The fair value measurement framework defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This framework also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs previously described that may be used to measure fair value.

The fair value of money market investments is based on the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.

The fair value of investment securities is based on quoted market prices, when available, or market prices provided by recognized broker-dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use both observable and unobservable inputs depending on the market activity of the instrument. The Company holds two securities categorized as other debt that are classified as Level 3. The estimated fair value of the other debt securities is determined by using a third-party model to calculate the present value of projected future cash flows. The assumptions are highly uncertain and include primarily market discount rates, current spreads, and an indicative pricing. The assumptions used are drawn from similar securities that are actively traded in the market and have similar characteristics as the collateral underlying the debt securities being evaluated. The valuation is performed on a monthly basis.

The fair value of the interest rate swaps is largely a function of the financial market's expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future impact of derivative instruments on earnings. This will depend, for the most part, on the shape of the yield curve, the level of interest rates, as well as the expectations for rates in the future. The fair value of most of these derivative instruments is based on observable market parameters, which include discounting the instruments' cash flows using the U.S. dollar LIBOR-based discount rates, and also applying yield curves that account for the industry sector and the credit rating of the counterparty and/or the Company.

Certain other derivative instruments with limited market activity are valued using externally developed models that consider unobservable market parameters. Based on their valuation methodology, derivative instruments are classified as Level 2 or Level 3. The Company has offered its customers certificates of deposit with an option tied to the performance of the S&P Index and uses equity indexed option agreements with major broker-dealers to manage its exposure to changes in this index. Their fair value is obtained through the use of an external based valuation that was thoroughly evaluated and adopted by management as its measurement tool for these options. The payoff of these options is linked to the average value of the S&P Index on a specific set of dates during the life of the option. The methodology uses an average rate option or a cash-settled option whose payoff is based on the difference between the expected average value of the S&P Index during the remaining life of the option and the strike price at inception. The assumptions, which are uncertain and require a degree of judgment, include primarily S&P Index volatility, forward interest rate projections, estimated index dividend payout, and leverage.

Servicing assets do not trade in an active market with readily observable prices. Servicing assets are priced using a discounted cash flow model. The valuation model considers servicing fees, portfolio characteristics, prepayment assumptions, delinquency rates, late charges, other ancillary revenues, cost to service and other economic factors. Due to the unobservable nature of certain valuation inputs, the servicing rights are classified as Level 3.

The impairment is measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC 310-10-35. Currently, the associated loans considered impaired are classified as Level 3.

Foreclosed real estate includes real estate properties securing residential mortgage and commercial loans. The fair value of foreclosed real estate may be determined using an external appraisal, broker price option or an internal valuation. These foreclosed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.

Assets and liabilities measured at fair value on a recurring and non-recurring basis, including financial liabilities for which the Company has elected the fair value option, are summarized below:

	March 31, 2014
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
	(In thousands)
Recurring fair value measurements:
Investment securities available-for-sale	$	-	$	1,435,632	$	20,053	$	1,455,685
Money market investments		7,652		-		-		7,652
Derivative assets		-		3,306		12,555		15,861
Servicing assets		-		-		13,970		13,970
Derivative liabilities		-		(13,830)		(12,120)		(25,950)
	$	7,652	$	1,425,108	$	34,458	$	1,467,218
Non-recurring fair value measurements:
Impaired commercial loans	$	-	$	-	$	27,975	$	27,975
Foreclosed real estate		-		-		96,884		96,884
	$	-	$	-	$	124,859	$	124,859

	December 31, 2013
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
	(In thousands)
Recurring fair value measurements:
Investment securities available-for-sale	$	-	$	1,568,745	$	19,680	$	1,588,425
Securities purchased under agreements to resell		-		60,000		-		60,000
Money market investments		6,967		-		-		6,967
Derivative assets		-		4,072		16,430		20,502
Servicing assets		-		-		13,801		13,801
Derivative liabilities		-		(14,937)		(15,736)		(30,673)
	$	6,967	$	1,617,880	$	34,175	$	1,659,022
Non-recurring fair value measurements:
Impaired commercial loans	$	-	$	-	$	28,353	$	28,353
Foreclosed real estate		-		-		90,024		90,024
	$	-	$	-	$	118,377	$	118,377

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters ended March 31, 2014 and 2013:

	Quarter Ended March 31, 2014
				Derivative				Derivative
		Other		asset				liability
		debt		(S&P				(S&P
		securities		Purchased		Servicing		Embedded
Level 3 Instruments Only		available-for-sale		Options)		assets		Options)		Total
	(In thousands)
Balance at beginning of year		$	19,680	$	16,430	$	13,801	$	(15,736)	$	34,175
Gains (losses) included in earnings			-		(3,875)		-		3,373		(502)
Changes in fair value of investment securities available for sale included in other comprehensive income			373		-		-		-		373
New instruments acquired			-		-		563		-		563
Principal repayments			-		-		(196)		-		(196)
Amortization			-		-		-		243		243
Changes in fair value of servicing assets			-		-		(198)		-		(198)
Balance at end of year		$	20,053	$	12,555	$	13,970	$	(12,120)	$	34,458

	Quarter Ended March 31, 2013
	Investment securities
	available-for-sale
					Derivative				Derivative
					asset				liability
			Other		(S&P				(S&P
			debt		Purchased		Servicing		Embedded
Level 3 Instruments Only	CLOs		securities		Options)		assets		Options)		Total

Balance at beginning of period	$	27,280	$	10,016	$	11,367	$	10,776	$	(10,912)	$	48,527
Gains (losses) included in earnings		-		-		1,721		-		(1,707)		14
Changes in fair value of investment securities available for sale included in other comprehensive income		1,705		1		-		-		-		1,706
New instruments acquired		-		-		-		487		-		487
Principal repayments		-		-		-		(307)		-		(307)
Amortization		17		-		-		-		50		67
Changes in fair value of servicing assets		-		-		-		(314)		-		(314)
Balance at end of period	$	29,002	$	10,017	$	13,088	$	10,642	$	(12,569)	$	50,180

During the quarter ended March 31, 2014 and 2013, there were purchases and sales of assets and liabilities measured at fair value on a recurring basis. There were no transfers into and out of Level 1 and Level 2 fair value measurements during such periods.

The table below presents quantitative information for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at March 31, 2014:

	March 31, 2014
	Fair Value		Valuation Technique	Unobservable Input	Range
	(In thousands)
Investment securities available-for-sale:
Other debt securities	$	20,053	Market comparable bonds	Indicative pricing	97.125% - 98.975%
				Option adjusted spread	683.7% - 1602.0%
				Yield to maturity	7.05% - 15.89%
				Spread to maturity	689.9% - 1579.0%
Derivative assets (S&P Purchased Options)	$	12,555	Option pricing model	Implied option volatility	22.887% - 53.615%
				Counterparty credit risk (based on 5-year credit default swap ("CDS") spread)	56.360% - 86.490%
Servicing assets	$	13,970	Cash flow valuation	Constant prepayment rate	5.60% - 10.08%
				Discount rate	10.00% - 12.00%
Derivative liability (S&P Embedded Options)	$	(12,120)	Option pricing model	Implied option volatility	22.887% - 53.615%
				Counterparty credit risk (based on 5-year CDS spread)	56.360% - 86.490%
Collateral dependant impaired loans	$	27,975	Fair value of property or collateral	Appraised value less disposition costs	21.30% - 28.30%

Other debt securities – The significant unobservable inputs used in the fair value measurement of one of the Company's other debt securities are indicative comparable pricing, option adjusted spread (“OAS”), yield to maturity, and spread to maturity. Significant changes in any of those inputs in isolation would result in a significantly different fair value measurement. Generally, a change in the assumption used for indicative comparable pricing is accompanied by a directionally opposite change in the assumption used for OAS and a directionally, although not equally proportional, opposite change in the assumptions used for yield to maturity and spread to maturity.

Derivative asset (S&P Purchased Options) – The significant unobservable inputs used in the fair value measurement of the Company's derivative assets related to S&P purchased options are implied option volatility and counterparty credit risk. Significant changes in any of those inputs in isolation would result in a significantly different fair value measurement. Generally, a change in the assumption used for implied option volatility is not necessarily accompanied by directionally similar or opposite changes in the assumption used for counterparty credit risk.

Servicing assets – The significant unobservable inputs used in the fair value measurement of the Company's servicing assets are constant prepayment rates and discount rates. Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.

Derivative liability (S&P Embedded Options) – The significant unobservable inputs used in the fair value measurement of the Company's derivative liability related to S&P purchased options are implied option volatility and counterparty credit risk. Significant changes in any of those inputs in isolation would result in a significantly different fair value measurement. Generally, a change in the assumption used for implied option volatility is not necessarily accompanied by directionally similar or opposite changes in the assumption used for counterparty credit risk.

The table below presents a detail of investment securities available-for-sale classified as Level 3 at March 31, 2014:

The information about the estimated fair value of financial instruments required by GAAP is presented hereunder. The aggregate fair value amounts presented do not necessarily represent management's estimate of the underlying value of the Company.

The estimated fair value is subjective in nature, involves uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could affect these fair value estimates. The fair value estimates do not take into consideration the value of future business and the value of assets and liabilities that are not financial instruments. Other significant tangible and intangible assets that are not considered financial instruments are the value of long-term customer relationships of retail deposits, and premises and equipment.

The estimated fair value and carrying value of the Company's financial instruments at March 31, 2014 and December 31, 2013 is as follows:

	March 31,				December 31,
	2014				2013
	Fair		Carrying		Fair		Carrying
	Value		Value		Value		Value
	(In thousands)
Level 1
Financial Assets:
Cash and cash equivalents	$	624,636	$	624,636	$	621,269	$	621,269
Restricted cash		15,170		15,170		82,199		82,199
Level 2
Financial Assets:
Securities purchased under agreements to resell		-		-		60,000		60,000
Trading securities		1,910		1,910		1,869		1,869
Investment securities available-for-sale		1,435,632		1,435,632		1,568,745		1,568,745
Federal Home Loan Bank (FHLB) stock		24,430		24,430		24,450		24,450
Derivative assets		3,306		3,306		4,072		4,072
Derivative liabilities		13,830		13,830		14,937		14,937
Level 3
Financial Assets:
Investment securities available-for-sale		20,053		20,053		19,680		19,680
Total loans (including loans held-for-sale)
Non-covered loans, net		4,737,604		4,654,749		4,857,505		4,662,458
Covered loans, net		400,355		347,865		459,444		356,961
Derivative assets		12,555		12,555		16,430		16,430
FDIC shared-loss indemnification asset		106,170		166,194		152,965		189,240
Accrued interest receivable		18,969		18,969		18,734		18,734
Servicing assets		13,970		13,970		13,801		13,801
Financial Liabilities:
Deposits		5,247,226		5,300,992		5,409,540		5,383,265
Securities sold under agreements to repurchase		1,076,000		1,012,240		1,323,903		1,267,618
Advances from FHLB		340,805		335,689		335,324		336,143
Federal funds purchased		23,712		23,712		-		-
Term notes		3,583		3,708		3,638		3,663
Subordinated capital notes		87,240		100,404		99,316		100,010
Accrued expenses and other liabilities		140,037		140,037		144,424		144,424

The following methods and assumptions were used to estimate the fair values of significant financial instruments at March 31, 2014 and December 31, 2013:

• Cash and cash equivalents (including money market investments and time deposits with other banks), restricted cash, accrued interest receivable, securities purchased under agreements to resell, securities sold but not yet delivered, accrued expenses and other liabilities have been valued at the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.

• The fair value of investment securities, including trading securities, is based on quoted market prices, when available, or market prices provided by recognized broker-dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use both observable and unobservable inputs depending on the market activity of the instrument. The estimated fair value of the structured credit investments is determined by using a third-party cash flow valuation model to calculate the present value of projected future cash flows. The assumptions used which are highly uncertain and require a high degree of judgment, include primarily market discount rates, current spreads, duration, leverage, default, home price depreciation, and loss rates. The assumptions used are drawn from a wide array of data sources, including the performance of the collateral underlying each deal. The external-based valuation, which is obtained at least on a quarterly basis, is analyzed and its assumptions are evaluated and incorporated in either an internal-based valuation model when deemed necessary, or compared to counterparties' prices and agreed by management.

• The fair value of the FDIC shared-loss indemnification asset represents the present value of the net estimated cash payments expected to be received from the FDIC for future losses on covered assets based on the credit assumptions on estimated cash flows for each covered asset pool and the loss sharing percentages. The ultimate collectability of the FDIC shared-loss indemnification asset is dependent upon the performance of the underlying covered loans, the passage of time and claims paid by the FDIC which are impacted by the Bank's adherence to certain guidelines established by the FDIC.

• The fair value of servicing assets is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions.

• The fair values of the derivative instruments are provided by valuation experts and counterparties. Certain derivatives with limited market activity are valued using externally developed models that consider unobservable market parameters. The Company has offered its customers certificates of deposit with an option tied to the performance of the S&P Index, and uses equity indexed option agreements with major broker-dealers to manage its exposure to changes in this index. Their fair value is obtained through the use of an external based valuation that was thoroughly evaluated and adopted by management as its measurement tool for these options. The payoff of these options is linked to the average value of the S&P Index on a specific set of dates during the life of the option. The methodology uses an average rate option or a cash-settled option whose payoff is based on the difference between the expected average value of the S&P Index during the remaining life of the option and the strike price at inception. The assumptions, which are uncertain and require a degree of judgment, include primarily S&P Index volatility, forward interest rate projections, estimated index dividend payout, and leverage.

• Fair value of derivative liabilities, which include interest rate swaps and forward-settlement swaps, are based on the net discounted value of the contractual projected cash flows of both the pay-fixed receive-variable legs of the contracts. The projected cash flows are based on the forward yield curve, and discounted using current estimated market rates.

• The fair value of the covered and non-covered loan portfolio (including loans held-for-sale) is estimated by segregating by type, such as mortgage, commercial, consumer, auto and leasing. Each loan segment is further segmented into fixed and adjustable interest rates and by performing and non-performing categories. The fair value of performing loans is calculated by discounting contractual cash flows, adjusted for prepayment estimates (voluntary and involuntary), if any, using estimated current market discount rates that reflect the credit and interest rate risk inherent in the loan. This fair value is not currently an indication of an exit price as that type of assumption could result in a different fair value estimate.

• The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is based on the discounted value of the contractual cash flows, using estimated current market discount rates for deposits of similar remaining maturities.

• For short term borrowings and federal funds purchased, the carrying amount is considered a reasonable estimate of fair value. The fair value of long-term borrowings, which include securities sold under agreements to repurchase, advances from FHLB-NY, FDIC-guaranteed term notes, other term notes, and subordinated capital notes, is based on the discounted value of the contractual cash flows using current estimated market discount rates for borrowings with similar terms, remaining maturities and put dates.

• The fair value of commitments to extend credit and unused lines of credit is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standings.