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Fair Value Measurements

3 Months Ended

Mar. 31, 2021

FAIR VALUE MEASUREMENTS

The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and leases and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long-lived assets.

For information regarding the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820), and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825, as amended by ASU 2016-01 and ASU 2018-03), see Note 1. Nature of Operations and Summary of Significant Accounting Policies, and Note 13. Fair Value Measurements, to the Consolidated Financial Statements of the Company's Form 10-K.

The Company also holds SBIC investments measured at fair value using the NAV per share practical expedient that are not required to be classified in the fair value hierarchy. At March 31, 2021, the fair value of these investments was $33.4 million.

The following tables present information on the assets and liabilities measured and recorded at fair value on a recurring basis as of the dates indicated:


	Fair Value Measurements as of
	March 31, 2021
Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available-for-sale:
Municipal securities	$	1,646,054	$	—	$	1,646,054	$	—
Agency commercial MBS	1,273,402		—		1,273,402		—
Agency residential CMOs	1,108,828		—		1,108,828		—
U.S. Treasury securities	491,358		491,358		—		—
Agency residential MBS	433,100		—		433,100		—
Corporate debt securities	380,407		—		380,407		—
Collateralized loan obligations	244,240		—		244,240		—
Asset-backed securities	224,015		—		200,133		23,882
Private label residential CMOs	103,376		—		98,962		4,414
SBA securities	36,910		—		36,910		—
Total securities available-for-sale	$	5,941,690	$	491,358	$	5,422,036	$	28,296
Equity investments with readily determinable fair values	$	10,266	$	10,266	$	—	$	—
Derivatives (1):
Equity warrants	4,589		—		—		4,589
Interest rate and economic contracts	3,168		—		3,168		—
Derivative liabilities	1,421		—		1,421		—


	Fair Value Measurements as of
	December 31, 2020
Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available-for-sale:
Agency commercial MBS	$	1,281,877	$	—	$	1,281,877	$	—
Agency residential CMOs	1,219,880		—		1,219,880		—
Municipal securities	1,531,617		—		1,531,617		—
Agency residential MBS	341,074		—		341,074		—
Asset-backed securities	249,503		—		223,778		25,725
Collateralized loan obligations	135,876		—		135,876		—
Private label residential CMOs	116,946		—		112,299		4,647
SBA securities	41,627		—		41,627		—
Corporate debt securities	311,889		—		311,889		—
U.S. Treasury securities	5,302		5,302		—		—
Total securities available-for-sale	$	5,235,591	$	5,302	$	5,199,917	$	30,372
Equity investments with readily determinable fair values	$	6,147	$	6,147	$	—	$	—
Derivatives (1):
Equity warrants	4,520		—		—		4,520
Interest rate and economic contracts	4,230		—		4,230		—
Derivative liabilities	1,150		—		1,150		—

____________________

(1) For information regarding derivative instruments, see Note 11. Derivatives.

During the three months ended March 31, 2021, there was a $67,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis.

The following table presents information about quantitative inputs and assumptions used to determine the fair values provided by our third party pricing service for our Level 3 private label residential CMOs and asset-backed securities available-for-sale measured at fair value on a recurring basis as of the date indicated:


	March 31, 2021
	Private Label Residential CMOs		Asset-Backed Securities
		Weighted	Input or	Weighted
	Range	Average	Range	Average
Unobservable Inputs	of Inputs	Input (1)	of Inputs	Input (2)
Voluntary annual prepayment speeds	4.6% - 19.9%	11.5%	10.0% - 15.0%	12.1%
Annual default rates (3)	0.3% - 18.2%	2.4%	2.0%	2.0%
Loss severity rates (3)	16.9% - 80.4%	55.8%	60.0%	60.0%
Discount rates	1.6% - 9.9%	6.8%	2.7% - 3.6%	2.8%

____________________

(1) Unobservable inputs for private label residential CMOs were weighted by the relative fair values of the instruments.

(2) Voluntary annual prepayment speeds and discount rates for asset-backed securities were weighted by the relative fair values of the instruments.

(3) Annual default rates and loss severity rates were the same for all of the asset-backed securities.

The following table presents information about quantitative inputs and assumptions used in the modified Black-Scholes option pricing model to determine the fair value for our Level 3 equity warrants measured at fair value on a recurring basis as of the date indicated:


	March 31, 2021
	Equity Warrants
		Weighted
	Range	Average
Unobservable Inputs	of Inputs	Input (1)
Volatility	24.4% - 159.1%	30.1%
Risk-free interest rate	0.0% - 0.9%	0.4%
Remaining life assumption (in years)	0.08 - 4.98	2.91

____________________

(1) Unobservable inputs for equity warrants were weighted by the relative fair values of the instruments.

The following table summarizes activity for our Level 3 private label residential CMOs available-for-sale, asset-backed securities available-for-sale, and equity warrants measured at fair value on a recurring basis for the period indicated:


	Private Label		Asset-Backed		Equity
	Residential CMOs		Securities		Warrants
	(In thousands)
Balance, December 31, 2020	$	4,647	$	25,725	$	4,520
Total included in earnings	73		(22)		6,123
Total included in other comprehensive income	(87)		16		—

Issuances	—		—		57
Sales	—		—		(6,044)


Net settlements	(219)		(1,837)		—

Transfers to Level 1 (equity investments with readily
determinable fair values)	—		—		(67)
Balance, March 31, 2021	$	4,414	$	23,882	$	4,589

Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at quarter-end	$	1,007	$	171

The following tables present assets measured at fair value on a non-recurring basis as of the dates indicated:


	Fair Value Measurement as of
	March 31, 2021
Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Individually evaluated loans and leases (1)	$	24,440	$	—	$	—	$	24,440

OREO	371		—		—		371
Total non-recurring	$	24,811	$	—	$	—	$	24,811

______________________

(1) Includes nonaccrual loans and leases and performing TDRs with balances greater than $250,000.


	Fair Value Measurement as of
	December 31, 2020
Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Individually evaluated loans and leases (1)	$	102,274	$	—	$	4,160	$	98,114

Total non-recurring	$	102,274	$	—	$	4,160	$	98,114

_____________________

(1) Includes nonaccrual loans and leases and performing TDRs with balances greater than $250,000.

The following table presents losses recognized on assets measured on a nonrecurring basis for the periods indicated:


	Three Months Ended
Losses on Assets	March 31,
Measured on a Non-Recurring Basis	2021		2020
	(In thousands)
Individually evaluated loans and leases	$	702	$	18,907

OREO	14		105
Total losses	$	716	$	19,012

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of the date indicated:

March 31, 2021

Valuation

Unobservable

Input or

Weighted

Asset

Fair Value

Technique

Inputs

Range

Average

(In thousands)

Individually evaluated

loans and leases

22,402

Discounted cash flows

Discount rates

3.75% - 7.75%

6.30%

Individually evaluated

loans and leases

2,038

Third party appraisals

No discounts

Discount from

OREO (1)

371

Third party appraisal

appraisal

13.00%

Total non-recurring Level 3

24,811

_____________________

(1) Relates to one REO at March 31, 2021.

The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:


	March 31, 2021
	Carrying		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	177,199	$	177,199	$	177,199	$	—	$	—
Interest-earning deposits in financial institutions	5,517,667		5,517,667		5,517,667		—		—
Securities available-for-sale	5,941,690		5,941,690		491,358		5,422,036		28,296
Investment in FHLB stock	17,250		17,250		—		17,250		—
Loans held for sale	25,554		26,975		—		26,975		—
Loans and leases held for investment, net	18,686,783		19,312,854		—		—		19,312,854
Equity warrants	4,589		4,589		—		—		4,589
Interest rate and economic contracts	3,168		3,168		—		3,168		—
Equity investments with readily determinable fair values	10,266		10,266		10,266		—		—
Servicing rights	3,942		3,942		—		—		3,942

Financial Liabilities:
Core deposits	25,576,348		25,576,348		—		25,576,348		—
Non-core non-maturity deposits	1,162,590		1,162,590		—		1,162,590		—
Time deposits	1,484,353		1,486,556		—		1,486,556		—
Borrowings	19,750		20,185		—		20,185		—
Subordinated debentures	465,814		448,273		—		448,273		—
Derivative liabilities	1,421		1,421		—		1,421		—


	December 31, 2020
	Carrying		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	150,464	$	150,464	$	150,464	$	—	$	—
Interest-earning deposits in financial institutions	3,010,197		3,010,197		3,010,197		—		—
Securities available-for-sale	5,235,591		5,235,591		5,302		5,199,917		30,372
Investment in FHLB stock	17,250		17,250		—		17,250		—
Loans and leases held for investment, net	18,735,196		19,305,998		—		4,160		19,301,838
Equity warrants	4,520		4,520		—		—		4,520
Interest rate and economic contracts	4,230		4,230		—		4,230		—
Equity investments with readily determinable fair values	6,147		6,147		6,147		—		—

Financial Liabilities:
Core deposits	22,264,480		22,264,480		—		22,264,480		—
Non-core non-maturity deposits	1,149,467		1,149,467		—		1,149,467		—
Time deposits	1,526,770		1,527,639		—		1,527,639		—
Borrowings	5,000		4,995		—		4,995		—
Subordinated debentures	465,812		448,036		—		448,036		—
Derivative liabilities	1,150		1,150		—		1,150		—

Limitations

Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect income taxes or any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on what management believes to be reasonable judgments regarding expected future cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimated fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Since the fair values have been estimated as of March 31, 2021, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.

- 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.

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