v3.21.2

FAIR VALUE MEASUREMENTS | 9 Months Ended
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Sep. 30, 2021
FAIR VALUE MEASUREMENTS |
FAIR VALUE MEASUREMENTS | NOTE 2: FAIR VALUE MEASUREMENTS 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: ​
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​ | ​ | ​ | ​ | ​ | Fair Value Measurement Level
(dollars in thousands) | ​ | Total | ​ | Level 1 | ​ | Level 2 | ​ | Level 3
September 30, 2021: |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
Investment securities available for sale: |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
Agency mortgage-backed securities | ​ | $ | 757,942 | ​ | $ | — | ​ | $ | 757,942 | ​ | $ | —
Beneficial interest – FHLMC securitizations | ​ |  | 13,145 | ​ |  | — | ​ |  | — | ​ |  | 13,145
Corporate bonds | ​ |  | 116,911 | ​ |  | — | ​ |  | 116,911 | ​ |  | —
Other | ​ |  | 3,650 | ​ |  | 497 | ​ |  | 3,153 | ​ |  | —
Investment in equity securities | ​ |  | 540 | ​ |  | 540 | ​ |  | — | ​ |  | —
Total assets at fair value on a recurring basis | ​ | $ | 892,188 | ​ | $ | 1,037 | ​ | $ | 878,006 | ​ | $ | 13,145
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December 31, 2020: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Investment securities available for sale: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Agency mortgage-backed securities | ​ | $ | 723,995 | ​ | $ | — | ​ | $ | 723,995 | ​ | $ | —
Beneficial interest – FHLMC securitizations | ​ |  | 23,463 | ​ |  | — | ​ |  | — | ​ |  | 23,463
Corporate bonds | ​ |  | 58,358 | ​ |  | — | ​ |  | 58,358 | ​ |  | —
Other | ​ |  | 1,610 | ​ |  | 503 | ​ |  | 1,107 | ​ |  | —
Investment in equity securities | ​ |  | 338 | ​ |  | 338 | ​ |  | — | ​ |  | —
Total assets at fair value on a recurring basis | ​ | $ | 807,764 | ​ | $ | 841 | ​ | $ | 783,460 | ​ | $ | 23,463
​ The decrease in Level 3 assets from December 31, 2020 was due to securitization paydowns and to $2.9 million in provisions for credit losses in the first nine months of 2021. Assets Measured at Fair Value on a Nonrecurring Basis From time to time, we may be required to measure other assets at fair value 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. Loans. Loans measured at fair value on a nonrecurring basis include collateral dependent loans held for investment. The specific reserves for these loans are based on collateral value, net of estimated disposition costs and other identified quantitative inputs. Collateral value is determined based on independent third-party appraisals or internally-developed discounted cash flow analyses. Internal discounted cash flow analyses are also utilized to estimate the fair value of these loans, which considers internally-developed, unobservable inputs such as discount rates, default rates, and loss severity. 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 $10.2 million and $3.1 million at September 30, 2021 and December 31, 2020, respectively. There were $1.2 million and $1.1 million in specific reserves related to these loans at September 30, 2021 and December 31, 2020. 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. Mortgage Servicing Rights. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income, resulting in a Level 3 classification. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Significant assumptions in the valuation of these Level 3 mortgage servicing rights as of September 30, 2021 included prepayment rates ranging from 20% to 30% and discount rates ranging from 0.21% to 10%. Fair Value of Financial Instruments FASB ASC 825-10, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies and are based on the exit price notion set forth by ASU 2016-01. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Company. 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 in FHLMC securitizations. Significant assumptions in the valuation of these Level 3 securities as of September 30, 2021 and December 31, 2020 included prepayment rates ranging from 30% to 35% and discount rates ranging from 6.70% 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 sale is determined using secondary market pricing. Loans Held for Investment. 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 or by reference to secondary market pricing. 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, resulting in a Level 3 classification. The carrying amounts and estimated fair values of financial instruments are as follows as of: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Carrying | ​ | Fair Value Measurement Level
(dollars in thousands) | ​ | Value | ​ | 1 | ​ | 2 | ​ | 3 | ​ | Total
September 30, 2021: |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
Assets: |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |
Cash and cash equivalents | ​ | $ | 783,376 | ​ | $ | 783,376 | ​ | $ | — | ​ | $ | — | ​ | $ | 783,376
Securities AFS, net | ​ |  | 891,648 | ​ |  | 497 | ​ |  | 878,006 | ​ |  | 13,145 | ​ |  | 891,648
Loans held for sale | ​ |  | 501,433 | ​ |  | — | ​ |  | 506,547 | ​ |  | — | ​ |  | 506,547
Loans, net | ​ |  | 5,287,974 | ​ |  | — | ​ |  | — | ​ |  | 5,342,001 | ​ |  | 5,342,001
Investment in FHLB stock | ​ |  | 17,250 | ​ |  | — | ​ |  | 17,250 | ​ |  | — | ​ |  | 17,250
Investment in equity securities | ​ |  | 540 | ​ |  | 540 | ​ |  | — | ​ |  | — | ​ |  | 540
Liabilities: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Deposits | ​ | $ | 6,844,978 | ​ | $ | 6,231,505 | ​ | $ | 619,516 | ​ | $ | — | ​ | $ | 6,851,021
Borrowings | ​ |  | 12,500 | ​ |  | — | ​ |  | — | ​ |  | 12,500 | ​ |  | 12,500
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December 31, 2020: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Assets: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |
Cash and cash equivalents | ​ | $ | 629,707 | ​ | $ | 629,707 | ​ | $ | — | ​ | $ | — | ​ | $ | 629,707
Securities AFS, net | ​ |  | 807,426 | ​ |  | 503 | ​ |  | 783,460 | ​ |  | 23,463 | ​ |  | 807,426
Loans held for sale | ​ |  | 505,404 | ​ |  | — | ​ |  | 510,638 | ​ |  | — | ​ |  | 510,638
Loans, net | ​ |  | 4,779,599 | ​ |  | — | ​ |  | — | ​ |  | 4,829,258 | ​ |  | 4,829,258
Investment in FHLB stock | ​ |  | 17,250 | ​ |  | — | ​ |  | 17,250 | ​ |  | — | ​ |  | 17,250
Investment in equity securities | ​ |  | 338 | ​ |  | 338 | ​ |  | — | ​ |  | — | ​ |  | 338
Liabilities: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  | ​
Deposits | ​ | $ | 5,913,433 | ​ | $ | 4,934,537 | ​ | $ | 978,897 | ​ | $ | — | ​ | $ | 5,913,434
Borrowings | ​ |  | 269,000 | ​ |  | — | ​ |  | 255,000 | ​ |  | 14,000 | ​ |  | 269,000
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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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