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Disclosures About Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

Estimated Fair Values of Financial Instruments

The estimated fair values of Customers' financial instruments at June 30, 2019 and December 31, 2018 were as follows.



					Fair Value Measurements at June 30, 2019
(amounts in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	95,795	$	95,795	$	95,795	$	—	$	—
Debt securities, available for sale	689,829		689,829		—		689,829		—
Interest-only classes of agency-guaranteed home equity conversion mortgage-backed securities, reported at fair value based on a fair value option election	17,157		17,157		—		—		17,157
Equity securities	1,373		1,373		1,373		—		—
Loans held for sale	5,697		5,697		—		4,372		1,325
Total loans and leases receivable, net of allowance for loan and lease losses	9,667,258		9,885,136		—		2,001,540		7,883,596
FHLB, Federal Reserve Bank and other restricted stock	101,947		101,947		—		101,947		—
Derivatives	22,679		22,679		—		22,534		145
Liabilities:
Deposits	$	8,185,777	$	8,186,683	$	5,747,676	$	2,439,007	$	—
Federal funds purchased	406,000		406,000		406,000		—		—
FHLB advances	1,262,100		1,263,718		412,100		851,618		—
Other borrowings	99,055		125,245		—		125,245		—
Subordinated debt	109,026		116,644		—		116,644		—
Derivatives	46,636		46,636		—		46,636		—



					Fair Value Measurements at December 31, 2018
(amounts in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	62,135	$	62,135	$	62,135	$	—	$	—
Debt securities, available for sale	663,294		663,294		—		663,294		—
Equity securities	1,718		1,718		1,718		—		—
Loans held for sale	1,507		1,507		—		1,507		—
Total loans and leases receivable, net of allowance for loan and lease losses	8,503,522		8,481,128		—		1,405,420		7,075,708
FHLB, Federal Reserve Bank and other restricted stock	89,685		89,685		—		89,685		—
Derivatives	14,693		14,693		—		14,624		69
Liabilities:
Deposits	$	7,142,236	$	7,136,009	$	5,408,055	$	1,727,954	$	—
Federal funds purchased	187,000		187,000		187,000		—		—
FHLB advances	1,248,070		1,248,046		998,070		249,976		—
Other borrowings	123,871		121,718		—		121,718		—
Subordinated debt	108,977		110,550		—		110,550		—
Derivatives	16,286		16,286		—		16,286		—

Summary of Financial Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis

For financial assets and liabilities measured at fair value on a recurring and nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2019 and December 31, 2018 were as follows:



	June 30, 2019
	Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Measured at Fair Value on a Recurring Basis:
Assets
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	301,391	$	—	$	301,391
Corporate notes	—		388,438		—		388,438
Interest-only classes of agency-guaranteed home equity conversion mortgage-backed securities, reported at fair value based on a fair value option election	—		—		17,157		17,157
Equity securities	1,373		—		—		1,373
Derivatives	—		22,534		145		22,679
Loans held for sale – fair value option	—		4,372		—		4,372
Loans receivable, mortgage warehouse – fair value option	—		2,001,540		—		2,001,540
Total assets – recurring fair value measurements	$	1,373	$	2,718,275	$	17,302	$	2,736,950
Liabilities
Derivatives	$	—	$	46,636	$	—	$	46,636
Measured at Fair Value on a Nonrecurring Basis:
Assets
Impaired loans, net of reserves of $303	—		—		11,577		11,577
Other real estate owned	—		—		880		880
Total assets – nonrecurring fair value measurements	$	—	$	—	$	12,457	$	12,457



	December 31, 2018
	Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Measured at Fair Value on a Recurring Basis:
Assets
Available-for-sale securities:
Agency-guaranteed residential mortgage–backed securities	$	—	$	305,374	$	—	$	305,374
Corporate notes	—		357,920		—		357,920
Equity securities	1,718		—		—		1,718
Derivatives	—		14,624		69		14,693
Loans held for sale – fair value option	—		1,507		—		1,507
Loans receivable, mortgage warehouse – fair value option	—		1,405,420		—		1,405,420
Total assets – recurring fair value measurements	$	1,718	$	2,084,845	$	69	$	2,086,632
Liabilities
Derivatives	$	—	$	16,286	$	—	$	16,286
Measured at Fair Value on a Nonrecurring Basis:
Assets
Impaired loans, net of reserves of $845	$	—	$	—	$	10,876	$	10,876
Other real estate owned	—		—		621		621
Total assets – nonrecurring fair value measurements	$	—	$	—	$	11,497	$	11,497

Statement of Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

The changes in Level 3 assets measured at fair value on a recurring basis for the three and six months ended June 30, 2019 and 2018 are summarized in the tables below. Additional information about residential mortgage loan commitments can be found in NOTE 10 - DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES.



	Residential Mortgage Loan Commitments
	Three Months Ended June 30,
(amounts in thousands)	2019			2018
Balance at March 31	$	77		$	83
Issuances	145			133
Settlements	(77		)	(83		)
Balance at June 30	$	145		$	133



	Residential Mortgage Loan Commitments
	Six Months Ended June 30,
(amounts in thousands)	2019			2018

Balance at December 31	$	69		$	60
Issuances	222			216
Settlements	(146		)	(143		)
Balance at June 30	$	145		$	133

Summary of Financial Assets and Financial Liabilities Measured at Fair Value on Recurring and Nonrecurring Basis

The following table summarizes financial assets and financial liabilities measured at fair value as of June 30, 2019 and December 31, 2018 on a recurring and nonrecurring basis for which Customers utilized Level 3 inputs to measure fair value. The unobservable Level 3 inputs noted below contain a level of uncertainty that may differ from what is realized in an immediate settlement of the assets. Therefore, Customers may realize a value higher or lower than the current estimated fair value of the assets. On June 28, 2019, Customers obtained ownership of interest-only GNMA securities that served as the primary collateral for loans made to one commercial mortgage warehouse customer through a Uniform Commercial Code ("UCC") private sale transaction. On June 28, 2019, Customers elected the fair value option for these interest-only GNMA securities acquired on such date. The fair value of these securities at June 30, 2019 was $17.2 million which reflects the valuation obtained from the third party binding bids obtained through the UCC private sale transaction. Customers corroborated the third party binding bids through internally developed discounted cash flow modeling. The significant unobservable inputs used in the discounted cash flow modeling include prepayment speeds and discount rates. Customers will mark these securities to fair value on a quarterly basis, with changes in fair value reported in non-interest income.

Customers will mark these securities to fair value on a quarterly basis, with changes in fair value reported in non-interest income.



	Quantitative Information about Level 3 Fair Value Measurements
June 30, 2019	Fair Value Estimate		Valuation Technique	Unobservable Input	Range (Weighted Average)
(amounts in thousands)
Impaired loans - real estate	$	5,015	Collateral appraisal ⁽¹⁾	Liquidation expenses ⁽²⁾	8% - 8% (8%)
Impaired loans - commercial & industrial	6,562		Business asset valuation ⁽³⁾	Business asset valuation adjustments ⁽⁴⁾	8% - 50% (16%)
Other real estate owned	880		Collateral appraisal ⁽¹⁾	Liquidation expenses ⁽²⁾	8% - 11% (8%)
Residential mortgage loan commitments	145		Adjusted market bid	Pull-through rate	83% - 83% (83%)


(1)	Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. Customers does not generally discount appraisals.


(2)	Appraisals are adjusted by management for liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percentage of the appraisal.


(3)	Business asset valuation obtained from independent party.


(4)	Business asset valuations may be adjusted by management for qualitative factors including economic conditions and the condition of the business assets. The range and weighted average of the business asset adjustments are presented as a percent of the business asset valuation.



	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2018	Fair Value Estimate		Valuation Technique	Unobservable Input	Range (Weighted Average)
(amounts in thousands)
Impaired loans - real estate	$	10,260	Collateral appraisal ⁽¹⁾	Liquidation expenses ⁽²⁾	8% - 8% (8%)
Impaired loans - commercial & industrial	616		Business asset valuation ⁽³⁾	Business asset valuation adjustments ⁽⁴⁾	8% - 50% (26%)
Other real estate owned	621		Collateral appraisal ⁽¹⁾	Liquidation expenses ⁽²⁾	8% - 8% (8%)
Residential mortgage loan commitments	69		Adjusted market bid	Pull-through rate	90% - 90% (90%)


(1)	Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. Customers does not generally discount appraisals.


(2)	Appraisals are adjusted by management for liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percentage of the appraisal.


(3)	Business asset valuation obtained from independent party.

(4)

Business asset valuations may be adjusted by management for qualitative factors including economic conditions and the condition of the business assets. The range and weighted average of the business asset adjustments are presented as a percent of the business asset valuation.

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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