Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Note 8 Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis

The following is a description of the methodologies used to estimate the fair values of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which those measurements are typically classified.

Investment securities available for sale and marketable equity securities—Fair value measurements are based on quoted prices in active markets when available; these measurements are classified within level 1 of the fair value hierarchy. These securities typically include U.S. Treasury securities and certain preferred stocks. If quoted prices in active markets are not available, fair values are estimated using quoted prices of securities with similar characteristics, quoted prices of identical securities in less active markets, discounted cash flow techniques, or matrix pricing models. These securities are generally classified within level 2 of the fair value hierarchy and include U.S. Government agency securities, U.S. Government agency and sponsored enterprise MBS, preferred stock investments for which level 1 valuations are not available, non-mortgage asset-backed securities, single family real estate-backed securities, private label residential MBS and CMOs, private label commercial MBS, collateralized loan obligations and state and municipal obligations. Pricing of these securities is generally primarily spread driven. Observable inputs that may impact the valuation of these securities include benchmark yield curves, credit spreads, reported trades, dealer quotes, bids, issuer spreads, current rating, historical constant prepayment rates, historical voluntary prepayment rates, structural and waterfall features of individual securities, published collateral data, and for certain securities, historical constant default rates and default severities.

The Company uses third-party pricing services in determining fair value measurements for investment securities. To obtain an understanding of the methodologies and assumptions used, management reviews written documentation provided by the pricing services, conducts interviews with valuation desk personnel and reviews model results and detailed assumptions used to value selected securities as considered necessary. Management has established a robust price challenge process that includes a review by the treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from expectations is challenged. If considered necessary to resolve any discrepancies, a price will be obtained from an additional independent valuation source. The Company does not typically adjust the prices provided, other than through this established challenge process. The results of price challenges are subject to review by executive management. Any price discrepancies are resolved based on careful consideration of the assumptions and inputs employed by each of the pricing sources.

Derivative financial instruments—Fair values of interest rate swaps, caps and collars are determined using widely accepted discounted cash flow modeling techniques. These discounted cash flow models use projections of future cash payments and receipts that are discounted at mid-market rates. Observable inputs that may impact the valuation of these instruments include benchmark swap rates and benchmark forward yield curves. These fair value measurements are generally classified within level 2 of the fair value hierarchy.

The following tables present assets and liabilities measured at fair value on a recurring basis at the dates indicated (in thousands):


	September 30, 2023
	Level 1		Level 2		Total
Investment securities available for sale:
U.S. Treasury securities	$	106,605	$	—	$	106,605
U.S. Government agency and sponsored enterprise residential MBS	—		1,932,458		1,932,458
U.S. Government agency and sponsored enterprise commercial MBS	—		491,840		491,840

Private label residential MBS and CMOs	—		2,290,325		2,290,325
Private label commercial MBS	—		2,256,329		2,256,329
Single family real estate-backed securities	—		393,464		393,464
Collateralized loan obligations	—		1,047,812		1,047,812
Non-mortgage asset-backed securities	—		104,344		104,344
State and municipal obligations	—		97,235		97,235
SBA securities	—		110,655		110,655

Marketable equity securities	45,417		—		45,417

Derivative assets	—		144,514		144,514
Total assets at fair value	$	152,022	$	8,868,976	$	9,020,998
Derivative liabilities	$	—	$	(137,375)	$	(137,375)
Total liabilities at fair value	$	—	$	(137,375)	$	(137,375)


	December 31, 2022

	Level 1		Level 2		Total
Investment securities available for sale:
U.S. Treasury securities	$	135,841	$	—	$	135,841
U.S. Government agency and sponsored enterprise residential MBS	—		1,983,168		1,983,168
U.S. Government agency and sponsored enterprise commercial MBS	—		525,094		525,094

Private label residential MBS and CMOs	—		2,530,663		2,530,663
Private label commercial MBS	—		2,524,354		2,524,354
Single family real estate-backed securities	—		470,441		470,441
Collateralized loan obligations	—		1,136,463		1,136,463
Non-mortgage asset-backed securities	—		95,976		95,976
State and municipal obligations	—		116,661		116,661
SBA securities	—		135,782		135,782

Marketable equity securities	90,884		—		90,884

Derivative assets	—		88,739		88,739
Total assets at fair value	$	226,725	$	9,607,341	$	9,834,066
Derivative liabilities	$	—	$	(126,220)	$	(126,220)
Total liabilities at fair value	$	—	$	(126,220)	$	(126,220)

Assets and liabilities measured at fair value on a non-recurring basis

Following is a description of the methodologies used to estimate the fair values of assets and liabilities that may be measured at fair value on a non-recurring basis, and the level within the fair value hierarchy in which those measurements are typically classified.

Collateral dependent loans and OREO—The carrying amount of collateral dependent loans is typically based on the fair value of the underlying collateral, which may be real estate, enterprise value or other business assets, less estimated costs to sell when repayment is expected to come from the sale of the collateral. The carrying value of OREO is initially measured based on the fair value of the real estate acquired in foreclosure and subsequently adjusted to the lower of cost or estimated fair value, less estimated cost to sell. Fair values of real estate collateral and OREO are typically based on third-party real estate appraisals which utilize market and income approaches to valuation incorporating both observable and unobservable inputs.

Fair value measurements related to collateral dependent loans and OREO are generally classified within level 3 of the fair value hierarchy.

The following table presents the net carrying value of assets classified within level 3 of the fair value hierarchy at the dates indicated, for which non-recurring changes in fair value were recorded during the period then ended (in thousands):


	September 30, 2023		December 31, 2022

Collateral dependent loans	$	59,576	$	31,789

OREO	29		693

	$	59,605	$	32,482

The following table presents the carrying value and fair value of financial instruments and the level within the fair value hierarchy in which those measurements are classified at the dates indicated (dollars in thousands):


		September 30, 2023				December 31, 2022

	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Cash and cash equivalents	1	$	391,885	$	391,885	$	572,647	$	572,647
Investment securities	1/2	$	8,886,484	$	8,886,350	$	9,755,327	$	9,755,190
Non-marketable equity securities	2	$	312,159	$	312,159	$	294,172	$	294,172

Loans, net	3	$	24,160,213	$	22,606,322	$	24,738,042	$	23,342,950
Derivative assets	2	$	144,514	$	144,514	$	88,739	$	88,739
Liabilities:
Demand, savings and money market deposits	2	$	20,922,985	$	20,922,985	$	23,241,256	$	23,241,256
Time deposits	2	$	5,189,681	$	5,132,900	$	4,268,078	$	4,231,167
Federal funds purchased	2	$	—	$	—	$	190,000	$	190,000
FHLB advances	2	$	5,165,000	$	5,164,688	$	5,420,000	$	5,419,588
Notes and other borrowings	2	$	715,197	$	642,941	$	720,923	$	698,359
Derivative liabilities	2	$	137,375	$	137,375	$	126,220	$	126,220

- 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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