Fair Value

6 Months Ended

Jun. 30, 2022

Fair Value

Fair Value

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, 2022
Available-for-sale securities:
U.S. Treasury	$	250,126	$	250,126	$	—	$	—
Agency mortgage-backed securities		82,003		—		82,003		—
I/O strip receivables		173		—		173		—
Assets at December 31, 2021
Available-for-sale securities:
Agency mortgage-backed securities	$	102,252	$	—	$	102,252	$	—
I/O strip receivables		221		—		221		—

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, 2022 or December 31, 2021.

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, 2022 and December 31, 2021, there were no foreclosed assets on the balance sheet.

The carrying amounts and estimated fair values of financial instruments at June 30, 2022 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	$	876,585	$	876,585	$	—	$	—	$	876,585
Securities available-for-sale		332,129		250,126		82,003		—		332,129
Securities held-to-maturity		723,716		—		650,829		—		650,829
Loans (including loans held-for-sale), net		3,039,243		—		2,281		2,945,005		2,947,286
FHLB stock, FRB stock, and other
investments		32,513		—		—		—		N/A
Accrued interest receivable		11,679		587		1,724		9,368		11,679
I/O strips receivables		173		—		173		—		173
Liabilities:
Time deposits	$	139,625	$	—	$	139,912	$	—	$	139,912
Other deposits		4,474,019		—		4,474,019		—		4,474,019
Subordinated debt		39,274		—		38,424		—		38,424
Accrued interest payable		423		—		423		—		423

The carrying amounts and estimated fair values of the Company’s financial instruments at December 31, 2021:

			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	$	1,306,216	$	1,306,216	$	—	$	—	$	1,306,216
Securities available-for-sale		102,252		—		102,252		—		102,252
Securities held-to-maturity		658,397		—		657,649		—		657,649
Loans (including loans held-for-sale), net		3,046,403		—		2,367		3,061,558		3,063,925
FHLB stock, FRB stock, and other
investments		32,504		—		—		—		N/A
Accrued interest receivable		10,781		—		1,719		9,062		10,781
I/O strips receivables		221		—		221		—		221
Liabilities:
Time deposits	$	139,834	$	—	$	140,086	$	—	$	140,086
Other deposits		4,619,578		—		4,619,578		—		4,619,578
Subordinated debt		39,925		—		40,425		—		40,425
Accrued interest payable		477		—		477		—		477