FAIR VALUE ACCOUNTING AND MEASUREMENT

The Company has elected to record certain assets and liabilities at fair value. 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 (that is, not a forced liquidation or distressed sale). The GAAP standard (ASC 820, Fair Value Measurements) establishes a consistent framework for measuring fair value and disclosure requirements about fair value measurements. Among other things, the standard requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions. These two types of inputs create the following fair value hierarchy:


•	Level 1 – Quoted prices in active markets for identical instruments. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.


•	Level 2 – Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data.

•

Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs from non-binding single dealer quotes not corroborated by observable market data.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for certain financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. Transfers between levels of the fair value hierarchy are deemed to occur at the end of the reporting period.

Items Measured at Fair Value on a Recurring Basis:

Banner records trading account securities, securities available-for-sale, FHLB advances and junior subordinated debentures at fair value on a recurring basis.

•

The securities assets primarily consist of U.S. Government and agency obligations, municipal bonds, corporate bonds, single issue trust preferred securities (TPS), pooled trust preferred collateralized debt obligation securities (TRUP CDO), mortgage-backed securities, asset-backed securities, equity securities and certain other financial instruments. Level 1 measurements are based upon quoted prices in active markets. Level 2 measurements are generally based upon a matrix pricing model from an investment reporting and valuation service. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. Level 3 measurements are based primarily on unobservable inputs. In developing Level 3 measurements, management incorporates whatever market data might be available and uses discounted cash flow models where appropriate. These calculations include projections of future cash flows, including appropriate default and loss assumptions, and market based discount rates.

From mid-2008 through the current quarter, the lack of active markets and market participants for certain securities resulted in an increase in Level 3 measurements. This has been particularly true for our TRUP CDO securities. As of September 30, 2013, we owned $31 million in current par value of these securities. The market for TRUP CDO securities is inactive, which was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which TRUP CDOs trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive as almost no new TRUP CDOs have been issued since 2007. There are still very few market participants who are willing and/or able to transact for these securities. Thus, a low market price for a particular bond may only provide evidence of stress in the credit markets in general rather than being an indicator of credit problems with a particular issuer or of the fair value of the security.

Given these conditions in the debt markets and the absence of observable transactions in the secondary and new issue markets, management determined that for the TRUP CDOs at September 30, 2013 and December 31, 2012:


•	The few observable transactions and market quotations that were available were not reliable for purposes of determining fair value,


•	An income valuation approach technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs was equally or more representative of fair value than the market approach valuation technique, and


•	The Company’s TRUP CDOs should be classified exclusively within Level 3 of the fair value hierarchy because of the significant assumptions required to determine fair value at the measurement date.

The TRUP CDO valuations were derived using input from independent third parties who used proprietary cash flow models for analyzing collateralized debt obligations. Their approaches to determining fair value involve considering the credit quality of the collateral, assuming a level of defaults based on the probability of default of each underlying trust preferred security, creating expected cash flows for each TRUP CDO security and discounting that cash flow at an appropriate risk-adjusted rate plus a liquidity premium.

Where appropriate, management reviewed the valuation methodologies and assumptions used by the independent third party providers and for certain securities determined that the fair value estimates were reasonable and utilized those estimates in the Company’s reported financial statements, while for other securities management adjusted the third party providers’ modeling to be more reflective of the characteristics of the Company’s remaining TRUP CDOs. The result of this fair value analysis of these Level 3 measurements was a fair value loss of $9,000 in the quarter ended September 30, 2013. This loss was primarily the result of the passage of time and no change in the spread between the benchmark credit equivalent index and a similar maturity point on the interest rate swap curve was incorporated into the discount rate used to establish the fair value.

At September 30, 2013, Banner also owned approximately $19 million in amortized cost of TPS securities issued by three individual financial institutions for which no direct market data or independent valuation source is available. Similar to the TRUP CDOs above, there were too few, if any, issuances of new TPS securities or sales of existing TPS securities to provide Level 1 or even Level 2 fair value measurements for these securities. Management, therefore, utilized a discounted cash-flow model to calculate the present value of each security’s expected future cash flows to determine their respective fair values. In the current quarter, the Company again sought input from independent third parties to help it establish an appropriate set of parameters to identify a reasonable range of discount rates for use in its fair value model. The various sources of input were somewhat conflicting, but as has been the case for some time indicated very little change from recent periods. Management concluded that any general market tightening of credit spreads should be offset by an increase in the liquidity premium when determining an appropriate discount rate to apply to the valuation of these TPS securities. These factors were then incorporated into the model at September 30, 2013, and discount rates equal to three-month LIBOR plus 525 basis points were used to calculate the respective fair values of these securities, the same spread to LIBOR used over the last five quarters. With the discount rate relatively unchanged since the prior quarter-end, the resulting fair value change was a gain of $9,000 in the quarter ended September 30, 2013. The Company has and will continue to assess the appropriate fair value hierarchy for determination of these fair values on a quarterly basis.


•	Fair valuations for FHLB advances are estimated using fair market values provided by the lender, the FHLB of Seattle. The FHLB of Seattle prices advances by discounting the future contractual cash flows for individual advances using its current cost of funds curve to provide the discount rate. Management considers this to be a Level 2 input method.

•

The fair valuations of junior subordinated debentures (TPS-related debt that the Company has issued) were also estimated using discounted cash flows. As of September 30, 2013, all of these debentures carry interest rates that reset quarterly, using the three-month LIBOR index plus spreads of 1.38% to 3.35%. While the quarterly reset of the index on this debt would seemingly keep its fair value reasonably close to book value, the disparity in the fixed spreads above the index and the inability to determine realistic current market spreads, due to lack of new issuances and trades, resulted in having to rely more heavily on assumptions about what spread would be appropriate if market transactions were to take place. As noted above in the discussions of TPS securities and TRUP CDOs, because of the unprecedented disruption of certain financial markets, management concluded that there were insufficient transactions or other indicators to reflect these measurements as Level 1 or Level 2 inputs. Due to the reliance on assumptions and not on directly observable transactions, management believes fair value for this instrument should follow a Level 3 input methodology. Since the discount rate used in the fair value modeling is the most sensitive unobservable estimate in the calculation, the Company again utilized input from the same independent third party noted above to help it establish an appropriate set of parameters to identify a reasonable range of discount rates for use in its fair value model. In valuing the debentures at September 30, 2013, management evaluated the general market conditions as noted above and for the discount rate used the period-ending three-month LIBOR plus 525 basis points, the same spread to LIBOR used over the last five quarters and for the TPS securities, resulting in a fair value loss on these instruments of $166,000 in the current quarter ended September 30, 2013.

•

Derivative instruments include interest rate commitments related to one- to four-family loans and residential mortgage-backed securities and interest rate swaps. The fair value of interest rate lock commitments and forward sales commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical trends, where appropriate. The fair value of interest rate swaps is determined by using current market quotes on similar instruments provided by active broker/dealers in the swap market. Management considers these to be Level 2 input methods. The changes in the fair value of all of these derivative instruments are primarily attributable to changes in the level of market interest rates. The Company has elected to record the fair value of these derivative instruments on a net basis.

The following tables present financial assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets as of September 30, 2013 and December 31, 2012 (in thousands):



	September 30, 2013
	Level 1		Level 2		Level 3		Total
Assets:
Securities—available-for-sale
U.S. Government and agency	$	—	$	58,768	$	—	$	58,768
Municipal bonds	—		55,315		—		55,315
Corporate bonds	—		9,000		—		9,000
Mortgage-backed or related securities	—		329,075		—		329,075
Asset-backed securities	—		25,249		—		25,249
	—		477,407		—		477,407
Securities—trading
U.S. Government and agency	—		1,510		—		1,510
Municipal bonds	—		4,987		—		4,987
TPS and TRUP CDOs	—		—		35,095		35,095
Mortgage-backed or related securities	—		22,227		—		22,227
Equity securities and other	—		68		—		68
	—		28,792		35,095		63,887
Derivatives
Interest rate lock commitments	—		494		—		494
Interest rate swaps	—		4,615		—		4,615
	$	—	$	511,308	$	35,095	$	546,403
Liabilities:
Advances from FHLB at fair value	$	—	$	20,258	$	—	$	20,258
Junior subordinated debentures net of unamortized deferred issuance costs at fair value	—		—		73,637		73,637
Derivatives
Interest rate sales forward commitments, net	—		474		—		474
Interest rate swaps	—		4,615		—		4,615
	$	—	$	25,347	$	73,637	$	98,984



	December 31, 2012
	Level 1		Level 2		Level 3		Total
Assets:
Securities—available-for-sale
U.S. Government and agency	$	—	$	96,980	$	—	$	96,980
Municipal bonds	—		44,938		—		44,938
Corporate bonds	—		10,729		—		10,729
Mortgage-backed or related securities	—		277,757		—		277,757
Asset-backed securities	—		42,516		—		42,516
	—		472,920		—		472,920
Securities—trading
U.S. Government and agency	—		1,637		—		1,637
Municipal bonds	—		5,684		—		5,684
TPS and TRUP CDOs	—		—		35,741		35,741
Mortgage-backed or related securities	—		28,107		—		28,107
Equity securities and other	—		63		—		63
	—		35,491		35,741		71,232
Derivatives
Interest rate lock commitments	—		510		—		510
Interest rate swaps	—		8,353		—		8,353
	$	—	$	517,274	$	35,741	$	553,015
Liabilities:
Advances from FHLB at fair value	$	—	$	10,304	$	—	$	10,304
Junior subordinated debentures net of unamortized deferred issuance costs at fair value	—		—		73,063		73,063
Derivatives
Interest rate sales forward commitments, net	—		195		—		195
Interest rate swaps	—		8,353		—		8,353
	$	—	$	18,852	$	73,063	$	91,915

The following table provides a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended September 30, 2013 and 2012 (in thousands):



	Three Months Ended					Nine Months Ended
	September 30, 2013					September 30, 2013
	Level 3 Fair Value Inputs					Level 3 Fair Value Inputs
	TPS and TRUP CDOs			Borrowings— Junior Subordinated Debentures		TPS and TRUP CDOs			Borrowings— Junior Subordinated Debentures
Beginning balance	$	35,105		$	73,471	$	35,741		$	73,063
Total gains or losses recognized
Assets gains (losses), including OTTI	(10		)	—		(646		)	—
Liabilities (gains) losses	—			166		—			574
Ending balance at September 30, 2013	$	35,095		$	73,637	$	35,095		$	73,637

	Three Months Ended					Nine Months Ended
	September 30, 2012					September 30, 2012
	Level 3 Fair Value Inputs					Level 3 Fair Value Inputs
	TPS and TRUP CDOs			Borrowings— Junior Subordinated Debentures		TPS and TRUP CDOs			Borrowings— Junior Subordinated Debentures
Beginning balance	$	32,493		$	70,553	$	30,455		$	49,988
Total gains or losses recognized
Assets gains (losses), including OTTI	2,687			—		4,725			—
Liabilities (gains) losses	—			2,518		—			23,083
Ending balance at September 30, 2012	$	35,180		$	73,071	$	35,180		$	73,071

The Company has elected to continue to recognize the interest income and dividends from the securities reclassified to fair value as a component of interest income as was done in prior years when they were classified as available-for-sale. Interest expense related to the FHLB advances and junior subordinated debentures continues to be measured based on contractual interest rates and reported in interest expense. The change in fair market value of these financial instruments has been recorded as a component of other operating income.

Items Measured at Fair Value on a Non-recurring Basis:

Banner records certain impaired loans, REO and mortgage servicing rights on a non-recurring basis.

Carrying values of certain impaired loans are periodically evaluated to determine if valuation adjustments, or partial write-downs, should be recorded. These non-recurring fair value adjustments are recorded when observable market prices or current appraised values of collateral indicate a shortfall in collateral value or discounted cash flows indicate a shortfall compared to current carrying values of the related loan. If the Company determines that the value of the impaired loan is less than the carrying value of the loan, the Company either establishes an impairment reserve as a specific component of the allowance for loan and lease losses (ALLL) or charges off the impaired amount. The remaining impaired loans are evaluated for reserve needs in homogenous pools within the Company’s ALLL methodology. As of September 30, 2013, the Company reviewed all of its adversely classified loans totaling $107 million and identified $75 million which were considered impaired. Of those $75 million in impaired loans, $60 million were individually evaluated to determine if valuation adjustments, or partial write-downs, should be recorded, or if specific impairment reserves should be established. The $60 million had original carrying values of $62 million which were reduced by partial write-downs totaling $2 million. In addition to these write-downs, in order to bring the impaired loan balances to fair value, the Company also established $6 million in specific reserves on these impaired loans. Impaired loans that were collectively evaluated for reserve purposes within homogenous pools totaled $16 million and were found to require allowances totaling $896,000. All TDRs which are currently performing according to their restructured payment terms were included in the specific reserve analysis. The valuation inputs for impaired loans are considered to be Level 3 inputs.

The Company records REO (acquired through a lending relationship) at fair value on a non-recurring basis. All REO properties are recorded at the lower of the estimated fair value of the properties, less expected selling costs, or the carrying value of the defaulted loans. From time to time, non-recurring fair value adjustments to REO are recorded to reflect partial write-downs based on an observable market price or current appraised value of property. Banner considers any valuation inputs related to REO to be Level 3 inputs. The individual carrying values of these assets are reviewed for impairment at least annually and any additional impairment charges are expensed to operations. For the three months ended September 30, 2013, the Company recognized $191,000 of additional impairment charges related to REO assets, compared to $1.3 million for the same quarter one year earlier.

Mortgage servicing rights (MSRs) are reported in other assets. Mortgage servicing rights are initially recorded at fair value and are amortized in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Mortgage servicing rights are subsequently evaluated for impairment based upon the fair value of the rights compared to the amortized cost (remaining unamortized initial fair value). If the fair value is less than the amortized cost, a valuation allowance is created through an impairment charge to servicing fee income. The valuation allowance is subsequently adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment. However, if the fair value is greater than the amortized cost, the amount above the amortized cost is not recognized in the carrying value. During the nine months ended September 30, 2013 and 2012, the Company did not record an impairment charge. However, during the quarter and nine months ended September 30, 2013, the Company recorded a reduction in its valuation allowance for previously recognized impairment charges of $400,000 and $1.0 million, respectively. Loans serviced for others totaled $1.086 billion, $918 million and $850 million at September 30, 2013, December 31, 2012 and September 30, 2012, respectively. Custodial accounts maintained in connection with this servicing totaled $3.6 million, $4.7 million and $7.3 million at September 30, 2013, December 31, 2012, and September 30, 2012, respectively.

The following tables present financial assets measured at fair value on a non-recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets as of September 30, 2013 and December 31, 2012 (in thousands):



	At or For the Nine Months Ended September 30, 2013
	Level 1		Level 2		Level 3		Total		Net Gains/(Losses) Recognized During the Period
Impaired loans	$	—	$	—	$	50,875	$	50,875	$	(4,648	)
REO	—		—		4,818		4,818		(557		)
MSRs	—		—		7,684		7,684		1,000
	At or For the Year Ended December 31, 2012
	Level 1		Level 2		Level 3		Total		Net Gains/(Losses) Recognized During the Period
Impaired loans	$	—	$	—	$	52,475	$	52,475	$	(6,381	)
REO	—		—		15,778		15,778		(1,915		)
MSRs	—		—		6,244		6,244		(400		)

The following table provides a description of the valuation technique, unobservable inputs, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring and nonrecurring basis at September 30, 2013:



Financial Instruments	Valuation Techniques	Unobservable Inputs	Weighted Average Rate
TPS	Discounted cash flows	Discount rate	5.50%
TRUP CDOs	Discounted cash Flows	Discount rate	3.11%
Junior Subordinated Debentures	Discounted cash flows	Discount rate	5.50%
Impaired loans	Discounted cash flows	Discount rate	Various
	Collateral Valuations	Market values	n/a
REO	Appraisals	Market values	n/a
MSRs	Discounted cash flows	Prepayment rate	12.37%
		Discount rate	10.09%

Fair Values of Financial Instruments:

The following table presents estimated fair values of the Company’s financial instruments as of September 30, 2013 and December 31, 2012, whether or not recognized or recorded in the consolidated Statements of Financial Condition. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data in the development of the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The estimated fair value of financial instruments is as follows (in thousands):



	September 30, 2013				December 31, 2012
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets:
Cash and due from banks	$	175,965	$	175,965	$	181,298	$	181,298
Securities—trading	63,887		63,887		71,232		71,232
Securities—available-for-sale	477,407		477,407		472,920		472,920
Securities—held-to-maturity	96,545		98,401		86,452		92,458
Loans receivable held for sale	8,394		8,394		11,920		12,059
Loans receivable	3,267,042		3,164,657		3,223,794		3,143,853
FHLB stock	35,708		35,708		36,705		36,705
Bank-owned life insurance	61,442		61,442		59,891		59,891
Mortgage servicing rights	7,684		7,684		6,244		6,244
Derivatives	5,109		5,110		8,863		8,863
Liabilities:
Demand, interest checking and money market accounts	1,860,001		1,714,813		1,800,555		1,729,351
Regular savings	775,260		706,326		727,956		694,609
Certificates of deposit	900,024		893,768		1,029,293		1,033,931
FHLB advances at fair value	20,258		20,258		10,304		10,304
Junior subordinated debentures at fair value	73,637		73,637		73,063		73,063
Other borrowings	82,909		82,909		76,633		76,633
Derivatives	5,089		5,089		8,548		8,548

Fair value estimates, methods, assumptions and the level within the fair value hierarchy of the fair value measurements are set forth below for the Company’s financial and off-balance-sheet instruments:

Cash and Due from Banks: The carrying amount of these items is a reasonable estimate of their fair value and management considers this to be a Level 1 measurement.

Securities: The estimated fair values of investment securities and mortgaged-backed securities are priced using current active market quotes, if available, which are considered Level 1 measurements. For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used to establish the fair value. These measurements are considered Level 2. Due to the increasing credit concerns in the capital markets and inactivity in the trust preferred markets that have limited the observability of market spreads for the Company’s TPS and TRUP CDO securities (see earlier discussion above in determining the securities’ fair market value), management has classified these securities as a Level 3 fair value measure.

Loans Receivable: Fair values are estimated first by stratifying the portfolios of loans with similar financial characteristics. Loans are segregated by type such as multifamily real estate, residential mortgage, nonresidential mortgage, commercial/agricultural, consumer and other. Each loan category is further segmented into fixed- and adjustable-rate interest terms and by performing and non-performing categories. A preliminary estimate of fair value is then calculated based on discounted cash flows using as a discount rate the current rate offered on similar products, plus an adjustment for liquidity to reflect the non-homogeneous nature of the loans. The preliminary estimate is then further reduced by the amount of the allowance for loan losses to arrive at a final estimate of fair value. Fair value for significant non-performing loans is also based on recent appraisals or estimated cash flows discounted using rates commensurate with risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. Management considers this to be a Level 3 measurement.

The fair value of performing residential mortgages held for sale is estimated based upon secondary market sources by type of loan and terms such as fixed or variable interest rates. Management considers this to be a Level 2 measurement.

FHLB Stock: The fair value is based upon the redemption value of the stock which equates to its carrying value. Management considers this to be a Level 3 measurement.

Mortgage Servicing Rights: Fair values are estimated based on current pricing for sales of servicing for new loans adjusted up or down based on the serviced loan’s interest rate versus current new loan rates. Management considers this to be a Level 3 measurement.

Deposit Liabilities: The fair value of deposits with no stated maturity, such as savings, checking and interest checking accounts, is estimated by applying decay rate assumptions to segregated portfolios of similar deposit types to generate cash flows which are then discounted using short-term market interest rates. The market value of certificates of deposit is based upon the discounted value of contractual cash flows. The discount rate is determined using the rates currently offered on comparable instruments. Management considers this to be a Level 3 measurement.

FHLB Advances and Other Borrowings: Fair valuations for Banner’s FHLB advances are estimated using fair market values provided by the lender, the FHLB of Seattle. The FHLB of Seattle prices advances by discounting the future contractual cash flows for individual advances using its current cost of funds curve to provide the discount rate. This is considered to be a Level 2 input method. Other borrowings are priced using discounted cash flows to the date of maturity based on using current rates at which such borrowings can currently be obtained.

Junior Subordinated Debentures: Due to the increasing credit concerns in the capital markets and inactivity in the trust preferred markets that have limited the observability of market spreads (see earlier discussion above in determining the junior subordinated debentures’ fair market value), junior subordinated debentures have been classified as a Level 3 fair value measure. Management believes that the credit risk adjusted spread and resulting discount rate utilized is indicative of those that would be used by market participants.

Derivatives: Derivatives include interest rate swap agreements, interest rate lock commitments to originate loans held for sale and forward sales contracts to sell loans and securities related to mortgage banking activities. Fair values for these instruments, which generally change as a result of changes in the level of market interest rates, are estimated based on dealer quotes and secondary market sources. Management considers these to be Level 2 inputs.

Off -Balance Sheet Items: Off-balance sheet financial instruments include unfunded commitments to extend credit, including standby letters of credit, and commitments to purchase investment securities. The fair value of these instruments is not considered practical to estimate without incurring excessive costs and management does not believe the fair value estimates would be material. Other commitments to fund loans totaled $1.119 billion and $925 million at September 30, 2013 and December 31, 2012, respectively, and have no carrying value at both dates. There were no commitments to purchase securities at September 30, 2013 and one commitment to purchase securities at December 31, 2012 for $12 million.

Limitations: The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2013 and December 31, 2012. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business. The fair value has not been estimated for assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not financial instruments include the deferred tax assets/liabilities; land, buildings and equipment; and REO.