Fair Value Measurements | 3 Months Ended |
Mar. 31, 2015 |
Fair Value Disclosures [Abstract] | |
Fair value measurements | Fair value measurements |
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Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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. There are three levels of inputs that may be used to measure fair values: |
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Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. |
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Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risk, etc.) or inputs that are derived principally from, or corroborated by, market data by correlation or other means. |
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Level 3 Inputs – Unobservable inputs for determining the fair value of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. |
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In general, fair value is based on quoted market prices, when available. If quoted market prices in active markets are not available, fair value is based on internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincide with the Company’s monthly and/or quarterly valuation process. |
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Investment Securities Available for Sale |
The majority of the Company’s available for sale investment securities are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things. |
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The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment securities that have a complicated structure. The Company’s entire portfolio consists of traditional investments, nearly all of which are mortgage pass-through securities, state and municipal general obligation or revenue bonds, U.S. agency bullet and callable securities and corporate bonds. Pricing for such instruments is fairly generic and is easily obtained. From time to time, the Company validates, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models. |
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At March 31, 2015, we do not believe any of our securities are OTTI; however, we review all of our securities on at least a quarterly basis to assess whether impairment, if any, is OTTI. |
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Derivatives |
The fair values of derivatives are based on valuation models using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counterparty as of the measurement date (Level 2). The Company’s derivatives consist of twelve interest rate swaps. See Note 8. “Derivatives.” |
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Commitments to Sell Real Estate Loans |
The Company enters into various commitments to sell real estate loans in the secondary market. Such commitments are considered to be derivative financial instruments and therefore are carried at estimated fair value on the consolidated balance sheets. The estimated fair values of these commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell to certain government sponsored agencies. The fair values of these commitments generally result in a Level 2 classification. The fair value of these commitments is not material. |
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A summary of assets and liabilities at March 31, 2015 measured at estimated fair value on a recurring basis is as follows: |
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| March 31, 2015 |
| Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
Assets: | | | | | | | |
Investment securities available for sale: | | | | | | | |
Residential MBS: | | | | | | | |
Agency-backed | $ | 580,324 | | | $ | — | | | $ | 580,324 | | | $ | — | |
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CMO/Other MBS | 80,393 | | | — | | | 80,393 | | | — | |
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Total residential MBS | 660,717 | | | — | | | 660,717 | | | — | |
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Federal agencies | 117,257 | | | — | | | 117,257 | | | — | |
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Corporate bonds | 266,864 | | | — | | | 266,864 | | | — | |
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State and municipal | 131,177 | | | — | | | 131,177 | | | — | |
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Trust preferred | 38,389 | | | — | | | 38,389 | | | — | |
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Total other securities | 553,687 | | | — | | | 553,687 | | | — | |
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Total investment securities available for sale | 1,214,404 | | | — | | | 1,214,404 | | | — | |
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Swaps | 1,874 | | | — | | | 1,874 | | | — | |
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Total assets | $ | 1,216,278 | | | $ | — | | | $ | 1,216,278 | | | $ | — | |
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Liabilities: | | | | | | | |
Swaps | 1,874 | | | — | | | 1,874 | | | — | |
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Total liabilities | $ | 1,874 | | | $ | — | | | $ | 1,874 | | | $ | — | |
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A summary of assets and liabilities at December 31, 2014 measured at estimated fair value on a recurring basis is as follows: |
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| December 31, 2014 |
| Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
Assets: | | | | | | | |
Investment securities available for sale: | | | | | | | |
Residential MBS: | | | | | | | |
Agency-backed | $ | 533,663 | | | $ | — | | | $ | 533,663 | | | $ | — | |
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CMO/Other MBS | 84,838 | | | — | | | 84,838 | | | — | |
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Privately issued CMOs | — | | | — | | | — | | | — | |
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Total residential MBS | 618,501 | | | — | | | 618,501 | | | — | |
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Federal agencies | 147,156 | | | — | | | 147,156 | | | — | |
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Corporate bonds | 204,831 | | | — | | | 204,831 | | | — | |
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State and municipal | 132,065 | | | — | | | 132,065 | | | — | |
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Trust preferred | 38,293 | | | — | | | 38,293 | | | — | |
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Total investment securities available for sale | 522,345 | | | — | | | 522,345 | | | — | |
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Total available for sale securities | 1,140,846 | | | — | | | 1,140,846 | | | — | |
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Interest rate caps and swaps | 1,332 | | | — | | | 1,332 | | | — | |
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Total assets | $ | 1,142,178 | | | $ | — | | | $ | 1,142,178 | | | $ | — | |
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Liabilities: | | | | | | | |
Swaps | 1,332 | | | — | | | 1,332 | | | — | |
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Total liabilities | $ | 1,332 | | | $ | — | | | $ | 1,332 | | | $ | — | |
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The following categories of financial assets are not measured at fair value on a recurring basis, but are subject to fair value adjustments in certain circumstances. |
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Loans Held for Sale and Impaired Loans |
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value as determined by outstanding commitments from investors. Fair value of loans held for sale is determined using quoted prices for similar assets (Level 2 inputs). |
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When mortgage loans held for sale are sold with servicing rights retained, the carrying value of mortgage loans sold is reduced by the amount allocated to the value of the servicing rights, which is equal to its fair value. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold. |
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The Company may record adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of these loans. These adjustments also include certain impairment amounts for collateral dependent loans calculated in accordance with FASB ASC Topic 310 – Receivables, when establishing the allowance for loan losses. Impairment amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated impairment amount applicable to that loan does not necessarily represent the fair value of the loan. Real estate collateral is valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable by market participants. However, due to the substantial judgment applied and limited volume of activity as compared to other assets, fair value is based on Level 3 inputs. Estimates of fair value used for collateral supporting commercial loans generally are based on assumptions not observable in the market place and are also based on Level 3 inputs. Impaired loans are evaluated on at least a quarterly basis for additional impairment and their carrying values are adjusted as needed. Loans subject to non-recurring fair value measurements were $29,330 and $37,085 at March 31, 2015 and March 31, 2014, respectively. Changes in fair value recognized as a charge-off on loans held by the Company were $280 and $447 for the three months ended March 31, 2015 and 2014, respectively. |
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When valuing impaired loans that are collateral dependent, the Company charges-off the difference between the recorded investment in the loan and the appraised value, which is generally less than 12 months old. A discount for estimated costs to dispose of the asset is used when evaluating the impaired loans. |
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A summary of impaired loans at March 31, 2015 measured at estimated fair value on a non-recurring basis is the following: |
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| March 31, 2015 |
| Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
Commercial real estate | $ | 1,950 | | | $ | — | | | $ | — | | | $ | 1,950 | |
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Acquisition, development and construction | 2,773 | | | — | | | — | | | 2,773 | |
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Total impaired loans measured at fair value | $ | 4,723 | | | $ | — | | | $ | — | | | $ | 4,723 | |
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A summary of impaired loans at December 31, 2014 measured at estimated fair value on a non-recurring basis is the following: |
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| December 31, 2014 |
| Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
Commercial & industrial | $ | 65 | | | $ | — | | | $ | — | | | $ | 65 | |
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Commercial real estate | 1,950 | | | — | | | — | | | 1,950 | |
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Acquisition, development and construction | 3,800 | | | — | | | — | | | 3,800 | |
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Total impaired loans measured at fair value | $ | 5,815 | | | $ | — | | | $ | — | | | $ | 5,815 | |
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Mortgage Servicing Rights |
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in net gain on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. |
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The Company utilizes the amortization method to subsequently measure the carrying value of its servicing rights. In accordance with FASB ASC Topic 860 - Transfers and Servicing, the Company must record impairment charges on a non-recurring basis, when the carrying value exceeds the estimated fair value. To estimate the fair value of servicing rights, the Company utilizes a third-party, which on a quarterly basis, considers the market prices for similar assets and the present value of expected future cash flows associated with the servicing rights. Assumptions utilized include estimates of the cost of servicing, loan default rates, an appropriate discount rate and prepayment speeds. The determination of fair value of servicing rights relies upon Level 3 inputs. The fair value of mortgage servicing rights at March 31, 2015 and December 31, 2014 were $1,393 and $1,456, respectively. |
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OREO - Assets Taken in Foreclosure of Defaulted Loans |
Assets taken in foreclosure of defaulted loans are initially recorded at fair value less costs to sell when acquired, which establishes a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less costs to sell and are primarily comprised of commercial and residential real estate property and upon initial recognition, are re-measured and reported at fair value through a charge-off to the allowance for loan losses based on the fair value of the foreclosed asset. The fair value is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the market place. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. The fair value is derived using Level 3 inputs. Appraisals are reviewed by our credit department, our external loan review consultant and verified by officers in our credit administration area. Assets taken in foreclosure of defaulted loans and facilities held for sale subject to non-recurring fair value measurement were $8,231 and $5,867 at March 31, 2015 and December 31, 2014, respectively. There were no write downs related to changes in fair value recognized through income for those foreclosed assets held by the Company during the three months ended March 31, 2015 and March 31, 2014, respectively. |
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Significant Unobservable Inputs to Level 3 Measurements |
The following table presents quantitative information about significant unobservable inputs used in the fair value measurements for Level 3 assets at March 31, 2015: |
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Non-recurring fair value measurements | | Fair value | | Valuation technique | | Unobservable input / assumptions | | Range (1) (weighted average) | | | | | |
Impaired loans: | | | | | | | | | | | | | |
Commercial & industrial | | $ | — | | | Appraisal | | Adjustments for comparable properties | | 10.0% -25.0% (14.4%) | | | | | |
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Commercial real estate | | 1,950 | | | Appraisal | | Adjustments for comparable properties | | 22.0% (22.0%) | | | | | |
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Acquisition, development & construction | | 2,773 | | | Appraisal | | Adjustments for comparable properties | | 10.0% - 22.0% (13.5%) | | | | | |
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Assets taken in foreclosure: | | | | | | | | | | | | | |
Residential mortgage | | 1,181 | | | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 10.0% - 22.0% (21.6%) | | | | | |
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Commercial real estate(2) | | 3,961 | | | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 10.0% - 22.0% (22.0%) | | | | | |
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Acquisition, development & construction | | 1,796 | | | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 10.0% - 22.0% (22.0%) | | | | | |
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Mortgage servicing rights | | 1,393 | | | Third-party | | Discount rates | | 8.3% - 11.3% (9.3%) | | | | | |
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| | | | Third-party | | Prepayment speeds | | 100 - 512 (210) | | | | | |
(1) Represents range of discount factors applied to the appraisal to determine fair value. The amounts used for mortgage servicing rights are discounts applied by a third-party valuation provider which the Company believes are appropriate. |
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(2) Excludes $1,293 of commercial properties that are former financial centers held for sale. These assets were not taken in foreclosure and their fair value is determined by third-party appraisals and our internal assessment of the market for this type of real estate. |
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Fair Values of Financial Instruments |
FASB Codification Topic 825 - Financial Instruments, requires disclosure of fair value information for those financial instruments for which it is practicable to estimate fair value, whether or not such financial instruments are recognized in the consolidated statements of financial condition for interim and annual periods. Fair value is the amount for which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. |
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Quoted market prices are used to estimate fair values when those prices are available, although active markets do not exist for many types of financial instruments. Fair values for these instruments must be estimated by management using techniques such as discounted cash flow analysis and comparison to similar instruments. These estimates are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates. Since these estimates are made as of a specific point in time, they are susceptible to material near-term changes. Fair values disclosed in accordance with FASB Topic 825 do not reflect any premium or discount that could result from the sale of a large volume of a particular financial instrument, nor do they reflect possible tax ramifications or estimated transaction costs. |
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The following is a summary of the carrying amounts and estimated fair value of financial assets and liabilities (none of which were held for trading purposes) as of March 31, 2015: |
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| March 31, 2015 |
| Carrying | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
amount |
Financial assets: | | | | | | | |
Cash and due from banks | $ | 186,701 | | | $ | 186,701 | | | $ | — | | | $ | — | |
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Securities available for sale | 1,214,404 | | | — | | | 1,214,404 | | | — | |
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Securities held to maturity | 585,633 | | | — | | | 605,144 | | | — | |
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Portfolio loans, net | 4,896,022 | | | — | | | — | | | 4,962,567 | |
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Loans held for sale | 53,737 | | | — | | | 53,737 | | | — | |
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Accrued interest receivable on securities | 9,720 | | | — | | | 9,720 | | | — | |
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Accrued interest receivable on loans | 11,647 | | | — | | | — | | | 11,647 | |
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FHLB stock and Federal Reserve Bank stock | 68,864 | | | — | | | — | | | — | |
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Swaps | 1,874 | | | — | | | 1,874 | | | — | |
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Financial liabilities: | | | | | | | |
Non-maturity deposits | (5,053,661 | ) | | (5,053,661 | ) | | — | | | — | |
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Certificates of deposit | (502,285 | ) | | — | | | (502,792 | ) | | — | |
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FHLB borrowings | (857,138 | ) | | — | | | (873,912 | ) | | — | |
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Other borrowings | (25,245 | ) | | — | | | (25,245 | ) | | — | |
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Senior notes | (98,595 | ) | | | | (101,487 | ) | | | |
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Mortgage escrow funds | (5,805 | ) | | — | | | (5,805 | ) | | — | |
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Accrued interest payable on deposits | (208 | ) | | — | | | (208 | ) | | — | |
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Accrued interest payable on borrowings | (2,904 | ) | | — | | | (2,904 | ) | | — | |
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Swaps | (1,874 | ) | | — | | | (1,874 | ) | | — | |
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The following is a summary of the carrying amounts and estimated fair value of financial assets and liabilities (none of which were held for trading purposes) as of December 31, 2014: |
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| December 31, 2014 |
| Carrying | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
amount |
Financial assets: | | | | | | | |
Cash and due from banks | $ | 121,520 | | | $ | 121,520 | | | $ | — | | | $ | — | |
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Securities available for sale | 1,140,846 | | | — | | | 1,140,846 | | | — | |
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Securities held to maturity | 572,337 | | | — | | | 586,346 | | | — | |
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Portfolio loans, net | 4,773,267 | | | — | | | — | | | 4,783,508 | |
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Loans held for sale | 46,599 | | | — | | | 46,599 | | | — | |
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Accrued interest receivable on securities | 7,742 | | | — | | | 7,742 | | | — | |
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Accrued interest receivable on loans | 11,559 | | | — | | | — | | | 11,559 | |
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FHLB stock and Federal Reserve Bank stock | 75,437 | | | — | | | — | | | — | |
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Interest rate caps and swaps | 1,332 | | | — | | | 1,332 | | | — | |
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Financial liabilities: | | | | | | | |
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Non-maturity deposits | (4,731,481 | ) | | (4,731,481 | ) | | — | | | — | |
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Certificates of deposit | (480,844 | ) | | — | | | (480,621 | ) | | — | |
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FHLB borrowings | (1,003,209 | ) | | — | | | (1,019,690 | ) | | — | |
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Other borrowings | (9,846 | ) | | — | | | (9,846 | ) | | — | |
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Senior Notes | (98,498 | ) | | | | | (100,769 | ) | | | |
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Mortgage escrow funds | (4,167 | ) | | — | | | (4,167 | ) | | — | |
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Accrued interest payable on deposits | (329 | ) | | — | | | (329 | ) | | — | |
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Accrued interest payable on borrowings | (4,354 | ) | | — | | | (4,354 | ) | | — | |
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Interest rate caps and swaps | (1,332 | ) | | — | | | (1,332 | ) | | — | |
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The following paragraphs summarize the principal methods and assumptions used by the Company to estimate the fair value of the Company’s financial instruments: |
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Loans |
The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk. |
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FHLB of New York Stock and Federal Reserve Bank Stock |
The redeemable carrying amount of these securities with limited marketability approximates their fair value. |
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Deposits and Mortgage Escrow Funds |
In accordance with FASB Codification Topic 825, deposits with no stated maturity (such as demand, money market and saving deposits) are assigned fair values equal to the carrying amounts payable on demand. Certificates of deposit and mortgage escrow funds are segregated by account type and original term, and fair values are estimated by discounting the contractual cash flows. The discount rate for each account grouping is equivalent to the current market rates for deposits of similar type and maturity. |
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These fair values do not include the value of core deposit relationships that comprise a significant portion of the Company’s deposits. We believe that the Company’s core deposit relationships provide a relatively stable, low-cost funding source that has a substantial value separate from the deposit balances. |
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FHLB Borrowings, other borrowings and Senior notes |
The estimated fair value approximates carrying value for short-term borrowings. The fair value of long-term fixed-rate borrowings is estimated using quoted market prices, if available, or by discounting future cash flows using current interest rates for similar financial instruments. |
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Other Financial Instruments |
Other financial assets and liabilities listed in the table above have estimated fair values that approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk. |
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The fair values of the Company’s off-balance-sheet financial instruments described in the “Off-Balance Sheet Financial Instruments” section of Note 15. “Commitments and Contingencies” were estimated based on current market terms (including interest rates and fees), considering the remaining terms of the agreements and the credit worthiness of the counterparties. At March 31, 2015 and December 31, 2014, the estimated fair value of these instruments approximated the related carrying amounts, which were not material. |
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Accrued interest receivable/payable |
The carrying amounts of accrued interest approximate fair value and are classified in accordance with the related instrument. |