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Fair Value Measurement (Tables)
 3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair value measurement methodologies
The following table summarizes the fair value measurement methodologies, including significant inputs and assumptions, and classification of the Company's assets and liabilities.
Asset/Liability class
  
Valuation methodology, inputs and assumptions
  
Classification
Investment securities
 
 
 
 
Investment securities available for sale
  
Observable market prices of identical or similar securities are used where available.
 

  
Level 2 recurring fair value measurement.
 
 
If market prices are not readily available, value is based on discounted cash flows using the following significant inputs:
 
•      Expected prepayment speeds
 
•      Estimated credit losses
 
•      Market liquidity adjustments
 
Level 3 recurring fair value measurement.
Loans held for sale
  
 
  
 
Single family loans, excluding loans transferred from held for investment
  
Fair value is based on observable market data, including:
 
•       Quoted market prices, where available
 
•       Dealer quotes for similar loans
 
•       Forward sale commitments
  
Level 2 recurring fair value measurement.
 
 
When not derived from observable market inputs, fair value is based on discounted cash flows, which considers the following inputs:
•       Benchmark yield curve
  
•       Estimated discount spread to the benchmark yield curve
 
•       Expected prepayment speeds
 
Estimated fair value classified as Level 3.
Mortgage servicing rights
  
 
  
 
Single family MSRs
  
For information on how the Company measures the fair value of its single family MSRs, including key economic assumptions and the sensitivity of fair value to changes in those assumptions, see Note 7, Mortgage Banking Operations.
  
Level 3 recurring fair value measurement.
Derivatives
  
 
  
 
Eurodollar futures
 
Fair value is based on closing exchange prices.
 
Level 1 recurring fair value measurement.
Interest rate swaps
Interest rate swaptions
Forward sale commitments
 
Fair value is based on quoted prices for identical or similar instruments, when available.
 
When quoted prices are not available, fair value is based on internally developed modeling techniques, which require the use of multiple observable market inputs including:
 
•       Forward interest rates
 
•       Interest rate volatilities
 
Level 2 recurring fair value measurement.
Interest rate lock and purchase loan commitments
 
The fair value considers several factors including:

•       Fair value of the underlying loan based on quoted prices in the secondary market, when available. 

•       Value of servicing

•       Fall-out factor
 
Level 3 recurring fair value measurement.

 
Schedule of fair value hierarchy measurement
The following table presents the levels of the fair value hierarchy for the Company's assets and liabilities measured at fair value on a recurring basis.
 
(in thousands)
Fair Value at March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investment securities available for sale
 
 
 
 
 
 
 
Mortgage backed securities:
 
 
 
 
 
 
 
Residential
$
112,146

 
$
—

 
$
110,302

 
$
1,844

Commercial
30,382

 
—

 
30,382

 
—

Collateralized mortgage obligations:
 
 
 
 
 
 
 
Residential
156,308

 
—

 
156,308

 
—

Commercial
122,969

 
—

 
122,969

 
—

Municipal bonds
351,360

 
—

 
351,360

 
—

Corporate debt securities
18,464

 
—

 
18,371

 
93

U.S. Treasury securities
11,037

 
—

 
11,037

 
—

Agency debentures
9,766

 
—

 
9,766

 
—

Single family mortgage servicing rights
68,250

 
—

 
—

 
68,250

Single family loans held for sale (1)
360,496

 
—

 
355,971

 
4,525

Single family loans held for investment
4,830

 
—

 
—

 
4,830

Derivatives (1)
 
 
 
 
 
 
 
Eurodollar futures
105

 
105

 
—

 
—

Forward sale commitments
2,797

 
—

 
2,797

 
—

Interest rate swaptions
84

 
—

 
84

 
—

Interest rate lock and purchase loan commitments
14,118

 
—

 
—

 
14,118

Interest rate swaps
12,852

 
—

 
12,852

 
—

Total assets
$
1,275,964

 
$
105

 
$
1,182,199

 
$
93,660

Liabilities:
 
 
 
 
 
 
 
Derivatives
 
 
 
 
 
 
 
Forward sale commitments
$
4,830

 
$
—

 
$
4,830

 
$
—

Interest rate lock and purchase loan commitments
62

 
—

 
—

 
62

Interest rate swaps
4,765

 
—

 
4,765

 
—

Total liabilities
$
9,657

 
$
—

 
$
9,595

 
$
62


(1) Includes both continuing and discontinued operations.
(in thousands)
Fair Value at December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investment securities available for sale
 
 
 
 
 
 
 
Mortgage backed securities:
 
 
 
 
 
 
 
Residential
$
107,961

 
$
—

 
$
107,961

 
$
—

Commercial
34,514

 
—

 
34,514

 
—

Collateralized mortgage obligations:
 
 
 
 
 
 
 
Residential
166,744

 
—

 
166,744

 
—

Commercial
116,674

 
—

 
116,674

 
—

Municipal bonds
385,655

 
—

 
385,655

 
—

Corporate debt securities
19,995

 
—

 
19,995

 
—

U.S. Treasury securities
10,900

 
—

 
10,900

 
—

Agency debentures
9,525

 
—

 
9,525

 
—

Single family mortgage servicing rights
252,168

 
—

 
—

 
252,168

Single family loans held for sale
321,868

 
—

 
319,177

 
2,691

Single family loans held for investment
4,057

 
—

 
—

 
4,057

Derivatives
 
 
 
 
 
 
 
Forward sale commitments
3,025

 
—

 
3,025

 
—

Interest rate swaptions
203

 
—

 
203

 
—

Interest rate lock and purchase loan commitments
10,289

 
—

 
—

 
10,289

Interest rate swaps
14,566

 
—

 
14,566

 
—

Total assets
$
1,458,144

 
$
—

 
$
1,188,939

 
$
269,205

Liabilities:
 
 
 
 
 
 
 
Derivatives
 
 
 
 
 
 
 
Eurodollar futures
$
110

 
$
110

 
$
—

 
$
—

Forward sale commitments
5,340

 
—

 
5,340

 
—

Interest rate lock and purchase loan commitments
5

 
—

 
—

 
5

Interest rate swaps
11,550

 
—

 
11,550

 
—

Total liabilities
$
17,005

 
$
110

 
$
16,890

 
$
5
Schedule of inputs used to measure fair value
The following information presents significant Level 3 unobservable inputs used to measure fair value of certain investment securities available for sale.

(dollars in thousands)
At March 31, 2019
Fair Value
 
Valuation
Technique
 
Significant Unobservable
Input
 
Low
 
High
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available for sale (1)
$
1,937

 
Income approach
 
Implied spread to benchmark interest rate curve
 
2.00%
 
2.00%
 
2.00%
(1)
In conjunction with adopting ASU 2017-12 in the first quarter of 2019, we transferred $66.2 million HTM securities to AFS, therefore we did not have any similar activity in March 31, 2018.

The following information presents significant Level 3 unobservable inputs used to measure fair value of single family loans held for investment where fair value option was elected.

(dollars in thousands)
At March 31, 2019
Fair Value
 
Valuation
Technique
 
Significant Unobservable
Input
 
Low
 
High
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment, fair value option
$
4,830

 
Income approach
 
Implied spread to benchmark interest rate curve
 
3.76%
 
4.91%
 
4.35%

(dollars in thousands)
At December 31, 2018
Fair Value
 
Valuation
Technique
 
Significant Unobservable
Input
 
Low
 
High
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment, fair value option
$
4,057

 
Income approach
 
Implied spread to benchmark interest rate curve
 
3.34%
 
5.15%
 
4.20%


The following information presents significant Level 3 unobservable inputs used to measure fair value of certain single family loans held for sale where fair value option was elected.

(dollars in thousands)
At March 31, 2019
Fair Value
 
Valuation
Technique
 
Significant Unobservable
Input
 
Low
 
High
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale, fair value option
$
4,525

 
Income approach
 
Implied spread to benchmark interest rate curve
 
4.26%
 
4.96%
 
4.63%
 
 
 
 
 
Market price movement from comparable bond
 
0.82%
 
0.92%
 
0.87%


(dollars in thousands)
At December 31, 2018
Fair Value
 
Valuation
Technique
 
Significant Unobservable
Input
 
Low
 
High
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale, fair value option
$
2,691

 
Income approach
 
Implied spread to benchmark interest rate curve
 
4.26%
 
4.96%
 
4.40%
 
 
 
 
 
Market price movement from comparable bond
 
0.71%
 
1.09%
 
0.90%



The following information presents significant Level 3 unobservable inputs used to measure fair value of interest rate lock and purchase loan commitments.

(dollars in thousands)
At March 31, 2019
Fair Value
 
Valuation
Technique
 
Significant Unobservable
Input
 
Low
 
High
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate lock and purchase loan commitments, net
$
14,056

 
Income approach
 
Fall-out factor
 
—%
 
67.25%
 
12.45%
 
 
 
 
 
Value of servicing
 
0.58%
 
1.79%
 
1.09%

(dollars in thousands)
At December 31, 2018
Fair Value
 
Valuation
Technique
 
Significant Unobservable
Input
 
Low
 
High
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate lock and purchase loan commitments, net
$
10,284

 
Income approach
 
Fall-out factor
 
—%
 
67.92%
 
19.84%
 
 
 
 
 
Value of servicing
 
0.54%
 
1.64%
 
0.93%
Schedule of fair value changes and activity for Level 3

The following table present fair value changes and activity for Level 3 investment securities available for sale.
 
 
Three Months Ended March 31, 2019
 
 
Beginning balance
 
Additions
 
Transfers
 
Payoffs/Sales
 
Change in mark to market
 
Ending balance
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available for sale (1)
 
$
—

 
$
—

 
$
2,379

 
$
(40
)
 
$
(402
)
 
$
1,937

(1)
In conjunction with adopting ASU 2017-12 in the first quarter of 2019, we transferred $66.2 million HTM securities to AFS. therefore we did not have any similar activity for the three months ended March 31, 2018.

The following tables present fair value changes and activity for Level 3 loans held for sale and loans held for investment.
 
 
Three Months Ended March 31, 2019
 
 
Beginning balance
 
Additions
 
Transfers
 
Payoffs/Sales
 
Change in mark to market
 
Ending balance
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
 
$
2,691

 
$
1,886

 
$
—

 
$
—

 
$
(52
)
 
$
4,525

Loans held for investment
 
4,057

 
725

 
—

 
(3
)
 
51

 
4,830


 
 
Three Months Ended March 31, 2018
 
 
Beginning balance
 
Additions
 
Transfers
 
Payoffs/Sales
 
Change in mark to market
 
Ending balance
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
 
$
1,336

 
$
2,045

 
$
—

 
$
—

 
$
(55
)
 
$
3,326

Loans held for investment
 
5,477

 
—

 
—

 
—

 
(173
)
 
5,304


 
 
 
 


The following table presents fair value changes and activity for Level 3 interest rate lock and purchase loan commitments.
 
 
Three Months Ended March 31,
(in thousands)
 
2019
 
2018
 
 
 
 
 
Beginning balance, net
 
$
10,284

 
$
12,925

Total realized/unrealized gains
 
19,665

 
22,514

Settlements
 
(15,893
)
 
(18,763
)
Ending balance, net
 
$
14,056

 
$
16,676
Schedule of assets that had changes in their recorded fair value
The following tables present assets that had changes in their recorded fair value during the three months ended March 31, 2019 and 2018 and assets held at the end of the respective reporting period.

 
At or for the Three Months Ended March 31, 2019
(in thousands)
Fair Value of Assets Held at March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total Gains (Losses)
 
 
 
 
 
 
 
 
 
 
Loans held for investment (1)
$
270

 
$
—

 
$
—

 
$
270

 
$
(4
)
Total
$
270

 
$
—

 
$
—

 
$
270

 
$
(4
)

 
At or for the Three Months Ended March 31, 2018
(in thousands)
Fair Value of Assets Held at March 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total Gains (Losses)
 
 
 
 
 
 
 
 
 
 
Loans held for investment (1)
$
607

 
$
—

 
$
—

 
$
607

 
$
(122
)
Total
$
607

 
$
—

 
$
—

 
$
607

 
$
(122
)

(1)Represents the carrying value of loans for which adjustments are based on the fair value of the collateral.
 
 
Schedule of the fair value hierarchy
The following presents the carrying value, estimated fair value and the levels of the fair value hierarchy for the Company's financial instruments other than assets and liabilities measured at fair value on a recurring basis.
 
 
At March 31, 2019
(in thousands)
Carrying
Value
 
Fair
Value
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
67,690

 
$
67,690

 
$
67,690

 
$
—

 
$
—

Investment securities held to maturity
4,446

 
4,492

 
—

 
4,492

 
—

Loans held for investment
5,341,139

 
5,431,390

 
—

 
—

 
5,431,390

Loans held for sale – multifamily and other
3,982

 
3,982

 
—

 
3,982

 
—

Mortgage servicing rights – multifamily
27,692

 
30,369

 
—

 
—

 
30,369

Federal Home Loan Bank stock
32,533

 
32,533

 
—

 
32,533

 
—

Liabilities:
 
 
 
 
 
 
 
 
 
Time deposits
$
1,644,768

 
$
1,644,390

 
$
—

 
$
1,644,390

 
$
—

Federal Home Loan Bank advances
599,590

 
601,384

 
—

 
601,384

 
—

Federal funds purchased and securities sold under agreements to repurchase
27,000

 
27,000

 
27,000

 
—

 
—

Long-term debt
125,509

 
113,359

 
—

 
113,359

 
—




 
At December 31, 2018
(in thousands)
Carrying
Value
 
Fair
Value
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
57,982

 
$
57,982

 
$
57,982

 
$
—

 
$
—

Investment securities held to maturity
71,285

 
70,546

 
—

 
70,546

 
—

Loans held for investment
5,071,314

 
5,099,960

 
—

 
—

 
5,099,960

Loans held for sale – multifamily and other
25,139

 
25,139

 
—

 
25,139

 
—

Mortgage servicing rights – multifamily
28,328

 
31,168

 
—

 
—

 
31,168

Federal Home Loan Bank stock
45,497

 
45,497

 
—

 
45,497

 
—

Liabilities:
 
 
 
 
 
 
 
 
 
Time deposits
$
1,579,806

 
$
1,575,139

 
$
—

 
$
1,575,139

 
$
—

Federal Home Loan Bank advances
932,590

 
935,021

 
—

 
935,021

 
—

Federal funds purchased and securities sold under agreements to repurchase
19,000

 
19,021

 
19,021

 
—

 
—

Long-term debt
125,462

 
112,475

 
—

 
112,475

 
—