The following is a description of the valuation methodologies and key inputs used to measure assets and liabilities recorded at fair value on a recurring basis.

Fair values of investment securities available-for-sale were primarily measured using information from a third-party pricing service. This pricing service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data from market research publications. Level 1 investment securities are comprised of debt securities issued by the U.S. Treasury. As quoted prices were available, unadjusted, for identical securities in active markets, these securities were classified as Level 1 measurements. Level 2 investment securities were primarily comprised of debt securities issued by the Small Business Administration, states and municipalities, corporations, as well as mortgage-backed securities issued by government agencies. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Company's third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.

On a quarterly basis, management reviews the pricing information received from the Company's third-party pricing service. This review process includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the Company's third-party pricing service. Management primarily identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. As of December 31, 2011 and 2010, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.

The fair value of the Company's residential mortgage loans held for sale was determined based on quoted prices for similar loans in active markets, and therefore, is classified as a Level 2 measurement.

Mortgage servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The Company stratifies its mortgage servicing portfolio on the basis of loan type. The assumptions used in the discounted cash flow model are those that we believe market participants would use in estimating future net servicing income. Significant assumptions in the valuation of mortgage servicing rights include estimated loan repayment rates, the discount rate, servicing costs, and the timing of cash flows, among other factors. Mortgage servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

Other assets recorded at fair value on a recurring basis are primarily comprised of investments related to deferred compensation arrangements. Quoted prices for these investments, primarily in mutual funds, are available in active markets. Thus, the Company's investments related to deferred compensation arrangements are classified as Level 1 measurements in the fair value hierarchy.

Derivative financial instruments recorded at fair value on a recurring basis are comprised of interest rate lock commitments ("IRLCs"), forward commitments, interest rate swap agreements, and foreign exchange contracts. The fair values of IRLCs are calculated using a discounted cash flow approach utilizing inputs such as the fall-out ratio. The fall-out ratio is derived from the Bank's internal data and is adjusted using significant management judgment as to the percentage of loans which are currently in a lock position which will ultimately not close. IRLCs are deemed Level 3 measurements as significant unobservable inputs and management judgment are required. The fair values of forward commitments are deemed Level 2 measurements as they are primarily based on quoted prices from the secondary market based on the settlement date of the contracts, interpolated or extrapolated, if necessary, to estimate a fair value as of the end of the reporting period. The fair values of interest rate swap agreements are also calculated using a discounted cash flow approach and utilize inputs such as the LIBOR swap curve, effective date, maturity date, notional amount, and stated interest rate. Interest rate swap agreements are deemed Level 3 measurements as significant unobservable inputs and management judgment are required. The fair values of foreign exchange contracts are calculated using the Bank's multi-currency accounting system which utilizes contract specific information such as currency, maturity date, contractual amount, and strike price, along with market data information such as the spot rates of specific currency and yield curves. Foreign exchange contracts are deemed Level 2 measurements because while they are valued using the Bank's multi-currency accounting system, significant management judgment or estimation is not required.

The Company is exposed to credit risk if borrowers or counterparties fail to perform. The Company seeks to minimize credit risk through credit approvals, limits, monitoring procedures, and collateral requirements. The Company generally enters into transactions with borrowers and counterparties that carry high quality credit ratings. Credit risk associated with borrowers or counterparties as well as the Company's non-performance risk is factored into the determination of the fair value of derivative financial instruments.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010:

(dollars in thousands)	Quoted Prices In Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total


December 31, 2011
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	822,508	$	408,510		$	-		$	1,231,018
Debt Securities Issued by States and Political Subdivisions		-		407,059			-			407,059
Debt Securities Issued by Corporations		-		96,387			-			96,387
Mortgage-Backed Securities Issued by Government Agencies		-		1,655,872			-			1,655,872
U.S. Government-Sponsored Enterprises		-		61,549			-			61,549

Total Mortgage-Backed Securities		-		1,717,421			-			1,717,421

Total Investment Securities Available-for-Sale		822,508		2,629,377			-			3,451,885

Loans Held for Sale		-		18,957			-			18,957
Mortgage Servicing Rights		-		-			7,131			7,131
Other Assets		11,082		-			-			11,082
Net Derivative Assets and Liabilities		-		(805	)		2,058			1,253

Total Assets Measured at Fair Value on a Recurring Basis as of December 31, 2011	$	833,590	$	2,647,529		$	9,189		$	3,490,308

December 31, 2010
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	553,894	$	1,962		$	-		$	555,856
Debt Securities Issued by States and Political Subdivisions		-		113,609			-			113,609
Debt Securities Issued by U.S. Government-Sponsored Enterprises		-		505			-			505
Mortgage-Backed Securities Issued by Government Agencies		-		5,750,028			-			5,750,028
U.S. Government-Sponsored Enterprises		-		113,876			-			113,876

Total Mortgage-Backed Securities		-		5,863,904			-			5,863,904

Total Investment Securities Available-for-Sale		553,894		5,979,980			-			6,533,874

Mortgage Servicing Rights		-		-			10,226			10,226
Other Assets		10,851		-			-			10,851
Net Derivative Assets and Liabilities		-		3,117			(332	)		2,785

Total Assets Measured at Fair Value on a Recurring Basis as of December 31, 2010	$	564,745	$	5,983,097		$	9,894		$	6,557,736

For the years ended December 31, 2011 and 2010, the changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:

(dollars in thousands)	Mortgage Servicing Rights ¹			Net Derivative Assets and Liabilities ²			Total


Year Ended December 31, 2011
Balance as of January 1, 2011	$	10,226		$	(332	)	$	9,894
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(3,095	)		14,030			10,935
Transfers to Loans Held for Sale		-			(11,640	)		(11,640	)

Balance as of December 31, 2011	$	7,131		$	2,058		$	9,189

Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of December 31, 2011	$	(1,521	)	$	2,058		$	537

Year Ended December 31, 2010
Balance as of January 1, 2010	$	15,332		$	(180	)	$	15,152
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(5,106	)		14,956			9,850
Transfers to Loans Held for Sale		-			(15,108	)		(15,108	)

Balance as of December 31, 2010	$	10,226		$	(332	)	$	9,894

Total Unrealized Net Losses Included in Net Income Related to Assets Still Held as of December 31, 2010	$	(2,546	)	$	(332	)	$	(2,878	)

The Company may be required periodically to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost-or-fair value accounting or impairment write-downs of individual assets. For the year ended December 31, 2011, several of the branch premises with a carrying value of $1.0 million were written down to their fair value of $0.4 million, resulting in an impairment charge of $0.6 million, which was included in net occupancy expense for the period. The Company primarily utilized the tax assessed value and other observable market inputs to determine fair market value of the properties, and therefore, is classified as a Level 2 measurement. For the year ended December 31, 2010, there were no material adjustments to fair value for the Company's assets and liabilities measured at fair value on a nonrecurring basis in accordance with GAAP.

The Company elected the fair value option for all residential mortgage loans held for sale originated on or after October 1, 2011. This election allows for a more effective offset of the changes in fair values of the loans held for sale and the derivative financial instruments used to economically hedge them without having to apply complex hedge accounting provisions. As noted above, the fair value of the Company's residential mortgage loans held for sale was determined based on quoted prices for similar loans in active markets.

The following table reflects the difference between the aggregate fair value and the aggregate unpaid principal balance of the Company's residential mortgage loans held for sale as of December 31, 2011.

Changes in the estimated fair value of residential mortgage loans held for sale are reported as a component of mortgage banking income in the Company's consolidated statements of income. For the year ended December 31, 2011, the Company recorded a net gain of $0.1 million as a result of the change in fair value of the Company's residential mortgage loans held for sale.

These disclosures exclude financial instruments that are recorded at fair value on a recurring basis on the Company's consolidated statements of condition as well as short-term financial assets such as cash and cash equivalents, and liabilities such as short-term borrowings, for which the carrying amounts approximate fair value. The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.

The fair value of the Company's investment securities held-to-maturity was primarily measured using information from a third-party pricing service. Quoted prices in active markets were used whenever available. If quoted prices were not available, fair values were measured using pricing models or other valuation techniques such as the present value of future cash flows, adjusted for credit loss assumptions.

The fair value of the Company's residential mortgage loans held for sale was determined based on quoted prices for similar loans in active markets. As noted above, the Company elected the fair value option for all residential mortgage loans held for sale originated on or after October 1, 2011.

The fair value of the Company's loans are estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans were first segregated by type such as commercial, real estate, and consumer, and were then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

The fair values of the Company's noninterest-bearing and interest-bearing demand deposits and savings deposits were equal to the amount payable on demand (i.e., their carrying amounts) because these products have no stated maturity. The fair values of the Company's time deposits were estimated using discounted cash flow analyses. The discount rates used were based on rates currently offered for deposits with similar remaining maturities. The fair values of the Company's deposit liabilities do not take into consideration the value of the Company's long-term relationships with depositors, which may have significant value.

The fair value of the Company's securities sold under agreements to repurchase was calculated using discounted cash flow analyses, applying discount rates currently offered for new agreements with similar remaining maturities and considering the Company's non-performance risk.

The fair value of the Company's long-term debt was calculated using a discounted cash flow approach and applying discount rates currently offered for new notes with similar remaining maturities and considering the Company's non-performance risk.

The following presents the carrying amount and fair values of the Company's financial instruments as of December 31, 2011 and 2010:

	December 31, 2011				December 31, 2010


(dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Financial Instruments – Assets
Investment Securities Held-to-Maturity	$	3,657,796	$	3,754,206	$	127,249	$	134,028
Loans Held for Sale		18,957		18,957		17,564		17,575
Loans ¹		5,098,681		5,373,777		4,861,643		5,115,355
Financial Instruments – Liabilities
Deposits		10,592,623		10,603,120		9,888,995		9,901,009
Securities Sold Under Agreements to Repurchase		1,925,998		2,031,057		1,901,084		2,003,375
Long-Term Debt ²		21,787		24,076		23,707		24,590

- 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.

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