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Fair Value Measurements

9 Months Ended

Sep. 30, 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 September 30, 2021, the fair value of these investments was $42.6 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
	September 30, 2021
Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available-for-sale:
Agency residential MBS	$	2,180,993	$	—	$	2,180,993	$	—
Municipal securities	1,989,929		—		1,989,929		—
Agency commercial MBS	1,314,024		—		1,314,024		—
Agency residential CMOs	1,088,537		—		1,088,537		—
U.S. Treasury securities	971,268		971,268		—		—
Corporate debt securities	516,615		—		516,615		—
Private label commercial MBS	388,318		—		369,989		18,329
Collateralized loan obligations	358,547		—		358,547		—
Private label residential CMOs	303,681		—		299,860		3,821
Asset-backed securities	132,997		—		132,997		—
SBA securities	32,017		—		32,017		—
Total securities available-for-sale	$	9,276,926	$	971,268	$	8,283,508	$	22,150
Equity investments with readily determinable fair values	$	18,829	$	18,829	$	—	$	—
Derivatives (1):
Equity warrants	3,747		—		—		3,747
Interest rate and economic contracts	2,663		—		2,663		—
Derivative liabilities	878		—		878		—


	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:
Municipal securities	$	1,531,617	$	—	$	1,531,617	$	—
Agency commercial MBS	1,281,877		—		1,281,877		—
Agency residential CMOs	1,219,880		—		1,219,880		—
Agency residential MBS	341,074		—		341,074		—
Corporate debt securities	311,889		—		311,889		—
Asset-backed securities	166,546		—		166,546		—
Collateralized loan obligations	135,876		—		135,876		—
Private label residential CMOs	116,946		—		112,299		4,647
Private label commercial MBS	82,957		—		57,232		25,725
SBA securities	41,627		—		41,627		—
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 nine months ended September 30, 2021, there was a $582,000 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 private label commercial MBS available-for-sale measured at fair value on a recurring basis as of the date indicated:


	September 30, 2021
	Private Label Residential CMOs		Private Label Commercial MBS
		Weighted	Input or	Weighted
	Range	Average	Range	Average
Unobservable Inputs	of Inputs	Input (1)	of Inputs	Input (2)
Voluntary annual prepayment speeds	4.0% - 31.3%	12.5%	10.0% - 15.0%	11.9%
Annual default rates (3)	0.1% - 12.0%	2.4%	2.0%	2.0%
Loss severity rates (3)	16.5% - 82.1%	56.5%	60.0%	60.0%
Discount rates	0.0% - 10.5%	6.7%	2.7% - 3.3%	2.9%

____________________

(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 private label commercial MBS 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 private label commercial MBS.

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:


	September 30, 2021
	Equity Warrants
		Weighted
	Range	Average
Unobservable Inputs	of Inputs	Input (1)
Volatility	19.7% - 145.9%	29.4%
Risk-free interest rate	0.0% - 1.0%	0.5%
Remaining life assumption (in years)	0.08 - 4.99	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, private label commercial MBS available-for-sale, and equity warrants measured at fair value on a recurring basis for the period indicated:


	Private Label		Private Label		Equity
	Residential CMOs		Commercial MBS		Warrants
	(In thousands)
Balance, December 31, 2020	$	4,647	$	25,725	$	4,520
Total included in earnings	263		(64)		25,351
Total included in other comprehensive income	(270)		(20)		—

Issuances	—		—		267
Sales	—		—		(25,809)


Net settlements	(819)		(7,312)		—

Transfers to Level 1 (equity investments with readily
determinable fair values)	—		—		(582)
Balance, September 30, 2021	$	3,821	$	18,329	$	3,747

Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at quarter-end	$	823	$	136

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


	Fair Value Measurement as of
	September 30, 2021
Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Individually evaluated loans and leases (1)	$	32,765	$	—	$	654	$	32,111


Total non-recurring	$	32,765	$	—	$	654	$	32,111

______________________

(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				Nine Months Ended
Losses on Assets	September 30,				September 30,
Measured on a Non-Recurring Basis	2021		2020		2021		2020
	(In thousands)
Individually evaluated loans and leases	$	243	$	29,047	$	2,499	$	40,920

OREO	—		157		14		267
Total losses	$	243	$	29,204	$	2,513	$	41,187

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:

September 30, 2021

Valuation

Unobservable

Input or

Weighted

Asset

Fair Value

Technique

Inputs

Range

Average

(In thousands)

Individually evaluated

loans and leases

26,278

Discounted cash flows

Discount rates

3.75% - 7.75%

6.21%

Individually evaluated

loans and leases

5,833

Third party appraisals

No discounts

Total non-recurring Level 3

32,111

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


	September 30, 2021
	Carrying		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	174,585	$	174,585	$	174,585	$	—	$	—
Interest-earning deposits in financial institutions	3,524,613		3,524,613		3,524,613		—		—
Securities available-for-sale	9,276,926		9,276,926		971,268		8,283,508		22,150
Investment in FHLB stock	17,250		17,250		—		17,250		—

Loans and leases held for investment, net	20,307,287		20,904,189		—		654		20,903,535
Equity investments with readily determinable fair values	18,829		18,829		18,829		—		—
Equity warrants	3,747		3,747		—		—		3,747
Interest rate and economic contracts	2,663		2,663		—		2,663		—
Servicing rights	1,636		1,636		—		—		1,636

Financial Liabilities:
Core deposits	28,140,708		28,140,708		—		28,140,708		—
Non-core non-maturity deposits	960,438		960,438		—		960,438		—
Time deposits	1,458,599		1,459,457		—		1,459,457		—
Borrowings	—		—		—		—		—
Subordinated debt	862,447		923,374		—		923,374		—
Derivative liabilities	878		878		—		878		—


	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 investments with readily determinable fair values	6,147		6,147		6,147		—		—
Equity warrants	4,520		4,520		—		—		4,520
Interest rate and economic contracts	4,230		4,230		—		4,230		—

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 debt	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 September 30, 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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