| Fair Value Measurements |
FAIR VALUE MEASUREMENTS The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale, derivatives, and certain debt liabilities. 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 15. 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, 2023, the fair value of these investments was $65.3 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, 2023 | | Measured on a Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 | | (In thousands) | | Securities available-for-sale: | | | | | | | | | Agency residential MBS | $ | 2,249,080 | | | $ | — | | | $ | 2,249,080 | | | $ | — | | | U.S. Treasury securities | 685,436 | | | 685,436 | | | — | | | — | | | Agency commercial MBS | 491,681 | | | — | | | 491,681 | | | — | | | Agency residential CMOs | 455,682 | | | — | | | 455,682 | | | — | | | Municipal securities | 345,639 | | | — | | | 345,639 | | | — | | | Corporate debt securities | 289,794 | | | — | | | 275,015 | | | 14,779 | | | Private label residential CMOs | 164,403 | | | — | | | 164,403 | | | — | | | Collateralized loan obligations | 102,994 | | | — | | | 102,994 | | | — | | | Private label commercial MBS | 25,535 | | | — | | | 25,535 | | | — | | | Asset-backed securities | 22,457 | | | — | | | 22,457 | | | — | | | SBA securities | 15,906 | | | — | | | 15,906 | | | — | | | Total securities available-for-sale | $ | 4,848,607 | | | $ | 685,436 | | | $ | 4,148,392 | | | $ | 14,779 | | | Equity investments with readily determinable fair values | $ | 1 | | | $ | 1 | | | $ | — | | | $ | — | | Derivatives (1): | | | | | | | | | Equity warrants | 3,978 | | | — | | | — | | | 3,978 | | | Interest rate and economic contracts | 7,025 | | | — | | | 7,025 | | | — | | | Derivative liabilities | 5,178 | | | — | | | 5,178 | | | — | | | Credit-linked notes | 128,375 | | | — | | | — | | | 128,375 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | |
____________________ (1) For information regarding derivative instruments, see Note 10. Derivatives. During the three months ended March 31, 2023, there was a $1,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis. There was also an $18.0 million transfer of corporate debt securities from Level 2 to Level 3 during the three months ended March 31, 2023. 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 corporate debt securities available-for-sale measured at fair value on a recurring basis as of the date indicated: | | | | | | | | | | | | | | | | | | | | | March 31, 2023 | | | | Corporate Debt Securities | | | | | | Input or | | Weighted | | | | | | Range | | Average | | Unobservable Inputs | | | | | of Inputs | | Input (1) | | Spread to 10 Year Treasury | | | | | 4.2% - 7.7% | | 5.9% | | Discount rates | | | | | 7.7% - 11.2% | | 9.4% | | | | | | | | | | | | | | | | |
____________________(1) Unobservable inputs for corporate debt securities were weighted by the relative fair values of the instruments. 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, 2023 | | Equity Warrants | | | | Weighted | | Range | | Average | | Unobservable Inputs | of Inputs | | Input (1) | | Volatility | 22.7% - 104.0% | | 27.9% | | Risk-free interest rate | 3.6% - 4.9% | | 3.9% | | Remaining life assumption (in years) | 0.08 - 5.00 | | 3.27 |
____________________ (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 commercial MBS available-for-sale, and equity warrants and credit-linked notes measured at fair value on a recurring basis for the period indicated: | | | | | | | | | | | | | | | | | | | | | | | Corporate | | Equity | | Credit-Linked | | | | Debt Securities | | Warrants | | Notes | | | | (In thousands) | | | | Balance, December 31, 2022 | | | $ | — | | | $ | 4,048 | | | $ | 132,030 | | | Total included in earnings | | | — | | | (333) | | | (1,998) | | | Total included in other comprehensive income (loss) | | | (3,221) | | | — | | | — | | | | | | | | | | | Issuances | | | — | | | 283 | | | — | | | Principal payments | | | — | | | — | | | (1,657) | | | | | | | | | | | Transfer from Level 2 | | | 18,000 | | | — | | | | | | | | | | | | | | | | | | | | | Exercises and settlements | | | — | | | (19) | | | — | | | Transfers to Level 1 (equity investments with readily | | | | | | | | | determinable fair values) | | | — | | | (1) | | | — | | | Balance, March 31, 2023 | | | $ | 14,779 | | | $ | 3,978 | | | $ | 128,375 | | | | | | | | | | | Unrealized net gains (losses) for the period included in other | | | | | | | | | comprehensive income for securities held at quarter-end | | | $ | (3,221) | | | | | | | | | | | | | |
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, 2023 | | Measured on a Non-Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 | | (In thousands) | | Individually evaluated loans and leases | $ | 23,673 | | | $ | — | | | $ | 23,152 | | | $ | 521 | | | | | | | | | | | | | | | | | | | Total non-recurring | $ | 23,673 | | | $ | — | | | $ | 23,152 | | | $ | 521 | |
| | | | | | | | | | | | | | | | | | | | | | | | | Fair Value Measurement as of | | December 31, 2022 | | Measured on a Non-Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 | | (In thousands) | | Individually evaluated loans and leases | $ | 34,077 | | | $ | — | | | $ | 28,065 | | | $ | 6,012 | | | OREO | 47 | | | — | | | 47 | | | — | | | Total non-recurring | $ | 34,124 | | | $ | — | | | $ | 28,112 | | | $ | 6,012 | |
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 | 2023 | | 2022 | | | | | | (In thousands) | | Individually evaluated loans and leases | $ | 4,911 | | | $ | 434 | | | | | | | | | | | | | | | | | | | | | | | Total losses | $ | 4,911 | | | $ | 434 | | | | | |
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, 2023 | | | | | Valuation | | Unobservable | | Input or | | Weighted | | Asset | | Fair Value | | Technique | | Inputs | | Range | | Average | | | (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Individually evaluated | | | | | | | | | | | | loans and leases | | 521 | | Third party appraisals | | No discounts | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total non-recurring Level 3 | | $ | 521 | | | | | | | | |
The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2023 | | Carrying | | Estimated Fair Value | | Amount | | Total | | Level 1 | | Level 2 | | Level 3 | | (In thousands) | | Financial Assets: | | | | | | | | | | | Cash and due from banks | $ | 218,830 | | | $ | 218,830 | | | $ | 218,830 | | | $ | — | | | $ | — | | | Interest-earning deposits in financial institutions | 6,461,306 | | | 6,461,306 | | | 6,461,306 | | | — | | | — | | | Securities available-for-sale | 4,848,607 | | | 4,848,607 | | | 685,436 | | | 4,148,392 | | | 14,779 | | | Securities held-to-maturity | 2,273,650 | | | 2,157,056 | | | 176,629 | | | 1,945,900 | | | 34,527 | | | Investment in FHLB stock | 147,150 | | | 147,150 | | | — | | | 147,150 | | | — | | | Loans held for sale | 2,796,208 | | | 2,807,699 | | | — | | | 2,807,699 | | | — | | | Loans and leases held for investment, net | 25,462,326 | | | 24,138,162 | | | — | | | 23,152 | | | 24,115,010 | | | Equity investments with readily determinable fair values | 1 | | | 1 | | | 1 | | | — | | | — | | | Equity warrants | 3,978 | | | 3,978 | | | — | | | — | | | 3,978 | | | Interest rate and economic contracts | 7,025 | | | 7,025 | | | — | | | 7,025 | | | — | | | Servicing rights | 1,409 | | | 1,409 | | | — | | | — | | | 1,409 | | | | | | | | | | | | | Financial Liabilities: | | | | | | | | | | | Retail non-maturity deposits | 19,230,293 | | | 19,230,293 | | | — | | | 19,230,293 | | | — | | | Wholesale non-maturity deposits | 2,028,676 | | | 2,028,676 | | | — | | | 2,028,676 | | | — | | | Time deposits | 6,928,592 | | | 6,945,479 | | | — | | | 6,945,479 | | | — | | | Borrowings | 11,881,712 | | | 11,899,375 | | | 4,910,000 | | | 5,450,000 | | | 1,539,375 | | | Subordinated debt | 868,815 | | | 823,002 | | | — | | | 823,002 | | | — | | | Derivative liabilities | 5,178 | | | 5,178 | | | — | | | 5,178 | | | — | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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: | | | | | | | | | | | Retail non-maturity 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 | | | — | |
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, 2023, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.
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