12. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and Cash Equivalents.

For cash and cash equivalents, the carrying amount was assumed to be a reasonable estimate of fair value, a Level 1 measurement.

Short-term Investments.

For short-term investments, the carrying amount was assumed to be a reasonable estimate of fair value, a Level 1 measurement.

Securities Purchased under Agreements to Resell.

The fair value of securities purchased under agreements to resell is based on dealer quotes, a Level 2 measurement.

Securities.

For securities, including securities held-to-maturity, available-for-sale, and for trading, fair values were based on quoted market prices at the reporting date. If a quoted market price was not available, fair value was estimated using quoted market prices for similar securities or dealer quotes. For certain actively traded agency preferred stock and U.S. Treasury securities, the Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a Level 1 measurement. The Company also measures securities by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement. This category generally includes U.S. Government agency securities, state and municipal securities, mortgage-backed securities (“MBS”), commercial MBS, collateralized mortgage obligations, asset-backed securities, and corporate bonds.

Loans Held for Sale

. The Company records loans held for sale at fair value based on quoted prices from third party sources, or appraisal reports adjusted by sales commission assumptions.

Loans.

Fair values were estimated for portfolios of loans with similar financial characteristics. Each loan category was further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.

The fair value of performing loans was calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, a Level 3 measurement.

The fair value of impaired loans was calculated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company does not record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent impaired loans are recorded based on the current appraised value or adjusted appraised value of the collateral, a Level 2 or Level 3 measurement.

Deposit Liabilities.

The fair value of demand deposits, savings accounts, and certain money market deposits was assumed to be the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit was estimated using the rates currently offered for deposits with similar remaining maturities, a Level 3 measurement.

Securities Sold under Agreements to Repurchase.

The fair value of securities sold under agreements to repurchase is based on dealer quotes, a Level 2 measurement.

Advances from Federal Home Loan Bank

(“FHLB”)

The fair value of the advances is based on quotes from the FHLB to settle the advances, a Level 2 measurement.

Other Borrowings.

This category includes borrowings from other financial institutions. The fair value of other borrowings is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk, a Level 3 measurement.

Long-term Debt.

The fair value of long-term debt is estimated based on the quoted market prices or dealer quotes, a Level 2 measurement.

Foreign Exchange Contracts

. The Company measures the fair value of foreign exchange contracts based on dealer quotes, a Level 2 measurement.

Interest Rate Swaps

. Fair value of interest rate swaps is derived from third party models with observable market data, a Level 2 measurement.

Off-Balance-Sheet Financial Instruments.

The fair value of commitments to extend credit, standby letters of credit, and financial guarantees written were estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair value of guarantees and letters of credit was based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair value of off-balance-sheet financial instruments was based on the assumptions that a market participant would use, a Level 3 measurement.

Fair value was estimated in accordance with ASC Topic 825. Fair value estimates were made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates were based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates were subjective in nature and involved uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The following table presents the carrying and notional amounts and estimated fair value of financial instruments as of June 30, 2016, and as of December 31, 2015:

	June 30, 2016				December 31, 2015
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Financial Assets
Cash and due from banks	$	229,411	$	229,411	$	180,130	$	180,130
Short-term investments		706,927		706,927		536,880		536,880
Securities available-for-sale		1,241,904		1,241,904		1,586,352		1,586,352
Loans held for sale		2,925		2,925		6,676		6,676
Loans, net		10,393,473		10,328,509		10,016,227		9,938,810
Investment in Federal Home Loan Bank stock		17,250		17,250		17,250		17,250
Warrants		90		90		62		62

	Notional				Notional
	Amount		Fair Value		Amount		Fair Value
Foreign exchange contracts	$	85,098	$	2,083	$	100,602	$	3,339

	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial Liabilities
Deposits	$	10,471,103	$	10,482,519	$	10,509,087		10,509,879
Securities sold under agreements to repurchase		400,000		410,608		400,000		413,417
Advances from Federal Home Loan Bank		555,000		555,156		275,000		274,488
Other borrowings		17,748		15,861		18,593		16,684
Long-term debt		119,136		61,437		119,136		58,420

	Notional				Notional
	Amount		Fair Value		Amount		Fair Value
Option contracts	$	-	$	-	$	9,396	$	28
Foreign exchange contracts		84,432		1,602		115,418		4,124
Interest rate swaps		479,683		18,050		459,416		6,496

	Notional					Notional
	Amount		Fair Value			Amount		Fair Value
Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	2,040,070	$	(5,639	)	$	1,971,848	$	(5,570	)
Standby letters of credit		76,574		(300	)		49,081		(194	)
Other letters of credit		29,272		(20	)		38,131		(22	)
Bill of lading guarantees		51		(1	)		454		(1	)

The following tables present the level in the fair value hierarchy for the estimated fair values of financial instruments as of June 30, 2016, and December 31, 2015.

	June 30, 2016
	Estimated
	Fair Value
	Measurements		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets
Cash and due from banks	$	229,411	$	229,411	$	-	$	-
Short-term investments		706,927		706,927		-		-
Securities available-for-sale		1,241,904		245,992		995,912		-
Loans held-for-sale		2,925		-		-		2,925
Loans, net		10,328,509		-		-		10,328,509
Investment in Federal Home Loan Bank stock		17,250		-		17,250		-
Warrants		90		-		-		90
Financial Liabilities
Deposits		10,482,519		-		-		10,482,519
Securities sold under agreements to repurchase		410,608		-		410,608		-
Advances from Federal Home Loan Bank		555,156		-		555,156		-
Other borrowings		15,861		-		-		15,861
Long-term debt		61,437		-		61,437		-

	December 31, 2015
	Estimated
	Fair Value
	Measurements		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets
Cash and due from banks	$	180,130	$	180,130	$	-	$	-
Short-term investments		536,880		536,880		-		-
Securities available-for-sale		1,586,352		290,121		1,296,231		-
Loans held-for-sale		6,676		-		-		6,676
Loans, net		9,938,810		-		-		9,938,810
Investment in Federal Home Loan Bank stock		17,250		-		17,250		-
Warrants		62		-		-		62
Financial Liabilities
Deposits		10,509,879		-		-		10,509,879
Securities sold under agreements to repurchase		413,417		-		413,417		-
Advances from Federal Home Loan Bank		274,488		-		-		274,488
Other borrowings		16,684		-		-		16,684
Long-term debt		58,420		-		58,420		-