Fair Value

9 Months Ended

Sep. 30, 2020

Fair Value

Fair Value

10) Fair Value

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. The standard 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 other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data (for example, interest rates and yield curves observable at commonly quoted intervals, prepayment speeds, credit risks, and default rates).

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.

Financial Assets and Liabilities Measured on a Recurring Basis

The fair values of securities available-for sale-are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical 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 interest-only (“I/O”) strip receivable assets is based on a valuation model used by a third party. The Company is able to compare the valuation model inputs and results to widely available published industry data for reasonableness (Level 2 inputs).

			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Balance		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets at September 30, 2020
Available-for-sale securities:
Agency mortgage-backed securities	$	203,609		—	$	203,609		—
U.S. Treasury		90,829		90,829		—		—
I/O strip receivables		491		—		491		—
Assets at December 31, 2019
Available-for-sale securities:
Agency mortgage-backed securities	$	284,361		—	$	284,361		—
U.S. Treasury		120,464		120,464		—		—
I/O strip receivables		503		—		503		—

There were no transfers between Level 1 and Level 2 during the period for assets measured at fair value on a recurring basis.

Assets and Liabilities Measured on a Non-Recurring Basis

The fair value of collateral dependent loans individually evaluated with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. The 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 to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Foreclosed assets are valued at the time the loan is foreclosed upon and the asset is transferred to foreclosed assets. The fair value is based primarily on third party appraisals, less costs to sell. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and 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. At September 30, 2020 and December 31, 2019, there were no foreclosed assets on the balance sheet.

The carrying amounts and estimated fair values of financial instruments at September 30, 2020 are as follows:

			Estimated Fair Value
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
	Amounts		(Level 1)		(Level 2)		(Level 3)		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	960,268	$	960,268	$	—	$	—	$	960,268
Securities available-for-sale		294,438		90,829		203,609		—		294,438
Securities held-to-maturity		295,609		—		303,996		—		303,996
Loans (including loans held-for-sale), net		2,655,159		—		3,565		2,657,620		2,661,185
FHLB stock, FRB stock, and other
investments		33,518		—		—		—		N/A
Accrued interest receivable		10,704		520		1,761		8,423		10,704
I/O strips receivables		491		—		491		—		491
Liabilities:
Time deposits	$	143,452	$	—	$	141,926	$	—	$	141,926
Other deposits		3,746,949		—		3,746,949		—		3,746,949
Subordinated debt		39,693		—		38,893		—		38,893
Accrued interest payable		1,092		—		1,092		—		1,092

The carrying amounts and estimated fair values of the Company’s financial instruments at December 31, 2019:

			Estimated Fair Value
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
	Amounts		(Level 1)		(Level 2)		(Level 3)		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	457,370	$	457,370	$	—	$	—	$	457,370
Securities available-for-sale		404,825		120,464		284,361		—		404,825
Securities held-to-maturity		366,560		—		368,107		—		368,107
Loans (including loans held-for-sale), net		2,511,611		—		1,052		2,512,277		2,513,329
FHLB stock, FRB stock, and other
investments		29,842		—		—		—		N/A
Accrued interest receivable		10,915		446		2,218		8,251		10,915
I/O strips receivables		503		—		503		—		503
Liabilities:
Time deposits	$	168,034	$	—	$	158,704	$	—	$	158,704
Other deposits		3,246,734		—		3,246,734		—		3,246,734
Subordinated debt		39,554		—		40,404		—		40,404
Accrued interest payable		707		—		707		—		707