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Fair Value

6 Months Ended

Jun. 30, 2021

9) 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 June 30, 2021
Available-for-sale securities:
Agency mortgage-backed securities		$	130,892		$	—		$	130,892		$	—
U.S. Treasury			15,063			15,063			—			—
I/O strip receivables			274			—			274			—

Assets at December 31, 2020
Available-for-sale securities:
Agency mortgage-backed securities		$	175,326		$	—		$	175,326		$	—
U.S. Treasury			60,448			60,448			—			—
I/O strip receivables			305			—			305			—

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 credit losses on loans 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. There were no material collateral dependent loans carried at fair value on a non-recurring basis at June 30, 2021 or December 31, 2020.

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 June 30, 2021 and December 31, 2020, there were no foreclosed assets on the balance sheet.

The carrying amounts and estimated fair values of financial instruments at June 30, 2021 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		$	1,328,322		$	1,328,322		$	—		$	—		$	1,328,322
Securities available-for-sale			145,955			15,063			130,892			—			145,955
Securities held-to-maturity			421,286			—			426,755			—			426,755
Loans (including loans held-for-sale), net			2,785,184			—			4,344			2,796,339			2,800,683
FHLB stock, FRB stock, and other
investments			32,495			—			—			—			N/A
Accrued interest receivable			10,397			103			1,510			8,784			10,397
I/O strips receivables			274			—			274			—			274
Liabilities:
Time deposits		$	158,644		$	—		$	158,843		$	—		$	158,843
Other deposits			4,185,828			—			4,185,828			—			4,185,828
Subordinated debt			39,832			—			40,432			—			40,432
Accrued interest payable			548			—			548			—			548

The carrying amounts and estimated fair values of the Company’s financial instruments at December 31, 2020:


					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		$	1,131,073		$	1,131,073		$	—		$	—		$	1,131,073
Securities available-for-sale			235,774			60,448			175,326			—			235,774
Securities held-to-maturity			297,389			—			304,927			—			304,927
Loans (including loans held-for-sale), net			2,576,560			—			1,699			2,572,993			2,574,692
FHLB stock, FRB stock, and other
investments			33,522			—			—			—			N/A
Accrued interest receivable			10,546			309			1,512			8,725			10,546
I/O strips receivables			305			—			305			—			305
Liabilities:
Time deposits		$	153,407		$	—		$	153,740		$	—		$	153,740
Other deposits			3,761,079			—			3,761,079			—			3,761,079
Subordinated debt			39,740			—			40,340			—			40,340
Accrued interest payable			545			—			545			—			545

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.

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