Fair Value

Measurements

The Company adopted ASC Topic

820

January

2008,

and determined the fair values of our financial instruments based on the following:

●

Level

– Quoted prices in active markets for identical assets or liabilities.

●

Level

– Observable prices in active markets for similar assets or liabilities; prices for identical or similar assets or liabilities in markets that are not active; directly observable market inputs for substantially the full term of the asset and liability; market inputs that are not directly observable but are derived from or corroborated by observable market data.

●

Level

– Unobservable inputs based on the Company’s own judgments about the assumptions that a market participant would use.

The Company uses the following methodologies to measure the fair value of its financial assets and liabilities on a recurring basis:

Securities Available for Sale

. For certain actively traded agency preferred stocks, mutual funds, U.S. Treasury securities, and other equity securities, the Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a Level

measurement. The Company also measures securities by using quoted market prices for similar securities or dealer quotes, a Level

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, corporate bonds and trust preferred securities.

Warrants

. The Company measures the fair value of warrants based on unobservable inputs based on assumption and management judgment, a Level

measurement.

Currency Option Contracts and Foreign Exchange Contracts

. The Company measures the fair value of currency option and foreign exchange contracts based on observable market rates on a recurring basis, a Level

measurement.

nterest Rate Swaps

. The Company measures the fair value of interest rate swaps using

third

party models with observable market data, a Level

measurement.

The valuation techniques for the assets and liabilities valued on a nonrecurring basis are as follows:

Impaired Loans.

The Company does not record loans at fair value on a recurring basis. However, from time to time, nonrecurring fair value adjustments to collateral dependent impaired loans are recorded based on either the current appraised value of the collateral, a Level

measurement, or management’s judgment and estimation of value reported on old appraisals which are then adjusted based on recent market trends, a Level

measurement.

Loans Held for S

ale

. The Company records loans held for sale at fair value based on quoted prices from

third

party sale analysis, existing sale agreements

, or appraisal reports adjusted by sales commission assumption, a Level

measurement.

Goodwill.

The Company completes “step

one”

of the impairment test by comparing the fair value of each reporting unit (as determined based on the discussion below) with the recorded book value (or “carrying amount”) of its net assets, with goodwill included in the computation of the carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of that reporting unit is not considered impaired, and “step

two”

of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, step

two

of the impairment test is performed to determine the amount of impairment. Step

two

of the impairment test compares the carrying amount of the reporting unit’s goodwill to the “implied fair value” of that goodwill. The implied fair value of goodwill is computed by assuming all assets and liabilities of the reporting unit would be adjusted to the current fair value, with the offset as an adjustment to goodwill. This adjusted goodwill balance is the implied fair value used in step

two.

An impairment charge is then recognized for the amount by which the carrying amount of goodwill exceeds its implied fair value. In connection with the determination of fair value, certain data and information was utilized, including earnings forecasts at the reporting unit level for the next

four

years. Other key assumptions include terminal values based on future growth rates and discount rates for valuing the cash flows, which have inputs for the risk-free rate, market risk premium and adjustments to reflect inherent risk and required market returns. Because of the significance of unobservable inputs in the valuation of goodwill impairment, goodwill subject to nonrecurring fair value adjustments is classified as Level

measurement.

Core Deposit Intangibles.

Core deposit intangibles is initially recorded at fair value based on a valuation of the core deposits acquired and is amortized over its estimated useful life, which range from

years, to its residual value in proportion to the economic benefits consumed. The Company assesses the recoverability of this intangible asset on a nonrecurring basis using the core deposits remaining at the assessment date and the fair value of cash flows expected to be generated from the core deposits, a Level

measurement. The weighted average amortization period and the remaining amortization is considered minor.

Other Real Estate Owned.

Real estate acquired in the settlement of loans is initially recorded at fair value based on the appraised value of the property on the date of transfer, less estimated costs to sell, a Level

measurement. From time to time, nonrecurring fair value adjustments are made to other real estate owned based on the current updated appraised value of the property, also a Level

measurement, or management’s judgment and estimation of value reported on old appraisals which are then adjusted based on recent market trends, a Level

measurement.

Investments in Venture Capital.

The Company periodically reviews for OTTI on a nonrecurring basis. Investments in venture capital were written down to their fair value based on available financial reports from venture capital partnerships and management’s judgment and estimation, a Level

measurement.

The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis at

December

31,

2016,

and at

December

31,

2015:

As of December 31, 2016	Fair Value Measurements Using						Total at
	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets
Securities available-for-sale
U.S. Treasury securities	$	489,017	$	-	$	-	$	489,017
U.S. government sponsored entities		-		390,331		-		390,331
Mortgage-backed securities		-		336,260		-		336,260
Collateralized mortgage obligations		-		28		-		28
Corporate debt securities		-		74,350		-		74,350
Mutual funds		6,230		-		-		6,230
Preferred stock of government sponsored entities		7,308		-		-		7,308
Other equity securities		10,821		-		-		10,821
Total securities available-for-sale		513,376		800,969		-		1,314,345
Warrants		-		-		79		79
Interest rate swaps		-		938		-		938
Foreign exchange contracts		-		1,302		-		1,302
Total assets	$	513,376	$	803,209	$	79	$	1,316,664

Liabilities

Option contracts	$	-	$	121	$	-	$	121
Interest rate swaps		-		3,744		-		3,744
Foreign exchange contracts		-		3,132		-		3,132
Total liabilities	$	-	$	6,997	$	-	$	6,997

As of December 31, 2015	Fair Value Measurements Using						Total at
	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets
Securities available-for-sale
U.S. Treasury securities	$	284,288	$	-	$	-	$	284,288
U.S. government sponsored entities		-		148,160		-		148,160
Mortgage-backed securities		-		1,062,269		-		1,062,269
Collateralized mortgage obligations		-		36		-		36
Corporate debt securities		-		73,855		-		73,855
Mutual funds		5,833		-		-		5,833
Preferred stock of government sponsored entities (1)		3,216		-		-		3,216
Other equity securities (1)		8,695		-		-		8,695
Total securities available-for-sale		302,032		1,284,320		-		1,586,352
Warrants		-		-		62		62
Foreign exchange contracts		-		3,339		-		3,339
Total assets	$	302,032	$	1,287,659	$	62	$	1,589,753

Liabilities

Option contracts	$	-	$	28	$	-	$	28
Interest rate swaps		-		6,496		-		6,496
Foreign exchange contracts		-		4,124		-		4,124
Total liabilities	$	-	$	10,648	$	-	$	10,648

(1)

Preferred stock of government sponsored entities and other equity securities as of December 31, 2015 were reclassified as level

rather than

level

as originally classified due to the availability of quoted prices in active markets.

For financial assets measured at fair value on a nonrecurring basis that were still reflected in the balance sheet at

December

31,

2016

and

2015,

the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets at

December

31,

2016,

and at

December

31,

2015,

and the total losses for the periods indicated:

	As of December 31, 2016								Total Losses/(Gains)
	Fair Value Measurements Using						Total at		For the Twelve Months Ended
	Level 1		Level 2		Level 3		Fair Value		December 31, 2016		December 31, 2015
	(In thousands)
Assets
Impaired loans by type:
Commercial loans	$	-	$	-	$	2,813	$	2,813	$	322	$	806
Commercial mortgage loans		-		-		9,444		9,444		-		598
Residential mortgage and equity lines		-		-		11,679		11,679		-		146
Total impaired loans		-		-		23,936		23,936		322		1,550
Other real estate owned (1)		-		6,006		4,372		10,378		9		404
Investments in venture capital and private company stock		-		-		3,667		3,667		976		553
Total assets	$	-	$	6,006	$	31,975	$	37,981	$	1,307	$	2,507

(1)

Other real estate owned balance of

$20.1

million in the Consolidated Balance Sheets is net of estimated disposal costs.

	As of December 31, 2015								Total Losses/(Gains)
	Fair Value Measurements Using						Total at		For the Twelve Months Ended
	Level 1		Level 2		Level 3		Fair Value		December 31, 2015		December 31, 2014
	(In thousands)
Assets
Impaired loans by type:
Commercial loans	$	-	$	-	$	6,317	$	6,317	$	806	$	17
Commercial mortgage loans		-		-		20,359		20,359		598		3,914
Residential mortgage and equity lines		-		-		13,009		13,009		146		27
Total impaired loans		-		-		39,685		39,685		1,550		3,958
Other real estate owned (1)		-		10,047		4,235		14,282		404		202
Investments in venture capital and private company stock		-		-		4,922		4,922		553		436
Total assets	$	-	$	10,047	$	48,842	$	58,889	$	2,507	$	4,596

(1)

Other real estate owned balance of

$24.7

million in the Consolidated Balance Sheets is net of estimated disposal costs.

The significant unobservable (Level

inputs used in the fair value measurement of collateral for collateral-dependent impaired loans was primarily based on the appraised value of collateral adjusted by estimated sales cost and commissions. The Company generally obtains new appraisal reports every

six

months. As the Company’s primary objective in the event of default would be to monetize the collateral to settle the outstanding balance of the loan, less marketable collateral would receive a larger discount. During the reported periods, collateral discounts ranged from

55%

in the case of accounts receivable collateral to

65%

in the case of inventory collateral.

The significant unobservable inputs used in the fair value measurement of other real estate owned (“OREO”) was primarily based on the appraised value of OREO adjusted by estimated sales cost and commissions.

The Company applies estimated sales cost and commission ranging from

of collateral value of impaired loans, quoted price or loan sale price of loans held for sale, and appraised value of OREOs.

The significant unobservable inputs in the Black-Scholes option pricing model for the fair value of warrants are the expected life of warrant ranging from

years, risk-free interest rate from

1.05%

2.59%,

and stock volatility of the Company from

11.1%

14.8%.