. Fair Value

Measurement

The Company 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 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

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.

Assets measured at estimated fair value on a non-recurring basis:

Certain assets or liabilities are required to be measured at estimated fair value on a nonrecurring basis subsequent to initial recognition. Generally, these adjustments are the result of lower-of-cost-or-fair value or other impairment write-downs of individual assets. In determining the estimated fair values during the period, the Company determined that substantially all the changes in estimated fair value were due to declines in market conditions versus instrument specific credit risk. For the

six

months ended

June 30, 2018

and

December 31, 2017,

there were

material adjustments to fair value for the Company’s assets and liabilities measured at fair value on a nonrecurring basis in accordance with GAAP.

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

June 30, 2018,

and

December 31, 2017:

June 30, 2018	Fair Value Measurements Using						Total at
	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets

Debt securities available-for-sale
U.S. Treasury securities	$	348,544	$	-	$	-	$	348,544
U.S. government agencies		-		8,189		-		8,189
U.S. government sponsored entities		-		383,959		-		383,959
Mortgage-backed securities		-		658,288		-		658,288
Collateralized mortgage obligations		-		1,203		-		1,203
Corporate debt securities		-		75,766		-		75,766
Total debt securities available-for-sale		348,544		1,127,405		-		1,475,949

Equity securities
Preferred stock of government sponsored entities		7,480		-		-		7,480
Mutual funds		6,082		-		-		6,082
Other equity securities		9,569		-		-		9,569
Total equity securities		23,131		-		-		23,131

Warrants		-		-		176		176
Interest rate swaps		-		14,801		-		14,801
Foreign exchange contracts		-		389		-		389
Total assets	$	371,675	$	1,142,595	$	176	$	1,514,446

Liabilities

Option contracts	$	-	$	9	$	-	$	9
Interest rate swaps		-		157		-		157
Foreign exchange contracts		-		2,083		-		2,083
Total liabilities	$	-	$	2,249	$	-	$	2,249

December 31, 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	$	249,520	$	-	$	-	$	249,520
U.S. government agency entities		-		8,988		-		8,988
U.S. government sponsored entities		-		390,336		-		390,336
State and municipal securities		-		1,914		-		1,914
Mortgage-backed securities		-		571,969		-		571,969
Collateralized mortgage obligations		-		1,516		-		1,516
Corporate debt securities		-		81,281		-		81,281
Mutual funds		6,230		-		-		6,230
Preferred stock of government sponsored entities		10,102		-		-		10,102
Other equity securities		11,770		-		-		11,770
Total securities available-for-sale		277,622		1,056,004		-		1,333,626
Warrants		-		-		91		91
Interest rate swaps		-		5,218		-		5,218
Foreign exchange contracts		-		1,832		-		1,832
Total assets	$	277,622	$	1,063,054	$	91	$	1,340,767

Liabilities

Option contracts	$	-	$	9	$	-	$	9
Interest rate swaps		-		2,699		-		2,699
Foreign exchange contracts		-		453		-		453
Total liabilities	$	-	$	3,161	$	-	$	3,161

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

$176,000

as of

June 30, 2018,

compared to

$91,000

as of

December 31, 2017.

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

second

quarter of

2018.

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

2.48%

3.12%,

and stock volatility from

8.19%

12.80%.

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

June 30, 2018,

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

June 30, 2018,

and

December 31, 2017,

and the total gains and losses for the periods indicated:

	As of June 30, 2018								Total (Gains)/Losses
	Fair Value Measurements Using						Total at		For the Three Months Ended					For the Six Months Ended
	Level 1		Level 2		Level 3		Fair Value		June 30, 2018			June 30, 2017		June 30, 2018		June 30, 2017
	(In thousands)
Assets

Impaired loans by type:
Commercial loans	$	-	$	-	$	755	$	755	$	-		$	497	$	-	$	1,273
Commercial mortgage loans		-		-		26,409		26,409		-			-		-		250
Residential mortgage loans and equity lines		-		-		7,605		7,605		-			-		-		-
Total impaired loans		-		-		34,769		34,769		-			497		-		1,523
Other real estate owned (1)		-		4,363		4,343		8,706		(33	)		212		-		249
Investments in venture capital and private company stock		-		-		2,383		2,383		91			166		264		352
Total assets	$	-	$	4,363	$	41,495	$	45,858	$	58		$	875	$	264	$	2,124

(

) Other real estate owned balance of

$8.2

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

	As of December 31, 2017								Total Losses
	Fair Value Measurements Using						Total at		For the Twelve Months Ended
	Level 1		Level 2		Level 3		Fair Value		December 31, 2017		December 31, 2016
	(In thousands)
Assets

Impaired loans by type:
Commercial loans	$	-	$	-	$	18,097	$	18,097	$	25	$	322
Commercial mortgage loans		-		-		31,459		31,459		-		-
Residential mortgage loans and equity lines		-		-		11,355		11,355		-		-
Total impaired loans		-		-		60,911		60,911		25		322
Other real estate owned (1)		-		5,677		4,322		9,999		457		9
Investments in venture capital and private company stock		-		-		2,583		2,583		392		976
Total assets	$	-	$	5,677	$	67,816	$	73,493	$	874	$	1,307

(

) Other real estate owned balance of

$9.4

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

twelve

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 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 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.