Fair Value Measurements

ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three‑level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is defined as the exchange 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 reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:


•	Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets.

•

Level 2: Observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data, either directly or indirectly, for substantially the full term of the financial instrument. This category generally includes municipal securities, agency residential and commercial MBS, collateralized loan obligations, registered publicly rated private label CMOs and asset-backed securitizations.

•

Level 3: Inputs to a valuation methodology that are unobservable, supported by little or no market activity, and significant to the fair value measurement. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant management judgment or estimation. This category also includes observable inputs from a pricing service not corroborated by observable market data, and includes our non-rated private label CMOs, non-rated private label asset-backed securities, and equity warrants.

We use fair value to measure certain assets and liabilities on a recurring basis, primarily securities available‑for‑sale and derivatives. 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 impaired loans and other real estate owned and also to record impairment on certain assets, such as goodwill, core deposit intangibles, and other long‑lived assets.

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
	September 30, 2016
Measured on a Recurring Basis:	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available‑for‑sale:
Residential MBS and CMOs:
Agency MBS	$	528,941	$	—	$	528,941	$	—
Agency CMOs	157,231		—		157,231		—
Private label CMOs	138,625		—		75,804		62,821
Municipal securities	1,522,494		—		1,522,494		—
Agency commercial MBS	531,273		—		531,273		—
Corporate debt securities	49,011		—		49,011		—
Collateralized loan obligations	156,647		—		156,647		—
SBA securities	187,300		—		187,300		—
Asset-backed and other securities	69,813		2,177		52,612		15,024
Total securities available-for-sale	3,341,335		2,177		3,261,313		77,845
Derivative assets	1,261		—		1,261		—
Equity warrants	5,108		—		—		5,108
Total recurring assets	$	3,347,704	$	2,177	$	3,262,574	$	82,953
Derivative liabilities	$	1,829	$	—	$	1,829	$	—



	Fair Value Measurements as of
	December 31, 2015
Measured on a Recurring Basis:	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available‑for‑sale:
Residential MBS and CMOs:
Agency MBS	$	667,840	$	—	$	667,840	$	—
Agency CMOs	194,755		—		194,755		—
Private label CMOs	144,796		—		63,555		81,241
Municipal securities	1,547,331		—		1,547,331		—
Agency commercial MBS	391,441		—		391,441		—
Corporate debt securities	48,424		—		48,424		—
Collateralized loan obligations	132,189		—		132,189		—
SBA securities	211,157		—		211,157		—
US Treasury securities	69,380		69,380		—		—
Agency debt securities	36,913		—		36,913		—
Asset-backed and other securities	115,211		2,562		94,449		18,200
Total securities available-for-sale	3,559,437		71,942		3,388,054		99,441
Derivative assets	11,919		—		11,919		—
Equity warrants	4,914		—		—		4,914
Total recurring assets	$	3,576,270	$	71,942	$	3,399,973	$	104,355
Derivative liabilities	$	1,397	$	—	$	1,397	$	—

There were no transfers of assets either between Level 1 and Level 2 nor in or out of Level 3 of the fair value hierarchy for assets measured on a recurring basis during the nine months ended September 30, 2016.

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 private label CMOs and asset-backed securities available-for-sale measured at fair value on a recurring basis as of September 30, 2016:



	Private Label CMOs		Asset-Backed Securities
		Weighted		Weighted
	Range	Average	Range	Average
Unobservable Inputs:	of Inputs	Input	of Inputs	Input
Voluntary annual prepayment speeds	0.0% - 27.6%	11.5%	5% - 40%	14.7%
Annual default rates	0.0% - 15.0%	2.1%	1% - 8%	3.7%
Loss severity rates	0.0% - 94.5%	33.1%	10% - 91%	54.3%
Discount rates	0.9% - 15.0%	3.6%	2.1% - 7.2%	2.9%

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 September 30, 2016:



	Equity Warrants
	Weighted
	Average
Unobservable Inputs:	Input
Volatility	19.3%
Risk-free interest rate	1.0%
Remaining life assumption (in years)	3.8

The following table summarizes activity for our Level 3 private label CMOs available-for-sale, asset-backed securities available-for-sale, and equity warrants measured at fair value on a recurring basis for the period indicated:



	Private			Asset-Backed			Equity
	Label CMOs			Securities			Warrants
	(In thousands)
Balance, December 31, 2015	$	81,241		$	18,200		$	4,914
Total included in earnings	1,252			47			301
Total included in other comprehensive income	(1,399		)	(5		)	—
Sales	—			—			(1,597		)
Issuances	—			—			1,490
Net settlements	(18,273		)	(3,218		)	—
Balance, September 30, 2016	$	62,821		$	15,024		$	5,108

The following tables present assets measured at fair value on a non‑recurring basis as of the dates indicated:



	Fair Value Measurement as of
	September 30, 2016
Measured on a Non‑Recurring Basis:	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired Non‑PCI loans	$	131,149	$	—	$	817	$	130,332



	Fair Value Measurement as of
	December 31, 2015
Measured on a Non‑Recurring Basis:	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired Non‑PCI loans	$	40,817	$	—	$	9,367	$	31,450
Other real estate owned	14,101		—		14,101		—
Investments carried at cost	107		—		—		107
Total non-recurring	$	55,025	$	—	$	23,468	$	31,557

The following table presents losses recognized on assets measured on a nonrecurring basis for the periods indicated:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Losses on Assets Measured on a Non‑Recurring Basis:	2016		2015		2016		2015
	(In thousands)
Impaired Non‑PCI loans	$	12,935	$	873	$	27,301	$	7,623
Other real estate owned	—		4,758		—		4,882
Total losses	$	12,935	$	5,631	$	27,301	$	12,505

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of September 30, 2016:

Valuation

Unobservable

Weighted

Asset:

Fair Value

Technique

Inputs

Range

Average

(In thousands)

Impaired Non-PCI loans

45,571

Discounted cash flows

Discount rates

0% - 8.00%

6.12%

73,775

Third party appraisals

Discounts

9.00% - 22.00%

17.17%

10,986

Third party appraisals

No discounts

Total non-recurring Level 3

130,332

ASC Topic 825, “Financial Instruments,” requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.

The following tables present a summary of the carrying values and estimated fair values of certain financial instruments as of the dates indicated:



	September 30, 2016
	Carrying or Contract		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	286,371	$	286,371	$	286,371	$	—	$	—
Interest‑earning deposits in financial institutions	253,994		253,994		253,994		—		—
Securities available‑for‑sale	3,341,335		3,341,335		2,177		3,261,313		77,845
Investment in FHLB stock	19,386		19,386		—		19,386		—
Investments carried at cost	1,700		4,408		—		—		4,408
Loans and leases, net	14,594,870		14,707,667		—		817		14,706,850
Derivative assets	1,261		1,261		—		1,261		—
Equity warrants	5,108		5,108		—		—		5,108

Financial Liabilities:
Deposits:
Demand, money market, interest checking,
and savings deposits	13,092,753		13,092,753		—		13,092,753		—
Time deposits	2,552,915		2,549,662		—		2,549,662		—
Borrowings	541,011		541,067		340,000		201,067		—
Subordinated debentures	441,112		424,874		—		424,874		—
Derivative liabilities	1,829		1,829		—		1,829		—



	December 31, 2015
	Carrying or Contract		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	161,020	$	161,020	$	161,020	$	—	$	—
Interest‑earning deposits in financial institutions	235,466		235,466		235,466		—		—
Securities available‑for‑sale	3,559,437		3,559,437		71,942		3,388,054		99,441
Investment in FHLB stock	19,710		19,710		—		19,710		—
Investments carried at cost	2,267		6,789		—		—		6,789
Loans and leases, net	14,363,143		14,393,558		—		9,367		14,384,191
Derivative assets	11,919		11,919		—		11,919		—
Equity warrants	4,914		4,914		—		—		4,914

Financial Liabilities:
Deposits:
Demand, money market, interest checking,
and savings deposits	11,513,826		11,513,826		—		11,513,826		—
Time deposits	4,152,356		4,152,920		—		4,152,920		—
Borrowings	621,914		622,438		618,000		4,438		—
Subordinated debentures	436,000		419,762		—		419,762		—
Derivative liabilities	1,397		1,397		—		1,397		—

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), see Note 1. Nature of Operations and Summary of Significant Accounting Policies, and Note 13. Fair Value Measurements, to the Consolidated Financial Statements of the Company's 2015 Annual Report on Form 10-K.

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 September 30, 2016, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.