Fair Value Measurements

Fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market for the given asset or liability at the measurement date based on market conditions at that date. Certain assets and liabilities are recorded in the Company’s financial statements at fair value. Some are recorded on a recurring basis and some on a non-recurring basis.

For some assets and liabilities, observable market transactions and market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. A hierarchy for fair value has been established which categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels are as follows:

Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) - fair value is based on unadjusted quoted prices in active markets for identical assets or liabilities.

Significant Other Observable Inputs (Level 2) - Fair value is based on significant other observable inputs which are generally determined based on a single price for each financial instrument provided to us by an applicable third-party pricing service and is based on one or more of the following:


•	Quoted prices for similar, but not identical, assets or liabilities in active markets;


•	Quoted prices for identical or similar assets or liabilities in inactive markets;


•	Inputs other than quoted prices that are observable, such as interest rate and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates;


•	Other inputs derived from or corroborated by observable market inputs.

Significant Unobservable Inputs (Level 3) - Fair value is based upon model-based valuation techniques for which at least one significant assumption is not observable in the market.

Transfers between levels are recognized as of the end of the reporting period. There were no transfers in or out of quoted prices in active markets for identical instruments, significant other observable inputs or significant unobservable inputs during the nine months ended September 30, 2012 and 2011, respectively.

The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to determine fair values. Management has evaluated the methodologies employed by the third-party pricing services by comparing the price provided by the pricing service with other sources, including brokers' quotes, sales or purchases of similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for their values. Based on all observable inputs, management may adjust prices obtained from third-party pricing services to more appropriately reflect the prices that would be received to sell assets or paid to transfer liabilities in orderly transactions in the current market. No significant adjustments were made to price provided by third-party pricing services at September 30, 2012, December 31, 2011 or September 30, 2011.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value of financial assets and liabilities that are measured on a recurring basis are as follows as of September 30, 2012 (in thousands):



	Total		Quoted Prices in Active Markets for Identical Instruments			Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:
Trading securities:
U.S. Government agency debentures	$	3,100	$	—		$	3,100	$	—
U.S. agency residential mortgage-backed securities	119,835		—			119,835		—
Municipal and other tax-exempt securities	58,150		—			58,150		—
Other trading securities	23,157		—			23,157		—
Total trading securities	204,242		—			204,242		—
Available for sale securities:
U.S. Treasury	1,002		1,002			—		—
Municipal and other tax-exempt	87,969		—			46,690		41,279
U.S. agency residential mortgage-backed securities	10,654,821		—			10,654,821		—
Privately issued residential mortgage-backed securities	331,722		—			331,722		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	339,095		—			339,095		—
Other debt securities	36,456		—			31,056		5,400
Perpetual preferred stock	25,288		—			25,288		—
Equity securities and mutual funds	30,081		7,837			22,244		—
Total available for sale securities	11,506,434		8,839			11,450,916		46,679
Fair value option securities:
U.S. agency residential mortgage-backed securities	305,445		—			305,445		—
Corporate debt securities	26,442		—			26,442		—
Total fair value option securities	331,887		—			331,887		—
Residential mortgage loans held for sale	325,102		—			325,102		—
Mortgage servicing rights¹	89,653		—			—		89,653
Derivative contracts, net of cash margin²	472,783		8,301		³	464,482		—
Other assets – private equity funds	28,792		—			—		28,792
Liabilities:
Derivative contracts, net of cash margin²	435,497		—			435,497		—


¹	A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.


²	See Note 3 for detail of fair value of derivative contracts by contract type.


³	Represents exchange-traded energy derivative contracts.

The fair value of financial assets and liabilities that are measured on a recurring basis are as follows as of December 31, 2011 (in thousands):



	Total		Quoted Prices in Active Markets for Identical Instruments			Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:
Trading securities:
U.S. Government agency debentures	$	22,203	$	—		$	22,203	$	—
U.S. agency residential mortgage-backed securities	12,379		—			12,379		—
Municipal and other tax-exempt securities	39,345		—			39,345		—
Other trading securities	2,873		—			2,696		177
Total trading securities	76,800		—			76,623		177
Available for sale securities:
U.S. Treasury	1,006		1,006			—		—
Municipal and other tax-exempt	68,837		—			26,484		42,353
U.S. agency residential mortgage-backed securities	9,588,177		—			9,588,177		—
Privately issued residential mortgage-backed securities	419,166		—			419,166		—
Other debt securities	36,495		—			30,595		5,900
Perpetual preferred stock	18,446		—			18,446		—
Equity securities and mutual funds	47,238		23,596			23,642		—
Total available for sale securities	10,179,365		24,602			10,106,510		48,253
Fair value option securities:
U.S. agency residential mortgage-backed securities	626,109		—			626,109		—
Corporate debt securities	25,117		—			25,117		—
Total fair value option securities	651,226		—			651,226		—
Residential mortgage loans held for sale	188,125		—			188,125		—
Mortgage servicing rights¹	86,783		—			—		86,783
Derivative contracts, net of cash margin ²	293,859		457		³	293,402		—
Other assets – private equity funds	30,902		—			—		30,902
Liabilities:
Derivative contracts, net of cash margin ²	236,522		—			236,522		—


¹	A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.


²	See Note 3 for detail of fair value of derivative contracts by contract type.


³	Represents exchange-traded agricultural derivative contracts.

The fair value of financial assets and liabilities that are measured on a recurring basis are as follows as of September 30, 2011 (in thousands):



	Total		Quoted Prices in Active Markets for Identical Instruments			Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:
Trading securities:
U.S. Government agency debentures	$	1,839	$	—		$	1,839	$	—
U.S. agency residential mortgage-backed securities	49,501		—			49,501		—
Municipal and other tax-exempt securities	57,431		—			57,431		—
Other trading securities	888		888			—		—
Total trading securities	109,659		888			108,771		—
Available for sale securities:
U.S. Treasury	1,006		1,006			—		—
Municipal and other tax-exempt	70,195		—			26,483		43,712
U.S. agency residential mortgage-backed securities	9,016,877		—			9,016,877		—
Privately issued residential mortgage-backed securities	457,332		—			457,332		—
Other debt securities	5,900		—			—		5,900
Perpetual preferred stock	19,080		—			19,080		—
Equity securities and mutual funds	49,241		29,827			19,414		—
Total available for sale securities	9,619,631		30,833			9,539,186		49,612
Fair value option securities:
U.S. agency residential mortgage-backed securities	672,191		—			672,191		—
Corporate debt securities	—		—			—		—
Total fair value option securities	672,191		—			672,191		—
Residential mortgage loans held for sale	256,397		—			256,397		—
Mortgage servicing rights¹	87,948		—			—		87,948
Derivative contracts, net of cash margin ²	370,616		34,770		³	335,846		—
Other assets – private equity funds	29,113		—			—		29,113
Liabilities:
Derivative contracts, net of cash margin ²	341,822		—			341,822		—


¹	A reconciliation of the beginning and ending fair value of mortgage servicing rights and disclosures of significant assumptions used to determine fair value are presented in Note 6, Mortgage Banking Activities.


²	See Note 3 for detail of fair value of derivative contracts by contract type.


³	Represents exchange-traded energy derivative contracts

Following is a description of the Company's valuation methodologies used for assets and liabilities measured on a recurring basis:

Securities

The fair values of trading, available for sale and fair value options securities are based on quoted prices for identical instruments in active markets, when available. If quoted prices for identical instruments are not available, fair values are based on significant other observable inputs such as quoted prices of comparable instruments or interest rates and credit spreads, yield curves, volatilities, prepayment speeds and loss severities.

The fair value of certain available for sale municipal and other debt securities may be based on significant unobservable inputs. These significant unobservable inputs include limited observed trades, projected cash flows, current credit rating of the issuers and, when applicable, the insurers of the debt and observed trades of similar debt. Discount rates are primarily based on reference to interest rate spreads on comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies adjusted for a lack of trading volume. Significant unobservable inputs are developed by investment securities professionals involved in the active trading of similar securities. A summary of significant inputs used to value these securities follows. A management committee composed of senior members from the Company's Capital Markets, Risk Management and Finance departments assess the appropriateness of these inputs monthly.

Derivatives

All derivative instruments are carried on the balance sheet at fair value. Fair values for exchange-traded contracts are based on quoted prices. Fair values for over-the-counter interest rate, commodity and foreign exchange contracts are based on valuations provided either by third-party dealers in the contracts, quotes provided by independent pricing services, or a third-party provided pricing model that use significant other observable market inputs.

Credit risk is considered in determining the fair value of derivative instruments. Management determines fair value adjustments based on various risk factors including but not limited to counterparty credit rating or equivalent loan grading, derivative contract notional size, price volatility of the underlying commodity, duration of the derivative contracts and expected loss severity. Expected loss severity is based on historical losses for similarly risk graded commercial loan customers. Decreases in counterparty credit rating or grading and increases in price volatility and expected loss severity all tend to increase the credit quality adjustment which reduces the fair value of asset contracts. The reduction in fair value is recognized in earnings during the current period.

We also consider our own credit risk in determining the fair value of derivative contracts. Changes in our credit rating would affect the fair value of our derivative liabilities. In the event of a credit downgrade, the fair value of our derivative liabilities would increase. The change in the fair value would be recognized in earnings in the current period.

Residential Mortgage Loans Held for Sale

Residential mortgage loans held for sale are carried on the balance sheet at fair value. The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments.

Other Assets - Private Equity Funds

The fair value of the portfolio investments of the Company's two private equity funds are based upon net asset value reported by the underlying funds, as adjusted by the general partner when necessary to represent the price that would be received to sell the assets. The Company's private equity funds provide customers alternative investment opportunities as limited partners of the funds. As fund of funds, the private equity funds invest in other limited partnerships or limited liability companies that invest substantially all of their assets in U.S. companies pursuing diversified investment strategies including early-stage venture capital, distressed securities and corporate or asset buy-outs. Private equity fund assets are long-term, illiquid investments. No secondary market exists for these assets. The private equity funds typically invest in funds that provide no redemption rights to investors. The fair value of the private equity investments may only be realized through cash distributions from the underlying funds.

A summary of quantitative information about assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2012 follows (in thousands):

Quantitative Information about Level 3 Recurring Fair Value Measurements

Par

Value

Amortized

Cost⁶

Fair

Value

Valuation Technique(s)

Unobservable Input

Range

(Weighted Average)

Available for sale securities

Municipal and other tax-exempt securities

Investment grade

29,100

28,999

28,848

Discounted cash flows

Interest rate spread

1.00%-1.50% (1.25%)

98.85%-99.47% (99.13%)

Below investment grade

17,000

13,396

12,431

Discounted cash flows

Interest rate spread

7.20%-9.88% (7.77%)

⁴

73.06%-73.30% (73.13%)

Total municipal and other tax-exempt securities

46,100

42,395

41,279

Other debt securities

5,400

Discounted cash flows

Interest rate spread

1.70%-1.73% (1.71%)

⁵

100% (100%)

Other assets - private equity funds

N/A

28,792

Net asset value reported by underlying fund

N/A


¹	Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume


²	Interest rate yields used to value investment grade tax-exempt securities represent a spread of 75 to 80 basis points over average yields for comparable tax-exempt securities.


³	Represents fair value as a percentage of par value


⁴	Interest rate yields determined using a spread of 700 basis points over comparable municipal securities of varying durations.


⁵	Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1%.


⁶	Amortized cost reduced by other-than-temporary impairments recorded in earnings. See Note 2 for additional discussion.

The fair value of these securities measured at fair value using significant unobservable inputs are sensitive primarily to changes in interest rate spreads. At September 30, 2012, for tax-exempt securities rated investment grade by all nationally-recognized rating agencies, a 100 basis point increase in the spreads over average yields for comparable securities would result in an additional decrease in the fair value of $285 thousand. For taxable securities rated investment grade by all nationally-recognized rating agencies, a 100 basis point increase in the spreads over average yield for comparable securities would result in an additional decrease in the fair value of $53 thousand. For municipal and other tax-exempt securities rated below investment grade by at least one of the nationally-recognized rating agencies, a 100 basis point increase in the spread over average yields for comparable securities would result in an additional decrease in the fair value of these securities of $363 thousand.

The following represents the changes for the three months ended September 30, 2012 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):



	Available for Sale Securities
	Municipal and other tax-exempt			Other debt securities		Other assets – private equity funds
Balance, June 30, 2012	$	41,662		$	5,388	$	31,492
Purchases and capital calls	—			—		476
Redemptions and distributions	1			—		(3,906		)
Gain (loss) recognized in earnings:
Gain on other assets, net	—			—		730
Gain on available for sale securities, net	—			—		—
Other-than-temporary impairment losses	—			—		—
Other comprehensive gain (loss)	(384		)	12		—
Balance, September 30, 2012	$	41,279		$	5,400	$	28,792

The following represents the changes for the nine months ended September 30, 2012 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):



	Available for Sale Securities
	Municipal and other tax-exempt			Other debt securities			Other assets – private equity funds
Balance, December 31, 2011	$	42,353		$	5,900		$	30,902
Purchases and capital calls	—			—			2,385
Redemptions and distributions	(462		)	(500		)	(7,072		)
Gain (loss) recognized in earnings:
Gain on other assets, net	—			—			2,577
Gain on available for sale securities, net	1			—			—
Other-than-temporary impairment losses	—			—			—
Other comprehensive (loss)	(613		)	—			—
Balance, September 30, 2012	$	41,279		$	5,400		$	28,792

A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of December 31, 2011 follows (in thousands):



Quantitative Information about Level 3 Recurring Fair Value Measurements


	Par Value		Amortized Cost⁶		Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)

Available for sale securities
Municipal and other tax-exempt securities
Investment grade	$	29,200	$	29,466	$	29,327	Discounted cash flows¹	Interest rate spread	1.00%-1.50% (1.33%)	²
									98.79%-99.60% (99.24%)	³
Below investment grade	17,000		13,026		13,026		Discounted cash flows¹	Interest rate spread	6.25%-9.58% (6.93%)	⁴
									76.45%-76.99% (76.62%)	³
Total municipal and other tax-exempt securities	46,200		42,492		42,353
Other debt securities	5,900		5,900		5,900		Discounted cash flows¹	Interest rate spread	1.60%-1.80% (1.76%)	⁵
									100% (100%)	³

Other assets - private equity funds	N/A		N/A		30,902		Net asset value reported by underlying fund	Net asset value reported by underlying fund	N/A


¹	Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume


²	Interest rate yields used to value investment grade tax-exempt securities represent a spread of 75 to 80 basis points over average yields for comparable tax-exempt securities.


³	Represents fair value as a percentage of par value


⁴	Interest rate yields determined using a spread of 600 basis points over comparable municipal securities of varying durations.


⁵	Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1%.


⁶	Amortized cost reduced by other-than-temporary impairments recorded in earnings. See Note 2 for additional discussion.

A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2011 follows (in thousands):



Quantitative Information about Level 3 Recurring Fair Value Measurements


	Par Value		Amortized Cost⁶		Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)

Available for sale securities
Municipal and other tax-exempt securities
Investment grade	$	29,750	$	29,643	$	29,532	Discounted cash flows¹	Interest rate spread	1.00%-1.30% (1.21%)	²
									98.99%-98.48% (99.35%)	³
Below investment grade	17,000		14,063		14,180		Discounted cash flows¹	Interest rate spread	6.25%-9.55% (6.66%)	⁴
									83.35%-83.57% (83.41%)	³
Total municipal and other tax-exempt securities	46,750		43,706		43,712
Other debt securities	5,900		5,900		5,900		Discounted cash flows¹	Interest rate spread	1.60%-1.73% (1.70%)	⁵
									100% (100%)	³

Other assets - private equity funds	N/A		N/A		33,415		Net asset value reported by underlying fund	Net asset value reported by underlying fund	N/A


¹	Discounted cash flows developed using discount rates primarily based on reference to interest rate spreads for comparable securities of similar duration and credit rating as determined by the nationally-recognized rating agencies, adjusted for lack of trading volume


²	Interest rate yields used to value investment grade tax-exempt securities represent a spread of 75 to 80 basis points over average yields for comparable tax-exempt securities.


³	Represents fair value as a percentage of par value


⁴	Interest rate yields determined using a spread of 600 basis points over comparable municipal securities of varying durations.


⁵	Interest rate yields used to value investment grade taxable securities based on comparable short-term taxable securities which are generally yielding less than 1%.


⁶	Amortized cost reduced by other-than-temporary impairments recorded in earnings. See Note 2 for additional discussion.

The following represents the changes for the three months ended September 30, 2011 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):



	Available for Sale Securities
	Municipal and other tax-exempt			Other debt securities		Other assets – private equity funds
Balance, June 30, 2011	$	43,658		$	5,893	$	28,313
Purchases, and capital calls	—			—		813
Redemptions and distributions	(100		)	—		(714		)
Gain (loss) recognized in earnings
Brokerage and trading revenue	—			—		—
Gain (loss) on other assets, net	—			—		701
Gain on available for sale securities, net	1			—		—
Other-than-temporary impairment losses	—			—		—
Other comprehensive (loss)	153			7		—
Balance, September 30, 2011	$	43,712		$	5,900	$	29,113

The following represents the changes for the nine months ended September 30, 2011 related to assets measured at fair value on a recurring basis using significant unobservable inputs (in thousands):



	Available for Sale Securities
	Municipal and other tax-exempt			Other debt securities			Other assets – private equity funds
Balance, December 31, 2010	$	47,093		$	6,400		$	25,436
Purchases and capital calls	7,520			—			2,465
Redemptions and distributions	(10,075		)	(500		)	(2,899		)
Gain (loss) recognized in earnings
Brokerage and trading revenue	(576		)	—			—
Gain (loss) on other assets, net	—			—			4,111
Gain on available for sale securities, net	19			—			—
Other-than-temporary impairment losses	(521		)	—			—
Other comprehensive (loss)	252			—			—
Balance, September 30, 2011	$	43,712		$	5,900		$	29,113

Fair Value of Assets and Liabilities Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis include pension plan assets, which are based on quoted prices in active markets for identical instruments, collateral for certain impaired loans and real property and other assets acquired to satisfy loans, which are based primarily on comparisons to completed sales of similar assets. In addition, goodwill impairment is evaluated based on the fair value of the Company's reporting units.

The following represents the carrying value of assets measured at fair value on a non-recurring basis (and related losses) during the period. The carrying value represents only those assets with a balance at June 30, 2012 for which the fair value was adjusted during the nine months ended September 30, 2012:



	Carrying Value at September 30, 2012						Fair Value Adjustments for the three months ended September 30, 2012 Recognized in:						Fair Value Adjustments for the nine months ended September 30, 2012 Recognized in:
	Quoted Prices in Active Markets for Identical Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs		Gross charge-offs against allowance for loan losses		Gross charge-offs against accrual for recourse loans		Net losses and expenses of repossessed assets, net		Gross charge-offs against allowance for loan losses		Gross charge-offs against accrual for recourse loans		Net losses and expenses of repossessed assets, net
Impaired loans	$	—	$	25,521	$	1,655	$	3,915	$	199	$	—	$	10,797	$	394	$	—
Goodwill	—		—
Real estate and other repossessed assets	—		38,386		6,617		—		—		4,398		—		—		11,068

The fair value of collateral-dependent impaired loans and real estate and other repossessed assets and the related fair value adjustments are generally based on unadjusted third-party appraisals. Our appraisal review policies require appraised values to be supported by observed inputs derived principally from or corroborated by observable market data. Appraisals that are not based on observable inputs or that require significant adjustments or fair value measurements that are not based on third-party appraisals are considered to be based on significant unobservable inputs. Non-recurring fair value measurements of collateral-dependent impaired loans and real estate and other repossessed assets based on significant unobservable inputs are generally due to estimate of current fair values between appraisal dates. Significant unobservable inputs include listing prices for the same or comparable assets, uncorroborated expert opinions or management's knowledge of the collateral or industry. These inputs are developed by asset management and workout professional and approved by senior Credit Administration executives.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2012 follows (in thousands):



Quantitative Information about Level 3 Non-recurring Fair Value Measurements
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)

Impaired loans	$	1,655	Appraised value, as adjusted	Broker quotes and management's knowledge of industry and collateral.	N/A
Real estate and other repossessed assets	6,617		Listing value, less cost to sell	Marketability adjustments off appraised value	68%-100% (85%)¹


¹	$796 thousand of real estate and other repossessed assets at September 30, 2012 are based on uncorroborated expert opinions or management's knowledge of the collateral or industry and do not have an independently appraised value.

The following represents the carrying value of assets measured at fair value on a non-recurring basis (and related losses) during the period. The carrying value represents only those assets with a balance at September 30, 2011 for which the fair value was adjusted during the nine months ended September 30, 2011:



	Carrying Value at September 30, 2011						Fair Value Adjustments for the Three Months Ended September 30, 2011 Recognized in:						Fair Value Adjustments for the Nine Months Ended September 30, 2011 Recognized in:
	Quoted Prices in Active Markets for Identical Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs		Gross charge-offs against allowance for loan losses		Gross charge-offs against accrual for recourse loans		Net losses and expenses of repossessed assets, net		Gross charge-offs against allowance for loan losses		Gross charge-offs against accrual for recourse loans		Net losses and expenses of repossessed assets, net
Impaired loans	$	—	$	13,605	$	2,086	$	3,734	$	305	$	—	$	4,090	$	305	$	—
Real estate and other repossessed assets	—		24,968		—		—		—		4,052		—		—		11,683

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of September 30, 2011 follows (in thousands):



Quantitative Information about Level 3 Non-recurring Fair Value Measurements
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)

Impaired loans	$	2,086	Appraised value, as adjusted	Adjustments to appraised value	0%-41%(17%)

Fair Value of Financial Instruments

The following table presents the carrying values and estimated fair values of all financial instruments, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis as of September 30, 2012 (dollars in thousands):



	Carrying Value			Range of Contractual Yields	Average Re-pricing (in years)	Discount Rate		Estimated Fair Value
Cash and cash equivalents	$	615,494						$	615,494
Trading securities:
Obligations of the U.S. government	3,100							3,100
U.S. agency residential mortgage-backed securities	119,835							119,835
Municipal and other tax-exempt securities	58,150							58,150
Other trading securities	23,157							23,157
Total trading securities	204,242							204,242
Investment securities:
Municipal and other tax-exempt	155,144							159,464
U.S. agency residential mortgage-backed securities	91,911							95,128
Other debt securities	185,059							205,766
Total investment securities	432,114							460,358
Available for sale securities:
U.S. Treasury	1,002							1,002
Municipal and other tax-exempt	87,969							87,969
U.S. agency residential mortgage-backed securities	10,654,821							10,654,821
Privately issued residential mortgage-backed securities	331,722							331,722
Commercial mortgage-backed securities guaranteed by U.S. government agencies	339,095							339,095
Other debt securities	36,456							36,456
Perpetual preferred stock	25,288							25,288
Equity securities and mutual funds	30,081							30,081
Total available for sale securities	11,506,434							11,506,434
Fair value option securities:
U.S. agency residential mortgage-backed securities	305,445							305,445
Corporate debt securities	26,442							26,442
Total fair value option securities	331,887							331,887
Residential mortgage loans held for sale	325,102							325,102
Loans:
Commercial	7,273,217			0.25 - 30.00	0.64	0.58 - 3.50		7,232,761
Commercial real estate	2,165,526			0.38 - 18.00	0.93	1.30 - 3.17		2,142,239
Residential mortgage	2,018,980			0.38 - 18.00	3.31	0.99 - 3.17		2,084,251
Consumer	374,644			0.38 - 21.00	0.32	1.43 - 3.69		368,546
Total loans	11,832,367							11,827,797
Allowance for loan losses	(233,756		)					—
Net loans	11,598,611							11,827,797
Mortgage servicing rights	89,653							89,653
Derivative instruments with positive fair value, net of cash margin	472,783							472,783
Other assets – private equity funds	28,791							28,791
Deposits with no stated maturity	16,120,541							16,120,541
Time deposits	3,022,326			0.01 - 9.64	2.14	0.85 - 1.15		3,099,183
Other borrowings	3,429,575			0.09 - 5.25	—	0.09 - 2.67		3,420,135
Subordinated debentures	347,592			1.12 - 5.00	3.79	2.26	%	345,852
Derivative instruments with negative fair value, net of cash margin	435,497							435,497



	Carrying Value			Range of Contractual Yields	Average Re-pricing (in years)	Discount Rate		Estimated Fair Value
Cash and cash equivalents	$	986,365						$	986,365
Trading securities:
Obligations of the U.S. government	22,203							22,203
U.S. agency residential mortgage-backed securities	12,379							12,379
Municipal and other tax-exempt securities	39,345							39,345
Other trading securities	2,873							2,873
Total trading securities	76,800							76,800
Investment securities:
Municipal and other tax-exempt	128,697							133,670
U.S. agency residential mortgage-backed securities	121,704							120,536
Other debt securities	188,835							208,451
Total investment securities	439,236							462,657
Available for sale securities:
U.S. Treasury	1,006							1,006
Municipal and other tax-exempt	68,837							68,837
U.S. agency residential mortgage-backed securities	9,588,177							9,588,177
Privately issued residential mortgage-backed securities	419,166							419,166
Other debt securities	36,495							36,495
Perpetual preferred stock	18,446							18,446
Equity securities and mutual funds	47,238							47,238
Total available for sale securities	10,179,365							10,179,365
Fair value option securities:
U.S. agency residential mortgage-backed securities	626,109							626,109
Corporate debt securities	25,117							25,117
Total fair value option securities	651,226							651,226
Residential mortgage loans held for sale	188,125							188,125
Loans:
Commercial	6,571,454			0.25 - 30.00%	0.57	0.63 - 3.85%		6,517,795
Commercial real estate	2,279,909			0.38 - 18.00%	1.26	0.28 - 3.51%		2,267,375
Residential mortgage	1,970,461			0.38 - 18.00%	3.26	1.14 - 3.70%		2,034,898
Consumer	447,919			0.38 - 21.00%	0.42	1.88 - 3.88%		436,490
Total loans	11,269,743							11,256,558
Allowance for loan losses	(253,481		)					—
Net loans	11,016,262							11,256,558
Mortgage servicing rights	86,783							86,783
Derivative instruments with positive fair value, net of cash margin	293,859							293,859
Other assets – private equity funds	30,902							30,902
Deposits with no stated maturity	15,380,598							15,380,598
Time deposits	3,381,982			0.01 - 9.64%	2.07	1.02 - 1.43%		3,441,610
Other borrowings	2,370,867			0.25 - 6.58%	—	0.04 - 2.76%		2,369,224
Subordinated debentures	398,881			5.19 - 5.82%	1.44	3.29	%	411,243
Derivative instruments with negative fair value, net of cash margin	236,522							236,522



	Carrying Value			Range of Contractual Yields	Average Re-pricing (in years)	Discount Rate		Estimated Fair Value
Cash and cash equivalents	$	972,881						$	972,881
Trading securities:
Obligations of the U.S. government	1,839							1,839
U.S. agency residential mortgage-backed securities	49,501							49,501
Municipal and other tax-exempt securities	57,431							57,431
Other trading securities	888							888
Total trading securities	109,659							109,659
Investment securities:
Municipal and other tax-exempt	133,394							138,461
U.S. agency residential mortgage-backed securities	130,668							130,614
Other debt securities	188,590							214,159
Total investment securities	452,652							483,234
Available for sale securities:
U.S. Treasury	1,006							1,006
Municipal and other tax-exempt	70,195							70,195
U.S. agency residential mortgage-backed securities	9,016,877							9,016,877
Privately issued residential mortgage-backed securities	457,332							457,332
Other debt securities	5,900							5,900
Perpetual preferred stock	19,080							19,080
Equity securities and mutual funds	49,241							49,241
Total available for sale securities	9,619,631							9,619,631
Fair value option securities:
U.S. agency residential mortgage-backed securities	672,191							672,191
Corporate debt securities	—							—
Total fair value option securities	672,191							672,191
Residential mortgage loans held for sale	256,397							256,397
Loans:
Commercial	6,475,689			0.25 - 30.00%	0.56	0.64 - 3.81%		6,406,679
Commercial real estate	2,259,902			0.38 - 18.00%	1.23	0.28 - 3.39%		2,227,367
Residential mortgage	1,911,896			0.38 - 18.00%	3.24	0.88 - 3.78%		1,984,949
Consumer	477,082			0.38 - 21.00%	0.48	1.90 - 3.68%		477,058
Total loans	11,124,569							11,096,053
Allowance for loan losses	(271,456		)					—
Net loans	10,853,113							11,096,053
Mortgage servicing rights	87,948							87,948
Derivative instruments with positive fair value, net of cash margin	370,616							370,616
Other assets – private equity funds	29,113							29,113
Deposits with no stated maturity	14,884,552							14,884,552
Time deposits	3,554,470			0.01 - 9.64%	2.02	0.87 - 1.28%		3,620,327
Other borrowings	2,605,737			0.25 - 6.58%	—	0.06 - 2.70%		2,605,739
Subordinated debentures	398,834			5.19 - 5.82%	1.67	3.24	%	413,701
Derivative instruments with negative fair value, net of cash margin	341,822							341,822

Because no market exists for certain of these financial instruments and management does not intend to sell these financial instruments, the fair values shown in the tables above may not represent values at which the respective financial instruments could be sold individually or in the aggregate at the given reporting date.

The following methods and assumptions were used in estimating the fair value of these financial instruments:

Cash and Cash Equivalents

The book value reported in the consolidated balance sheet for cash and short-term instruments approximates those assets’ fair values.

Securities

The fair values of securities are generally based on Significant Other Observable Inputs such as quoted prices for comparable instruments or interest rates and credit spreads, yield curves, volatilities prepayment speeds and loss severities.

Loans

The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates and credit and liquidity spreads currently being offered for loans with similar remaining terms to maturity and risk, adjusted for the impact of interest rate floors and ceilings which are classified as Significant Unobservable Inputs. The fair values of loans were estimated to approximate their discounted cash flows less loan loss allowances allocated to these loans of $193 million at September 30, 2012, $207 million at December 31, 2011 and $250 million at September 30, 2011.

Deposits

The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions which are considered Significant Unobservable Inputs. Estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, is equal to the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, adjusting fair value for the expected benefit of these deposits is prohibited. Accordingly, the positive effect of such deposits is not included in the tables above.

Other Borrowings and Subordinated Debentures

The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments which are considered Significant Unobservable Inputs

Off-Balance Sheet Instruments

The fair values of commercial loan commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of these off-balance sheet instruments were not significant at September 30, 2012, December 31, 2011 or September 30, 2011.

Fair Value Election

As more fully disclosed in Note 2 and Note 6 to the Consolidated Financial Statements, the Company has elected to carry all residential mortgage-backed securities which have been designated as economic hedges against changes in the fair value of mortgage servicing rights, certain corporate debt securities economically hedged by derivative contracts to manage interest rate risk and all residential mortgage loans originated for sale at fair value. Changes in the fair value of these financial instruments are recognized in earnings.