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Fair Value | 12 Months Ended
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Dec. 31, 2017
Fair Value Disclosures [Abstract] |
Fair Value | NOTE 3: FAIR VALUE Assets Measured at Fair Value on a Recurring Basis Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance 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. There are three levels of inputs that may be used to measure fair values: 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 other 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 the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability. The following tables show the recorded amounts of assets and liabilities measured at fair value on a recurring basis as of:
|  |  |  |  | Fair Value Measurement Level |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
(dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2017: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
US Treasury securities |  | $ | 493 |  |  | $ | 493 |  |  | $ | — |  |  | $ | — |
Agency mortgage-backed securities |  |  | 464,019 |  |  |  | — |  |  |  | 464,019 |  |  |  | — |
Corporate bonds |  |  | 19,000 |  |  |  | — |  |  |  | 19,000 |  |  |  | — |
Beneficial interest – FHLMC securitization |  |  | 35,852 |  |  |  | — |  |  |  | — |  |  |  | 35,852 |
Total assets at fair value on a recurring basis |  | $ | 519,364 |  |  | $ | 493 |  |  | $ | 483,019 |  |  | $ | 35,852 |
December 31, 2016: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
US Treasury securities |  | $ | 297 |  |  | $ | 297 |  |  | $ | — |  |  | $ | — |
Agency mortgage-backed securities |  |  | 468,909 |  |  |  | — |  |  |  | 468,909 |  |  |  | — |
Beneficial interest – FHLMC securitization |  |  | 40,372 |  |  |  | — |  |  |  | — |  |  |  | 40,372 |
Total assets at fair value on a recurring basis |  | $ | 509,578 |  |  | $ | 297 |  |  | $ | 468,909 |  |  | $ | 40,372 |
The decrease in level 3 assets from December 31, 2016 was due to Beneficial interest – FHLMC securitization paydowns. Assets Measured at Fair Value on a Nonrecurring Basis Impaired Loans. ASC 820-10 applies to loans measured for impairment in accordance with ASC 310-10, “Accounting by Creditors for Impairment of a Loan”, at the fair value of the loan’s collateral (if the loan is collateral dependent) less estimated selling costs. When the fair value of the collateral is based on an observable market price or a current appraised value, we measure the impaired loan at nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price or a discounted cash flow has been used to determine the fair value, we measure the impaired loan at nonrecurring Level 3. The total collateral dependent impaired Level 3 loans were $13.4 million and $9.0 million at December 31, 2017 and December 31, 2016, respectively. There were no specific reserves related to these loans at December 31, 2017 and December 31, 2016. Real Estate Owned. The fair value of real estate owned is based on external appraised values that include adjustments for estimated selling costs and assumptions of market conditions that are not directly observable, resulting in a Level 3 classification. As of December 31, 2017 and 2016, the fair value of real estate owned was $2.9 million and $1.7 million, respectively. Mortgage Servicing Rights. At December 31, 2017 and 2016, the fair value of the mortgage servicing rights (“MSRs”) was $4.8 million and $2.2 million, respectively. The fair value of the MSRs for these dates was determined using values obtained from a third party that utilizes a valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience. The discount rate is used to determine the present value of future net servicing income. Another key assumption in the model is the required rate of return the market would expect for an asset with similar risk. These assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change. Management reviews, annually, the process utilized by its independent third-party valuation experts. Fair Value of Financial Instruments We have elected to use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale are measured at fair value on a recurring basis. Additionally, from time to time, we may be required to measure at fair value other assets on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. Fair value estimates are made at a discrete point in time based on relevant market information and other information about the financial instruments. Because no active market exists for a significant portion of our financial instruments, fair value estimates are based in large part on judgments we make primarily regarding current economic conditions, risk characteristics of various financial instruments, prepayment rates, and future expected loss experience. These estimates are subjective in nature and invariably involve some inherent uncertainties. Additionally, unexpected changes in events or circumstances can occur that could require us to make changes to our assumptions and which, in turn, could significantly affect and require us to make changes to our previous estimates of fair value. In addition, the fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of existing and anticipated future customer relationships and the value of assets and liabilities that are not considered financial instruments, such as premises and equipment and other real estate owned. The following methods and assumptions were used to estimate the fair value of financial instruments. Cash and Cash Equivalents. The fair value of cash and cash equivalents approximates its carrying value. Interest-Bearing Deposits with Financial Institutions. The fair values of interest-bearing deposits maturing within ninety days approximate their carrying values. Investment Securities Available for Sale. Investment securities available-for-sale are measured at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. 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. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as level 3 include beneficial interests – FHLMC securitization. Significant assumptions in the valuation of these Level 3 securities as of December 31, 2017 included a prepayment rate of 15% and discount rates ranging from 4.0% to 10%. Federal Home Loan Bank Stock. The Bank is a member of the Federal Home Loan Bank (the “FHLB”). As a member, we are required to own stock of the FHLB, the amount of which is based primarily on the level of our borrowings from this institution. The fair value of the stock is equal to the carrying amount, is classified as restricted securities and is periodically evaluated for impairment based on our assessment of the ultimate recoverability of our investments in that stock. Any cash or stock dividends paid to us on such stock are reported as income. Loans held for sale. The fair value of loans held for sales is determined using secondary market pricing. Loans, other than impaired loans. The fair value for loans with variable interest rates is the carrying amount. The fair value of fixed rate loans is derived by calculating the discounted value of future cash flows expected to be received by the various homogeneous categories of loans. All loans have been adjusted to reflect changes in credit risk. Deposits. The fair value of demand deposits, savings deposits, and money market deposits is defined as the amounts payable on demand. The fair value of fixed maturity certificates of deposit is estimated based on the discounted value of the future cash flows expected to be paid on the deposits. Borrowings. The fair value of borrowings is the carrying value of overnight FHLB advances that approximate fair value because of the short-term maturity of this instrument, resulting in a Level 2 classification. The fair value of term borrowings is derived by calculating the discounted value of future cash flows expected to be paid out by the Company. The following table sets forth the estimated fair values and related carrying amounts of our financial instruments as of:
|  | Carrying |  |  | Fair Value Measurement Level |
(dollars in thousands) |  | Value |  | 1 |  |  | 2 |  |  | 3 |  |  | Total |
December 31, 2017: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 120,394 |  |  | $ | 120,394 |  |  | $ | — |  |  | $ | — |  |  | $ | 120,934 |
Securities AFS |  |  | 519,364 |  |  |  | 493 |  |  |  | 483,019 |  |  |  | 35,852 |  |  |  | 519,364 |
Loans held for sale |  |  | 154,380 |  |  |  | — |  |  |  | 155,345 |  |  |  | — |  |  |  | 154,380 |
Loans, net |  |  | 3,645,327 |  |  |  | — |  |  |  | — |  |  |  | 3,617,060 |  |  |  | 3,617,060 |
Investment in FHLB stock |  |  | 19,060 |  |  |  | — |  |  |  | 19,060 |  |  |  | — |  |  |  | 19,060 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 3,443,527 |  |  |  | 2,542,730 |  |  |  | 901,877 |  |  |  | — |  |  |  | 3,444,607 |
Borrowings |  |  | 678,000 |  |  |  | — |  |  |  | 628,000 |  |  |  | 50,000 |  |  |  | 678,000 |
December 31, 2016: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 597,946 |  |  | $ | 597,946 |  |  | $ | — |  |  | $ | — |  |  | $ | 597,946 |
Securities AFS |  |  | 509,578 |  |  |  | 297 |  |  |  | 468,909 |  |  |  | 40,372 |  |  |  | 509,578 |
Loans held for sale |  |  | 250,942 |  |  |  | — |  |  |  | 253,953 |  |  |  | — |  |  |  | 253,953 |
Loans, net |  |  | 2,540,309 |  |  |  | — |  |  |  | — |  |  |  | 2,529,360 |  |  |  | 2,529,360 |
Investment in FHLB stock |  |  | 33,750 |  |  |  | — |  |  |  | 33,750 |  |  |  | — |  |  |  | 33,750 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 2,426,795 |  |  |  | 1,797,329 |  |  |  | 629,594 |  |  |  | — |  |  |  | 2,426,923 |
Borrowings |  |  | 1,250,000 |  |  |  | — |  |  |  | 1,250,000 |  |  |  | — |  |  |  | 1,250,000 |

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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 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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