. Fair Value

Measurement

The Company adopted ASC Topic

820

January 1, 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 judgment 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 stock, 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 assumptions and management judgment, a Level

measurement.

Foreign Exchange Contracts

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

measurement.

Interest Rate Swaps

. Fair value of interest rate swaps is derived from

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 older appraisals that are then adjusted based on recent market trends, a Level

measurement.

Goodwill.

The Company

first

assesses qualitative factors to determine whether it is more likely than

not

that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the

two

-step goodwill impairment test described in ASC Topic

350.

The

two

-step impairment testing process, if needed, begins by assigning net assets and goodwill to the

two

reporting units

—

Commercial Lending and Retail Banking. The Company then 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 that 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 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 is 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 a 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.

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 older appraisals that are then adjusted based on recent market trends, a Level

measurement.

Investments in Venture Capital.

The Company periodically reviews its investments in venture capital for other-than-temporary impairment 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.

Equity Investments

. The Company records equity investments at fair value on a nonrecurring basis based on quoted market prices in active exchange markets at the reporting date, a Level

measurement.

The following table

s present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of

September 30, 2017,

and

December 31, 2016:

September 30, 2017	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	$	399,436	$	-	$	-	$	399,436
U.S. government agencies		-		9,700		-		9,700
U.S. government sponsored entities		-		393,722		-		393,722
State and municipal securities		-		1,931		-		1,931
Mortgage-backed securities		-		446,065		-		446,065
Collateralized mortgage obligations		-		1,710		-		1,710
Corporate debt securities		-		80,906		-		80,906
Mutual funds		6,271		-		-		6,271
Preferred stock of government sponsored entities		8,087		-		-		8,087
Other equity securities		20,659		-		-		20,659
Total securities available-for-sale		434,453		934,034		-		1,368,487
Warrants		-		-		97		97
Foreign exchange contracts		-		1,725		-		1,725
Interest rate swaps		-		2,314		-		2,314
Total assets	$	434,453	$	938,073	$	97	$	1,372,623

Liabilities

Option contracts	$	-	$	234	$	-	$	234
Foreign exchange contracts		-		1,083		-		1,083
Interest rate swaps		-		5,049		-		5,049
Total liabilities	$	-	$	6,366	$	-	$	6,366

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

The Company measured the fair value of its warrants on a recurring basis using significant unobservable inputs. The fair value of warrants was $

97,000

as of

September 30, 2017,

compared to

$79,000

as of

December 31, 2016.

The fair value adjustment of warrants was included in other operating income in the

third

quarter of

2017.

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

years, risk-free interest rate from

1.51%

2.28%,

and stock volatility from

5.05%

12.6%.

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

condensed consolidated balance sheet as of

September 30, 2017,

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

September 30, 2017,

and

December 31, 2016,

and the total losses for the periods indicated:

	September 30, 2017								Total (Gains)/Losses
	Fair Value Measurements Using						Total at		Three Months Ended					Nine Months Ended
	Level 1		Level 2		Level 3		Fair Value		September 30, 2017		September 30, 2016			September 30, 2017		September 30, 2016
	(In thousands)
Assets
Impaired loans by type:
Commercial loans	$	-	$	-	$	12,525	$	12,525	$	-	$	-		$	25	$	-
Commercial mortgage loans		-		-		21,997		21,997		-		-			-		-
Residential mortgage loans and equity lines		-		-		10,790		10,790		-		-			-		-
Total impaired loans		-		-		45,312		45,312		-		-			25		-
Other real estate owned (1)		-		6,317		4,322		10,639		405		(206	)		654		9
Investments in venture capital and private company stock		-		-		3,023		3,023		12		187			365		419
Total assets	$	-	$	6,317	$	52,657	$	58,974	$	417	$	(19	)	$	1,044	$	428

(

) Other real estate owned balance of

$18.1

million in the condensed consolidated balance sheet is net of estimated disposal costs.

	December 31, 2016								Total Losses
	Fair Value Measurements Using						Total at		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 loans 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

(

) Other real estate owned balance of

$20.1

million in the condensed consolidated balance sheet is net of estimated disposal costs.

The significant unobservable (Level

) inputs used in the fair value measurement of collateral for colla

teral-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

nine

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 loans held for sale was primarily based on the quoted price or sale price adjusted by estimated sales cost and commissions.

The signif

icant 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 commissions ranging from

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