(11) 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 six months ended June 30, 2013 and 2012, 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 prices provided by third-party pricing services at June 30, 2013, December 31, 2012 or June 30, 2012.

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 June 30, 2013 (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	$	60,713	$	—	$	60,713	$	—
U.S. agency residential mortgage-backed securities	43,858		—		43,858		—
Municipal and other tax-exempt securities	53,819		—		53,819		—
Other trading securities	32,201		—		32,201		—
Total trading securities	190,591		—		190,591		—
Available for sale securities:
U.S. Treasury	1,060		1,060		—		—
Municipal and other tax-exempt	95,103		—		56,256		38,847
U.S. agency residential mortgage-backed securities	8,372,795		—		8,372,795		—
Privately issued residential mortgage-backed securities	297,175		—		297,175		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	1,846,943		—		1,846,943		—
Other debt securities	35,894		—		30,701		5,193
Perpetual preferred stock	25,583		—		25,583		—
Equity securities and mutual funds	23,521		5,119		16,155		2,247
Total available for sale securities	10,698,074		6,179		10,645,608		46,287
Fair value option securities:
U.S. agency residential mortgage-backed securities	203,816		—		203,816		—
Other securities	1,940		—		1,940		—
Total fair value option securities	205,756		—		205,756		—
Residential mortgage loans held for sale	301,057		—		301,057		—
Mortgage servicing rights¹	132,889		—		—		132,889
Derivative contracts, net of cash margin²	546,206		17,588		528,618		—
Other assets – private equity funds	28,379		—		—		28,379
Liabilities:
Derivative contracts, net of cash margin²	521,991		—		521,991		—


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 5, Mortgage Banking Activities.


²	See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded energy and agricultural derivative contacts, net of cash margin.

The fair value of financial assets and liabilities that are measured on a recurring basis are as follows as of December 31, 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	$	16,545	$	—	$	16,545	$	—
U.S. agency residential mortgage-backed securities	86,361		—		86,361		—
Municipal and other tax-exempt securities	90,326		—		90,326		—
Other trading securities	20,870		—		20,870		—
Total trading securities	214,102		—		214,102		—
Available for sale securities:
U.S. Treasury	1,002		1,002		—		—
Municipal and other tax-exempt	87,142		—		46,440		40,702
U.S. agency residential mortgage-backed securities	9,889,821		—		9,889,821		—
Privately issued residential mortgage-backed securities	325,163		—		325,163		—
Commercial mortgage-backed securities guaranteed by U.S. government agencies	895,075		—		895,075		—
Other debt securities	36,389		—		30,990		5,399
Perpetual preferred stock	25,072		—		25,072		—
Equity securities and mutual funds	27,557		4,165		21,231		2,161
Total available for sale securities	11,287,221		5,167		11,233,792		48,262
Fair value option securities:
U.S. agency residential mortgage-backed securities	257,040		—		257,040		—
Corporate debt securities	26,486		—		26,486		—
Other securities	770		—		770		—
Total fair value option securities	284,296		—		284,296		—
Residential mortgage loans held for sale	293,762		—		293,762		—
Mortgage servicing rights¹	100,812		—		—		100,812
Derivative contracts, net of cash margin ²	338,106		11,597		326,509		—
Other assets – private equity funds	28,169		—		—		28,169
Liabilities:
Derivative contracts, net of cash margin ²	283,589		—		283,589		—


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 5, Mortgage Banking Activities.


²	See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded energy and agricultural derivative contacts, net of cash margin.

The fair value of financial assets and liabilities that are measured on a recurring basis are as follows as of June 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	$	53,514	$	992	$	52,522	$	—
U.S. agency residential mortgage-backed securities	46,502		—		46,502		—
Municipal and other tax-exempt securities	44,632		—		44,632		1,852
Other trading securities	4,669		—		4,545		124
Total trading securities	149,317		992		148,201		1,976
Available for sale securities:
U.S. Treasury	1,003		1,003		—		—
Municipal and other tax-exempt	88,458		—		46,796		41,662
U.S. agency residential mortgage-backed securities	9,903,532		—		9,903,532		—
Privately issued residential mortgage-backed securities	317,761		—		317,761		—
Other debt securities	36,286		—		30,898		5,388
Perpetual preferred stock	23,431		—		23,431		—
Equity securities and mutual funds	24,944		6,912		18,032		—
Total available for sale securities	10,395,415		7,915		10,340,450		47,050
Fair value option securities:
U.S. agency residential mortgage-backed securities	299,467		—		299,467		—
Corporate debt securities	25,710		—		25,710		—
Total fair value option securities	325,177		—		325,177		—
Residential mortgage loans held for sale	259,174		—		259,174		—
Mortgage servicing rights¹	91,783		—		—		91,783
Derivative contracts, net of cash margin ²	366,204		802		365,402		—
Other assets – private equity funds	31,492		—		—		31,492
Liabilities:
Derivative contracts, net of cash margin ²	370,053		251		369,802		—


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 5, Mortgage Banking Activities.


²	See Note 3 for detail of fair value of derivative contracts by contract type. Derivative contracts based on quoted prices in active markets for identical instruments (Level 1) are exchange-traded energy and agricultural derivative contacts, net of cash margin.

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.

The following represents the changes for the three months ended June 30, 2013 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		Equity securities and mutual funds			Other assets – private equity funds
Balance, Mar. 31, 2013	$	39,007		$	5,193	$	2,472		$	29,216
Purchases and capital calls	—			—		—			148
Redemptions and distributions	—			—		—			(1,005		)
Gain (loss) recognized in earnings:
Gain on other assets, net	—			—		—			20
Gain on available for sale securities, net	—			—		—			—
Other-than-temporary impairment losses	—			—		—			—
Other comprehensive gain (loss)	(160		)	—		(225		)	—
Balance, June 30, 2013	$	38,847		$	5,193	$	2,247		$	28,379

The following represents the changes for the six months ended June 30, 2013 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			Equity securities and mutual funds		Other assets – private equity funds
Balance, Dec. 31, 2012	$	40,702		$	5,399		$	2,161	$	28,169
Purchases and capital calls	—			—			—		640
Redemptions and distributions	(98		)	—			—		(1,835		)
Gain (loss) recognized in earnings:
Gain on other assets, net	—			—			—		1,405
Gain on available for sale securities, net	—			—			—		—
Other-than-temporary impairment losses	—			—			—		—
Other comprehensive gain (loss)	(1,757		)	(206		)	86		—
Balance, June 30, 2013	$	38,847		$	5,193		$	2,247	$	28,379

The following represents the changes for the three months ended June 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, Mar. 31, 2012	$	41,977		$	5,900		$	30,993
Purchases, and capital calls	—			—			820
Redemptions and distributions	(363		)	(500		)	(2,559		)
Gain (loss) recognized in earnings
Gain (loss) on other assets, net	—			—			2,238
Gain on available for sale securities, net	—			—			—
Other-than-temporary impairment losses	—			—			—
Other comprehensive (loss)	48			(12		)	—
Balance, June 30, 2012	$	41,662		$	5,388		$	31,492

The following represents the changes for the six months ended June 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, Dec. 31, 2011	$	42,353		$	5,900		$	30,902
Purchases, and capital calls	—			—			1,909
Redemptions and distributions	(463		)	(500		)	(3,166		)
Gain (loss) recognized in earnings
Gain (loss) on other assets, net	—			—			1,847
Gain on available for sale securities, net	1			—			—
Other-than-temporary impairment losses	—			—			—
Other comprehensive (loss)	(229		)	(12		)	—
Balance, June 30, 2012	$	41,662		$	5,388		$	31,492

A summary of quantitative information about assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of June 30, 2013 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

28,470

28,375

27,116

Discounted cash flows

Interest rate spread

4.99%-5.49% (5.24%)

95.01%-95.6% (95.25%)

Below investment grade

17,000

12,384

11,731

Discounted cash flows

Interest rate spread

9.15%-11.19% (9.87%)

⁴

68.91%-69.09% (69.01%)

Total municipal and other tax-exempt securities

45,470

40,759

38,847

Other debt securities

5,400

5,193

Discounted cash flows

Interest rate spread

4.41%-5.69% (5.48%)

⁵

96.13%-96.16% (96.16%)

Equity securities and mutual funds

N/A

2,420

2,247

Tangible book value per share of publicly traded financial institutions of similar size, less liquidity discount.

Peer group tangible book per share and liquidity discount.

N/A

⁷

Other assets - private equity funds

N/A

28,379

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 457 to 520 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.


⁷	Fair value of shares of a smaller privately-held financial institution were valued using the tangible book value per share of similarly sized financial institutions within the immediate geographical market with a discount of 20% due to the liquidity of the shares.

The fair value of these securities measured at fair value using significant unobservable inputs are sensitive primarily to changes in interest rate spreads. At June 30, 2013, 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 $262 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 $50 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 $330 thousand.

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

28,570

28,473

28,318

Discounted cash flows

Interest rate spread

1%-1.5% (1.25%)

98.83%-99.43% (99.12%)

Below investment grade

17,000

12,384

Discounted cash flows

Interest rate spread

7.21%-9.83% (7.82%)

⁴

72.79%-73% (72.85%)

Total municipal and other tax-exempt securities

45,570

40,857

40,702

Other debt securities

5,400

5,399

Discounted cash flows

Interest rate spread

1.65%-1.71% (1.7%)

⁵

100% (100%)

Equity securities and mutual funds

N/A

2,161

Tangible book value per share of publicly traded financial institutions of similar size, less liquidity discount.

Peer group tangible book per share and liquidity discount.

N/A

⁷

Other assets - private equity funds

N/A

28,169

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.


⁷	Fair value of shares of a smaller privately-held financial institution were valued using the tangible book value per share of similarly sized financial institutions within the immediate geographical market with a discount of 20% due to the liquidity of the shares.

A summary of quantitative information about Recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of June 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

28,998

28,858

Discounted cash flows

Interest rate spread

1%-1.5% (1.25%)

98.88%-99.49% (99.17%)

Below investment grade

17,000

13,396

12,804

Discounted cash flows

Interest rate spread

6.2%-9.16% (6.87%)

⁴

75.21%-75.49% (75.32%)

Total municipal and other tax-exempt securities

46,100

42,394

41,662

Other debt securities

5,400

5,388

Discounted cash flows

Interest rate spread

1.74%-1.75% (1.74%)

⁵

98.72%-100% (99.78%)

Other assets - private equity funds

N/A

31,492

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.

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, 2013 for which the fair value was adjusted during the six months ended June 30, 2013:



							Fair Value Adjustments for the
	Carrying Value at June 30, 2013						Three Months Ended June 30, 2013 Recognized in:				Six Months Ended June 30, 2013 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		Net losses and expenses of repossessed assets, net		Gross charge-offs against allowance for loan losses		Net losses and expenses of repossessed assets, net
Impaired loans	$	—	$	10,245	$	4,930	$	5,060	$	—	$	6,601	$	—
Real estate and other repossessed assets	—		7,949		271		—		863		—		1,014

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 six months ended June 30, 2012:



							Fair Value Adjustments for the
	Carrying Value at June 30, 2012						Three Months Ended June 30, 2012 Recognized in:				Six Months Ended June 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		Net losses and expenses of repossessed assets, net		Gross charge-offs against allowance for loan losses		Net losses and expenses of repossessed assets, net
Impaired loans	$	—	$	29,369	$	2,881	$	4,406	$	—	$	10,826	$	—
Real estate and other repossessed assets	—		27,474		3,035		—		4,488		—		6,876

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 June 30, 2013 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	$	4,930	Appraised value, as adjusted	Broker quotes and management's knowledge of industry and collateral.	N/A
Real estate and other repossessed assets	271		Listing value, less cost to sell	Marketability adjustments off appraised value	71%-81% (76%)¹


¹	Marketability adjustments include consideration of estimated costs to sell which is approximately 15% of fair value.

A summary of quantitative information about Non-recurring Fair Value Measurements based on Significant Unobservable Inputs (Level 3) as of June 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	$	2,881	Appraised value, as adjusted	Broker quotes and management's knowledge of industry and collateral.	N/A
Real estate and other repossessed assets	3,035		Listing value, less cost to sell	Marketability adjustments off appraised value	58%-85% (71%)¹


¹	Marketability adjustments include consideration of estimated costs to sell which is approximately 15% of fair value. In addition, $887 thousand of real estate and other repossessed assets at June 30, 2012 are based on expert opinions or management's knowledge of the collateral or industry and do not have and independently appraised value.

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 June 30, 2013 (dollars in thousands):



	Carrying Value			Range of Contractual Yields	Average Re-pricing (in years)	Discount Rate		Estimated Fair Value
Cash and cash equivalents	$	1,078,385						$	1,078,385
Trading securities:
U.S. Government agency debentures	60,713							60,713
U.S. agency residential mortgage-backed securities	43,858							43,858
Municipal and other tax-exempt securities	53,819							53,819
Other trading securities	32,201							32,201
Total trading securities	190,591							190,591
Investment securities:
Municipal and other tax-exempt	375,317							371,690
U.S. agency residential mortgage-backed securities	64,172							66,796
Other debt securities	176,301							187,219
Total investment securities	615,790							625,705
Available for sale securities:
U.S. Treasury	1,060							1,060
Municipal and other tax-exempt	95,103							95,103
U.S. agency residential mortgage-backed securities	8,372,795							8,372,795
Privately issued residential mortgage-backed securities	297,175							297,175
Commercial mortgage-backed securities guaranteed by U.S. government agencies	1,846,943							1,846,943
Other debt securities	35,894							35,894
Perpetual preferred stock	25,583							25,583
Equity securities and mutual funds	23,521							23,521
Total available for sale securities	10,698,074							10,698,074
Fair value option securities:
U.S. agency residential mortgage-backed securities	203,816							203,816
Other securities	1,940							1,940
Total fair value option securities	205,756							205,756
Residential mortgage loans held for sale	301,057							301,057
Loans:
Commercial	7,708,120			0.25 - 30.00	0.63	0.59 - 4.19		7,638,327
Commercial real estate	2,317,096			0.38 - 18.00	0.83	1.23 - 3.47		2,288,188
Residential mortgage	2,039,785			0.38 - 18.00	3.64	0.70 - 4.46		2,038,375
Consumer	375,781			0.38 - 21.00	0.35	1.26 - 3.74		369,375
Total loans	12,440,782							12,334,265
Allowance for loan losses	(203,124		)					—
Net loans	12,237,658							12,334,265
Mortgage servicing rights	132,889							132,889
Derivative instruments with positive fair value, net of cash margin	546,206							546,206
Other assets – private equity funds	28,379							28,379
Deposits with no stated maturity	16,728,258							16,728,258
Time deposits	2,767,972			0.03 - 9.64	2.02	0.76 - 1.30		2,781,202
Other borrowed funds	4,073,915			0.25 - 5.25	—	0.07 - 2.66		4,034,685
Subordinated debentures	347,716			0.97 - 5.00	3.10	2.24	%	345,201
Derivative instruments with negative fair value, net of cash margin	521,991							521,991



	Carrying Value			Range of Contractual Yields	Average Re-pricing (in years)	Discount Rate		Estimated Fair Value
Cash and cash equivalents	$	1,286,239						$	1,286,239
Trading securities:
U.S. Government agency debentures	16,545							16,545
U.S. agency residential mortgage-backed securities	86,361							86,361
Municipal and other tax-exempt securities	90,326							90,326
Other trading securities	20,870							20,870
Total trading securities	214,102							214,102
Investment securities:
Municipal and other tax-exempt	232,700							235,940
U.S. agency residential mortgage-backed securities	82,767							85,943
Other debt securities	184,067							206,575
Total investment securities	499,534							528,458
Available for sale securities:
U.S. Treasury	1,002							1,002
Municipal and other tax-exempt	87,142							87,142
U.S. agency residential mortgage-backed securities	9,889,821							9,889,821
Privately issued residential mortgage-backed securities	325,163							325,163
Commercial mortgage-backed securities guaranteed by U.S. government agencies	895,075							895,075
Other debt securities	36,389							36,389
Perpetual preferred stock	25,072							25,072
Equity securities and mutual funds	27,557							27,557
Total available for sale securities	11,287,221							11,287,221
Fair value option securities:
U.S. agency residential mortgage-backed securities	257,040							257,040
Corporate debt securities	26,486							26,486
Other securities	770							770
Total fair value option securities	284,296							284,296
Residential mortgage loans held for sale	293,762							293,762
Loans:
Commercial	7,641,912			0.21 - 30.00	0.69	0.51 - 3.59		7,606,505
Commercial real estate	2,228,999			0.21 - 18.00	0.92	1.26 - 3.18		2,208,217
Residential mortgage	2,045,040			0.38 - 18.00	3.34	0.86 - 3.09		2,110,773
Consumer	395,505			0.38 - 21.00	0.32	1.37 - 3.60		388,748
Total loans	12,311,456							12,314,243
Allowance for loan losses	(215,507		)					—
Net loans	12,095,949							12,314,243
Mortgage servicing rights	100,812							100,812
Derivative instruments with positive fair value, net of cash margin	338,106							338,106
Other assets – private equity funds	28,169							28,169
Deposits with no stated maturity	18,211,068							18,211,068
Time deposits	2,967,992			0.01 - 9.64	2.15	0.80 - 1.15		3,037,708
Other borrowed funds	2,706,221			0.09 - 5.25	—	0.09 - 2.67		2,696,574
Subordinated debentures	347,633			1.00 - 5.00	3.56	2.40	%	345,675
Derivative instruments with negative fair value, net of cash margin	283,589							283,589



	Carrying Value			Range of Contractual Yields	Average Re-pricing (in years)	Discount Rate		Estimated Fair Value
Cash and cash equivalents	$	639,263						$	639,263
Trading securities:
U.S. Government agency debentures	53,514							53,514
U.S. agency residential mortgage-backed securities	46,502							46,502
Municipal and other tax-exempt securities	44,632							44,632
Other trading securities	4,669							4,669
Total trading securities	149,317							149,317
Investment securities:
Municipal and other tax-exempt	126,168							130,308
U.S. agency residential mortgage-backed securities	102,347							105,535
Other debt securities	183,964							204,795
Total investment securities	412,479							440,638
Available for sale securities:
U.S. Treasury	1,003							1,003
Municipal and other tax-exempt	88,458							88,458
U.S. agency residential mortgage-backed securities	9,903,532							9,903,532
Privately issued residential mortgage-backed securities	317,761							317,761
Other debt securities	36,286							36,286
Perpetual preferred stock	23,431							23,431
Equity securities and mutual funds	24,944							24,944
Total available for sale securities	10,395,415							10,395,415
Fair value option securities:
U.S. agency residential mortgage-backed securities	299,467							299,467
Corporate debt securities	25,710							25,710
Total fair value option securities	325,177							325,177
Residential mortgage loans held for sale	259,174							259,174
Loans:
Commercial	7,035,535			0.25 - 30.00	0.70	0.63 - 3.68		6,993,377
Commercial real estate	2,149,730			0.38 - 18.00	0.92	1.33 - 3.33		2,129,731
Residential mortgage	2,002,885			0.38 - 18.00	3.10	1.08 - 3.52		2,040,062
Consumer	388,281			0.38 - 21.00	0.34	1.59 - 3.79		383,088
Total loans	11,576,431							11,546,258
Allowance for loan losses	(231,669		)					—
Net loans	11,344,762							11,546,258
Mortgage servicing rights	91,783							91,783
Derivative instruments with positive fair value, net of cash margin	366,204							366,204
Other assets – private equity funds	31,492							31,492
Deposits with no stated maturity	15,157,587							15,157,587
Time deposits	3,107,950			0.01 - 9.64	2.17	0.92 - 1.31		3,175,687
Other borrowed funds	2,648,753			0.09 - 5.25	—	0.09 - 2.70		2,642,598
Subordinated debentures	353,378			1.16 - 5.00	4.02	2.40	%	350,813
Derivative instruments with negative fair value, net of cash margin	370,053							370,053

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 $161 million at June 30, 2013, $171 million at December 31, 2012 and $191 million at June 30, 2012.

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 June 30, 2013, December 31, 2012 or June 30, 2012.

Fair Value Election

As more fully disclosed in Note 2 and Note 5 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.