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Fair Value Measurements
 12 Months Ended
Dec. 31, 2013
Fair Value Measurements  
Fair Value Measurements

Note 4. Fair Value Measurements

        The following tables summarize assets and liabilities measured at fair value as of December 31, 2013 and 2012 by level in the fair value hierarchy:

 
    
   Fair Value Measurements at Reporting Date Using  
(in thousands)
  Balance as of
December 31,
2013		   Quoted Prices in
Active Markets
Level 1		   Significant Other
Observable
Inputs
Level 2		   Significant
Unobservable
Inputs
Level 3		  

Measured on a Recurring Basis

                          

Assets

                          

Securities available-for-sale:

                          

U.S. Treasury

   $ 35,335   $ 35,335   $ —   $ —  

Federal agency—Debt

     1,410,536     —     1,410,536     —  

Federal agency—MBS

     157,226     —     157,226     —  

CMOs—Federal agency

     3,997,298     —     3,997,298     —  

CMOs—Non-agency

     37,462     —     37,462     —  

State and municipal

     415,995     —     412,362     3,633  

Other debt securities

     178,822     —     178,822     —  

Equity securities and mutual funds           

     8,443     8,443     —     —  

Trading securities

     82,357     80,659     1,698     —  

Derivatives (1)

     34,613     3,487     31,126     —  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total assets at fair value

   $ 6,358,087   $ 127,924   $ 6,226,530   $ 3,633  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

Liabilities

    
 		    
 		    
 		    
 		  

Derivatives

   $ 32,970   $ 3,333   $ 29,637   $ —  

Contingent consideration liability

     49,900     —     —     49,900  

FDIC clawback liability

     11,967     —     —     11,967  

Other liabilities

     1,044     —     1,044     —  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total liabilities at fair value (2)

   $ 95,881   $ 3,333   $ 30,681   $ 61,867  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

Redeemable noncontrolling interest

   $ 39,768   $ —   $ —   $ 39,768  

Measured on a Nonrecurring Basis

    
 		    
 		    
 		    
 		  

Assets

                          

Collateral dependent impaired loans (3):

                          

Commercial real estate mortgages

   $ 1,220   $ —   $ —   $ 1,220  

Residential mortgages

     1,300     —     —     1,300  

Other real estate owned (4)

     18,251     —     —     18,251  

Private equity and alternative investments

     895     —     —     895  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total assets at fair value

   $ 21,666   $ —   $ —   $ 21,666  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   
(1)
Reported in Other assets in the consolidated balance sheets.

(2)
Reported in Other liabilities in the consolidated balance sheets.

(3)
Impaired loans for which fair value was calculated using the collateral valuation method.

(4)
Includes covered OREO.

 
    
   Fair Value Measurements at Reporting Date Using  
(in thousands)
  Balance as of
December 31,
2012		   Quoted Prices in
Active Markets
Level 1		   Significant Other
Observable
Inputs
Level 2		   Significant
Unobservable
Inputs
Level 3		  

Measured on a Recurring Basis

                          

Assets

                          

Securities available-for-sale:

                          

U.S. Treasury

   $ 20,397   $ 20,397   $ —   $ —  

Federal agency—Debt

     2,349,202     —     2,349,202     —  

Federal agency—MBS

     693,032     —     693,032     —  

CMOs—Federal agency

     5,318,253     —     5,318,253     —  

CMOs—Non-agency

     61,513     —     61,513     —  

State and municipal

     454,474     —     407,429     47,045  

Other debt securities

     307,417     —     289,275     18,142  

Equity securities and mutual funds           

     1,701     1,701     —     —  

Trading securities

     115,059     113,010     2,049     —  

Derivatives (1)

     67,496     218     67,278     —  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total assets at fair value

   $ 9,388,544   $ 135,326   $ 9,188,031   $ 65,187  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

Liabilities

    
 		    
 		    
 		    
 		  

Derivatives

   $ 64,432   $ —   $ 64,432   $ —  

Contingent consideration liability

     47,724     —     —     47,724  

FDIC clawback liability

     9,970     —     —     9,970  

Other liabilities

     368     —     368     —  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total liabilities at fair value (2)

   $ 122,494   $ —   $ 64,800   $ 57,694  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

Redeemable noncontrolling interest

   $ 41,112   $ —   $ —   $ 41,112  

Measured on a Nonrecurring Basis

    
 		    
 		    
 		    
 		  

Assets

                          

Collateral dependent impaired loans (3):

                          

Commercial (4)

   $ 2,655   $ —   $ —   $ 2,655  

Commercial real estate mortgages

     10,963     —     —     10,963  

Residential mortgages

     1,811     —     —     1,811  

Real estate construction

     7,918     —     —     7,918  

Home equity loans and lines of credit           

     780     —     —     780  

Installment

     550     —     —     550  

Other real estate owned (5)

     44,396     —     —     44,396  

Private equity and alternative investments

     6,178     —     —     6,178  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total assets at fair value

   $ 75,251   $ —   $ —   $ 75,251  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   
(1)
Reported in Other assets in the consolidated balance sheets.

(2)
Reported in Other liabilities in the consolidated balance sheets.

(3)
Impaired loans for which fair value was calculated using the collateral valuation method.

(4)
Includes lease financing.

(5)
Includes covered OREO.

        At December 31, 2013, $6.36 billion, or approximately 21 percent, of the Company's total assets were recorded at fair value on a recurring basis, compared with $9.39 billion, or 33 percent, at December 31, 2012. The majority of these financial assets were valued using Level 1 or Level 2 inputs. Less than one percent of total assets were measured using Level 3 inputs. At December 31, 2013, $95.9 million of the Company's total liabilities were recorded at fair value using mostly Level 2 or Level 3 inputs, compared with $122.5 million at December 31, 2012. There were no transfers between Level 1 and Level 2 of the fair value hierarchy for assets or liabilities measured on a recurring basis during 2013. At December 31, 2013, $21.7 million of the Company's total assets were recorded at fair value on a nonrecurring basis, compared with $75.3 million at December 31, 2012. These assets represent less than one percent of total assets and were measured using Level 3 inputs.

Recurring Fair Value Measurements

        Assets and liabilities for which fair value measurement is based on significant unobservable inputs are classified as Level 3 in the fair value hierarchy. The following table provides a reconciliation of the beginning and ending balances for Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2013 and 2012.

Level 3 Assets and Liabilities Measured on a Recurring Basis

 
   For the year ended
December 31, 2013		   For the year ended
December 31, 2012		  
(in thousands)
  Securities
Available-for-
Sale		   Contingent
Consideration
Liability		   FDIC
Clawback
Liability		   Securities
Available-for-
Sale		   Contingent
Consideration
Liability		   FDIC
Clawback
Liability		  

Balance, beginning of period

   $ 65,187   $ (47,724 ) $ (9,970 ) $ 19,583   $ —   $ (8,103 )

Total realized/unrealized gains (losses):

                                      

Included in earnings

     (5,302 )   —     (1,997 )   —     —     (1,867 )

Included in other comprehensive income

     5,916     —     —     2,332     —     —  

Additions

     —     —     —     —     (46,696 )   —  

Sales

     (15,096 )   —     —     —     —     —  

Settlements

     (47,180 )   —     —     (4,004 )   —     —  

Transfers into Level 3

     —     —     —     47,165     —     —  

Other (1)

     108     (2,176 )   —     111     (1,028 )   —  
                           
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance, end of period

   $ 3,633   $ (49,900 ) $ (11,967 ) $ 65,187   $ (47,724 ) $ (9,970 )
                           
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                           
(1)
Other rollforward activity consists of amortization of premiums and accretion of discounts recognized on the initial purchase of the securities available-for-sale and accretion of discount related to the contingent consideration liability.

        Redeemable noncontrolling interest is classified as Level 3 in the fair value hierarchy and measured on a recurring basis. Refer to Note 1, Significant Accounting Policies, for a discussion of the methodology used in valuing redeemable noncontrolling interest and Note 22, Noncontrolling Interest, for a rollforward of activity for the years ended December 31, 2013 and 2012.

        Level 3 assets measured at fair value on a recurring basis at December 31, 2013 consist of municipal auction rate securities that are included in securities available-for-sale. Municipal auction rate securities were valued using an average yield on California variable rate notes that were comparable in credit rating and maturity to the securities held, plus a liquidity premium.

        Level 3 liabilities measured at fair value on a recurring basis consist of contingent consideration and an FDIC clawback liability that are included in other liabilities. Refer to Note 3, Business Combinations, for further discussion of the methodology used to value the contingent consideration liability. The FDIC clawback liability was valued using the discounted cash flow method based on the terms specified in loss-sharing agreements with the FDIC, the actual FDIC payments collected and the following unobservable inputs: (1) risk-adjusted discount rate reflecting the Bank's credit risk, plus a liquidity premium, (2) prepayment assumptions, and (3) credit assumptions.

        There were no purchases or transfers out of Level 3 assets measured on a recurring basis during the years ended December 31, 2013 and 2012. Paydowns of $47.2 million and $4.0 million were received on Level 3 assets measured on a recurring basis for the years ended December 31, 2013 and 2012, respectively. During the year ended December 31, 2013, the Company sold its investment in a collateralized debt obligation senior note. The carrying value of the security was $15.1 million and the Company recognized a loss of $5.3 million.

Nonrecurring Fair Value Measurements

        Assets measured at fair value on a nonrecurring basis using significant unobservable inputs include certain collateral dependent impaired loans, OREO for which fair value is not solely based on market observable inputs, and certain private equity and alternative investments. Private equity and alternative investments do not have readily determinable fair values. These investments are carried at cost and evaluated for impairment on a quarterly basis. Due to the lack of readily determinable fair values for these investments, the impairment assessment is based primarily on a review of investment performance and the likelihood that the capital invested would be recovered.

        The table below provides information about valuation method, inputs and assumptions for nonrecurring Level 3 fair value measurements. The weight assigned to each input is based on the facts and circumstances that exist at the date of measurement.

Information About Nonrecurring Level 3 Fair Value Measurements

(in thousands)
  Fair Value at
December 31,
2013		   Valuation
Method		   Unobservable Inputs

Collateral dependent impaired loans and other real estate owned

   $ 20,771   Market   —Assumptions made in the appraisal process
—Adjustments to external or internal appraised values. Appraised values may be adjusted to reflect changes in market conditions that have occurred subsequent to the appraisal date, or for revised estimates regarding the timing or cost of the property sale. These adjustments are based on qualitative judgments made by management on a case-by-case basis.

             —Probability weighting of broker price opinions

             —Management assumptions regarding market trends or other relevant factors

Private equity and alternative investments

  
$
895		  

Cost Recovery

  

—Management's assumptions regarding recoverability of investment based on fund financial performance, market conditions and other relevant factors

        Market-based valuation methods use prices and other relevant information generated by market transactions involving identical or comparable assets. Under the cost recovery approach, fair value represents an estimate of the amount of an asset expected to be recovered. The Company only employs the cost recovery approach for assets that are not readily marketable and for which minimal market-based information exists.

        For assets measured at fair value on a nonrecurring basis, the following table presents the total net (losses) gains, which include charge-offs, recoveries, specific reserves, OREO valuation write-downs and write-ups, gains and losses on sales of OREO, and impairment write-downs on private equity and alternative investments, recognized in 2013 and 2012:

 
   For the year ended
December 31,		  
(in thousands)
  2013   2012  

Collateral dependent impaired loans:

              

Commercial

   $ (15 ) $ (368 )

Commercial real estate mortgages

     (641 )   (1,143 )

Residential mortgages

     (469 )   (975 )

Real estate construction

     —     (5,137 )

Home equity loans and lines of credit

     116     (25 )

Installment

     (138 )   (208 )

Other real estate owned (1)

     (5,892 )   (20,695 )

Private equity and alternative investments

     (532 )   (3,296 )
           
​ ​ ​ ​ ​ ​ ​ ​

Total net losses recognized

   $ (7,571 ) $ (31,847 )
           
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
           
(1)
Net losses on OREO include $4.7 million and $17.7 million of net losses related to covered OREO for the years ended December 31, 2013 and December 31, 2012, respectively, a significant portion of which is reimbursable by the FDIC.

Fair Value of Financial Instruments

        A financial instrument is broadly defined as cash, evidence of an ownership interest in another entity, or a contract that imposes a contractual obligation on one entity and conveys a corresponding right to a second entity to require delivery or exchange of financial assets or liabilities. Refer to Note 1, Summary of Significant Accounting Policies, for additional information on fair value measurements.

        The disclosure does not include estimated fair value amounts for assets and liabilities which are not defined as financial instruments but which have significant value. These assets and liabilities include the value of customer-relationship intangibles, goodwill, affordable housing investments carried at cost, other assets, deferred taxes and other liabilities. Accordingly, the total of the fair values presented does not represent the underlying value of the Company.

        The following tables summarize the carrying amounts and estimated fair values of those financial instruments that are reported at amortized cost in the Company's consolidated balance sheets. The tables also provide information on the level in the fair value hierarchy for inputs used in the fair value of those financial instruments. Most financial assets and financial liabilities for which carrying amount equals fair value are considered by the Company to be Level 1 measurements in the fair value hierarchy.

 
   December 31, 2013  
 
    
    
   Fair Value Measurements Using  
 
   Carrying
Amount		   Total
Fair Value		  
(in millions)
  Level 1   Level 2   Level 3  

Financial Assets:

                                

Cash and due from banks

   $ 183.2   $ 183.2   $ 183.2   $ —   $ —  

Due from banks—interest bearing

     552.7     552.7     552.7     —     —  

Securities purchased under
resale agreements

     200.0     200.5     —     200.5     —  

Securities held-to-maturity

     2,957.8     2,883.9     —     2,883.9     —  

Loans and leases, net of allowance

     16,867.9     17,362.9     —     —     17,362.9  

Covered loans, net of allowance

     701.0     739.5     —     —     739.5  

FDIC indemnification asset

     89.2     74.3     —     —     74.3  

Investment in FHLB and FRB stock

     64.4     64.4     —     64.4     —  

Financial Liabilities:

    
 		    
 		    
 		    
 		    
 		  

Deposits

   $ 25,679.4   $ 25,682.2   $ —   $ 24,990.8   $ 691.4  

Other short-term borrowings

     3.9     3.9     —     —     3.9  

Long-term debt

     736.0     788.9     —     697.8     91.1  


 

 
   December 31, 2012  
 
    
    
   Fair Value Measurements Using  
 
   Carrying
Amount		   Total
Fair Value		  
(in millions)
  Level 1   Level 2   Level 3  

Financial Assets:

                                

Cash and due from banks

   $ 152.0   $ 152.0   $ 152.0   $ —   $ —  

Due from banks—interest bearing

     246.3     246.3     246.3     —     —  

Federal funds sold

     17.1     17.1     17.1     —     —  

Securities held-to-maturity

     1,398.4     1,446.6     —     1,446.6     —  

Loans and leases, net of allowance

     14,540.4     14,988.6     —     —     14,988.6  

Covered loans, net of allowance

     986.2     1,055.0     —     —     1,055.0  

FDIC indemnification asset

     150.0     123.9     —     —     123.9  

Investment in FHLB and FRB stock

     90.0     90.0     —     90.0     —  

Financial Liabilities:

    
 		    
 		    
 		    
 		    
 		  

Deposits

   $ 23,502.4   $ 23,506.9   $ —   $ 22,734.5   $ 772.4  

Federal funds purchased and securities sold under repurchase agreements          

     1,214.2     1,214.2     1,214.2     —     —  

Other short-term borrowings

     209.6     210.7           207.6     3.1  

Long-term debt

     706.1     774.8     —     698.9     75.9  

        Following is a description of the methods and assumptions used in estimating the fair values of these financial instruments:

        Cash and due from banks, Due from banks—interest bearing and Federal funds sold —For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

        Securities purchased under resale agreements—The fair value of securities purchased under term resale agreements is determined using a combination of quoted market prices and observable market inputs such as interest rates and credit spreads.

        Securities held-to-maturity—For securities held-to-maturity, the fair value is determined by quoted market prices, where available, or based on observable market inputs appropriate for the type of security.

        Loans and leases—Loans and leases, excluding covered loans, are not recorded at fair value on a recurring basis. Nonrecurring fair value adjustments are periodically recorded on impaired loans that are measured for impairment based on the fair value of collateral. Due to the lack of activity in the secondary market for the types of loans in the Company's portfolio, a model-based approach is used for determining the fair value of loans for purposes of the disclosures in the previous table. The fair value of loans is estimated by discounting future cash flows using discount rates that incorporate the Company's assumptions for current market yields, credit risk and liquidity premiums. Loan cash flow projections are based on contractual loan terms adjusted for the impact of current interest rate levels on borrower behavior, including prepayments. Loan prepayment assumptions are based on industry standards for the type of loans being valued. Projected cash flows are discounted using yield curves based on current market conditions. Yield curves are constructed by product type using the Bank's loan pricing model for like-quality credits. The discount rates used in the Company's model represent the rates the Bank would offer to current borrowers for like-quality credits. These rates could be different from what other financial institutions could offer for these loans.

        Covered loans—The fair value of covered loans is based on estimates of future loan cash flows and appropriate discount rates, which incorporate the Company's assumptions about market funding cost and liquidity premium. The estimates of future loan cash flows are determined using the Company's assumptions concerning the amount and timing of principal and interest payments, prepayments and credit losses.

        FDIC indemnification asset—The fair value of the FDIC indemnification asset is estimated by discounting estimated future cash flows based on estimated current market rates.

        Investment in FHLB and FRB stock—Investments in Federal Home Loan Bank of San Francisco ("FHLB") and Federal Reserve Bank ("FRB") stock are recorded at cost. Ownership of these securities is restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FRB and FHLB stock is equal to the carrying amount.

        Deposits—The fair value of demand and interest checking deposits, savings deposits, and certain money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit ("CD") is determined by discounting expected future cash flows using the rates offered by the Bank for deposits of similar type and remaining maturity at the measurement date. This value is compared to the termination value of each CD given the Bank's standard early withdrawal penalties. The fair value reported is the higher of the discounted present value of each CD and the termination value after the recovery of prepayment penalties. The Bank reviews pricing for its CD products weekly. This review gives consideration to market pricing for products of similar type and maturity offered by other financial institutions.

        Federal funds purchased and Securities sold under repurchase agreements—The carrying amount is a reasonable estimate of fair value.

        Other short-term borrowings—The fair value of the current portion of long-term debt classified in short-term borrowings is obtained through third-party pricing sources. The fair value of nonrecourse debt is determined by discounting estimated future cash flows based on estimated current market rates. The carrying amount of the remaining other short-term borrowings is a reasonable estimate of fair value.

        Long-term debt—The fair value of long-term debt, excluding nonrecourse debt, is obtained through third-party pricing sources. The fair value of nonrecourse debt is determined by discounting estimated future cash flows based on estimated current market rates.

        Off-balance sheet commitments, which include commitments to extend credit, are excluded from the table. A reasonable estimate of fair value for these instruments is the carrying amount of deferred fees and the reserve for any credit losses related to these off-balance sheet instruments. This estimate is not material to the Company's financial position.