ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three‑level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

•Level 2: Observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data, either directly or indirectly, for substantially the full term of the financial instrument. This category generally includes agency residential CMOs, agency commercial and residential MBS, municipal securities, collateralized loan obligations, registered publicly rated private label CMOs, corporate debt securities, SBA securities, and asset-backed securitizations.

•Level 3: Inputs to a valuation methodology that are unobservable, supported by little or no market activity, and significant to the fair value measurement. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant management judgment or estimation. This category also includes observable inputs from a pricing service not corroborated by observable market data, and includes our non-rated private label residential CMOs, non-rated private label commercial MBS, equity warrants, and credit-linked notes.

We use 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.


	Fair Value Measurements as of
	December 31, 2022
Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available‑for‑sale:
Agency residential MBS	$	2,242,042	$	—	$	2,242,042	$	—
U.S. Treasury securities	670,070		670,070		—		—
Agency commercial MBS	487,606		—		487,606		—
Agency residential CMOs	457,063		—		457,063		—
Municipal securities	339,326		—		339,326		—
Corporate debt securities	311,905		—		311,905		—
Private label residential CMOs	166,724		—		166,724		—
Collateralized loan obligations	102,261		—		102,261		—
Private label commercial MBS	26,827		—		26,827		—
Asset-backed securities	22,413		—		22,413		—
SBA securities	17,250		—		17,250		—
Total securities available-for-sale	$	4,843,487	$	670,070	$	4,173,417	$	—
Equity investments with readily determinable fair values	$	1	$	1	$	—	$	—
Derivatives (1):
Equity warrants	4,048		—		—		4,048
Interest rate and economic contracts	7,814		—		7,814		—
Derivative liabilities	5,906		—		5,906		—
Credit-linked notes	132,030		—		—		132,030


	Fair Value Measurements as of
	December 31, 2021
Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available‑for‑sale:
Agency residential MBS	$	2,898,210	$	—	$	2,898,210	$	—
Municipal securities	2,315,968		—		2,315,968		—
Agency commercial MBS	1,688,967		—		1,688,967		—
Agency residential CMOs	1,038,134		—		1,038,134		—
U.S. Treasury securities	966,898		966,898		—		—
Corporate debt securities	527,094		—		527,094		—
Private label commercial MBS	450,217		—		435,216		15,001
Collateralized loan obligations	385,362		—		385,362		—
Private label residential CMOs	264,417		—		264,417		—
Asset-backed securities	129,547		—		129,547		—
SBA securities	29,644		—		29,644		—
Total securities available-for-sale	$	10,694,458	$	966,898	$	9,712,559	$	15,001
Equity investments with readily determinable fair values	$	28,578	$	28,578	$	—	$	—
Derivatives (1):
Equity warrants	3,555		—		—		3,555
Interest rate and economic contracts	2,509		—		2,509		—
Derivative liabilities	931		—		931		—

During the year ended December 31, 2022, there was a $18,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis. During the year ended December 31, 2021, there was a $646,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis.


	Year Ended December 31,
Level 3 Private Label Residential CMOs	2021		2020
	(In thousands)
Balance, beginning of year	$	4,647	$	6,264
Total included in earnings	2,287		485
Total unrealized loss in comprehensive income	(1,094)		(592)
Sales	(2,903)		—


Net settlements	(2,937)		(1,510)

Balance, end of year	$	—	$	4,647


	Year Ended December 31,
Level 3 Private Label Commercial MBS	2022		2021		2020
	(In thousands)
Balance, beginning of year	$	15,001	$	25,725	$	16,435
Total included in earnings	(8)		(77)		5
Total unrealized gain (loss) in comprehensive income	(156)		(115)		(41)

Transfers to Level 2	(4,552)		—		—
Purchases	—		—		20,100
Net settlements	(10,285)		(10,532)		(10,774)

Balance, end of year	$	—	$	15,001	$	25,725

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


	Year Ended December 31,
Level 3 Equity Warrants	2022		2021		2020
	(In thousands)
Balance, beginning of year	$	3,555	$	4,520	$	3,434
Total included in earnings	2,490		49,341		10,609

Exercises and settlements (1)	(2,675)		(50,092)		(9,828)
Issuances	696		432		424
Transfers to Level 1 (equity investments with readily
determinable fair values)	(18)		(646)		(119)
Balance, end of year	$	4,048	$	3,555	$	4,520

(1) Includes the exercise of warrants that upon exercise become equity securities in public companies. These are often subject to lock-up restrictions that must be met before the equity security can be sold, during which time they are reported as equity investments with readily determinable fair values.

December 31, 2022

Valuation

Unobservable

Input or

Weighted

Asset

Fair Value

Technique

Inputs

Range

Average

(Dollars in thousands)

Individually evaluated

loans and leases

990

Discounted cash flows

Discount rates

6.50% - 9.25%

7.87%

Individually evaluated

loans and leases

5,022

Third party appraisals

No discounts

Total non-recurring Level 3

6,012

ASC Topic 825, “Financial Instruments,” requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.


	December 31, 2022
	Carrying		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	212,273	$	212,273	$	212,273	$	—	$	—
Interest‑earning deposits in financial institutions	2,027,949		2,027,949		2,027,949		—		—
Securities available‑for‑sale	4,843,487		4,843,487		670,070		4,173,417		—
Securities held-to-maturity	2,269,135		2,110,472		171,700		1,938,772		—
Investment in FHLB stock	34,290		34,290		—		34,290		—
Loans held for sale	65,076		65,501		—		65,501		—
Loans and leases held for investment, net	28,408,397		26,627,985		—		28,065		26,599,920
Equity investments with readily determinable fair values	1		1		1		—		—
Equity warrants	4,048		4,048		—		—		4,048
Interest rate and economic contracts	7,814		7,814		—		7,814		—
Servicing rights	633		633		—		—		633

Financial Liabilities:
Core deposits	26,561,129		26,561,129		—		26,561,129		—
Wholesale non-maturity deposits	2,637,362		2,637,362		—		2,637,362		—
Time deposits	4,737,843		4,700,054		—		4,700,054		—
Borrowings	1,764,030		1,764,037		882,000		750,007		132,030
Subordinated debt	867,087		870,534		—		870,534		—
Derivative liabilities	5,906		5,906		—		5,906		—


	December 31, 2021
	Carrying		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	112,548	$	112,548	$	112,548	$	—	$	—
Interest‑earning deposits in financial institutions	3,944,686		3,944,686		3,944,686		—		—
Securities available‑for‑sale	10,694,458		10,694,458		966,898		9,712,559		15,001
Investment in FHLB stock	17,250		17,250		—		17,250		—
Loans and leases held for investment, net	22,740,984		23,461,156		—		2,915		23,458,241
Equity investments with readily determinable fair values	28,578		28,578		28,578		—		—
Equity warrants	3,555		3,555		—		—		3,555
Interest rate and economic contracts	2,509		2,509		—		2,509		—
Servicing rights	1,228		1,228		—		—		1,228

Financial Liabilities:
Core deposits	32,734,949		32,734,949		—		32,734,949		—
Wholesale non-maturity deposits	889,976		889,976		—		889,976		—
Time deposits	1,372,832		1,371,527		—		1,371,527		—

Subordinated debt	863,283		917,342		—		917,342		—
Derivative liabilities	931		931		—		931		—

Securities available‑for‑sale. Securities available‑for‑sale are measured and carried at fair value on a recurring basis. Unrealized gains and losses on available‑for‑sale securities are reported as a component of “Accumulated other comprehensive income” in the consolidated balance sheets. See Note 4. Investment Securities for further information on unrealized gains and losses on securities available‑for‑sale.

Fair value for securities categorized as Level 1, which are publicly traded securities, are based on readily available quoted prices. In determining the fair value of the securities categorized as Level 2, we obtain a report from a nationally recognized broker‑dealer detailing the fair value of each investment security we hold as of each reporting date. The broker‑dealer uses observable market information to value our securities, with the primary source being a nationally recognized pricing service. We review the market prices provided by the broker‑dealer for our securities for reasonableness based on our understanding of the marketplace and we consider any credit issues related to the securities. As we have not made any adjustments to the market quotes provided to us and they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy.

Our non-rated private label residential CMOs and non-rated private label commercial MBS (collectively, “the Level 3 AFS Securities”) were categorized as Level 3 due in part to the inactive market for such securities. There is a wide range of prices quoted for our Level 3 AFS Securities among independent third party pricing services, and this range reflects the significant judgment being exercised over the assumptions and variables that determine the pricing of such securities. We consider this subjectivity relating to our Level 3 AFS Securities to be a significant unobservable input. Had significant changes in default expectations, loss severity factors, or discount rates occurred all together or in isolation, it would have resulted in different fair value measurements at December 31, 2021.

Securities held-to-maturity. Securities held-to-maturity are carried at amortized cost, net of the allowance for credit losses. Fair value for securities categorized as Level 1, which are publicly traded securities, are based on readily available quoted prices. In determining the fair value of the securities categorized as Level 2, we obtain a report from a nationally recognized broker‑dealer detailing the fair value of each investment security we hold as of each reporting date. The broker‑dealer uses observable market information to value our securities, with the primary source being a nationally recognized pricing service. We review the market prices provided by the broker‑dealer for our securities for reasonableness based on our understanding of the marketplace and we consider any credit issues related to the securities. As we have not made any adjustments to the market quotes provided to us and they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy.

FHLB stock. Investments in FHLB stock are recorded at cost and measured for impairment quarterly. Ownership of FHLB stock is restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB stock is equal to the carrying amount.

Loans and leases. As loans and leases are not measured at fair value, the following discussion relates to estimating the fair value disclosures under ASC Topic 825. Fair values are measured using the exit price and are estimated for portfolios of loans and leases with similar characteristics. Loans are segregated by type and further segmented into fixed and adjustable rate interest buckets by credit risk categories and by maturity dates. To determine the exit price of a loan or lease, the cash flows are estimated using a model which utilizes credit spreads and illiquidity premiums. The credit spread for a loan is determined by mapping loans' credit risk ratings to an equivalent corporate bond rating. Once the corporate bond rating is assigned, the credit spread is determined using corporate credit curves for corporate bonds that have a similar corporate bond rating and remaining term as the loan being valued. Illiquidity premiums are assigned to individual loans in a similar manner as an illiquidity premium amount is determined for each corporate bond rating. The credit spread above the appropriate rate curve and the illiquidity premium are considered to arrive at the discount rate curve applied to loan cash flows. For similar, homogeneous loans, management may make adjustments to the discount rate arrived at using the previously described methodology based upon the pricing for recent loan pool purchases and/or rates on recent originations.

Individually evaluated loans and leases. Defaulted loans and leases with outstanding balances over $250,000 are reviewed individually for expected credit loss, if any, and are recorded at fair value on a non-recurring basis. These defaulted loans and leases are excluded from the loan pools used within the collective evaluation of estimated credit losses. The criteria for default may include any one of the following: (1) on nonaccrual status, (2) modified under a TDR, (3) payment delinquency of 90 days or more, (4) partial charge-off recognized, (5) risk rated doubtful or loss, or (6) reasonably expected to be modified under a TDR.

To the extent a defaulted loan or lease is collateral dependent, we measure expected credit loss based on the estimated fair value of the underlying collateral. The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral; such valuation inputs result in a nonrecurring fair value measurement that is categorized as a Level 2 measurement. The Level 2 measurement is based on appraisals obtained within the last 12 months and for which a charge‑off was recognized or a change in the specific valuation allowance was made during the year ended December 31, 2022.

When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable and the fair value measurement is categorized as a Level 3 measurement. The individually evaluated loans and leases categorized as Level 3 also include unsecured loans and other secured loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, including an SBA government guarantee, cash flows discounted at the effective loan rate, and management’s judgment.

The individually evaluated loan and lease balances shown above as measured on a non-recurring basis represent those defaulted loans and leases for which expected credit loss was recognized during the year ended December 31, 2022. The amounts shown as net losses include the expected credit loss recognized during the year ended December 31, 2022, for the loan and lease balances shown.

OREO. The fair value of OREO is generally based on the lower of estimated market prices from independently prepared current appraisals or negotiated sales prices with potential buyers, less estimated costs to sell; such valuation inputs result in a fair value measurement that is categorized as a Level 2 measurement on a nonrecurring basis. As a matter of policy, appraisals are required annually and may be updated more frequently as circumstances require in the opinion of management. The Level 2 measurement for OREO is based on appraisals obtained within the last 12 months and for which a write‑down was recognized during the year ended December 31, 2022.

When a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value as a result of known changes in the market or the collateral and there is no observable market price, such valuation inputs result in a fair value measurement that is categorized as a Level 3 measurement. To the extent a negotiated sales price or reduced listing price represents a significant discount to an observable market price, such valuation input would result in a fair value measurement that is also considered a Level 3 measurement. The OREO losses disclosed are write‑downs based on either a recent appraisal obtained after foreclosure or an accepted purchase offer by an independent third party received after foreclosure.

Equity warrants. Equity warrants with net settlement terms are received in connection with extending loan commitments to certain of our customers. We estimate the fair value of equity warrants using a Black-Scholes option pricing model to approximate fair market value. We typically classify our equity warrant derivatives in Level 3 of the fair value hierarchy.

Equity investments with readily determinable fair values. Our equity investments with readily determinable fair values include investments in public companies and publicly-traded mutual funds. Equity investments with readily determinable fair values are recorded at fair value with changes in fair value recorded in “Noninterest income - other.” Fair value measurements related to these investments are typically classified within Level 1 of the fair value hierarchy.

Deposits. Deposits are carried at historical cost. The fair values of deposits with no stated maturity, such as core deposits (defined as noninterest‑bearing demand, interest checking, money market, and savings accounts) and wholesale non-maturity deposits, are equal to the amount payable on demand as of the balance sheet date and considered Level 2. The fair value of time deposits is based on the discounted value of contractual cash flows and considered Level 2. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. No value has been separately assigned to the Company’s long‑term relationships with its deposit customers, such as a core deposit intangible.

Borrowings. Borrowings include overnight FHLB advances and other fixed‑rate term borrowings. Borrowings are carried at amortized cost. The fair value of overnight FHLB advances is equal to the carrying value and considered Level 1. The fair value of fixed‑rate borrowings is estimated by discounting scheduled cash flows through the maturity dates or call dates, if applicable, using estimated market discount rates that reflect current rates offered for borrowings with similar remaining maturities and characteristics and are considered Level 2. Borrowings also include variable-rate credit-linked notes which are carried at fair value. Fair value is estimated by discounting the future expected cash flows by a rate which represents the interest rate spread at issuance adjusted to account for market movement between the issuance date and the valuation date. Since the future expected cash flows are determined based on the unique collateral and waterfall characteristics of our credit-linked notes, they are considered Level 3.

Derivative assets and liabilities. Derivatives are carried at fair value on a recurring basis and primarily relate to forward exchange contracts which we enter into to manage foreign exchange risk. Our derivatives are principally traded in over-the-counter markets where quoted market prices are not readily available. Instead, the fair value of derivatives is estimated using market observable inputs such as foreign exchange forward rates, interest rate yield curves, volatilities and basis spreads. We also consider counter-party credit risk in valuing our derivatives. We typically classify our foreign exchange derivatives in Level 2 of the fair value hierarchy.

Commitments to extend credit. The majority of our commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally not assignable by either the borrower or us, they only have value to the borrower and us. The estimated fair value approximates the recorded deferred fee amounts and is excluded from the table above because it is not material.

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 December 31, 2022, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.