Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, a hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities in active markets that the Company has the ability to access;

Level 2 – Observable inputs other than Level 1 including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in less active markets, observable inputs other than quoted prices that are used in the valuation of an asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and

Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined by 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.

The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measure in its entirety. Market activity is presumed to be orderly in the absence of evidence of forced or disorderly sales, although such sales may still be indicative of fair value. Applicable accounting guidance precludes the use of blockage factors or liquidity adjustments due to the quantity of securities held by an entity.

We use fair value to measure certain assets and liabilities on a recurring basis when fair value is the primary measure for accounting. Fair value is used on a nonrecurring basis to measure certain assets when adjusting carrying values, such as the application of lower of cost or fair value accounting, including recognition of impairment on assets. Fair value on a nonrecurring basis is also used when providing required disclosures for certain financial instruments.

Fair Value Policies and Procedures

We have various policies, processes and controls in place to ensure that fair values are reasonably developed, reviewed and approved for use. These include a Securities Valuation and Securitization Oversight Committee (“SOC”) comprised of executive management that reports directly to the Board of Directors. The SOC reviews and approves on a quarterly basis the key components of fair value estimation, including critical valuation assumptions for Level 3 modeling. Attribution analyses are completed when significant changes occur between quarters. The SOC also requires quarterly back testing of certain significant assumptions. A Model Risk Management Group conducts model validations, including the internal model, and sets policies and procedures for revalidation, including the timing of revalidation.

Third Party Service Providers

We use a third party pricing service to provide pricing for approximately 90% of our AFS Level 2 securities, and an internal model that uses certain third party models to estimate fair value for approximately 93% of our AFS Level 3 securities. Fair values for the remaining AFS Level 2 and Level 3 securities generally use standard form discounted cash flow modeling with certain inputs corroborated by market data.

For Level 2 securities, the third party pricing service provides documentation on an ongoing basis that presents market corroborative data, including detail pricing information and market reference data. We review, test and validate this information as appropriate.

For Level 3 securities, we review and evaluate on a quarterly basis the relevant third party modeling assumptions and compare them to those used in our own internal models. We also compare modeling results and valuations with our own information about market trends and trading data.

Absent observable trade data, we do not adjust prices from our third party sources. The procedures described help ensure that resulting fair value estimates were determined in accordance with applicable accounting guidance.

The following describes the hierarchy designations, valuation methodologies, and key inputs to measure fair value on a recurring basis for designated financial instruments:

Available-for-Sale and Trading Securities

U.S. Treasury, Agencies and Corporations

U.S. Treasury securities are measured under Level 1 using quoted market prices. U.S. agencies and corporations are measured under Level 2 generally using the previously-discussed third party pricing service.

Municipal Securities

Municipal securities are measured under Level 2 using the third party pricing service, or under Level 3 using a discounted cash flow approach. Valuation inputs include BBB and Baa municipal curves, as well as FHLB and LIBOR/Swap curves. Additional valuation inputs include internal credit scoring, and security- and client-type groupings.

Asset-Backed Securities: Trust Preferred Collateralized Debt Obligations

The CDO portfolio is measured under Level 3 primarily with the internal model using an income-based cash flow modeling approach incorporating several methodologies. The Company inputs its own key valuation assumptions:

Trust preferred – banks and insurance – We use an internal model for our bank and insurance CDO securities. Our “ratio-based approach” utilizes a statistical regression of regulatory ratios we have identified as predictive of future bank failures and bank holding company defaults to create a credit-specific PD for each bank issuer. The approach generally references trailing quarter regulatory data, financial ratios and macroeconomic factors.

For approximately one third of bank collateral issuers at December 31, 2013, which are public companies, we use the higher of the PDs from a third party proprietary reduced form model dependent, upon equity valuation, and that produced by our ratio-based approach.

The PDs used depend on whether the collateral is performing or deferring. Deferring PDs increase, all else being equal, as the deferral ages and approaches the end of its allowable five-year deferral period. The internal model includes the expectation that deferrals that do not default will pay their contractually required back interest and return to a current status at the end of five years. Estimates of loss for the individual pieces of underlying collateral are aggregated to arrive at a pool-level loss rate for each CDO. These loss assumptions are applied to the CDO’s structure to generate cash flow projections for each tranche of the CDO.

We utilize a present value technique to identify both the OTTI present in the CDO tranches and to estimate fair value. To estimate fair value, we discount the credit-adjusted cash flows of each CDO tranche at a tranche-specific discount rate which reflects the risk that the actual cash flow may vary from the expected credit-adjusted cash flow for that CDO tranche. This rate is consistent with market participants’ assumptions and is applied to credit adjusted cash flows. We follow applicable guidance on illiquid markets such that risk premiums should be reflective of an orderly transaction between market participants under current market conditions. Because these securities are not traded on exchanges and trading prices are not posted on the TRACE^® system (Trade Reporting and Compliance Engine^®), we also seek information from market participants to obtain trade price information.

The discount rate assumption used for valuation purposes for each CDO tranche is derived from trading yields on publicly traded trust preferred securities as well as observed trades in our CDO tranches and tranches within our CDO in accordance with applicable accounting guidance. The data set generally includes one or more publicly-traded trust preferred securities in deferral with regard to the payment of current interest and observed trades in our CDO tranches which appeared to be either orderly (that is, not distressed or forced); or whose orderliness could not be definitively refuted. Trading data is generally limited to a few transactions in each of several of our original AAA-rated tranches, several of our original A-rated tranches, and many trades of tranches within our same CDO.

The effective yields on the traded securities are then used to determine a relationship between the effective yield and the loss or downside variability of the returns of each CDO security. The loss/downside variability for this purpose is a measure of the downside variability of cash flows from the mean estimate of cash flow. This relationship is then considered along with other third party or market data to identify appropriate discount rates to be applied to the CDOs.

CDO tranches with greater uncertainty in their cash flows are discounted at rates higher than those market participants would use for tranches with more stable expected cash flows (e.g., as a result of more subordination and/or better credit quality in the underlying collateral).

During 2013, deferral and default assumptions increased consistent with certain observed deferrals continuing past the allowable five years without resolution, and our inclusion of deferral vintage outcome data for the recent cycle. We expect to recreate or recalibrate deferral resolution experience as the outcomes for more deferring issuers become known over time.

Trust preferred – REITS, Other (including ABS CDOs) – Most of these CDOs are measured under Level 3 by other third party pricing services using their proprietary models. Our review and evaluation of their estimates was previously discussed.

Auction Rate Securities

Auction rate securities are measured under Level 3 primarily using valuation inputs that include AAA corporate bond yield curves, municipal yield curves, credit ratings and leverage of each closed-end fund, market yields for commercial paper, and any observable trade commentaries.

Bank-Owned Life Insurance

Bank-owned life insurance is measured under Level 2 according to reported cash surrender values (“CSVs”) of the insurance contracts. Nearly all CSVs are based on valuations and earnings of the underlying assets in the insurance companies’ general accounts. The underlying investments include predominantly fixed income securities consisting of investment grade corporate bonds and various types of mortgage instruments. Average duration ranges from five to eight years. Management regularly reviews investment performance, including concentrations of investments and regulatory restrictions.

Private Equity Investments

Private equity investments are measured under Level 2 or Level 3. The Other Equity Investments Committee, consisting of executives familiar with the investments, reviews periodic financial information, including audited financial statements when available. The amount of unfunded commitments to these partnerships is disclosed in Note 18. Certain restrictions apply for the redemption of these investments. Approximately $58 million of private equity investments at December 31, 2013 are prohibited by the Volcker Rule.

Private equity investments under Level 2 include partnerships that invest in certain financial services and real estate companies, some of which are publicly traded. Fair values are determined from net asset values, or their equivalents, provided by the partnerships. These fair values are determined on the last business day of the month using values from the primary exchange. In the case of illiquid or nontraded assets, the partnerships obtain fair values from independent sources.

Private equity investments under Level 3 are recorded at acquisition cost, which is initially considered the best indication of fair value. Subsequent adjustments to recorded fair values are based on current and projected financial performance, recent financing activities, economic and market conditions, market comparables, market liquidity, sales restrictions, and other factors.

Derivatives

Derivatives are measured according to their classification as either exchange-traded or over-the-counter (“OTC”). Exchange-traded derivatives consist of forward currency exchange contracts measured under Level 1 because they are traded in active markets. OTC derivatives, including those for customers, consist of interest rate swaps and options. These derivatives are measured under Level 2 using third party services. Observable market inputs include yield curves (the LIBOR swap curve and applicable basis swap curves), foreign exchange rates, commodity prices, option volatilities, counterparty credit risk, and other related data. Credit valuation adjustments are required to reflect nonperformance risk for both the Company and the respective counterparty. These adjustments are determined generally by applying a credit spread to the total expected exposure of the derivative. Amounts disclosed in the following schedules differ from the presentation in Note 8 because they are presented on a net basis. The estimation of fair value for the TRS is discussed in Note 8.

Securities Sold, Not Yet Purchased

Securities sold, not yet purchased are measured under Level 1 using quoted market prices. If not available, quoted prices under Level 2 for similar securities are used.

Quantitative Disclosure by Fair Value Hierarchy

Assets and liabilities measured at fair value by class on a recurring basis are summarized as follows:



	December 31, 2013
(In thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Investment securities:
Available-for-sale:
U.S. Treasury, agencies and corporations			$	2,059,105			$	2,059,105
Municipal securities			55,602		$	10,662	66,264
Asset-backed securities:
Trust preferred – banks and insurance					1,238,820		1,238,820
Trust preferred – real estate investment trusts					22,996		22,996
Auction rate					6,599		6,599
Other (including ABS CDOs)			2,099		25,800		27,899
Mutual funds and other	$	259,750	20,453				280,203
	259,750		2,137,259		1,304,877		3,701,886
Trading account			34,559				34,559
Other noninterest-bearing investments:
Bank-owned life insurance			466,428				466,428
Private equity			4,822		82,410		87,232
Other assets:
Derivatives:
Interest rate related and other			1,100				1,100
Interest rate swaps for customers			55,447				55,447
Foreign currency exchange contracts	9,614						9,614
	9,614		56,547				66,161
	$	269,364	$	2,699,615	$	1,387,287	$	4,356,266
LIABILITIES
Securities sold, not yet purchased	$	73,606					$	73,606
Other liabilities:
Derivatives:
Interest rate related and other			$	1,004			1,004
Interest rate swaps for customers			54,688				54,688
Foreign currency exchange contracts	8,643						8,643
Total return swap					$	4,062	4,062
	8,643		55,692		4,062		68,397
Other					241		241
	$	82,249	$	55,692	$	4,303	$	142,244



	December 31, 2012
(In thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Investment securities:
Available-for-sale:
U.S. Treasury, agencies and corporations	$	102,982	$	1,692,637			$	1,795,619
Municipal securities			59,445		$	16,551	75,996
Asset-backed securities:
Trust preferred – banks and insurance			121		949,271		949,392
Trust preferred – real estate investment trusts					16,403		16,403
Auction rate					6,515		6,515
Other (including ABS CDOs)			4,214		15,160		19,374
Mutual funds and other	219,214		8,797				228,011
	322,196		1,765,214		1,003,900		3,091,310
Trading account			28,290				28,290
Other noninterest-bearing investments:
Bank-owned life insurance			455,719				455,719
Private equity			5,132		64,223		69,355
Other assets:
Derivatives:
Interest rate related and other			2,850				2,850
Interest rate swaps for customers			79,579				79,579
Foreign currency exchange contracts	4,404						4,404
	4,404		82,429				86,833
	$	326,600	$	2,336,784	$	1,068,123	$	3,731,507
LIABILITIES
Securities sold, not yet purchased	$	26,735					$	26,735
Other liabilities:
Derivatives:
Interest rate related and other			$	1,142			1,142
Interest rate swaps for customers			82,926				82,926
Foreign currency exchange contracts	3,159						3,159
Total return swap					$	5,127	5,127
	3,159		84,068		5,127		92,354
Other					124		124
	$	29,894	$	84,068	$	5,251	$	119,213

No transfers of assets or liabilities occurred among Levels 1, 2 or 3 during 2013 or 2012.

The fair value of the Level 3 bank and insurance CDO portfolio would generally be adversely affected by significant increases in the constant default rate (“CDR”) for performing collateral, the loss percentage expected from deferring collateral, and the discount rate used. The fair value of the portfolio would generally be positively affected by increases in interest rates and prepayment rates. For a specific tranche within a CDO, the directionality of the fair value change for a given assumption change may differ depending on the seniority level of the tranche. For example, faster prepayment may increase the fair value of a senior most tranche of a CDO while decreasing the fair value of a more junior tranche.

Reconciliation of Level 3 Fair Value Measurements

The following reconciles the beginning and ending balances of assets and liabilities that are measured at fair value by class on a recurring basis using Level 3 inputs:



	Level 3 Instruments
	Year Ended December 31, 2013
(In thousands)	Municipal securities			Trust preferred – banks and insurance			Trust preferred – REIT			Auction rate		Other asset-backed			Private equity investments			Derivatives			Other liabilities

Balance at December 31, 2012	$	16,551		$	949,271		$	16,403		$	6,515	$	15,160		$	64,223		$	(5,127	)	$	(124	)
Total net gains (losses) included in:
Statement of income:
Accretion of purchase discount on securities available-for-sale	41			3,166			254			3		82
Dividends and other investment income															6,662
Fair value and nonhedge derivative loss																		(21,753		)
Equity securities gains, net															3,732
Fixed income securities gains (losses), net	239			(3,160		)	(201		)			55
Net impairment losses on investment securities				(136,221		)	(17,430		)			(11,080		)
Other noninterest expense																					(117		)
Other comprehensive income (loss)	1,540			377,357			24,081			81		6,950
Purchases															10,548
Sales				(66,303		)	(111		)			(1		)	(2,244		)
Redemptions and paydowns	(7,709		)	(60,989		)						(5,780		)	(511		)	22,818
Reclassifications				175,699								20,414
Balance at December 31, 2013	$	10,662		$	1,238,820		$	22,996		$	6,599	$	25,800		$	82,410		$	(4,062	)	$	(241	)



	Level 3 Instruments
	Year Ended December 31, 2012
(In thousands)	Municipal securities			Trust preferred – banks and insurance			Trust preferred – REIT			Auction rate			Other asset-backed			Private equity investments			Derivatives			Other liabilities

Balance at December 31, 2011	$	17,381		$	929,356		$	18,645		$	70,020		$	43,546		$	62,327		$	(5,422	)	$	(86	)
Total net gains (losses) included in:
Statement of income:
Accretion of purchase discount on securities available-for-sale	102			7,126			224			4			232
Dividends and other investment income																10,399
Fair value and nonhedge derivative loss																			(21,707		)
Equity securities gains, net																11,478
Fixed income securities gains (losses), net	9			20,906						4,161			(5,762		)
Net impairment losses on investment securities				(96,707		)
Other noninterest expense																						(38		)
Other comprehensive income (loss)	(291		)	218,001			(2,466		)	1,330			8,343
Purchases																9,043
Sales																(15,872		)
Redemptions and paydowns	(650		)	(129,411		)				(69,000		)	(31,199		)	(13,152		)	22,002
Balance at December 31, 2012	$	16,551		$	949,271		$	16,403		$	6,515		$	15,160		$	64,223		$	(5,127	)	$	(124	)

The preceding reconciling amounts using Level 3 inputs include the following realized gains (losses):



(In thousands)	Year Ended December 31,
(In thousands)	2013			2012

Dividends and other investment income	$	(133	)	$	1,635
Equity securities gains (losses), net	(2,452		)	10,359
Fixed income securities gains (losses), net	(3,067		)	19,314

Following is a summary of quantitative information relating to the principal valuation techniques and significant unobservable inputs for Level 3 instruments measured on a recurring basis:



	Level 3 Instruments
	Quantitative information at December 31, 2013
(Dollar amounts in thousands)	Fair value		Principal valuation techniques	Significant unobservable inputs	Range of inputs (% annually)
Asset-backed securities:
Trust preferred – predominantly banks	$	921,819	Discounted cash flow Market comparables	Constant prepayment rate	until 2016 – 5.50% to 20.73%
					2016 to maturity – 3.0%
				Constant default rate	yr 1 – 0.30% to 1.94%
					yrs 2-5 – 0.49% to 1.14%
					yrs 6 to maturity – 0.58% to 0.65%
				Loss given default	100%
				Loss given deferral	14.39% to 100%
				Discount rate (spread over forward LIBOR)	5.6% to 7.7%

Trust preferred – predominantly insurance	346,390		Discounted cash flow Market comparables	Constant prepayment rate	until maturity – 5.0%
				Constant default rate	yr 1 – 0.38% to 1.03%
					yrs 2-5 – 0.53% to 0.89%
					yrs 6 to maturity – 0.50% to 0.55%
				Loss given default	100%
				Loss given deferral	2.18% to 30.13%
				Discount rate (spread over forward LIBOR)	3.72% to 6.49%

Trust preferred – individual banks	22,324		Market comparables	Yield	6.6% to 7.8%
				Price	81.25% to 109.6%

Trust preferred – real estate investment trust	22,996		Discounted cash flow Market comparables	Constant prepayment rate	until maturity – 0.0%
				Constant default rate	yr 1 – 4.1% to 10.6%
					yrs 2-3 – 4.6% to 5.5%
					yrs 4-6 – 1.0%
					yrs 7 to maturity – 0.50%
				Loss given default	60% to 100%
				Discount rate (spread over forward LIBOR)	5.5% to 15%

Other (predominantly ABS CDOs)	25,800		Discounted cash flow	Constant default rate	0.01% to 100%
				Loss given default	70% to 92%
				Discount rate (spread over forward LIBOR)	9% to 22%



	Level 3 Instruments
	Quantitative information at December 31, 2012
(Dollar amounts in thousands)	Fair value		Principal valuation techniques	Significant unobservable inputs	Range of inputs (% annually)
Asset-backed securities:
Trust preferred – predominantly banks	$	798,458	Discounted cash flow Market comparables	Constant prepayment rate	until 2016 – 10.0% to 21.24%
					2016 to maturity – 3.0%
				Constant default rate	yr 1 – 0.30% to 1.97%
					yrs 2-5 – 0.47% to 0.67%
					yrs 6 to maturity – 0.58% to 0.68%
				Loss given default	100%
				Loss given deferral	9.69% to 100%
				Discount rate (spread over forward LIBOR)	7.7% to 13.4%

Trust preferred – predominantly insurance	256,104		Discounted cash flow Market comparables	Constant prepayment rate	until maturity – 4.5%
				Constant default rate	yr 1 – 0.30% to 0.32%
					yrs 2-5 – 0.47% to 0.50%
					yrs 6 to maturity – 0.50% to 0.54%
				Loss given default	100%
				Loss given deferral	2.18%
				Discount rate (spread over forward LIBOR)	3.75% to 16.21%

Trust preferred – individual banks	20,910		Market comparables	Yield	9.4% to 9.7%
				Price	73.1% to 108.0%

Trust preferred – real estate investment trust	16,403		Discounted cash flow Market comparables	Constant prepayment rate	until maturity – 0.0%
				Constant default rate	yr 1 – 5.1% to 8.6%
					yrs 2-3 – 4.2% to 7.1%
					yrs 4-6 – 1.0%
					yrs 7 to maturity – 0.50%
				Loss given default	60% to 100%
				Discount rate (spread over forward LIBOR)	6.5% to 23%

Other (predominantly ABS CDOs)	15,160		Discounted cash flow	Constant default rate	0.01% to 100%
				Loss given default	70% to 92%
				Discount rate (spread over forward LIBOR)	9% to 22%

Nonrecurring Fair Value Measurements

Included in the balance sheet amounts are the following amounts of assets that had fair value changes measured on a nonrecurring basis:



(In thousands)	Fair value at December 31, 2013								Gains (losses) from fair value changes Year Ended December 31, 2013
(In thousands)	Level 1		Level 2		Level 3		Total
ASSETS
HTM securities adjusted for OTTI	$	—	$	—	$	8,483	$	8,483		$	(403	)
Private equity investments, carried at cost	—		—		13,270		13,270			(5,700		)
Impaired loans	—		11,765		—		11,765			(1,575		)
Other real estate owned	—		24,684		—		24,684			(13,158		)
	$	—	$	36,449	$	21,753	$	58,202		$	(20,836	)



(In thousands)	Fair value at December 31, 2012								Gains (losses) from fair value changes Year Ended December 31, 2012
(In thousands)	Level 1		Level 2		Level 3		Total
ASSETS
HTM securities adjusted for OTTI	$	—	$	—	$	23,524	$	23,524		$	(7,423	)
Private equity investments, carried at cost	—		—		13,520		13,520			(2,176		)
Impaired loans	—		44,448		—		44,448			(4,300		)
Other real estate owned	—		58,954		—		58,954			(20,641		)
	$	—	$	103,402	$	37,044	$	140,446		$	(34,540	)

We recognized net gains of $15.6 million in 2013 and $15.3 million in 2012 from the sale of OREO properties that had a carrying value at the time of sale of approximately $82.5 million in 2013 and $163.3 million in 2012. Previous to their sale in these years, we recognized impairment on these properties of $0.8 million in 2013 and $2.7 million in 2012.

HTM securities adjusted for OTTI were measured at fair value using the same methodology for trust preferred CDO securities.

Private equity investments carried at cost were measured at fair value for impairment purposes according to the methodology previously discussed. Amounts of private equity investments carried at cost were $53.6 million and $74.8 million at December 31, 2013 and 2012, respectively. Amounts of other noninterest-bearing investments carried at cost were $248.4 million and $255.6 million at December 31, 2013 and 2012, respectively, which were comprised of Federal Reserve, Federal Home Loan Bank, and Farmer Mac stock.

Impaired (or nonperforming) loans that are collateral-dependent were measured at fair value based on the fair value of the collateral. OREO was measured at fair value at the lower of cost or fair value based on property appraisals at the time the property is recorded in OREO and as appropriate thereafter.

Measurement of fair value for collateral-dependent loans and OREO was based on third party appraisals that utilize one or more valuation techniques (income, market and/or cost approaches). Any adjustments to calculated fair value were made based on recently completed and validated third party appraisals, third party appraisal services, automated valuation services, or our informed judgment. Evaluations were made to determine that the appraisal process met the relevant concepts and requirements of applicable accounting guidance.

Automated valuation services may be used primarily for residential properties when values from any of the previous methods were not available within 90 days of the balance sheet date. These services use models based on market, economic, and demographic values. The use of these models has only occurred in a very few instances and the related property valuations have not been significant to consider disclosure under Level 3 rather than Level 2.

Impaired loans not collateral-dependent were measured at fair valued based on the present value of future cash flows discounted at the expected coupon rates over the lives of the loans. Because the loans were not discounted at market interest rates, the valuations do not represent fair value and have been excluded from the nonrecurring fair value balance in the preceding schedules.

Fair Value of Certain Financial Instruments

Following is a summary of the carrying values and estimated fair values of certain financial instruments:



	December 31, 2013					December 31, 2012
(Amounts in thousands)	Carrying value		Estimated fair value		Level	Carrying value		Estimated fair value		Level
Financial assets:
HTM investment securities	$	588,981	$	609,547	3	$	756,909	$	674,741	3
Loans and leases (including loans held for sale), net of allowance	38,468,402		38,088,242		3	37,020,811		37,024,198		3
Financial liabilities:
Time deposits	2,593,038		2,602,955		2	2,962,931		2,988,714		2
Foreign deposits	1,980,161		1,979,805		2	1,804,060		1,803,625		2
Other short-term borrowings	—		—		2	5,409		5,421		2
Long-term debt (less fair value hedges)	2,269,762		2,423,643		2	2,329,323		2,636,422		2

This summary excludes financial assets and liabilities for which carrying value approximates fair value. For financial assets, these include cash and due from banks and money market investments. For financial liabilities, these include demand, savings and money market deposits, and federal funds purchased and security repurchase agreements. The estimated fair value of demand, savings and money market deposits is the amount payable on demand at the reporting date. Carrying value is used because the accounts have no stated maturity and the customer has the ability to withdraw funds immediately. Also excluded from the summary are financial instruments recorded at fair value on a recurring basis, as previously described.

HTM investment securities primarily consist of municipal securities and bank and insurance trust preferred CDOs. They were measured at fair value according to the methodologies previously discussed for these investment types.

Loans are measured at fair value according to their status as nonimpaired or impaired. For nonimpaired loans, fair value is estimated by discounting future cash flows using the LIBOR yield curve adjusted by a factor which reflects the credit and interest rate risk inherent in the loan. These future cash flows are then reduced by the estimated “life-of-the-loan” aggregate credit losses in the loan portfolio. These adjustments for lifetime future credit losses are derived from the methods used to estimate the ALLL for our loan portfolio and are adjusted quarterly as necessary to reflect the most recent loss experience. Impaired loans are already considered to be held at fair value, except those whose fair value is determined by discounting cash flows, as discussed previously. See Impaired Loans in Note 7 for details on the impairment measurement method for impaired loans. Loans, other than those held for sale, are not normally purchased and sold by the Company, and there are no active trading markets for most of this portfolio.

Time and foreign deposits, and other short-term borrowings, are measured at fair value by discounting future cash flows using the LIBOR yield curve to the given maturity dates.

Long-term debt is measured at fair value based on actual market trades (i.e., an asset value) when available, or discounting cash flows to maturity using the LIBOR yield curve adjusted for credit spreads.

These fair value disclosures represent our best estimates based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding current economic conditions, future expected loss experience, risk characteristics of the various instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment, and cannot be determined with precision. Changes in these methodologies and assumptions could significantly affect the estimates.