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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2022
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Fair value is defined as the exchange 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 reflecting assumptions that a market participant would use when pricing an asset or liability. There are three levels of inputs that may be used to measure fair value. The fair value inputs of the instruments are classified and disclosed in one of the following categories pursuant to ASC 820: Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. The quoted price shall not be adjusted for any blockage factor (i.e., size of the position relative to trading volume). Level 2 - Pricing inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Fair value is determined through the use of models or other valuation methodologies, including the use of pricing matrices. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 - Pricing inputs are unobservable for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company uses the following methods and assumptions in estimating fair value disclosures for financial instruments. Financial assets and liabilities recorded at fair value on a recurring and non-recurring basis are listed as follows: Investment Securities The fair values of investment securities available for sale and held to maturity are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value of the Company’s Level 3 security available for sale was measured using an income approach valuation technique. The primary inputs and assumptions used in the fair value measurement was derived from the security’s underlying collateral, which included discount rate, prepayment speeds, payment delays, and an assessment of the risk of default of the underlying collateral, among other factors. Significant increases or decreases in any of the inputs or assumptions could result in a significant increase or decrease in the fair value measurement. Equity Investments With Readily Determinable Fair Value The fair value of the Company’s equity investments with readily determinable fair value is comprised of mutual funds. The fair value for these investments is obtained from unadjusted quoted prices in active markets on the date of measurement and is therefore classified as Level 1. Interest Rate Swaps The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. 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. Mortgage Banking Derivatives Mortgage banking derivative instruments consist of interest rate lock commitments and forward sale contracts that trade in liquid markets. The fair value is based on the prices available from third party investors. Due to the observable nature of the inputs used in deriving the fair value, the valuation of mortgage banking derivatives is classified as Level 2. Other Derivatives Other derivatives consist of interest rate swaps designated as cash flow hedges, foreign exchange contracts and risk participation agreements. The fair values of these other derivative financial instruments are based upon the estimated amount the Company would receive or pay to terminate the instruments, taking into account current interest rates, foreign exchange rates and, when appropriate, the current credit worthiness of the counterparties. Interest rate swaps designated as cash flow hedges and foreign exchange contracts are classified within Level 2 due to the observable nature of the inputs used in deriving the fair value of these contracts. Credit derivatives such as risk participation agreements are valued based on credit worthiness of the underlying borrower which is a significant unobservable input and therefore is classified as Level 3. Collateral Dependent Loans The fair values of collateral dependent loans are generally measured for ACL using the practical expedients permitted by ASC 326-20-35-5 including collateral dependent loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation, less costs to sell of 8.5%. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and income approach. Adjustment may be made in the appraisal process by the independent appraiser to adjust for differences between the comparable sales and income data available for similar loans and the underlying collateral. For commercial and industrial and asset backed loans, independent valuations may include a 20-60% discount for eligible accounts receivable and a 50-70% discount for inventory. These result in a Level 3 classification. OREO OREO is fair valued at the time the loan is foreclosed upon and the asset is transferred to OREO. The value is based primarily on third party appraisals, less costs to sell of up to 8.5% and result in a Level 3 classification of the inputs for determining fair value. OREO is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted to lower of cost or market accordingly, based on the same factors identified above. Loans Held For Sale Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments from investors, or based on recent comparable sales (Level 2 inputs), if available, and if not available, are based on discounted cash flows using current market rates applied to the estimated life and credit risk (Level 3 inputs) or may be assessed based upon the fair value of the collateral, which is obtained from recent real estate appraisals (Level 3 inputs). These appraisals may utilize a single valuation approach or a combination of approaches including 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. Assets and liabilities measured at fair value on a recurring basis are summarized below:
|  |  | Fair Value Measurements at the End of the Reporting Period Using
| September 30, 2022 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| (Dollars in thousands)
Assets: |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |
U.S. Treasury securities | $ | 3,889 |  |  | $ | 3,889 |  |  | $ | — |  |  | $ | — |
U.S. Government agency and U.S. Government sponsored enterprises: |  |  |  |  |  |  |
Agency securities | 3,875 |  |  | — |  |  | 3,875 |  |  | — |
Collateralized mortgage obligations | 824,327 |  |  | — |  |  | 824,327 |  |  | — |
Mortgage-backed securities: |  |  |  |  |  |  |
Residential | 456,590 |  |  | — |  |  | 456,590 |  |  | — |
Commercial | 379,615 |  |  | — |  |  | 379,615 |  |  | — |
Asset-backed securities | 143,903 |  |  | — |  |  | 143,903 |  |  | — |
Corporate securities | 18,715 |  |  | — |  |  | 18,715 |  |  | — |
Municipal securities | 162,434 |  |  | — |  |  | 161,520 |  |  | 914 |
Equity investments with readily determinable fair value | 4,294 |  |  | 4,294 |  |  | — |  |  | — |
Interest rate swaps | 74,853 |  |  | — |  |  | 74,853 |  |  | — |
Mortgage banking derivatives | 42 |  |  | — |  |  | 42 |  |  | — |
Other derivatives | 27,343 |  |  | — |  |  | 27,343 |  |  | — |
Liabilities: |  |  |  |  |  |  |
Interest rate swaps | 74,853 |  |  | — |  |  | 74,853 |  |  | — |
Mortgage banking derivatives | 42 |  |  | — |  |  | 42 |  |  | — |
Other derivatives | 163 |  |  | — |  |  | 143 |  |  | 20 |
|  |  | Fair Value Measurements at the End of the Reporting Period Using
| December 31, 2021 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| (Dollars in thousands)
Assets: |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |
U.S. Government agency and U.S. Government sponsored enterprises: |  |  |  |  |  |  |
Collateralized mortgage obligations | $ | 1,026,430 |  |  | $ | — |  |  | $ | 1,026,430 |  |  | $ | — |
Mortgage-backed securities: |  |  |  |  |  |  |
Residential | 759,224 |  |  | — |  |  | 759,224 |  |  | — |
Commercial | 599,402 |  |  | — |  |  | 599,402 |  |  | — |
Asset-backed securities | 153,451 |  |  | — |  |  | 153,451 |  |  | — |
Corporate securities | 22,484 |  |  | — |  |  | 22,484 |  |  | — |
Municipal securities | 105,284 |  |  | — |  |  | 104,246 |  |  | 1,038 |
Equity investments with readily determinable fair value | 26,823 |  |  | 26,823 |  |  | — |  |  | — |
Interest rate swaps | 17,907 |  |  | — |  |  | 17,907 |  |  | — |
Mortgage banking derivatives | 247 |  |  | — |  |  | 247 |  |  | — |
Other derivatives | 2,291 |  |  | — |  |  | 2,291 |  |  | — |
Liabilities: |  |  |  |  |  |  |
Interest rate swaps | 17,907 |  |  | — |  |  | 17,907 |  |  | — |
Mortgage banking derivatives | 76 |  |  | — |  |  | 76 |  |  | — |
Other derivatives | 93 |  |  | — |  |  | — |  |  | 93 |
There were no transfers between Levels 1, 2, and 3 during the three and nine months ended September 30, 2022 and 2021. The table below presents a reconciliation and income statement classification of gains (losses) for the municipal security and risk participation agreements 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:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
|  | (Dollars in thousands)
Municipal securities: |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 1,019 |  |  | $ | 1,058 |  |  | $ | 1,038 |  |  | $ | 1,022 |
Change in fair value included in other comprehensive income (loss) |  | (105) |  |  | (3) |  |  | (124) |  |  | 33 |
Ending Balance |  | $ | 914 |  |  | $ | 1,055 |  |  | $ | 914 |  |  | $ | 1,055 |
Risk participation agreements: |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 31 |  |  | $ | 64 |  |  | $ | 93 |  |  | $ | 398 |
Change in fair value included in income (expense) |  | (11) |  |  | (12) |  |  | (73) |  |  | (346) |
Ending Balance |  | $ | 20 |  |  | $ | 52 |  |  | $ | 20 |  |  | $ | 52 |
The Company measures certain assets at fair value on a non-recurring basis including collateral dependent loans, loans held for sale, and OREO. These fair value adjustments result from individually evaluated ACL recognized during the period, application of the lower of cost or fair value on loans held for sale, and the application of fair value less cost to sell on OREO. Assets measured at fair value on a non-recurring basis are summarized below:
|  |  | Fair Value Measurements at the End of the Reporting Period Using
| September 30, 2022 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| (Dollars in thousands)
Assets: |  |  |  |  |  |  |
Collateral dependent loans at fair value: |  |  |  |  |  |  |
Real estate loans | $ | 6,368 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,368 |
Commercial business | 5,794 |  |  | — |  |  | — |  |  | 5,794 |
OREO | 1,050 |  |  | — |  |  | — |  |  | 1,050 |
|  |  | Fair Value Measurements at the End of the Reporting Period Using
| December 31, 2021 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| (Dollars in thousands)
Assets: |  |  |  |  |  |  |
Collateral dependent loans at fair value: |  |  |  |  |  |  |
Real estate loans | $ | 12,293 |  |  | $ | — |  |  | $ | — |  |  | $ | 12,293 |
Commercial business | 3,656 |  |  | — |  |  | — |  |  | 3,656 |
Loans held for sale, net | 26,154 |  |  | — |  |  | 26,154 |  |  | — |
OREO | 2,167 |  |  | — |  |  | — |  |  | 2,167 |
For assets measured at fair value on a non-recurring basis, the total net losses, which include charge offs, recoveries, recorded ACL, valuations, and recognized gains and losses on sales are summarized below:
| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (Dollars in thousands)
Assets: |  |  |  |  |  |  |
Collateral dependent loans at fair value: |  |  |  |  |  |  |
Real estate loans | $ | (962) |  |  | $ | (1,083) |  |  | $ | (1,573) |  |  | $ | (1,496) |
Commercial business | (3,323) |  |  | (2,025) |  |  | (3,323) |  |  | (2,025) |
Loans held for sale, net | — |  |  | (6,121) |  |  | — |  |  | (17,900) |
OREO | (337) |  |  | (259) |  |  | (593) |  |  | (582) |
Fair Value of Financial Instruments Carrying amounts and estimated fair values of financial instruments, not previously presented, at September 30, 2022 and December 31, 2021 were as follows:
| September 30, 2022
| Carrying Amount |  | Estimated Fair Value |  | Fair Value Measurement Using
| (Dollars in thousands)
Financial Assets: |  |  |  |  |
Cash and cash equivalents | $ | 331,336 |  |  | $ | 331,336 |  |  | Level 1
Interest bearing deposits in other financial institutions | 3,968 |  |  | 3,945 |  |  | Level 2
Investment securities HTM | 271,185 |  |  | 258,677 |  |  | Level 2
Equity investments without readily determinable fair values | 38,030 |  |  | 38,030 |  |  | Level 2
Loans held for sale | 41,989 |  |  | 43,973 |  |  | Level 2
Loans receivable, net | 15,330,626 |  |  | 14,937,811 |  |  | Level 3
Accrued interest receivable | 42,363 |  |  | 42,363 |  |  | Level 2/3
Servicing assets, net | 11,601 |  |  | 16,650 |  |  | Level 3
Customers’ liabilities on acceptances | 570 |  |  | 570 |  |  | Level 2
Financial Liabilities: |  |  |  |  |
Noninterest bearing deposits | $ | 5,590,952 |  |  | $ | 5,590,952 |  |  | Level 2
Saving and other interest bearing demand deposits | 6,202,934 |  |  | 6,202,934 |  |  | Level 2
Time deposits | 3,708,323 |  |  | 3,706,939 |  |  | Level 2
FHLB and FRB borrowings | 1,072,000 |  |  | 1,072,080 |  |  | Level 2
Convertible notes, net | 216,913 |  |  | 211,562 |  |  | Level 1
Subordinated debentures | 106,258 |  |  | 107,870 |  |  | Level 2
Accrued interest payable | 11,713 |  |  | 11,713 |  |  | Level 2
Acceptances outstanding | 570 |  |  | 570 |  |  | Level 2
| December 31, 2021
| Carrying Amount |  | Estimated Fair Value |  | Fair Value Measurement Using
| (Dollars in thousands)
Financial Assets: |  |  |  |  |
Cash and cash equivalents | $ | 316,266 |  |  | $ | 316,266 |  |  | Level 1
Interest bearing deposits in other financial institutions | 12,851 |  |  | 12,853 |  |  | Level 2
Equity investments without readily determinable fair values | 31,037 |  |  | 31,037 |  |  | Level 2
Loans held for sale | 99,049 |  |  | 103,767 |  |  | Level 2
Loans receivable, net | 13,812,193 |  |  | 13,698,579 |  |  | Level 3
Accrued interest receivable | 41,842 |  |  | 41,842 |  |  | Level 2/3
Servicing assets, net | 10,418 |  |  | 13,500 |  |  | Level 3
Customers’ liabilities on acceptances | 1,521 |  |  | 1,521 |  |  | Level 2
Financial Liabilities: |  |  |  |  |
Noninterest bearing deposits | $ | 5,751,870 |  |  | $ | 5,751,870 |  |  | Level 2
Saving and other interest bearing demand deposits | 6,500,227 |  |  | 6,500,227 |  |  | Level 2
Time deposits | 2,788,353 |  |  | 2,790,596 |  |  | Level 2
FHLB advances | 300,000 |  |  | 301,936 |  |  | Level 2
Convertible notes, net | 216,209 |  |  | 214,612 |  |  | Level 1
Subordinated debentures | 105,354 |  |  | 117,961 |  |  | Level 2
Accrued interest payable | 4,272 |  |  | 4,272 |  |  | Level 2
Acceptances outstanding | 1,521 |  |  | 1,521 |  |  | Level 2
The Company measures assets and liabilities for its fair value disclosures based on an exit price notion. Although the exit price notion represents the value that would be received to sell an asset or paid to transfer a liability, the actual price received for a sale of assets or paid to transfer liabilities could be different from exit price disclosed. The methods and assumptions used to estimate fair value are described as follows: The carrying amount is the estimated fair value for cash and cash equivalents, savings and other interest bearing demand deposits, equity investments without readily determinable fair values, customer’s and Bank’s liabilities on acceptances, noninterest bearing deposits, short-term debt, secured borrowings and variable rate loans or deposits that reprice frequently and fully. The fair value of loans is determined through a discounted cash flow analysis which incorporates probability of default and loss given default rates on an individual loan basis. The discount rate is based on the LIBOR Swap Rate for fixed rate loans, while variable loans start with the corresponding index rate and an adjustment was made on certain loans which considered factors such as servicing costs, capital charges, duration, asset type incremental costs, and use of projected cash flows. Residential real estate loans fair values include Fannie Mae and Freddie Mac prepayment speed assumptions or a third party index based on historical prepayment speeds. Fair value of time deposits is based on discounted cash flow analysis using recent issuance rates over the prior three months and a market rate analysis of recent offering rates for retail products. Wholesale time deposit fair values incorporate brokered time deposit offering rates. The fair value of the Company’s debt is based on current rates for similar financing. Fair value for the Company’s convertible notes is based on the actual last traded price of the notes. The fair value of commitments to fund loans represents fees currently charged to enter into similar agreements with similar remaining maturities and is not presented herein. The fair value of these financial instruments is not material to the consolidated financial statements.

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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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