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Disclosures about Fair Value of Financial Instruments
 12 Months Ended
Dec. 31, 2022
Fair Value Disclosures [Abstract]  
Disclosures about Fair Value of Financial Instruments DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
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 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 instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. For fair value disclosure purposes, Customers utilized certain fair value measurement criteria under ASC 820, Fair Value Measurements and Disclosures ("ASC 820") 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 December 31, 2022 and 2021:
Financial Instruments Recorded at Fair Value on a Recurring Basis
Investment securities:
The fair values of equity securities with a readily determinable fair value, AFS debt securities and debt securities reported at fair value based on a fair value option election are determined by obtaining quoted market prices on nationally recognized and foreign securities exchanges (Level 1), quoted prices in markets that are not active (Level 2), 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 internally and externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).
When quoted market prices are not available, Customers employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results and has an established process to challenge their valuations, or methodologies, that appear unusual or unexpected.
Customers also utilizes internally and externally developed models that use unobservable inputs due to limited or no market activity of the instrument. These models use unobservable inputs that are inherently judgmental and reflect our best estimates of the assumptions a market participant would use to calculate fair value. Certain unobservable inputs in isolation may have either a directionally consistent or opposite impact on the fair value of the instrument for a given change in that input. When multiple inputs are used within the valuation techniques, a change in one input in a certain direction may be offset by an opposite change from another input. 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.
Loans held for sale - Residential mortgage loans (fair value option):
Customers 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 commercial 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 generally expected to be recognized because at inception of the transaction the underlying mortgage 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 under 30 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, interest rate caps 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 Customers 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. Customers 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 Customers' 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.
Financial Instruments Recorded at Fair Value on a Nonrecurring Basis
Collateral-dependent loans:
Collateral-dependent loans are those loans that are accounted for under ASC 326, in which the Bank has measured impairment generally based on the fair value of the loan’s collateral or DCF analysis. Fair value is generally determined based upon independent third-party appraisals of the properties that collateralize the loans, DCF based upon the expected proceeds, sales agreements or letters of intent with third parties. These assets are generally classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
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 Customers' disclosures and those of other companies may not be meaningful.
The estimated fair values of Customers’ financial instruments at December 31, 2022 and 2021 were as follows:
Carrying AmountEstimated Fair ValueFair Value Measurements at December 31, 2022
(amounts in thousands)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$455,806 $455,806 $455,806 $— $— 
Debt securities, available for sale2,961,015 2,961,015 — 2,887,749 73,266 
Debt securities, held to maturity840,259 793,813 — 437,680 356,133 
Loans held for sale328,312 328,312 — 322 327,990 
Total loans and leases receivable, net of allowance for credit losses on loans and leases15,335,435 14,890,823 — 1,323,312 13,567,511 
FHLB, Federal Reserve Bank, and other restricted stock74,196 74,196 — 74,196 — 
Derivatives 44,435 44,435 — 44,380 55 
Liabilities:
Deposits$18,156,953 $18,127,338 $13,907,087 $4,220,251 $— 
FHLB advances800,000 781,113 — 781,113 — 
Other borrowings123,580 108,081 — 108,081 — 
Subordinated debt181,952 168,441 — 168,441 — 
Derivatives42,106 42,106 — 42,106 — 

Carrying AmountEstimated Fair ValueFair Value Measurements at December 31, 2021
(amounts in thousands)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$518,032 $518,032 $518,032 $— $— 
Debt securities, available for sale3,791,575 3,791,575 — 3,648,690 142,885 
Loans held for sale16,254 16,254 — 15,747 507 
Total loans and leases receivable, net of allowance for credit losses on loans and leases14,414,827 14,207,811 — 2,284,325 11,923,486 
FHLB, Federal Reserve Bank, and other restricted stock64,584 64,584 — 64,584 — 
Derivatives27,295 27,295 — 27,116 179 
Liabilities:
Deposits$16,777,924 $16,777,236 $16,270,586 $506,650 $— 
Federal funds purchased75,000 75,000 75,000 — — 
FHLB advances700,000 700,000 — 700,000 — 
Other borrowings223,086 226,585 — 226,585 — 
Subordinated debt181,673 204,782 — 204,782 — 
Derivatives26,544 26,544 — 26,544 — 
For financial assets and liabilities measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2022 and 2021 were as follows:
December 31, 2022
Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
Measured at Fair Value on a Recurring Basis:
Assets
Available for sale securities:
Asset-backed securities$— $87,276 $73,266 $160,542 
Agency-guaranteed residential collateralized mortgage obligations— 133,864 — 133,864 
Collateralized loan obligations— 872,738 — 872,738 
Commercial mortgage-backed securities— 136,357 — 136,357 
Corporate notes— 595,253 — 595,253 
Private label collateralized mortgage obligations— 1,062,261 — 1,062,261 
Derivatives— 44,380 55 44,435 
Loans held for sale – fair value option— 322 — 322 
Loans receivable, mortgage warehouse – fair value option— 1,323,312 — 1,323,312 
Total assets – recurring fair value measurements$— $4,255,763 $73,321 $4,329,084 
Liabilities
Derivatives$— $42,106 $— $42,106 
Measured at Fair Value on a Nonrecurring Basis:
Assets
Collateral-dependent loans$— $— $4,819 $4,819 
Total assets – nonrecurring fair value measurements$— $— $4,819 $4,819 
December 31, 2021
Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
Measured at Fair Value on a Recurring Basis:
Assets
Available for sale securities:
Asset-backed securities$— $154,540 $142,885 $297,425 
Agency-guaranteed residential mortgage-backed securities— 9,553 — 9,553 
Agency-guaranteed commercial mortgage-backed securities— 2,152 — 2,152 
Agency-guaranteed residential collateralized mortgage obligations— 196,930 — 196,930 
Agency-guaranteed commercial collateralized mortgage obligations— 238,844 — 238,844 
Collateralized loan obligations— 1,066,802 — 1,066,802 
Commercial mortgage-backed securities— 148,927 — 148,927 
Corporate notes— 580,046 — 580,046 
Private label collateralized mortgage obligations— 1,242,465 — 1,242,465 
State and political subdivision debt securities— 8,431 — 8,431 
Derivatives — 27,116 179 27,295 
Loans held for sale – fair value option— 15,747 — 15,747 
Loans receivable, mortgage warehouse – fair value option— 2,284,325 — 2,284,325 
Total assets - recurring fair value measurements$— $5,975,878 $143,064 $6,118,942 
Liabilities
Derivatives $— $26,544 $— $26,544 
Measured at Fair Value on a Nonrecurring Basis:
Assets
Collateral-dependent loans$— $— $5,121 $5,121 
Total assets – nonrecurring fair value measurements$— $— $5,121 $5,121 
The changes in residential mortgage loan commitments (Level 3 assets) measured at fair value on a recurring basis for the years ended December 31, 2022 and 2021 are summarized as follows in the table below. Additional information about residential mortgage loan commitments can be found in NOTE 21 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
Residential Mortgage Loan Commitments
For the Years Ended December 31,
(amounts in thousands)20222021
Balance at January 1,$179 $200 
Issuances343 839 
Settlements(467)(860)
Balance at December 31,$55 $179 
The changes in asset-backed securities (Level 3 assets) measured at fair value on a recurring basis for the years ended December 31, 2022 and 2021 are summarized in the table below.
Asset-backed securities
For the Years Ended December 31,
(amounts in thousands)20222021
Balance at January 1,$142,885 $— 
Purchases— 142,885 
Principal payments and premium amortization(64,181)— 
Increase in allowance for credit losses(1,604)— 
Decrease in allowance for credit losses1,026 — 
Change in fair value recognized in OCI(4,860)— 
Balance at December 31,$73,266 $142,885 
There were no transfers between levels during the years ended December 31, 2022 and 2021.
The following tables summarize financial assets and financial liabilities measured at fair value as of December 31, 2022 and 2021 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
(dollars in thousands)Fair Value EstimateValuation TechniqueUnobservable Input
Range (Weighted
Average) (4)
December 31, 2022
Asset-backed securities$73,266 Discounted cash flowDiscount rate


Annualized loss rate


Constant prepayment rate
9% - 9%
(9%)

4% - 5%
(5%)

19% - 25%
(23%)
Collateral-dependent loans – real estate4,730 
Collateral appraisal (1)
Liquidation expenses (2)
7% - 13%
(11%)
Collateral-dependent loans – commercial and industrial89 
Collateral appraisal (1)


Business asset valuation (3)
Liquidation expenses (2)

Business asset valuation adjustments (4)
8% - 8%
 (8%)

25% - 25%
(25%)
Residential mortgage loan commitments55 Adjusted market bidPull-through rate
84% - 100%
(86%)
Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)Fair Value EstimateValuation TechniqueUnobservable Input
Range (Weighted
Average) (4)
December 31, 2021
Asset-backed securities$142,885 Discounted cash flowDiscount rate


Annualized loss rate


Constant prepayment rate
4% - 5%
(5%)

4% - 4%
(4%)

17% - 33%
(19%)
Collateral-dependent loans – real estate4,170 
Collateral appraisal (1)
Liquidation expenses (2)
8% - 8%
(8%)
Collateral-dependent loans – commercial and industrial951 
Collateral appraisal (1)


Business asset valuation(3)
Liquidation expenses (2)

Business asset valuation adjustments (4)
8% - 26%
(12%)

20% - 20%
(20%)
Residential mortgage loan commitments179 Adjusted market bidPull-through rate
76% - 89%
(85%)
(1)Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. Customers does not generally discount appraisals. Fair value is also estimated based on sale agreements or letters of intent with third parties.
(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.