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FAIR VALUE | 3 Months Ended
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Mar. 31, 2014
FAIR VALUE |
FAIR VALUE | NOTE 4 — FAIR VALUE Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market and income approaches. Based on these approaches, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy noted below. The hierarchy is based on the quality and reliability of the information used to determine fair values. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: · Level 1 — Quoted prices for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Level 1 financial instruments typically include U.S. Treasury securities. · Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 2 financial instruments typically include U.S. Government debt and agency mortgage-backed securities, municipal securities, corporate debt securities, single issuer trust preferred securities, foreign exchange options and interest rate swaps. · Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value is not solely based on observable market inputs and requires management judgment or estimation. This category typically includes pooled trust preferred securities, loans with a fair value measurement, OREO and derivatives payable. The Company records investment securities available-for-sale, equity swap agreements, derivative liabilities, foreign exchange options, interest rate swaps and short-term foreign exchange contracts at fair value on a recurring basis. Certain other assets such as loans with a fair value measurement, other real estate owned, loans held for sale, goodwill, premiums on acquired deposits and other investments are recorded at fair value on a nonrecurring basis. Nonrecurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the remeasurement is performed. In determining the appropriate hierarchy levels, the Company performs a detailed analysis of assets and liabilities that are subject to fair value disclosure. The following tables present both financial and nonfinancial assets and liabilities that are measured at fair value on a recurring and nonrecurring basis. These assets and liabilities are reported on the condensed consolidated balance sheets at their fair values as of March 31, 2014 and December 31, 2013. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. There were no transfers for assets measured on a recurring basis in and out of Level 1, Level 2 or Level 3 during the first three months of 2014 and 2013.
|  | Assets (Liabilities) Measured at Fair Value on a Recurring Basis |
|  | as of March 31, 2014 |
|  |  |  | Quoted Prices in |  | Significant |  |  |
|  | Fair Value |  | Active Markets |  | Other |  | Significant |
|  | Measurements |  | for Identical |  | Observable |  | Unobservable |
|  | March 31, |  | Assets |  | Inputs |  | Inputs |
|  | 2014 |  | (Level 1) |  | (Level 2) |  | (Level 3) |
|  | (In thousands) |
Investment securities available-for-sale: |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 428,253 |  | $ | 428,253 |  | $ | — |  | $ | — |
U.S. Government agency and U.S. Government sponsored enterprise debt securities |  | 384,685 |  | — |  | 384,685 |  | — |
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 119,107 |  | — |  | 119,107 |  | — |
Residential mortgage-backed securities |  | 824,105 |  | — |  | 824,105 |  | — |
Municipal securities |  | 283,897 |  | — |  | 283,897 |  | — |
Other residential mortgage-backed securities: |  |  |  |  |  |  |  |  |
Investment grade |  | 57,007 |  | — |  | 57,007 |  | — |
Other commercial mortgage-backed securities: |  |  |  |  |  |  |  |  |
Investment grade |  | 51,419 |  | — |  | 51,419 |  | — |
Corporate debt securities: |  |  |  |  |  |  |  |  |
Investment grade |  | 209,691 |  | — |  | 209,691 |  | — |
Non-investment grade |  | 15,512 |  | — |  | 8,795 |  | 6,717 |
Other securities |  | 101,068 |  | — |  | 101,068 |  | — |
Total investment securities available-for-sale |  | $ | 2,474,744 |  | $ | 428,253 |  | $ | 2,039,774 |  | $ | 6,717 |
Foreign exchange options |  | $ | 5,915 |  | $ | — |  | $ | 5,915 |  | $ | — |
Interest rate swaps |  | 26,293 |  | — |  | 26,293 |  | — |
Foreign exchange contracts |  | 4,378 |  | — |  | 4,378 |  | — |
Derivative liabilities |  | (46,778 | ) | — |  | (43,380 | ) | (3,398 | )
|  | Assets (Liabilities) Measured at Fair Value on a Recurring Basis |
|  | as of December 31, 2013 |
|  |  |  | Quoted Prices in |  | Significant |  |  |
|  | Fair Value |  | Active Markets |  | Other |  | Significant |
|  | Measurements |  | for Identical |  | Observable |  | Unobservable |
|  | December 31, |  | Assets |  | Inputs |  | Inputs |
|  | 2013 |  | (Level 1) |  | (Level 2) |  | (Level 3) |
|  | (In thousands) |
Investment securities available-for-sale: |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 491,632 |  | $ | 491,632 |  | $ | — |  | $ | — |
U.S. Government agency and U.S. Government sponsored enterprise debt securities |  | 394,323 |  | — |  | 394,323 |  | — |
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities: |  |  |  |  |  |  |  |  |
Commercial mortgage-backed securities |  | 178,870 |  | — |  | 178,870 |  | — |
Residential mortgage-backed securities |  | 885,237 |  | — |  | 885,237 |  | — |
Municipal securities |  | 280,979 |  | — |  | 280,979 |  | — |
Other residential mortgage-backed securities: |  |  |  |  |  |  |  |  |
Investment grade |  | 46,327 |  | — |  | 46,327 |  | — |
Other commercial mortgage-backed securities: |  |  |  |  |  |  |  |  |
Investment grade |  | 51,617 |  | — |  | 51,617 |  | — |
Corporate debt securities: |  |  |  |  |  |  |  |  |
Investment grade |  | 309,995 |  | — |  | 309,995 |  | — |
Non-investment grade |  | 15,101 |  | — |  | 8,730 |  | 6,371 |
Other securities |  | 79,716 |  | — |  | 79,716 |  | — |
Total investment securities available-for-sale |  | $ | 2,733,797 |  | $ | 491,632 |  | $ | 2,235,794 |  | $ | 6,371 |
Foreign exchange options |  | $ | 6,290 |  | $ | — |  | $ | 6,290 |  | $ | — |
Interest rate swaps |  | 28,078 |  | — |  | 28,078 |  | — |
Foreign exchange contracts |  | 6,181 |  | — |  | 6,181 |  | — |
Derivative liabilities |  | (50,262 | ) | — |  | (46,607 | ) | (3,655 | )
Assets measured at fair value on a nonrecurring basis using significant unobservable inputs include certain loans and OREO. The inputs and assumptions for nonrecurring Level 3 fair value measurements for certain loans and OREO include adjustments to external and internal appraisals for change in the market, assumptions by appraiser embedded into appraisals, probability weighting of brokered price opinions, and management’s adjustments for other relevant factors and market trends.
|  | Assets Measured at Fair Value on a Non-Recurring Basis |
|  | as of and for the Three Months Ended March 31, 2014 |
|  |  |  | Quoted Prices in |  | Significant |  |  |  | Total Gains |
|  | Fair Value |  | Active Markets |  | Other |  | Significant |  | (Losses) for the |
|  | Measurements |  | for Identical |  | Observable |  | Unobservable |  | Three Months Ended |
|  | March 31, |  | Assets |  | Inputs |  | Inputs |  | March 31, |
|  | 2014 |  | (Level 1) |  | (Level 2) |  | (Level 3) |  | 2014 |
|  | (In thousands) |
Non-covered loans: |  |  |  |  |  |  |  |  |  |  |
Total residential |  | $ | 17,132 |  | $ | — |  | $ | — |  | $ | 17,132 |  | $ | (365 | )
Total commercial real estate |  | 25,888 |  | — |  | — |  | 25,888 |  | (464 | )
Total commercial and industrial |  | 13,272 |  | — |  | — |  | 13,272 |  | (6,530 | )
Total consumer |  | — |  | — |  | — |  | — |  | — |
Total non-covered loans |  | $ | 56,292 |  | $ | — |  | $ | — |  | $ | 56,292 |  | $ | (7,359 | )
Non-covered OREO |  | $ | 745 |  | $ | — |  | $ | — |  | $ | 745 |  | $ | (74 | )
Covered OREO (1) |  | $ | 899 |  | $ | — |  | $ | — |  | $ | 899 |  | $ | (452 | )
|  | Assets Measured at Fair Value on a Non-Recurring Basis |
|  | as of and for the Three Months Ended March 31, 2013 |
|  |  |  | Quoted Prices in |  | Significant |  |  |  | Total Gains |
|  | Fair Value |  | Active Markets |  | Other |  | Significant |  | (Losses) for the |
|  | Measurements |  | for Identical |  | Observable |  | Unobservable |  | Three Months Ended |
|  | March 31, |  | Assets |  | Inputs |  | Inputs |  | March 31, |
|  | 2013 |  | (Level 1) |  | (Level 2) |  | (Level 3) |  | 2013 |
|  | (In thousands)
Non-covered loans: |  |  |  |  |  |  |  |  |  |  |
Total residential |  | $ | 12,969 |  | $ | — |  | $ | — |  | $ | 12,969 |  | $ | (440 | )
Total commercial real estate |  | 23,382 |  | — |  | — |  | 23,382 |  | (2,115 | )
Total commercial and industrial |  | 2,566 |  | — |  | — |  | 2,566 |  | (2,258 | )
Total consumer |  | 665 |  | — |  | — |  | 665 |  | (116 | )
Total non-covered loans |  | $ | 39,582 |  | $ | — |  | $ | — |  | $ | 39,582 |  | $ | (4,929 | )
Non-covered OREO |  | $ | 13,227 |  | $ | — |  | $ | — |  | $ | 13,227 |  | $ | (1,385 | )
Covered OREO (1) |  | $ | 3,720 |  | $ | — |  | $ | — |  | $ | 3,720 |  | $ | (126 | )
(1) Covered OREO results from the WFIB and UCB FDIC-assisted acquisitions for which the Company entered into shared-loss agreements with the FDIC whereby the FDIC will reimburse the Company for 80% of eligible losses. As such, the Company’s liability for losses is 20% of the $452 thousand in losses, or $90 thousand, and 20% of the $126 thousand in losses, or $25 thousand, for the three months ended March 31, 2014 and 2013, respectively. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The following tables provide a reconciliation of the beginning and ending balances for major asset and liability categories measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2014 and 2013:
|  | Investment Securities Available-for-Sale |  |  |
|  | Corporate Debt Securities |  |  |
|  | Non-Investment Grade |  | Derivatives Payable |
|  | (In thousands) |
Opening balance, January 1, 2014 |  | $ | 6,371 |  | $ | (3,655 | )
Total gains or (losses) for the period: (1) |  |  |  |  |
Included in earnings |  | — |  | 257 |
Included in other comprehensive income (unrealized) (2) |  | 434 |  | — |
Purchases, issues, sales, settlements (3) |  |  |  |  |
Purchases |  | — |  | — |
Issues |  | — |  | — |
Sales |  | — |  | — |
Settlements |  | (88 | ) | — |
Transfer from investment grade to non-investment grade |  | — |  | — |
Transfers in and/or out of Level 3 |  | — |  | — |
Closing balance, March 31, 2014 |  | $ | 6,717 |  | $ | (3,398 | )
Changes in unrealized losses included in earnings relating to assets and liabilities held at the end of March 31, 2014 |  | $ | — |  | $ | (257 | )
|  | Investment Securities Available-for-Sale |  |  |
|  | Corporate Debt Securities |  |  |
|  | Non-Investment Grade |  | Derivatives Payable |
|  | (In thousands) |
Opening balance, January 1, 2013 |  | $ | 4,800 |  | $ | (3,052 | )
Total gains or (losses) for the period: (1) |  |  |  |  |
Included in earnings |  | — |  | (181 | )
Included in other comprehensive income (unrealized) (2) |  | 549 |  | — |
Purchases, issues, sales, settlements (3) |  |  |  |  |
Purchases |  | — |  | — |
Issues |  | — |  | — |
Sales |  | — |  | — |
Settlements |  | (65 | ) | — |
Transfer from investment grade to non-investment grade |  | — |  | — |
Transfers in and/or out of Level 3 |  | — |  | — |
Closing balance, March 31, 2013 |  | $ | 5,284 |  | $ | (3,233 | )
Changes in unrealized losses included in earnings relating to assets and liabilities held at the end of March 31, 2013 |  | $ | — |  | $ | 181 |
(1) Total gains or losses represent the total realized and unrealized gains and losses recorded for Level 3 assets and liabilities. Realized gains or losses are reported in the condensed consolidated statements of income. (2) Unrealized gains or losses on investment securities are reported in accumulated other comprehensive income (loss), net of tax, in the condensed consolidated statements of comprehensive income. (3) Purchases, issuances, sales, and settlements represent Level 3 assets and liabilities that were either purchased, issued, sold, or settled during the period. The amounts are recorded at their end of period fair values. Valuation Methodologies Investment Securities Available-for-Sale — The fair values of the investment securities are generally determined by independent external pricing service providers who have experience in valuing these securities and by comparison to and/or average of quoted market prices obtained from independent external brokers. In obtaining such valuation information from third parties, the Company has reviewed the methodologies used to develop the resulting fair values. The Company’s Level 3 available-for-sale securities include four pooled trust preferred securities. The fair values of these investment securities represent less than 1% of the total available-for-sale investment securities. The fair values of the pooled trust preferred securities have traditionally been based on the average of at least two quoted market prices obtained from independent external brokers since broker quotes in an active market are given the highest priority. As a result of the continued illiquidity in the pooled trust preferred securities market, it is the Company’s view that current broker prices (which are typically non-binding) on certain pooled trust preferred securities are based on forced liquidation or distressed sale values in very inactive markets that are not representative of the fair value of these securities. As such, the Company considered what weight, if any, to place on transactions that are not orderly when estimating fair value. For the pooled trust preferred securities, the fair value was derived based on discounted cash flow analyses (the income method) prepared by management. In order to determine the appropriate discount rate used in calculating fair values derived from the income method for the pooled trust preferred securities, the Company has made assumptions using an exit price approach related to the implied rate of return which have been adjusted for general changes in market rates, estimated changes in credit risk and liquidity risk premium, specific nonperformance, and default experience in the collateral underlying the securities. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for credit risk and liquidity risk. The actual Level 3 unobservable assumption rates used as of March 31, 2014 include: a constant prepayment rate of 0% for year 1-5 and 1% thereafter, a constant default rate of 1.2% for year 1-5 and 0.75% thereafter, and a recovery assumption of 0% for existing deferrals/defaults and 15% for future deferrals with a recovery lag of 60 months. Losses arising during the period, if any, are recognized in noninterest income. Derivative Liabilities — The Company’s derivative liabilities include derivatives payable that fall within Level 3 and all other derivative liabilities which fall within Level 2. The derivatives payable are recorded in conjunction with certain certificates of deposit (“host instrument”). These CDs pay interest based on changes in the Chinese currency Renminbi (“RMB”), and are included in interest-bearing deposits on the condensed consolidated balance sheets. The fair value of these embedded derivatives is based on the income approach. The payable is divided by the portion under FDIC insurance coverage and the non-insured portion. For the FDIC insured portion the Company applied a risk premium comparable to an agency security risk premium. For the non-insured portion, the Company considered its own credit risk in determining the valuation by applying a risk premium based on our institutional credit rating, which resulted in an adjustment of $945 thousand to the valuation of the derivative liabilities for the three months ended March 31, 2014. Significant increases (decreases), if any, of those inputs in isolation would result in a significantly lower (higher) fair value measurement. The valuation of the derivatives payable falls within Level 3 of the fair value hierarchy since the significant inputs used in deriving the fair value of these derivative contracts are not directly observable. The actual Level 3 unobservable input used as of March 31, 2014 was a credit risk adjustment with a range of 0.71% to 0.75%. The Level 2 derivative liabilities are mostly comprised of the offsetting interest rate swaps with other counterparties. Refer to “Interest Rate Swaps” within this footnote for complete discussion. Foreign Exchange Options — The Company entered into foreign exchange option contracts with major investment firms. The settlement amount is determined based upon the performance of the Chinese currency RMB relative to the U.S. Dollar (“USD”) over the 5-year term of the contract. The performance amount is computed based on the average quarterly value of the RMB compared to the USD as compared to the initial value. The fair value of the derivative contract is provided by third parties and is determined based on the change in the RMB and the volatility of the option over the life of the agreement. The option value is derived based on the volatility of the option, interest rate, currency rate and time remaining to maturity. The Company’s consideration of the counterparty’s credit risk resulted in a nominal adjustment to the valuation of the foreign exchange options for the three months ended March 31, 2014. The valuation of the option contract falls within Level 2 of the fair value hierarchy due to the observable nature of the inputs used in deriving the fair value of this derivative contract. Interest Rate Swaps — The Company entered into interest rate swap contracts with institutional counterparties to hedge against interest rate swap products offered to bank customers. This product allows borrowers to lock in attractive intermediate and long-term interest rates by entering into an interest rate swap contract with the Company, resulting in the customer obtaining a synthetic fixed rate loan. The Company has also entered interest rate swap contracts with institutional counterparties to hedge against certificates of deposit issued. This product allows the Company to lock in attractive floating rate funding. The fair value of the interest rate swap contracts is based on a discounted cash flow approach. The Company’s consideration of the counterparty’s credit risk resulted in a nominal adjustment to the valuation of the interest rate swaps for the period ended March 31, 2014. The valuation of the interest rate swap falls within Level 2 of the fair value hierarchy due to the observable nature of the inputs used in deriving the fair value of this derivative contract. Foreign Exchange Contracts — The Company entered into short-term foreign exchange contracts to purchase/sell foreign currencies at set rates in the future. These contracts economically hedge against foreign exchange rate fluctuations. The Company enters into contracts with institutional counterparties to hedge against foreign exchange products offered to bank customers. These products allow customers to hedge the foreign exchange risk of their deposits and loans denominated in foreign currencies. The Company does not assume any foreign exchange rate risk as the contract with the customer and the contract with the institutional party mirror each other. The fair value is determined at each reporting period based on the change in the foreign exchange rate. Given the short-term nature of the contracts, the counterparties’ credit risks are considered nominal and resulted in no adjustments to the valuation of the short-term foreign exchange contracts for the three months ended March 31, 2014. The valuation of the contract falls within Level 2 of the fair value hierarchy due to the observable nature of the inputs used in deriving the fair value of this derivative contract. The Company also entered into long-term foreign exchange contracts to purchase/sell foreign currencies at set rates in the future. The fair value is determined at each reporting period based on the change in the foreign exchange rate. The Company’s consideration of the counterparty’s credit risk resulted in a nominal adjustment to the valuation of the long-term foreign exchange contract for the three months ended March 31, 2014. The valuation of the contract falls within Level 2 of the fair value hierarchy due to the observable nature of the inputs used in deriving the fair value of this derivative contract. Loans — The Company evaluates loan impairment according to the provisions of ASC 310-10-35, Receivables-Overall-Subsequent Measurement, for all portfolios other than the homogenous consumer portfolio. Under ASC 310-10-35, loans are considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as an expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan and the loan is classified as nonperforming and uncollectible, the deficiency is charged-off against the allowance for loan losses. Also, in accordance with ASC 310-10-35, loans that are considered impaired are specifically excluded from the quarterly migration analysis when determining the amount of the general valuation allowance for loan losses required for the period. The Company’s impaired loans are generally measured using the fair value of the underlying collateral, which is determined based on the most recent valuation information received. Appraisals are obtained from third party appraisers and reviewed by management. Evaluations are obtained from third-parties or prepared internally and are also reviewed by management. Similarly, updated appraisals and evaluations are obtained on a regular basis or as necessary. Further, on a quarterly basis, all appraisals and evaluations of nonperforming assets are reviewed to assess the current carrying value and to ensure that the current carrying value is appropriate. In calculating the discount to be applied to an appraisal or evaluation, if necessary, the Company considers the location of collateral, the property type, and third party comparable sales. If it is assessed by management that the current value is not appropriate, adjustments to the carrying value will be calculated and a charge-off or a specific valuation allowance may be recorded to reduce the loan to the appropriate adjusted carrying value. The fair values may be adjusted as needed based on factors such as the Company’s historical knowledge and changes in market conditions from the time of valuation. Impaired loans and consumer homogenous loans with a fair value measurement are classified as Level 3 assets in the fair value hierarchy. Other Real Estate Owned — The Company’s OREO represents properties acquired through foreclosure or through full or partial satisfaction of loans receivable, which are recorded at estimated fair value less cost to sell at the time of foreclosure and at the lower of cost or estimated fair value less cost to sell subsequent to acquisition. The fair values of OREO properties are based on third party appraisals, broker price opinions or accepted written offers. These valuations are reviewed and approved by the Company’s appraisal department, credit review department, or OREO department. Updated appraisals and evaluations are obtained on a regular basis or at least annually. Further, on a quarterly basis, all appraisals and evaluations of nonperforming assets are reviewed to assess the current carrying value and to ensure that the current carrying value is appropriate. In calculating the discount to be applied to an appraisal or evaluation, if necessary, the Company considers the location of collateral, the property type, and third party comparable sales. If it is assessed by management that the current value is not appropriate, adjustments to the carrying value will be calculated and a charge-off may be taken to reduce the OREO to the appropriate adjusted carrying value. The fair values may be adjusted as needed based on factors such as the Company’s historical knowledge and changes in market conditions from the time of valuation. OREO properties are classified as Level 3 assets in the fair value hierarchy. Loans Held for Sale — The Company’s loans held for sale are carried at the lower of cost or market value. These loans are currently comprised of student loans. The fair value of loans held for sale is derived from current market prices and comparative current sales. As such, the Company records any fair value adjustments on a nonrecurring basis. Loans held for sale are classified as Level 2 assets in the fair value hierarchy. Fair Value of Financial Instruments The carrying amounts and fair values of the Company’s financial instruments as of March 31, 2014 and December 31, 2013 were as follows:
|  | March 31, 2014 |  | December 31, 2013 |
|  | Carrying |  | Estimated |  | Carrying |  | Estimated |
|  | Amount |  | Fair Value |  | Amount |  | Fair Value |
|  | (In thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1,884,855 |  | $ | 1,884,855 |  | $ | 895,820 |  | $ | 895,820 |
Short-term investments |  | 323,266 |  | 323,266 |  | 257,473 |  | 257,473 |
Securities purchased under resale agreements |  | 1,200,000 |  | 1,186,314 |  | 1,300,000 |  | 1,279,406 |
Investment securities available-for-sale |  | 2,474,744 |  | 2,474,744 |  | 2,733,797 |  | 2,733,797 |
Loans held for sale |  | 577,353 |  | 592,769 |  | 204,970 |  | 212,469 |
Loans receivable, net |  | 19,082,250 |  | 18,494,494 |  | 17,600,613 |  | 16,741,674 |
Investment in Federal Home Loan Bank stock |  | 52,110 |  | 52,110 |  | 62,330 |  | 62,330 |
Investment in Federal Reserve Bank stock |  | 50,370 |  | 50,370 |  | 48,333 |  | 48,333 |
Accrued interest receivable |  | 102,802 |  | 102,802 |  | 116,314 |  | 116,314 |
Foreign exchange options |  | 5,915 |  | 5,915 |  | 6,290 |  | 6,290 |
Interest rate swaps |  | 26,293 |  | 26,293 |  | 28,078 |  | 28,078 |
Foreign exchange contracts |  | 4,378 |  | 4,378 |  | 6,181 |  | 6,181 |
Financial Liabilities: |  |  |  |  |  |  |  |  |
Customer deposit accounts: |  |  |  |  |  |  |  |  |
Demand, savings and money market deposits |  | 16,444,764 |  | 16,444,764 |  | 14,588,570 |  | 14,588,570 |
Time deposits |  | 6,383,293 |  | 6,355,318 |  | 5,824,348 |  | 5,791,659 |
Federal Home Loan Bank advances |  | 315,620 |  | 333,835 |  | 315,092 |  | 308,521 |
Securities sold under repurchase agreements |  | 1,005,316 |  | 1,134,817 |  | 995,000 |  | 1,134,774 |
Accrued interest payable |  | 11,582 |  | 11,582 |  | 11,178 |  | 11,178 |
Long-term debt |  | 240,675 |  | 205,012 |  | 226,868 |  | 184,415 |
Derivative liabilities |  | 46,778 |  | 46,778 |  | 50,262 |  | 50,262 |
The following table shows the level in the fair value hierarchy for the estimated fair values of only financial instruments that are not already on the condensed consolidated balance sheets at fair value at March 31, 2014 and December 31, 2013.
|  | March 31, 2014 |
|  | Estimated |  |  |  |  |  |  |
|  | Fair Value |  |  |  |  |  |  |
|  | Measurements |  | Level 1 |  | Level 2 |  | Level 3 |
|  | (In thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1,884,855 |  | $ | 1,884,855 |  | $ | — |  | $ | — |
Short-term investments |  | 323,266 |  | — |  | 323,266 |  | — |
Securities purchased under resale agreements |  | 1,186,314 |  | — |  | 1,186,314 |  | — |
Loans held for sale |  | 592,769 |  | — |  | 592,769 |  | — |
Loans receivable, net |  | 18,494,494 |  | — |  | — |  | 18,494,494 |
Investment in Federal Home Loan Bank stock |  | 52,110 |  | — |  | 52,110 |  | — |
Investment in Federal Reserve Bank stock |  | 50,370 |  | — |  | 50,370 |  | — |
Accrued interest receivable |  | 102,802 |  | — |  | 102,802 |  | — |
Financial Liabilities: |  |  |  |  |  |  |  |  |
Customer deposit accounts: |  |  |  |  |  |  |  |  |
Demand, savings and money market deposits |  | 16,444,764 |  | — |  | 16,444,764 |  | — |
Time deposits |  | 6,355,318 |  | — |  | — |  | 6,355,318 |
Federal Home Loan Bank advances |  | 333,835 |  | — |  | 333,835 |  | — |
Securities sold under repurchase agreements |  | 1,134,817 |  | — |  | 1,134,817 |  | — |
Accrued interest payable |  | 11,582 |  | — |  | 11,582 |  | — |
Long-term debt |  | 205,012 |  | — |  | 205,012 |  | — |
|  | December 31, 2013 |
|  | Estimated |  |  |  |  |  |  |
|  | Fair Value |  |  |  |  |  |  |
|  | Measurements |  | Level 1 |  | Level 2 |  | Level 3 |
|  | (In thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 895,820 |  | $ | 895,820 |  | $ | — |  | $ | — |
Short-term investments |  | 257,473 |  | — |  | 257,473 |  | — |
Securities purchased under resale agreements |  | 1,279,406 |  | — |  | 1,279,406 |  | — |
Loans held for sale |  | 212,469 |  | — |  | 212,469 |  | — |
Loans receivable, net |  | 16,741,674 |  | — |  | — |  | 16,741,674 |
Investment in Federal Home Loan Bank stock |  | 62,330 |  | — |  | 62,330 |  | — |
Investment in Federal Reserve Bank stock |  | 48,333 |  | — |  | 48,333 |  | — |
Accrued interest receivable |  | 116,314 |  | — |  | 116,314 |  | — |
Financial Liabilities: |  |  |  |  |  |  |  |  |
Customer deposit accounts: |  |  |  |  |  |  |  |  |
Demand, savings and money market deposits |  | 14,588,570 |  | — |  | 14,588,570 |  | — |
Time deposits |  | 5,791,659 |  | — |  | — |  | 5,791,659 |
Federal Home Loan Bank advances |  | 308,521 |  | — |  | 308,521 |  | — |
Securities sold under repurchase agreements |  | 1,134,774 |  | — |  | 1,134,774 |  | — |
Accrued interest payable |  | 11,178 |  | — |  | 11,178 |  | — |
Long-term debt |  | 184,415 |  | — |  | 184,415 |  | — |
The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value are explained below: Cash and Cash Equivalents — The carrying amounts approximate fair values due to the short-term nature of these instruments. Due to the short-term nature, the estimated fair value is considered to be within Level 1 of the fair value hierarchy. Short-Term Investments — The fair values of short-term investments generally approximate their book values due to their short maturities. Due to the observable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 2 of the fair value hierarchy. Securities Purchased Under Resale Agreements — Securities purchased under resale agreements with original maturities of 90 days or less are included in cash and cash equivalents. The fair value of securities purchased under resale agreements with original maturities of more than 90 days is estimated by discounting the cash flows based on expected maturities or repricing dates utilizing estimated market discount rates. Due to the observable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 2 of the fair value hierarchy. Investment Securities Available-for-Sale — The fair values of the investment securities are generally determined by independent external pricing service providers who have experience in valuing these securities and by comparison to and/or average of quoted market prices obtained from independent external brokers. In obtaining such valuation information from third parties, the Company has reviewed the methodologies used to develop the resulting fair values. For pooled trust preferred securities, fair values are based on discounted cash flow analyses. Due to the unobservable inputs used within the discounted cash flow analysis, the estimate for pooled trust preferred securities is considered to be within Level 3 of the fair value hierarchy. The remainder of the portfolio is classified within Level 1 and Level 2, as discussed earlier in this footnote. Loans Held for Sale — The fair value of loans held for sale is derived from current market prices and comparative current sales. Due to the observable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 2 of the fair value hierarchy. Loans Receivable, net (includes covered and non-covered loans) — The fair value of loans is determined based on a discounted cash flow approach considered for an entry price value. The discount rate is derived from the associated yield curve plus spreads, and reflects the offering rates in the market for loans with similar financial characteristics. No adjustments have been made for changes in credit within any of the loan portfolios. It is management’s opinion that the allowance for loan losses pertaining to performing and nonperforming loans results in a fair valuation of credit for such loans. Due to the unobservable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 3 of the fair value hierarchy. Investment in Federal Home Loan Bank Stock and Federal Reserve Bank Stock — The carrying amount approximates fair value, as the stock may be sold back to the Federal Home Loan Bank and the Federal Reserve Bank at carrying value. The valuation of these investments is considered to be within Level 2 of the fair value hierarchy, as the restrictions and value of the investments are the same for all financial institutions which are required to hold these investments. Accrued Interest Receivable — The carrying amounts approximate fair values due to the short-term nature of these instruments, as such, due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are considered to be within Level 2 of the fair value hierarchy. Foreign Exchange Options — The fair value of the derivative contracts is provided by third parties and is determined based on the change in the RMB and the volatility of the option over the life of the agreement. The option value is derived based on the volatility of the option, interest rate, and time remaining to maturity. We also considered the counterparty’s credit risk in determining the fair value. Due to the observable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 2 of the fair value hierarchy. Interest Rate Swaps — The fair value of the interest rate swap contracts is provided by a third party and is determined based on a discounted cash flow approach. The Company also considered the counterparty’s credit risk in determining the fair value. Due to the observable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 2 of the fair value hierarchy. Foreign Exchange Contracts — The fair value of foreign exchange contracts is determined based on the change in foreign exchange rate. We also considered the counterparty’s credit risk in determining the fair value. Due to the observable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 2 of the fair value hierarchy. Customer Deposit Accounts — The carrying amounts approximate fair value for demand and interest checking deposits, savings deposits, and certain money market accounts as the amounts are payable on demand at the reporting date. Due to the observable nature of the inputs used in deriving the estimated fair value these instruments are considered to be within Level 2 of the fair value hierarchy. For time deposits, the cash flows are based on the contractual runoff and are discounted by the Bank’s current offering rates, plus spread. Due to the unobservable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 3 of the fair value hierarchy. Federal Home Loan Bank Advances — The fair value of Federal Home Loan Bank (“FHLB”) advances is estimated based on the discounted value of contractual cash flows, using rates currently offered by the FHLB of San Francisco for advances with similar remaining maturities at each reporting date. Due to the observable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 2 of the fair value hierarchy. Securities Sold Under Repurchase Agreements — For securities sold under repurchase agreements with original maturities of 90 days or less, the carrying amounts approximate fair values due to the short-term nature of these instruments. At March 31, 2014 and December 31, 2013, most of the securities sold under repurchase agreements are long-term in nature and the fair values of securities sold under repurchase agreements are calculated by discounting future cash flows based on expected maturities or repricing dates, utilizing estimated market discount rates, and taking into consideration the call features of each instrument. Due to the observable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 2 of the fair value hierarchy. Accrued Interest Payable — The carrying amounts approximate fair values due to the short-term nature of these instruments, as such, due to the observable nature of the inputs used in deriving the estimated fair value, these instruments are considered to be within Level 2 of the fair value hierarchy. Long-Term Debt — The fair values of long-term debt are estimated by discounting the cash flows through maturity based on current market rates the Bank would pay for new issuances. Due to the observable nature of the inputs used in deriving the estimated fair value of these instruments, the estimate is considered to be within Level 2 of the fair value hierarchy. Derivatives Liabilities — The Company’s derivative liabilities include “derivatives payable” and all other derivative liabilities. The Company’s derivatives payable are recorded in conjunction with certain certificates of deposit (“host instrument”). These CDs pay interest based on changes in RMB, as designated. The fair value of derivatives payable is estimated using the income approach. Additionally, we considered our own credit risk in determining the valuation. The other derivative liabilities are mostly comprised of the off-setting interest rate swaps. The fair value of the interest rate swap contracts is provided by a third party and is determined based on a discounted cash flow approach. The Company also considered the counterparty’s credit risk in determining the fair value. Due to the observable nature of the inputs used in deriving the estimated fair value of the interest rate swaps within derivative liabilities, the estimate is considered to be within Level 2 of the fair value hierarchy. Due to the unobservable nature of the inputs used in deriving the estimated fair value of derivatives payable within derivative liabilities, this estimate is considered to be within Level 3 of the fair value hierarchy. The fair value estimates presented herein are based on pertinent information available to management as of each reporting date. Although we are not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented herein.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25499696&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13504-108611 + Details
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