16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

We measure, monitor, and disclose certain of our assets and liabilities on a fair value basis. Fair value is used on a recurring basis to account for securities available-for-sale, mortgage loans held-for-sale, derivative assets, derivative liabilities, and certain other assets and other liabilities. In addition, fair value is used on a non-recurring basis to apply lower-of-cost-or-market accounting to foreclosed real estate and certain other loans held-for-sale, evaluate assets or liabilities for impairment, including collateral-dependent impaired loans, and for disclosure purposes. Fair value is defined 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. Depending on the nature of the asset or liability, we use various valuation techniques and input assumptions when estimating fair value.

U.S. GAAP requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value into three broad levels based on the reliability of the input assumptions. The hierarchy gives the highest priority to level 1 measurements and the lowest priority to level 3 measurements. The three levels of the fair value hierarchy are defined as follows:

•

Level 1 – Unadjusted quoted prices for identical assets or liabilities traded in active markets.

•

Level 2 – Observable inputs other than level 1 prices, such as quoted prices for similar instruments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

•

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of where an asset or liability falls within the hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Valuation Methodology

We believe our valuation methods are appropriate and consistent with other market participants. However, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value. Additionally, the methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.

The following describes the valuation methodologies we use for assets and liabilities measured at fair value, including the general classification of the assets and liabilities pursuant to the valuation hierarchy.

Securities Available-for-Sale – Securities available-for-sale include U.S. Treasury, collateralized mortgage obligations, residential mortgage-backed securities, state and municipal securities, and foreign sovereign debt. Substantially all available-for-sale securities are fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair value of these securities is based on quoted market prices obtained from external pricing services. The principal markets for our securities portfolio are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets. U.S. Treasury securities have been classified in level 1 of the valuation hierarchy. All other remaining securities are classified in level 2 of the valuation hierarchy. On a quarterly basis, the Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from external pricing services, including evaluating pricing service inputs and methodologies, using exception reports based on analytical criteria, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on the Company’s knowledge of market liquidity and other market-related conditions. While our validation procedures may result in the use of a price obtained from our primary pricing source or our secondary pricing source, we have not altered the fair values obtained from the external pricing services.

Mortgage Loans Held-for-Sale – Mortgage loans held-for-sale represent mortgage loan originations intended to be sold in the secondary market. We have elected the fair value option for mortgage loans originated with the intention of selling to a third party bank. The election of the fair value option aligns the accounting for these loans with the related mortgage banking derivatives used to economically hedge them. These mortgage loans are measured at fair value as of each reporting date, with changes in fair value recognized through mortgage banking non-interest income. The fair value of mortgage loans held-for-sale is determined based on prices obtained for loans with similar characteristics from third party sources. On a quarterly basis, the Company validates the overall reasonableness of the fair values obtained from third party sources by comparing prices obtained to prices received from various other pricing sources, and reviewing the reasonableness of prices based on Company knowledge of market liquidity and other market-related conditions. Mortgage loans held-for-sale are classified in level 2 of the valuation hierarchy.

Collateral-Dependent Impaired Loans – We do not record loans held for investment at fair value on a recurring basis. However, periodically, we record nonrecurring adjustments to reduce the carrying value of certain impaired loans based on fair value measurement. This population of impaired loans includes those for which repayment of the loan is expected to be provided solely by the underlying collateral. We measure the fair value of collateral-dependent impaired loans based on the fair value of the collateral securing these loans. A majority of collateral-dependent impaired loans are secured by real estate with the fair value generally determined based upon appraisals performed by a certified or licensed appraiser using a combination of valuation techniques such as sales comparison, income capitalization and cost approach and include inputs such as absorption rates, capitalization rates and comparables. We also consider other factors or recent developments that could result in adjustments to the collateral value estimates indicated in the appraisals. Accordingly, fair value estimates for collateral-dependent impaired loans are classified in level 3 of the valuation hierarchy. The carrying value of all impaired loans and the related specific reserves are disclosed in Note 4.

When collateral-dependent loans are determined to be impaired, updated appraisals for loans in excess of $500,000 are typically obtained every twelve months and evaluated internally by our appraisal department at least every six months. Additional diligence procedures are conducted on any appraisal with a value in excess of $250,000 but less than $500,000 upon request only and a technical review is required on appraisals with a value in excess of $1.0 million. In addition to the appraisal, both borrower and market-specific factors are taken into consideration, which may result in obtaining more frequent appraisal updates or internal assessments. Appraisals are conducted by third-party independent appraisers under internal direction and engagement. Appraisals are either reviewed internally by our appraisal department or are sent to an outside firm if appropriate. Both levels of review involve a scope appropriate for the complexity and risk associated with the loan and its collateral. As part of our internal review process, we consider other factors or recent developments that could adjust the valuations indicated in the appraisals or internal reviews. The Company’s internal appraisal review process validates the reasonableness of appraisals in conjunction with analyzing sales and market data from an array of market sources.

Covered Asset OREO and OREO – Covered asset OREO and OREO generated from our originated book of business are valued on a nonrecurring basis using third-party appraisals of each property and our judgment of other relevant market conditions and are classified in level 3 of the valuation hierarchy. As part of our internal review process, we consider other factors or recent developments that could adjust the valuations indicated in the appraisals or internal reviews. Updated appraisals on both OREO portfolios are typically obtained every twelve months and evaluated internally at least every six months. In addition, both property-specific and market-specific factors as well as collateral type factors are taken into consideration, which may result in obtaining more frequent appraisal updates or internal assessments. Appraisals are conducted by third-party independent appraisers under internal direction and engagement using a combination of valuation techniques such as sales comparison, income capitalization and cost approach and include inputs such as absorption rates, capitalization rates and comparables. Any appraisal with a value in excess of $250,000 is subject to a compliance review. Appraisals received with a value in excess of $1.0 million are subject to a technical review. Appraisals are either reviewed internally by our appraisal department or sent to an outside technical firm if appropriate. Both levels of review involve a scope appropriate for the complexity and risk associated with the OREO. To validate the reasonableness of the appraisals obtained, the Company compares the appraised value to the actual sales price of properties sold and analyzes the reasons why a property may be sold for less than its appraised value.

Capital Market Derivative Assets and Derivative Liabilities – Client-related derivative instruments with positive fair values are reported as an asset and derivative instruments with negative fair value are reported as liabilities, in both cases after taking into account the effects of master netting agreements. For derivative counterparties with which we have a master netting agreement, we elect to measure nonperformance risk on the basis of our net exposure to the counterparty. The fair value of client-related derivative assets and liabilities is determined based on prices obtained from third party advisors using standardized industry models. Many factors affect derivative values, including the level of interest rates, the market’s perception of our nonperformance risk as reflected in our credit spread, and our assessment of counterparty nonperformance risk. The nonperformance risk assessment is based on our evaluation of credit risk, or if available, on observable external assessments of credit risk. Values of client-related derivative assets and liabilities are primarily based on observable inputs and are generally classified in level 2 of the valuation hierarchy. On a quarterly basis, the Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from third party advisors, including evaluating inputs and methodologies used by the third party advisors, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on the Company’s knowledge of market liquidity and other market-related conditions. While we may challenge prices obtained from third party advisors based on our validation procedures, we have not altered the fair values ultimately provided by the third party advisors.

Level 3 derivatives include risk participation agreements and derivatives associated with clients whose loans are risk rated 6 or higher (“watch list derivative”). Refer to “Credit Quality Indicators” in Note 4 for further discussion on risk ratings. For these level 3 derivatives, the Company obtains prices from third party advisors, consistent with the valuation processes employed for the Company’s derivatives classified in level 2 of the fair value hierarchy, and then applies loss factors to adjust the prices obtained from third party advisors. The significant unobservable inputs that are employed in the valuation process for the risk participation agreements and watch list derivatives that cause these derivatives to be classified in level 3 of the fair value hierarchy are the historic loss factors specific to the particular industry segment and risk rating category. The loss factors are updated quarterly and are derived and aligned with the loss factors utilized in the calculation of the Company’s general reserve component of the allowance for loan losses. Changes in the fair value measurement of risk participation agreements and watch list derivatives are largely due to changes in the fair value of the derivative and to changes in the pertinent historic average loss rate.

Other Assets and Other Liabilities – Included in other assets and other liabilities are cash flow hedges designated in a hedging relationship, other end-user derivative instruments that we use to manage our foreign exchange and interest rate risk, and warrants received from borrowers in connection with loan restructurings that are accounted for as derivatives. Those derivative instruments with a positive fair value are reported as assets and those with a negative fair value are reported as liabilities. For derivative counterparties with which we have a master netting agreement, we elect to measure nonperformance risk on the basis of our net exposure to the counterparty. The fair value is determined based on prices obtained from third party advisors. The cash flow hedge derivatives and derivatives used to manage foreign exchange and interest rate risk are classified in level 2 of the valuation hierarchy. On a quarterly basis, the Company uses a variety of methods to validate the overall reasonableness of the fair values obtained from third party advisors, including evaluating inputs and methodologies used by the third party advisors, comparing prices obtained to prices received from other pricing sources, and reviewing the reasonableness of prices based on Company knowledge of market liquidity and other market-related conditions. While we may challenge prices obtained from third party advisors based on our validation procedures, we have not altered the fair values ultimately provided by the third party advisors.

Warrants are classified in level 3 of the fair value hierarchy. Third party advisors use an option-pricing model to value the warrants. The significant unobservable inputs employed in the valuation model that cause the warrants to be classified in level 3 of the fair value hierarchy are the expected volatility of the borrower’s stock price and the expected term of the warrants. The valuation model is updated quarterly and is reviewed for reasonableness by management.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the hierarchy level and fair value for each major category of assets and liabilities measured at fair value at June 30, 2012 and December 31, 2011 on a recurring basis.

Fair Value Measurements on a Recurring Basis

(Amounts in thousands)


	June 30, 2012								December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobserv- able Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobserv- able Inputs (Level 3)		Total
Assets:
Securities available-for-sale
U.S. Treasury	$	88,252	$	—	$	—	$	88,252	$	61,521	$	—	$	—	$	61,521
U.S. Agencies		—		—		—		—		—		10,034		—		10,034
Collateralized mortgage obligations		—		305,268		—		305,268		—		356,000		—		356,000
Residential mortgage- backed securities		—		1,034,113		—		1,034,113		—		1,189,213		—		1,189,213
State and municipal		—		197,516		—		197,516		—		166,197		—		166,197
Foreign sovereign debt		—		500		—		500		—		500		—		500

Total securities available-for-sale		88,252		1,537,397		—		1,625,649		61,521		1,721,944		—		1,783,465
Mortgage loans held-for-sale		—		35,342		—		35,342		—		32,049		—		32,049
Capital market derivative assets⁽¹⁾		—		101,486		1,127		102,613		—		100,849		827		101,676
Other assets⁽²⁾		—		286		19		305		—		759		—		759

Total assets	$	88,252	$	1,674,511	$	1,146	$	1,763,909	$	61,521	$	1,855,601	$	827	$	1,917,949

Liabilities:
Capital market derivative liabilities⁽¹⁾	$	—	$	105,729	$	44	$	105,773	$	—	$	104,108	$	32	$	104,140
Other liabilities⁽²⁾		—		291		—		291		—		709		—		709

Total liabilities	$	—	$	106,020	$	44	$	106,064	$	—	$	104,817	$	32	$	104,849

⁽¹⁾	Capital market derivative assets and derivative liabilities include client-related derivatives.

⁽²⁾	Other assets and other liabilities include derivatives designated in hedging relationships, derivatives for commitments to fund certain mortgage loans held-for-sale, end-user foreign exchange derivatives and warrants received from one borrower in connection with a loan restructuring.

If a change in valuation techniques or input assumptions for an asset or liability occurred between periods, we would consider whether this would result in a transfer between the three levels of the fair value hierarchy. There have been no transfers of assets or liabilities between level 1 and level 2 of the valuation hierarchy between December 31, 2011 and June 30, 2012.

There have been no changes in the valuation techniques and related inputs we used for assets and liabilities measured at fair value on a recurring basis from December 31, 2011 to June 30, 2012.

Reconciliation of Beginning and Ending Fair Value for Those

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

(Amounts in thousands)


	Quarters Ended June 30,
	2012								2011
	Derivative Assets			Warrants		Derivative (Liabilities)			Derivative Assets			Derivative (Liabilities)
Balance at beginning of period	$	1,043		$	—	$	(31	)	$	3,235		$	(10	)
Total gains (losses):
Included in earnings ⁽¹⁾		25			19		162			139			(1	)
Purchases, issuances, sales and settlements:
Issuances		—			—		—			21			—
Settlements		(272	)		—		(175	)		(1,157	)		—
Level 3 transfers in (out), net		331			—					131			—

Balance at end of period	$	1,127		$	19	$	(44	)	$	2,369		$	(11	)

Change in unrealized gains (losses) in earnings relating to assets and liabilities still held at end of period	$	45		$	—	$	161		$	249		$	1


	Six Months Ended June 30,
	2012								2011
	Derivative Assets			Warrants		Derivative (Liabilities)			Derivative Assets			Derivative (Liabilities)
Balance at beginning of period	$	827		$	—	$	(32	)	$	4,654		$	(9	)
Total gains (losses):
Included in earnings ⁽¹⁾		76			19		299			(137	)		28
Purchases, issuances, sales and settlements:
Issuances		—			—		—			42			(30	)
Settlements		(522	)		—		(311	)		(2,511	)		—
Level 3 transfers in (out), net		746			—		—			321			—

Balance at end of period	$	1,127		$	19	$	(44	)	$	2,369		$	(11	)

Change in unrealized gains (losses) in earnings relating to assets and liabilities still held at end of period	$	96		$	—	$	299		$	296		$	(27	)

⁽¹⁾	Amounts disclosed in this line are included in the Consolidated Statements of Income as capital markets products income for derivatives and other income for warrants.

For the quarters ended June 30, 2012 and 2011, respectively, $365,000 and $131,000 of derivative assets were transferred from level 2 to level 3 of the valuation hierarchy due to a lack of observable market data, as there was deterioration in the credit risk of the derivative counterparty. Also, for the quarters ended June 30, 2012, $34,000 of derivative assets were transferred from level 3 to level 2 of the valuation hierarchy due to an improvement in the credit risk of the counterparty. For the six months ended June 30, 2012 and 2011, respectively, $887,000 and $631,000 of derivative assets were transferred from level 2 to level 3 and $141,000 and $310,000 were transferred from level 3 to level 2. We recognize transfers in and transfers out at the end of each quarterly reporting period.

Financial Instruments Recorded Using the Fair Value Option

Difference Between Aggregate Fair Value and Aggregate Remaining Principal Balance

for Mortgage Loans Held-For-Sale Elected to be Carried at Fair Value ⁽¹⁾

(Amounts in thousands)


	June 30, 2012			December 31, 2011
Aggregate fair value	$	35,342		$	32,049
Difference		(3	)		(120	)

Aggregate unpaid principal balance	$	35,339		$	31,929

⁽¹⁾	The change in fair value is reflected in mortgage banking non-interest income.

As of June 30, 2012 and December 31, 2011, none of the mortgage loans held-for-sale were on nonaccrual or 90 days or more past due and still accruing interest. Changes in fair value due to instrument-specific credit risk for the quarter and six months ended June 30, 2012 were not material.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

From time to time, we may be required to measure certain other financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower-of-cost-or-fair-value accounting or write-downs of individual assets when there is evidence of impairment.

The following table presents the fair value of those assets that were subject to fair value adjustments during the first six months of 2012 and 2011, and still held at June 30, 2012 and 2011, respectively. All fair value measurements on a nonrecurring basis were measured using level 3 of the valuation hierarchy.

Fair Value Measurements on a Nonrecurring Basis

(Amounts in thousands)


	Fair Value				Losses
	June 30,				For the Six Months Ended June 30,
Financial Asset	2012		2011		2012		2011
Collateral-dependent impaired loans ⁽¹⁾	$	83,980	$	175,411	$	22,132	$	33,615
Covered assets - OREO ^(2) (3)		9,934		5,455		859		658
OREO ⁽²⁾		57,431		40,567		13,729		10,245

Total	$	151,345	$	221,433	$	36,720	$	44,518

⁽¹⁾	Represents the fair value of loans adjusted to the appraised value of the collateral with a write-down in fair value or change in specific reserves during the respective period. These fair value adjustments are recognized as part of the provision for loan losses charged to earnings.

⁽²⁾	Represents the fair value of foreclosed properties that were adjusted subsequent to their initial classification as foreclosed assets. Write-downs are recognized as a component of net foreclosed real estate expense in the Consolidated Statements of Income.

⁽³⁾	The 20% portion of any covered asset OREO write-down not reimbursed by the FDIC is recorded as net foreclosed real estate expense.

There have been no changes in the valuation techniques and related inputs we used for assets and liabilities measured at fair value on a nonrecurring basis from December 31, 2011 to June 30, 2012.

Additional Information Regarding Level 3 Fair Value Measurements

The following table presents information regarding the unobservable inputs developed by the Company for its level 3 fair value measurements.

Quantitative Information Regarding Level 3 Fair Value Measurements

(Dollars in thousands)


Financial Instrument	Fair Value of Assets / (Liabilities) at June 30, 2012			Valuation Technique(s)	Unobservable Input	Range			Weighted Average
Watch list derivatives	$	1,199		Discounted cash flow	Loss factors		3.7–15.8	%		6.7	%
Risk participation agreements		(1,177	)⁽¹⁾	Discounted cash flow	Loss factors		0.0–2.41	%		0.5	%
Collateral-dependent impaired loans		83,980		Sales comparison, income capitalization and/or cost approach	Property specific adjustment		10.0–24.9	%		15.1	%⁽²⁾
Warrants		19		Option pricing model	Expected volatility		99.8-137.8	%		120.3	%

					Expected term		1-6 years			2.5 years
OREO	$	57,431		Sales comparison, income capitalization and/or cost approach	Property specific adjustment		0.8-15.0	%		11.9	%⁽²⁾

⁽¹⁾	Represents fair value of underlying swap.

⁽²⁾	Weighted average is calculated based on assets with a property specific adjustment.

The significant unobservable inputs used in the fair value measurement of the risk participation agreements and watch list derivatives are the historic loss factors. A significant increase (decrease) in the pertinent loss factor would result in a significantly lower (higher) fair value measurement. For the warrants received from borrowers, the significant unobservable inputs are the expected term of the warrants and expected volatility of the borrower’s stock price. An increase in either of these inputs would result in an increase in fair value, while a decrease in either of these inputs would result in a decrease in fair value.

Estimated Fair Value of Certain Financial Instruments

U.S. GAAP requires disclosure of the estimated fair values of certain financial instruments, both assets and liabilities, on and off-balance sheet, for which it is practical to estimate the fair value. Because the disclosure of estimated fair values provided herein excludes the fair value of certain other financial instruments and all non-financial instruments, any aggregation of the estimated fair value amounts presented would not represent total underlying value. Examples of non-financial instruments having value not disclosed herein include the future earnings potential of significant deposit customer relationships and the value of Trust and Investments’ operations and other fee-generating businesses. In addition, other significant assets including property, plant, and equipment and goodwill are not considered financial instruments and, therefore, have not been included in the disclosure.

Various methodologies and assumptions have been utilized in management’s determination of the estimated fair value of our financial instruments, which are detailed below. The fair value estimates are made at a discrete point in time based on relevant market information. Because no market exists for a significant portion of these financial instruments, fair value estimates are based on judgments regarding future expected economic conditions, loss experience, and risk characteristics of the financial instruments. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

In addition to the valuation methodology explained above for financial instruments recorded at fair value, the following methods and assumptions were used in estimating the fair value of financial instruments that are carried at cost in the Consolidated Statements of Financial Condition and includes the general classification of the assets and liabilities pursuant to the valuation hierarchy.

Short-term financial assets and liabilities – For financial instruments with a shorter-term or with no stated maturity, prevailing market rates, and limited credit risk, the carrying amounts approximate fair value. Those financial instruments include cash and due from banks, federal funds sold and other short-term investments, accrued interest receivable, and accrued interest payable. Accrued interest receivable and accrued interest payable are classified consistent with the hierarchy of their corresponding assets and liabilities.

Securities held-to-maturity – The fair value of securities held-to-maturity is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Non-marketable equity investments – Non-marketable equity investments include FHLB stock and certain investments we have in investment funds that make qualifying investments for purposes of supporting our community reinvestment initiatives. The carrying value of FHLB stock approximates fair value as the stock is non-marketable, but can only be sold to the FHLB or another member institution at par. The carrying value of all other non-marketable equity investments approximates fair value.

Loans – The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on contractual terms and includes assumptions that reflect our and the industry’s historical experience with repayments for each loan classification. The estimation is modified, as required, by the effect of current economic and lending conditions, collateral, and other factors.

Covered assets – Covered assets include the acquired loans and foreclosed loan collateral (including the fair value of expected reimbursements from the FDIC). The fair value of covered assets is calculated by discounting expected cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the asset. The estimate of maturity is based on contractual terms and includes assumptions that reflect our and the industry’s historical experience with repayments for each asset classification. The estimate is modified, as required, by the effect of current economic and lending conditions, collateral, and other factors.

Investment in BOLI – The fair value of our investment in bank owned life insurance is equal to its cash surrender value.

Deposit liabilities – The fair values disclosed for noninterest-bearing deposits, savings deposits, interest-bearing demand deposits, and money market deposits are approximately equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for certificate of deposits and brokered deposits were estimated using present value techniques by discounting the future cash flows at rates based on internal models and broker quotes.

Short-term borrowings – The fair value of repurchase agreements and FHLB advances with remaining maturities of one year or less is estimated by discounting the obligations using the rates currently offered for repurchase agreements or borrowings of similar remaining maturities. The carrying amounts of funds purchased and other borrowed funds approximate their fair value due to their short-term nature.

Long-term debt – At June 30, 2012, the fair value of the fixed-rate junior subordinated debentures was estimated using the unadjusted publically-available market price as of period end. At December 31, 2011, the fair value was estimated by discounting cash flows, using a discount rate we believe was appropriate based on quoted interest rates and entity specific adjustments. Based on a periodic evaluation of our valuation methodology, we determined that sufficient market information for the fixed-rate junior subordinated debentures was available to support a change in our valuation technique from year end.

The fair value of the subordinated debt, FHLB advances with remaining maturities greater than one year, and the variable-rate junior subordinated debentures is estimated by discounting future cash flows. For the FHLB advances with remaining maturities greater than one year, the Company discounts cash flows using quoted interest rates for similar financial instruments. For the subordinated debt and variable-rate junior subordinated debentures, we interpolate a discount rate we believe is appropriate based on quoted interest rates and entity specific adjustments.

Commitments – Given the limited interest rate exposure posed by the commitments outstanding at period end due to their variable rate structure, termination clauses provided in the agreements, and the market rate of fees charged, we have deemed the fair value of commitments outstanding to be immaterial.

Financial Instruments

(Amounts in thousands)


	As of June 30, 2012
	Carrying				Fair Value Measurements Using
	Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	141,563	$	141,563	$	141,563	$	—	$	—
Federal funds sold and other short-term investments		315,378		315,378		—		315,378		—
Loans held-for-sale		35,342		35,342		—		35,342		—
Securities available-for-sale		1,625,649		1,625,649		88,252		1,537,397		—
Securities held-to-maturity		693,277		706,748		—		706,748		—
Non-marketable equity investments		47,702		47,702		—		43,467		4,235
Loans, net of allowance for loan losses and unearned fees		9,261,933		9,119,121		—		—		9,119,121
Covered assets, net of allowance for covered loan losses		223,049		243,600		—		—		243,600
Accrued interest receivable		37,089		37,089		—		—		37,089
Investment in BOLI		51,751		51,751		—		—		51,751
Capital markets derivative assets		102,613		102,613		—		101,486		1,127
Financial Liabilities:
Deposits	$	10,734,530	$	10,745,791	$	—	$	7,852,083	$	2,893,708
Short-term borrowings		335,000		335,212		—		335,212		—
Long-term debt		374,793		353,783		150,660		11,532		191,591
Accrued interest payable		5,855		5,855		—		—		5,855
Capital markets derivative liabilities		105,773		105,773		—		105,729		44


	As of December 31, 2011
	Carrying				Fair Value Measurements Using
	Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	156,131	$	156,131	$	156,131	$	—	$	—
Federal funds sold and other short-term investments		205,610		205,610		—		205,610		—
Loans held-for-sale		32,049		32,049		—		32,049		—
Securities available-for-sale		1,783,465		1,783,465		61,521		1,721,944		—
Securities held-to-maturity		490,143		493,230		—		493,230		—
Non-marketable equity investments		43,604		43,604		—		40,695		2,909
Loans, net of allowance for loan losses and unearned fees		8,816,967		8,465,358		—		—		8,465,358
Covered assets, net of allowance for covered loan losses		280,868		306,976		—		—		306,976
Accrued interest receivable		35,732		35,732		—		—		35,732
Investment in BOLI		50,966		50,966		—		—		50,966
Capital markets derivative assets		101,676		101,676		—		100,849		827
Financial Liabilities:
Deposits	$	10,392,854	$	10,405,158	$	—	$	8,217,765	$	2,187,393
Short-term borrowings		156,000		156,047		—		156,047		—
Long-term debt		379,793		343,121		—		16,893		326,228
Accrued interest payable		5,567		5,567		—		—		5,567
Capital markets derivatives liabilities		104,140		104,140		—		104,108		32