative assets:
Interest rate lock commitments		$	140		Discounted cash flow		Loan closing rates		45% - 99%		78%
Put options		$	18,654		Intrinsic option value		Market credit spread		2%		2%
Interest rate floors		$	6,576		Discounted cash flow		Discount rate		6%-7%		7%
Derivative liabilities - interest rate lock commitments		$	4		Discounted cash flow		Loan closing rates		45% - 99%		78%

Sensitivity of Significant Unobservable Inputs

The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement, and of how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.

Securities Available for Sale with a Fair Value Option Election, Loans, and Related Derivative Financial Instruments

The significant unobservable input used in the fair value measurement of certain securities available for sale and their related put options include market credit spreads that can be impacted by market conditions and drive a significant amount of a market participant’s valuation of the security and its related put option. The impact of changes to the unobservable inputs for the securities is mitigated by changes to the unobservable inputs for the put options, which are valued in opposite directions, so as to minimize the financial impact to the Company.

The significant unobservable input used in the fair value measurement of interest rate floor derivatives associated with certain securities available for sale and loans include the discount rate that can have a significant impact on the value of the derivative. Another variable that affects the floor value is the forward interest curve, which is observable, but changes with market conditions as interest rates and future interest rate expectations change.

Servicing Rights

The significant unobservable inputs used in the fair value measurement of the Company’s servicing rights are discount rates and constant prepayment rates. These two inputs can drive a significant amount of a market participant’s valuation of servicing rights. Significant increases (decreases) in the discount rate or assumed constant prepayment rates used to value servicing rights would decrease (increase) the value derived.

Fair Value of Financial Instruments

The following table presents the carrying amount and estimated fair values of the Company’s financial instruments not carried at fair value and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2024 and December 31, 2023.


					Fair Value Measurements Using
								Quoted Prices in			Significant
								Active Markets			Other			Significant
								for Identical			Observable			Unobservable
		Carrying			Fair			Assets			Inputs			Inputs
Assets		Value			Value			(Level 1)			(Level 2)			(Level 3)

		(In thousands)
March 31, 2024
Financial assets:
Cash and cash equivalents		$	508,755		$	508,755		$	508,755		$	—		$	—
Securities purchased under agreements to resell			3,329			3,329			—			3,329			—
Securities held to maturity			1,175,167			1,176,178			—			466,573			709,605
FHLB stock			64,215			64,215			—			64,215			—
Loans held for sale			3,418,618			3,418,618			—			3,418,618			—
Loans receivable, net			10,690,513			10,646,477			—			—			10,646,477
Interest receivable			90,303			90,303			—			90,303			—
Financial liabilities:
Deposits			13,975,661			13,973,624			8,018,126			5,955,498			—
Short-term subordinated debt			64,922			64,922			—			64,922			—
FHLB advances			1,426,299			1,425,888			—			1,425,888			—
Other borrowing			232,934			232,934			—			232,934			—
Credit linked notes			111,830			111,828			—			111,828			—
Interest payable			51,790			51,790			—			51,790			—

December 31, 2023
Financial assets:
Cash and cash equivalents		$	584,422		$	584,422		$	584,422		$	—		$	—
Securities purchased under agreements to resell			3,349			3,349			—			3,349			—
Securities held to maturity			1,204,217			1,203,535			—			484,288			719,247
FHLB stock			48,578			48,578			—			48,578			—
Loans held for sale			3,058,093			3,058,093			—			3,058,093			—
Loans receivable, net			10,127,801			10,088,468			—			—			10,088,468
Interest receivable			91,346			91,346			—			91,346			—
Financial liabilities:
Deposits			14,061,460			14,062,457			8,894,058			5,168,399			—
Short-term subordinated debt			64,922			64,922			—			64,922			—
FHLB advances			771,392			771,029			—			771,029			—
Other borrowing			7,934			7,934			—			7,934			—
Credit linked notes			119,879			119,878			—			119,878			—
Interest payable			43,423			43,423			—			43,423			—

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 + Details