Fair Value Accounting (Tables)

9 Months Ended

Sep. 30, 2016

Gains and Losses from Fair Value Changes Included in Consolidated Statement of Operations

For the three and nine months ended September 30, 2016 and 2015 gains and losses from fair value changes were as follows:



	Changes in Fair Values for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
	Unrealized Gain/(Loss) on Assets and Liabilities Measured at Fair Value, Net			Interest Income on Securities		Interest Expense on Junior Subordinated Debt		Total Changes Included in Current-Period Earnings			Total Changes Included in OCI, Net of Tax
	(in thousands)
Three Months Ended September 30, 2016
Securities measured at fair value	$	(12	)	$	9	$	—	$	(3	)	$	—
Junior subordinated debt	(4,604		)	—		625		625			(2,825		)
Total	$	(4,616	)	$	9	$	625	$	622		$	(2,825	)
Nine Months Ended September 30, 2016
Securities measured at fair value	$	(18	)	$	30	$	—	$	12		$	—
Junior subordinated debt	(2,386		)	—		1,843		1,843			(1,491		)
Total	$	(2,404	)	$	30	$	1,843	$	1,855		$	(1,491	)
Three Months Ended September 30, 2015
Securities measured at fair value	$	(6	)	$	13	$	—	$	7		$	—
Junior subordinated debt	5,325			—		540		540			3,274
Total	$	5,319		$	13	$	540	$	547		$	3,274
Nine Months Ended September 30, 2015
Securities measured at fair value	$	(20	)	$	41	$	—	$	21		$	—
Junior subordinated debt	(2,720		)	—		1,431		1,431			(1,676		)
Total	$	(2,740	)	$	41	$	1,431	$	1,452		$	(1,676	)

Fair Value of Assets and Liabilities

The fair value of assets and liabilities measured at fair value on a recurring basis was determined using the following inputs as of the periods presented:



	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)		Fair Value
	(in thousands)
September 30, 2016
Assets:
Measured at fair value
Residential MBS issued by GSEs	$	—	$	1,279	$	—	$	1,279
Available-for-sale
Collateralized debt obligations	$	—	$	—	$	10,552	$	10,552
Commercial MBS issued by GSEs	—		126,595		—		126,595
Corporate debt securities	20,000		5,628		—		25,628
CRA investments	37,753		—		—		37,753
Municipal obligations	—		403,417		—		403,417
Preferred stock	110,479		—		—		110,479
Private label residential MBS	—		463,091		—		463,091
Residential MBS issued by GSEs	—		1,395,685		—		1,395,685
Trust preferred securities	—		24,445		—		24,445
U.S. government sponsored agency securities	—		59,001		—		59,001
U.S. treasury securities	—		2,536		—		2,536
Total AFS securities	$	168,232	$	2,480,398	$	10,552	$	2,659,182
Loans - HFS	$	—	$	21,337	$	—	$	21,337
Derivative assets (1)	—		4,350		—		4,350
Liabilities:
Junior subordinated debt (2)	$	—	$	—	$	49,314	$	49,314
Derivative liabilities (1)	—		100,067		—		100,067

(1)

Derivative assets and liabilities relate to interest rate swaps, see "Note 9. Derivatives and Hedging Activities." In addition, the carrying value of loans includes a net positive value of $106,503 and the net carrying value of subordinated debt includes a net negative value of $4,350 as of September 30, 2016, which relates to the effective portion of the hedges put in place to mitigate against fluctuations in interest rates.


(2)	Includes only the portion of junior subordinated debt that is recorded at fair value at each reporting period pursuant to the election of FVO treatment.



	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)		Fair Value
	(in thousands)
December 31, 2015
Assets:
Measured at fair value
Residential MBS issued by GSEs	$	—	$	1,481	$	—	$	1,481
Available-for-sale
Collateralized debt obligations	$	—	$	—	$	10,060	$	10,060
Commercial MBS issued by GSEs	—		19,114		—		19,114
Corporate debt securities	—		13,251		—		13,251
CRA investments	34,685		—		—		34,685
Municipal obligations	—		334,830		—		334,830
Preferred stock	111,236		—		—		111,236
Private label commercial MBS	—		4,691		—		4,691
Private label residential MBS	—		257,128		—		257,128
Residential MBS issued by GSEs	—		1,170,221		—		1,170,221
Trust preferred securities	—		24,314		—		24,314
U.S. treasury securities	2,993		—		—		2,993
Total AFS securities	$	148,914	$	1,823,549	$	10,060	$	1,982,523
Loans - HFS	$	—	$	23,809	$	—	$	23,809
Derivative assets (1)	—		3,569		—		3,569
Liabilities:
Junior subordinated debt (2)	$	—	$	—	$	46,928	$	46,928
Derivative liabilities (1)	—		64,785		—		64,785

(1)

Derivative assets and liabilities relate to interest rate swaps, see "Note 9. Derivatives and Hedging Activities." In addition, the carrying value of loans includes a positive value of $64,184 and the net carrying value of subordinated debt includes a net negative value of $3,569 as of December 31, 2015, which relates to the effective portion of the hedges put in place to mitigate against fluctuations in interest rates.


(2)	Includes only the portion of junior subordinated debt that is recorded at fair value at each reporting period pursuant to the election of FVO treatment.

Change in Level 3 Liabilities Measured at Fair Value on Recurring Basis

For the three and nine months ended September 30, 2016 and 2015, the change in Level 3 assets and liabilities measured at fair value on a recurring basis was as follows:



	Junior Subordinated Debt
	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(in thousands)
Beginning balance	$	(44,710	)	$	(48,482	)	$	(46,928	)	$	(40,437	)
Transfers into Level 3	—			—			—			—
Total gains (losses) for the period
Included in other comprehensive income (1)	(4,604		)	5,325			$	(2,386	)	$	(2,720	)
Ending balance	$	(49,314	)	$	(43,157	)	$	(49,314	)	$	(43,157	)

(1)

Due to the Company's election to early adopt an element of ASU 2016-01, changes in the fair value of junior subordinated debt are presented as part of OCI rather than earnings effective January 1, 2015. Accordingly, total losses are included in the other comprehensive income line, Unrealized gain (loss) on junior subordinated debt, which is net of tax. The above amount represents the gross loss from changes in fair value of junior subordinated debt.



	CDO Securities
	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
	(in thousands)
Beginning balance	$	10,183	$	10,804		$	10,060	$	11,445
Transfers into Level 3	—		—			—		—
Total gains (losses) for the period
Included in other comprehensive income (1)	369		(594		)	492		(1,235		)
Ending balance	$	10,552	$	10,210		$	10,552	$	10,210


(1)	Total gains (losses) for the period are included in the other comprehensive income line, Unrealized gain (loss) on AFS securities.

For Level 3 liabilities and assets measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015, the significant unobservable inputs used in the fair value measurements were as follows:



	September 30, 2016		Valuation Technique	Significant Unobservable Inputs	Input Value
	(in thousands)
Junior subordinated debt	$	49,314	Discounted cash flow	Implied credit rating of the Company	5.65	%
CDO securities	10,552		S&P Model	Pricing indications from comparable securities



	December 31, 2015		Valuation Technique	Significant Unobservable Inputs	Input Value
	(in thousands)
Junior subordinated debt	$	46,928	Discounted cash flow	Adjusted Corporate Bond over Treasury Index with comparable credit spread	5.67	%
CDO securities	10,060		S&P Model	Pricing indications from comparable securities

Assets Measured at Fair Value on Nonrecurring Basis

The following table presents such assets carried on the balance sheet by caption and by level within the ASC 825 hierarchy:



	Fair Value Measurements at the End of the Reporting Period Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Active Markets for Similar Assets (Level 2)		Unobservable Inputs (Level 3)
	(in thousands)
As of September 30, 2016:
Impaired loans with specific valuation allowance	$	8,634	$	—	$	—	$	8,634
Impaired loans without specific valuation allowance (1)	58,810		—		—		58,810
Other assets acquired through foreclosure	49,619		—		—		49,619
As of December 31, 2015:
Impaired loans with specific valuation allowance	$	19,629	$	—	$	—	$	19,629
Impaired loans without specific valuation allowance (1)	66,754		—		—		66,754
Other assets acquired through foreclosure	43,942		—		—		43,942


(1)	Excludes loan balances with charge-offs of $32.5 million and $37.8 million as of September 30, 2016 and December 31, 2015, respectively.

Estimated Fair Value of Financial Instruments

The estimated fair value of the Company’s financial instruments is as follows:



	September 30, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Investment securities:
HTM	$	52,421	$	—	$	55,717	$	—	$	55,717
AFS	2,659,182		168,232		2,480,398		10,552		2,659,182
Trading	1,279		—		1,279		—		1,279
Derivative assets	4,350		—		4,350		—		4,350
Loans, net	12,910,715		—		12,585,292		67,444		12,652,736
Accrued interest receivable	57,704		—		57,704		—		57,704
Financial liabilities:
Deposits	$	14,443,160	$	—	$	14,446,965	$	—	$	14,446,965
Customer repurchases	44,372		—		44,372		—		44,372
Qualifying debt	382,932		—		—		389,752		389,752
Derivative liabilities	100,067		—		100,067		—		100,067
Accrued interest payable	9,722		—		9,722		—		9,722



	December 31, 2015
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Investment securities:
AFS	$	1,982,523	$	148,914	$	1,823,549	$	10,060	$	1,982,523
Trading	1,481		—		1,481		—		1,481
Derivative assets	3,569		—		3,569		—		3,569
Loans, net	11,017,595		—		10,766,826		86,383		10,853,209
Accrued interest receivable	54,445		—		54,445		—		54,445
Financial liabilities:
Deposits	$	12,030,624	$	—	$	12,034,199	$	—	$	12,034,199
Customer repurchases	38,155		—		38,155		—		38,155
FHLB advances	150,000		—		150,000		—		150,000
Qualifying debt	210,328		—		—		207,437		207,437
Derivative liabilities	64,785		—		64,785		—		64,785
Accrued interest payable	13,626		—		13,626		—		13,626

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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