FAIR VALUE DISCLOSURES

9 Months Ended

Sep. 30, 2012

FAIR VALUE DISCLOSURES [Abstract]

FAIR VALUE DISCLOSURES

NOTE 14 – FAIR VALUE DISCLOSURES

"Fair value" is defined by FASB ASC 820, Fair Value Measurements and Disclosure ("FASB ASC 820"), as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The hierarchy is broken down into the following three levels, based on the reliability of inputs:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs for the asset or liability that reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability.

Determination of Fair Value

The Company uses the valuation methodologies listed below to measure different financial instruments at fair value. An indication of the level in the fair value hierarchy in which each instrument is generally classified is included. Where appropriate, the description includes details of the valuation models, the key inputs to those models as well as any significant assumptions.

Available-for-sale securities. Available-for-sale securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities. The Company's available-for-sale securities that are traded on an active exchange, such as the New York Stock Exchange, are classified as Level 1. Available-for-sale securities valued using matrix pricing are classified as Level 2. Available-for-sale securities valued using matrix pricing that has been adjusted to compensate for the present value of expected cash flows, market liquidity, credit quality and volatility are classified as Level 3.

Mortgage servicing rights. The Company records MSRs at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value. An estimate of the fair value of the Company's MSRs is determined by utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. All of the Company's MSRs are classified as Level 3. For additional information about the Company's valuation of MSRs, see Note 12, Mortgage Servicing Rights.

Derivative instruments. The Company's derivative instruments consist of commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell individual fixed-rate mortgage loans. Fair value of these derivative instruments is measured on a recurring basis using recent observable market prices. The Company also enters into interest rate swaps to meet the financing, interest rate and equity risk management needs of its customers. The fair value of these instruments is either an observable market price or a discounted cash flow valuation using the terms of swap agreements but substituting original interest rates with prevailing interest rates ranging from 1.6% to 4.5%. The Company also considers the associated counterparty credit risk when determining the fair value of these instruments. The Company's interest rate swaps, commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell individual fixed-rate mortgage loans are classified as Level 3.

Loans held for sale. Loans held for sale are carried at the lower of cost or estimated fair value and are subject to nonrecurring fair value adjustments. Estimated fair value is determined on the basis of existing commitments or the current market value of similar loans. All of the Company's loans held for sale are classified as Level 2.

Impaired loans. Loans considered impaired under FASB ASC 310 are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect (1) partial write-downs that are based on the observable market price or current appraised value of the collateral, or (2) the full charge-off of the loan carrying value. All of the Company's impaired loans are classified as Level 3.

Other real estate owned. Other real estate owned ("OREO") is carried at the lower of cost or estimated fair value, less estimated selling costs and is subject to nonrecurring fair value adjustments. Estimated fair value is determined on the basis of independent appraisals and other relevant factors less an average of 7% for estimated selling costs. All of the Company's OREO is classified as Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the balances of the assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and 2011:

	September 30, 2012
	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Available-for-sale securities:
U.S. Government agencies	$	-	$	1,472,747	$	-	$	1,472,747
Government agency issued residential mortgage-backed securities		-		338,230		-		338,230
Government agency issued commercial mortgage-backed securities		-		90,306		-		90,306
Obligations of states and political subdivisions		-		574,559		-		574,559
Other		672		7,092		-		7,764
Mortgage servicing rights		-		-		34,562		34,562
Derivative instruments		-		-		62,088		62,088
Total	$	672	$	2,482,934	$	96,650	$	2,580,256
Liabilities:
Derivative instruments	$	-	$	-	$	60,077	$	60,077

	September 30, 2011
	Level 1		Level 2		Level 3		Total
Assets:	(In thousands)
Available-for-sale securities:
U.S. Government agencies	$	-	$	1,497,456	$	-	$	1,497,456
Government agency issued residential mortgage-backed securities		-		420,689		-		420,689
Government agency issued commercial mortgage-backed securities		-		34,475		-		34,475
Obligations of states and political subdivisions		-		519,431		-		519,431
Other		528		8,976		-		9,504
Mortgage servicing rights		-		-		29,159		29,159
Derivative instruments		-		-		59,703		59,703
Total	$	528	$	2,481,027	$	88,862	$	2,570,417
Liabilities:
Derivative instruments	$	-	$	-	$	58,916	$	58,916

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the nine-month periods ended September 30, 2012 and 2011:

	Mortgage				Available-
	Servicing		Derivative		for-sale
	Rights		Instruments		Securities
	(In thousands)
Balance at December 31, 2011	$	30,174	$	342	$	-
Year to date net gains included in:
Net income		4,388		1,669		-
Other comprehensive income		-		-		-
Purchases, sales, issuances and settlements, net		-		-		-
Transfers in and/or out of Level 3		-		-		-
Balance at September 30, 2012	$	34,562	$	2,011	$	-
Net unrealized gains (losses) included in net income for the quarter relating to assets and liabilities held at September 30, 2012	$	395	$	(811)	$	-

	Mortgage				Available-
	Servicing		Derivative		for-sale
	Rights		Instruments		Securities
	(In thousands)
Balance at December 31, 2010	$	38,642	$	2,685	$	-
Year to date net gains (losses) included in:
Net income (loss)		(9,483)		(1,898)		-
Other comprehensive income		-		-		-
Purchases, sales, issuances and settlements, net		-		-		-
Transfers in and/or out of Level 3		-		-		-
Balance at September 30, 2011	$	29,159	$	787	$	-
Net unrealized (losses) gains included in net income for the quarter relating to assets and liabilities held at September 30, 2011	$	(10,296)	$	380	$	-

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The following tables present the balances of assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2012 and 2011:

	September 30, 2012
									Total
	Level 1		Level 2		Level 3		Total		Losses
Assets:	(In thousands)
Loans held for sale	$	-	$	129,408	$	-	$	129,408	$	-
Impaired loans		-		-		176,139		176,139		(18,205)
Other real estate owned		-		-		128,211		128,211		(26,216)

	September 30, 2011
									Total
	Level 1		Level 2		Level 3		Total		Losses
Assets:	(In thousands)
Loans held for sale	$	-	$	100,687	$	-	$	100,687	$	-
Impaired loans		-		-		279,889		279,889		(38,657)
Other real estate owned		-		-		162,686		162,686		(16,277)

Fair Value of Financial Instruments

FASB ASC 825, Financial Instruments ("FASB ASC 825"), requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions are set forth below for the Company's financial instruments.

Loans and Leases. Fair values are estimated for portfolios of loans and leases with similar financial characteristics. The fair value of loans and leases is calculated by discounting scheduled cash flows through the estimated maturity using rates the Company would currently offer customers based on the credit and interest rate risk inherent in the loan or lease. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market and borrower information. Estimated maturity represents the expected average cash flow period, which in some instances is different than the stated maturity. This entrance price approach results in a calculated fair value that would be different than an exit or estimated actual sales price approach and such differences could be significant. All of the Company's loans and leases are classified as Level 3.

Deposit Liabilities. Under FASB ASC 825, the fair value of deposits with no stated maturity, such as noninterest bearing demand deposits, interest bearing demand deposits and savings, is equal to the amount payable on demand as of the reporting date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the prevailing rates offered for deposits of similar maturities. The Company's noninterest bearing demand deposits, interest bearing demand deposits and savings are classified as Level 1. Certificates of deposit are classified as Level 2.

Debt. The carrying amounts for federal funds purchased and repurchase agreements approximate fair value because of their short-term maturity. The fair value of the Company's fixed-term Federal Home Loan Bank ("FHLB") advances is based on the discounted value of contractual cash flows. The discount rate is estimated using the prevailing rates available for advances of similar maturities. The fair value of the Company's junior subordinated debt is based on market prices or dealer quotes. The Company's federal funds purchased, repurchase agreements and junior subordinated debt are classified as Level 1. FHLB advances are classified as Level 2.

Lending Commitments. The Company's lending commitments are negotiated at prevailing market rates and are relatively short-term in nature. As a matter of policy, the Company generally makes commitments for fixed-rate loans for relatively short periods of time. Therefore, the estimated value of the Company's lending commitments approximates the carrying amount and is immaterial to the financial statements. The Company's lending commitments are classified as Level 1.

The following table presents carrying and fair value information of financial instruments at September 30, 2012 and December 31, 2011:

	September 30, 2012				December 31, 2011
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets:	(In thousands)
Cash and due from banks	$	176,529	$	176,529	$	195,681	$	195,681
Interest bearing deposits with other banks		757,207		757,207		303,663		303,663
Available-for-sale securities		2,483,606		2,483,606		2,513,518		2,513,518
Net loans and leases		8,510,950		8,557,412		8,675,193		8,730,819
Loans held for sale		129,408		129,502		83,458		83,503
Liabilities:
Noninterest bearing deposits		2,492,508		2,492,508		2,269,799		2,269,799
Savings and interest bearing deposits		5,800,750		5,800,750		5,698,527		5,698,527
Other time deposits		2,681,382		2,718,028		2,986,863		3,029,147
Federal funds purchased and securities sold under agreement to repurchase and other short-term borrowings		377,676		377,411		375,433		375,285
Long-term debt and other borrowings		193,870		207,136		193,880		200,166
Derivative instruments:
Forward commitments to sell fixed rate mortgage loans		(4,371)		(4,371)		(1,057)		(1,057)
Commitments to fund fixed rate mortgage loans		7,065		7,065		2,140		2,140
Interest rate swap position to receive		55,023		55,023		53,608		53,608
Interest rate swap position to pay		(55,706)		(55,706)		(54,349)		(54,349)