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Disclosures About Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
Disclosures About Fair Value of Financial Instruments | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - As Restated Customers uses fair value measurements to record fair value adjustments to certain assets and liabilities and to disclose the fair value of its financial instruments. ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For Customers, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. Many of these financial instruments lack an available trading market as characterized by a willing buyer and a willing seller engaging in an exchange transaction. For fair value disclosure purposes, Customers utilized certain fair value measurement criteria under ASC Topic 820, Fair Value Measurements and Disclosures, as explained below. In accordance with ASC 820, the fair value of a financial instrument is the 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. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for Customers' various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. The fair value guidance provides a consistent definition of fair value, focusing on an exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. The fair value guidance also establishes a fair value hierarchy and describes the following three levels used to classify fair value measurements. Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 3: Prices or valuation techniques that require adjustments to inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The following methods and assumptions were used to estimate the fair values of Customers' financial instruments as of September 30, 2018 and December 31, 2017: Financial Instruments Recorded at Fair Value on a Recurring Basis Investment securities: The fair values of equity securities and available-for-sale debt securities are determined by obtaining quoted market prices on nationally recognized and foreign securities exchanges (Level 1), matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices, or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3). These assets are classified as Level 1, 2 or 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The carrying amount of investments in FHLB, Federal Reserve Bank, and other restricted stock approximates fair value, and considers the limited marketability of such securities. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements. Loans held for sale - Consumer residential mortgage loans (fair value option): The Bank generally estimates the fair values of residential mortgage loans held for sale based on commitments on hand from investors within the secondary market for loans with similar characteristics. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements. Loans receivable - Commercial mortgage warehouse loans (fair value option): The fair value of mortgage warehouse loans is the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The loan is used by mortgage companies as short-term bridge financing between the funding of mortgage loans and the finalization of the sale of the loans to an investor. Changes in fair value are not expected to be recognized because at inception of the transaction the underlying loans have already been sold to an approved investor. Additionally, the interest rate is variable, and the transaction is short-term, with an average life of 25 days from purchase to sale. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements. Derivatives (Assets and Liabilities): The fair values of interest rate swaps and credit derivatives are determined using models that incorporate readily observable market data into a market standard methodology. This methodology nets the discounted future cash receipts and the discounted expected cash payments. The discounted variable cash receipts and payments are based on expectations of future interest rates derived from observable market interest rate curves. In addition, fair value is adjusted for the effect of nonperformance risk by incorporating credit valuation adjustments for the Bank and its counterparties. These assets and liabilities are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair values of the residential mortgage loan commitments are derived from the estimated fair values that can be generated when the underlying mortgage loan is sold in the secondary market. The Bank generally uses commitments on hand from third- party investors to estimate an exit price and adjusts for the probability of the commitment being exercised based on the Bank’s internal experience (i.e., pull-through rate). These assets and liabilities are classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. Derivative assets and liabilities are presented in "Other assets" and "Accrued interest payable and other liabilities" on the consolidated balance sheet. The following information should not be interpreted as an estimate of Customers' fair value in its entirety because fair value calculations are only provided for a limited portion of Customers' assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making these estimates, comparisons between Customer’s disclosures and those of other companies may not be meaningful. The estimated fair values of Customers' financial instruments at September 30, 2018 and December 31, 2017 were as follows.
|  |  |  |  | Fair Value Measurements at September 30, 2018
| 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)
(amounts in thousands) |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 666,034 |  |  | $ | 666,034 |  |  | $ | 666,034 |  |  | $ | — |  |  | $ | — |
Debt securities, available for sale | 667,032 |  |  | 667,032 |  |  | — |  |  | 667,032 |  |  | — |
Equity securities | 1,819 |  |  | 1,819 |  |  | 1,819 |  |  | — |  |  | — |
Loans held for sale | 1,383 |  |  | 1,383 |  |  | — |  |  | 1,383 |  |  | — |
Total loans receivable, net of allowance for loan losses | 8,715,536 |  |  | 8,646,346 |  |  | — |  |  | 1,516,327 |  |  | 7,130,019 |
FHLB, Federal Reserve Bank and other restricted stock | 74,206 |  |  | 74,206 |  |  | — |  |  | 74,206 |  |  | — |
Derivatives | 22,613 |  |  | 22,613 |  |  | — |  |  | 22,491 |  |  | 122 |
Liabilities: |  |  |  |  |  |  |  |  |
Deposits | $ | 8,513,714 |  |  | $ | 8,506,804 |  |  | $ | 6,120,233 |  |  | $ | 2,386,571 |  |  | $ | — |
FHLB advances | 835,000 |  |  | 834,968 |  |  | — |  |  | 834,968 |  |  | — |
Other borrowings | 123,779 |  |  | 124,724 |  |  | — |  |  | 124,724 |  |  | — |
Subordinated debt | 108,953 |  |  | 114,400 |  |  | — |  |  | 114,400 |  |  | — |
Derivatives | 15,684 |  |  | 15,684 |  |  | — |  |  | 15,684 |  |  | — |
|  |  |  |  | Fair Value Measurements at December 31, 2017
| 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)
(amounts in thousands) (as restated) |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 146,323 |  |  | $ | 146,323 |  |  | $ | 146,323 |  |  | $ | — |  |  | $ | — |
Investment securities, available for sale | 471,371 |  |  | 471,371 |  |  | 3,352 |  |  | 468,019 |  |  | — |
Loans held for sale (as restated) | 146,077 |  |  | 146,251 |  |  | — |  |  | 1,886 |  |  | 144,365 |
Total loans receivable, net of allowance for loan losses (as restated) | 8,523,651 |  |  | 8,470,171 |  |  | — |  |  | 1,793,408 |  |  | 6,676,763 |
FHLB, Federal Reserve Bank and other restricted stock | 105,918 |  |  | 105,918 |  |  | — |  |  | 105,918 |  |  | — |
Derivatives | 9,752 |  |  | 9,752 |  |  | — |  |  | 9,692 |  |  | 60 |
Liabilities: |  |  |  |  |  |  |  |  |
Deposits | $ | 6,800,142 |  |  | $ | 6,796,095 |  |  | $ | 4,894,449 |  |  | $ | 1,901,646 |  |  | $ | — |
Federal funds purchased | 155,000 |  |  | 155,000 |  |  | 155,000 |  |  | — |  |  | — |
FHLB advances | 1,611,860 |  |  | 1,611,603 |  |  | 881,860 |  |  | 729,743 |  |  | — |
Other borrowings | 186,497 |  |  | 193,557 |  |  | 65,072 |  |  | 128,485 |  |  | — |
Subordinated debt | 108,880 |  |  | 115,775 |  |  | — |  |  | 115,775 |  |  | — |
Derivatives | 10,074 |  |  | 10,074 |  |  | — |  |  | 10,074 |  |  | — |
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 September 30, 2018 and December 31, 2017 were as follows:
| September 30, 2018
| Fair Value Measurements at the End of the Reporting Period Using
| Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
(amounts in thousands) |  |  |  |  |  |  |
Measured at Fair Value on a Recurring Basis: |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Available-for-sale debt securities: |  |  |  |  |  |  |
Agency-guaranteed residential mortgage-backed securities | $ | — |  |  | $ | 305,418 |  |  | $ | — |  |  | $ | 305,418 |
Corporate notes | — |  |  | 361,614 |  |  | — |  |  | 361,614 |
Equity securities | 1,819 |  |  | — |  |  | — |  |  | 1,819 |
Derivatives | — |  |  | 22,491 |  |  | 122 |  |  | 22,613 |
Loans held for sale – fair value option | — |  |  | 1,383 |  |  | — |  |  | 1,383 |
Loans receivable, mortgage warehouse - fair value option | — |  |  | 1,516,327 |  |  | — |  |  | 1,516,327 |
Total assets - recurring fair value measurements | $ | 1,819 |  |  | $ | 2,207,233 |  |  | $ | 122 |  |  | $ | 2,209,174 |
Liabilities |  |  |  |  |  |  |
Derivatives | $ | — |  |  | $ | 15,684 |  |  | $ | — |  |  | $ | 15,684 |
Measured at Fair Value on a Nonrecurring Basis: |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Impaired loans, net of reserves of $1,771 | $ | — |  |  | $ | — |  |  | $ | 7,295 |  |  | $ | 7,295 |
Other real estate owned | — |  |  | — |  |  | 1,078 |  |  | 1,078 |
Total assets - nonrecurring fair value measurements | $ | — |  |  | $ | — |  |  | $ | 8,373 |  |  | $ | 8,373 |
| December 31, 2017
| Fair Value Measurements at the End of the Reporting Period Using
| Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
(amounts in thousands) (as restated) |  |  |  |  |  |  |
Measured at Fair Value on a Recurring Basis: |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |
Agency-guaranteed residential mortgage-backed securities | $ | — |  |  | $ | 183,458 |  |  | $ | — |  |  | $ | 183,458 |
Agency-guaranteed commercial real estate mortgage-backed securities | — |  |  | 238,472 |  |  | — |  |  | 238,472 |
Corporate notes | — |  |  | 46,089 |  |  | — |  |  | 46,089 |
Equity securities | 3,352 |  |  | — |  |  | — |  |  | 3,352 |
Derivatives | — |  |  | 9,692 |  |  | 60 |  |  | 9,752 |
Loans held for sale – fair value option (as restated) | — |  |  | 1,886 |  |  | 144,365 |  |  | 146,251 |
Loans receivable, mortgage warehouse - fair value option (as restated) | — |  |  | 1,793,408 |  |  | — |  |  | 1,793,408 |
Total assets - recurring fair value measurements | $ | 3,352 |  |  | $ | 2,273,005 |  |  | $ | 144,425 |  |  | $ | 2,420,782 |
Liabilities |  |  |  |  |  |  |
Derivatives | $ | — |  |  | $ | 10,074 |  |  | $ | — |  |  | $ | 10,074 |
Measured at Fair Value on a Nonrecurring Basis: |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Impaired loans, net of reserves of $1,451 | $ | — |  |  | $ | — |  |  | $ | 13,902 |  |  | $ | 13,902 |
Other real estate owned | — |  |  | — |  |  | 1,449 |  |  | 1,449 |
Total assets - nonrecurring fair value measurements | $ | — |  |  | $ | — |  |  | $ | 15,351 |  |  | $ | 15,351 |
The changes in Level 3 assets measured at fair value on a recurring basis for the three and nine months ended September 30, 2018 and 2017 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 September 30,
| 2018 |  | 2017
(amounts in thousands) |  |  |
Balance at June 30 | $ | 133 |  |  | $ | 102 |
Issuances | 122 |  |  | 103 |
Settlements | (133 | ) |  | (102 | )
Balance at September 30 | $ | 122 |  |  | $ | 103 |
| Residential Mortgage Loan Commitments
| Nine Months Ended September 30,
| 2018 |  | 2017
(amounts in thousands) |  |  |
Balance at December 31 | $ | 60 |  |  | $ | 45 |
Issuances | 338 |  |  | 300 |
Settlements | (276 | ) |  | (242 | )
Balance at September 30 | $ | 122 |  |  | $ | 103 |
There were no transfers between levels during the three and nine months ended September 30, 2018 and 2017. The following table summarizes financial assets and financial liabilities measured at fair value as of September 30, 2018 and December 31, 2017 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.
| Quantitative Information about Level 3 Fair Value Measurements
September 30, 2018 | Fair Value Estimate |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted Average)
(amounts in thousands) |  |  |  |  |  |  |
Impaired loans - Real Estate | $ | 5,211 |  |  | Collateral appraisal (1) |  | Liquidation expenses (2) |  | 8% - 8% (8%)
Impaired loans - C&I | 2,084 |  |  | Business asset valuation (3) |  | Business asset valuation adjustments (4) |  | 6% - 63% (12%)
Other real estate owned | 1,078 |  |  | Collateral appraisal (1) |  | Liquidation expenses (2) |  | 8% - 10% (8%)
Residential mortgage loan commitments | 122 |  |  | Adjusted market bid |  | Pull-through rate |  | 90% - 90% (90%)
| Quantitative Information about Level 3 Fair Value Measurements
December 31, 2017 | Fair Value Estimate |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted Average)
(amounts in thousands) |  |  |  |  |  |  |
Impaired loans | $ | 13,902 |  |  | Collateral appraisal (1) |  | Liquidation expenses (2) |  | 8% - 8% (8%)
Other real estate owned | 1,449 |  |  | Collateral appraisal (1) |  | Liquidation expenses (2) |  | 8% - 8% (8%)
Residential mortgage loan commitments | 60 |  |  | Adjusted market bid |  | Pull-through rate |  | 90% - 90% (90%)
(1) | Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. The Bank 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.

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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