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 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 appointed by 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 88% of our AFS Level 2 securities, and an internal model to estimate fair value for approximately 98% 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. The documentation includes benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data, including information from the vendor trading platform. 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. These include PDs, loss given default rates, over-collateralization levels, and rating transition probability matrices from ratings agencies. In addition, we also compare the results and valuation with our information about market trends and trading data. This includes information regarding trading prices, implied discounts, outlier information, valuation assumptions, etc.

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

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 London Interbank Offered Rate (“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 majority of 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 primarily 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.

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 derived from trading data and a measure of the credit risk in the CDO tranche. Because these securities are not traded on exchanges and trading prices are not posted on the TRACE^® system (Trade Reporting and Compliance Engine^®), we seek information from market participants to obtain trade price information.

Trading data is generally limited and may include trades of tranches within our same CDO. We use this limited trade data along with our modeled expected credit adjusted cash flows to determine a relationship between the market required yield and the 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.

During the three months ended March 31, 2014, two insurance CDO securities and two single-name bank trust preferred securities, were transferred from Level 3 to Level 2 primarily due to the increasing ability to utilize fair value inputs corroborated by observed market data. The securities remain at Level 2 at June 30, 2014 as shown in the Level 3 reconciliation schedules following. The securities constitute the Company’s entire holding of each asset class.

Trust preferred – REITS, Other – During the three months ended March 31, 2014, substantially all of these securities were sold, as discussed in Note 5.

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 cash surrender values (“CSVs”) of the insurance contracts that are provided by a third party service. Nearly all CSVs are computed 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 is disclosed in Note 11. Certain restrictions apply for the redemption of these investments. Approximately $56 million of private equity investments at June 30, 2014 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 are measured under Level 3 primarily using current and projected financial performance, recent financing activities, economic and market conditions, market comparables, market liquidity, sales restrictions, and other factors.

Agriculture Loan Servicing

This asset results from our servicing of agriculture loans approved by the Federal Agricultural Mortgage Corporation (“FAMC,” or “Farmer Mac”) and funded by them. We provide this servicing under an agreement with Farmer Mac for loans they own. The asset’s fair value represents our projection of the present value of future cash flows measured under Level 3 using discounted cash flow methodologies.

Interest-Only Strips

Interest-only strips are created as a by-product of the securitization process. When the guaranteed portions of Small Business Administration (“SBA”) 7(a) loans are pooled, interest-only strips may be created in the pooling process. The asset’s fair value represents our projection of the present value of future cash flows measured under Level 3 using discounted cash flow methodologies.

Deferred Compensation Plan Assets and Obligations

Invested assets in the deferred compensation plan consists of shares of registered investment companies. These mutual funds are valued under Level 1 at quoted market prices, which represents the net asset value of shares held by the plan at the end of the period.

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 relevant overnight index 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.

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 of Fair Value Measurements

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



(In thousands)	June 30, 2014
	Level 1		Level 2		Level 3		Total
ASSETS
Investment securities:
Available-for-sale:
U.S. Treasury, agencies and corporations	$	—	$	2,330,185			$	2,330,185
Municipal securities			178,371		$	10,038	188,409
Asset-backed securities:
Trust preferred – banks and insurance			64,347		685,805		750,152
Trust preferred – real estate investment trusts					—		—
Auction rate					6,578		6,578
Other			1,315		28		1,343
Mutual funds and stock	175,617		10,525				186,142
	175,617		2,584,743		702,449		3,462,809
Trading account			56,572				56,572
Other noninterest-bearing investments:
Bank-owned life insurance			472,740				472,740
Private equity			5,036		82,256		87,292
Other assets:
Agriculture loan servicing and interest-only strips					11,461		11,461
Deferred compensation plan assets	90,490						90,490
Derivatives:
Interest rate related and other			1,280				1,280
Interest rate swaps for customers			48,911				48,911
Foreign currency exchange contracts	6,952						6,952
	6,952		50,191				57,143
	$	273,059	$	3,169,282	$	796,166	$	4,238,507
LIABILITIES
Securities sold, not yet purchased	$	10,590					$	10,590
Other liabilities:
Deferred compensation plan obligations	90,490						90,490
Derivatives:
Interest rate related and other			$	216			216
Interest rate swaps for customers			50,379				50,379
Foreign currency exchange contracts	5,979						5,979
Total return swap					$	—	—
	5,979		50,595		—		56,574
Other					132		132
	$	107,059	$	50,595	$	132	$	157,786



(In thousands)	December 31, 2013
	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			2,099		25,800		27,899
Mutual funds and stock	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:
Agriculture loan servicing and interest-only strips					8,852		8,852
Deferred compensation plan assets	86,184						86,184
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
	$	355,548	$	2,699,615	$	1,396,139	$	4,451,302
LIABILITIES
Securities sold, not yet purchased	$	73,606					$	73,606
Other liabilities:
Deferred compensation plan obligations	86,184						86,184
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
	$	168,433	$	55,692	$	4,303	$	228,428

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
	Three Months Ended June 30, 2014
(In thousands)	Municipal securities			Trust preferred – banks and insurance			Trust preferred – REIT		Auction rate		Other asset-backed			Private equity investments			Ag loan svcg and int-only strips			Derivatives and other liabilities

Balance at March 31, 2014	$	10,184		$	690,217		$	—	$	6,560	$	30		$	81,052		$	11,207		$	(5,632	)
Net gains (losses) included in:
Statement of income:
Accretion of purchase discount on securities available-for-sale	8			633					1
Dividends and other investment income (loss)														(1,052		)
Fair value and nonhedge derivative loss																				(467		)
Equity securities gains, net														584
Fixed income securities gains, net	—			4,383			—				—
Other noninterest income																	45
Other noninterest expense																				101
Other comprehensive income	92			6,878					17		—
Purchases														7,104			379
Sales				—			—				—			(15		)
Redemptions and paydowns	(246		)	(16,306		)					(2		)	(5,417		)	(170		)	5,866
Transfers to Level 2				—
Balance at June 30, 2014	$	10,038		$	685,805		$	—	$	6,578	$	28		$	82,256		$	11,461		$	(132	)



	Level 3 Instruments
	Six Months Ended June 30, 2014
(In thousands)	Municipal securities			Trust preferred – banks and insurance			Trust preferred – REIT			Auction rate			Other asset-backed			Private equity investments			Ag loan svcg and int-only strips			Derivatives and other liabilities

Balance at December 31, 2013	$	10,662		$	1,238,820		$	22,996		$	6,599		$	25,800		$	82,410		$	8,852		$	(4,303	)
Net gains (losses) included in:
Statement of income:
Accretion of purchase discount on securities available-for-sale	18			1,353						2
Dividends and other investment income (loss)																(2,747		)
Fair value and nonhedge derivative loss																						(7,894		)
Equity securities gains, net																584
Fixed income securities gains, net	16			22,965			1,399						10,917
Other noninterest income																			526
Other noninterest expense																						109
Other comprehensive income (loss)	(182		)	101,340			—			(23		)	(15		)
Purchases																8,460			2,456
Sales				(546,388		)							(36,669		)	(839		)
Redemptions and paydowns	(476		)	(63,092		)	(24,395		)				(5		)	(5,612		)	(373		)	11,956
Transfers to Level 2				(69,193		)
Balance at June 30, 2014	$	10,038		$	685,805		$	—		$	6,578		$	28		$	82,256		$	11,461		$	(132	)



	Level 3 Instruments
	Three Months Ended June 30, 2013
(In thousands)	Municipal securities			Trust preferred – banks and insurance			Trust preferred – REIT			Auction rate		Other asset-backed			Private equity investments			Ag loan svcg and int-only strips			Derivatives and other liabilities

Balance at March 31, 2013	$	17,043		$	1,003,102		$	17,306		$	6,524	$	15,393		$	69,706		$	8,252		$	(5,070	)
Net gains (losses) included in:
Statement of income:
Accretion of purchase discount on securities available-for-sale	—			797			63			—		9
Dividends and other investment income															2,160
Fair value and nonhedge derivative loss																					(5,450		)
Equity securities gains, net															1,340
Fixed income securities gains (losses), net	15			(1,190		)						14
Net impairment losses on investment securities				(4,047		)	(170		)
Other noninterest income																		384
Other noninterest expense																					(94		)
Other comprehensive income	197			52,312			1,300			30		1,972
Purchases															2,882
Sales				(7,015		)									(387		)
Redemptions and paydowns	(3,711		)	(13,666		)						(64		)	(184		)	(298		)	5,496
Balance at June 30, 2013	$	13,544		$	1,030,293		$	18,499		$	6,554	$	17,324		$	75,517		$	8,338		$	(5,118	)



	Level 3 Instruments
	Six Months Ended June 30, 2013
(In thousands)	Municipal securities			Trust preferred – banks and insurance			Trust preferred – REIT			Auction rate		Other asset-backed			Private equity investments			Ag loan svcg and int-only strips			Derivatives and other liabilities

Balance at December 31, 2012	$	16,551		$	949,271		$	16,403		$	6,515	$	15,160		$	64,223		$	8,334		$	(5,251	)
Net gains (losses) included in:
Statement of income:
Accretion of purchase discount on securities available-for-sale	21			1,612			126			1		14
Dividends and other investment income															5,149
Fair value and nonhedge derivative loss																					(11,008		)
Equity securities gains, net															3,739
Fixed income securities gains, net	36			2,036						—		44
Net impairment losses on investment securities				(13,761		)	(170		)
Other noninterest income																		503
Other noninterest expense																					(165		)
Other comprehensive income	922			130,962			2,140			38		4,623
Purchases															3,841
Sales				(7,015		)									(1,120		)
Redemptions and paydowns	(3,986		)	(32,812		)				—		(2,517		)	(315		)	(499		)	11,306
Balance at June 30, 2013	$	13,544		$	1,030,293		$	18,499		$	6,554	$	17,324		$	75,517		$	8,338		$	(5,118	)

The preceding reconciling amounts using Level 3 inputs include the following realized amounts:



(In thousands)	Three Months Ended June 30,					Six Months Ended June 30,
	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013			2014		2013

Dividends and other investment income (loss)	$	—	$	(60	)	$	34	$	(45	)
Fixed income securities gains (losses), net	4,383		(1,161		)	35,297		2,116

Except as previously discussed, no other transfers of assets or liabilities occurred among Levels 1, 2 or 3 for the three and six months ended June 30, 2014 and 2013. Transfers are considered to have occurred as of the end of the reporting period.

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 and nonrecurring basis:



	Level 3 Instruments
	Quantitative information at June 30, 2014
(Dollar amounts in thousands)	Fair value		Principal valuation techniques	Significant unobservable inputs	Range of inputs (% annually)
Asset-backed securities:
Trust preferred – predominantly banks	$	740,261	Discounted cash flow Market comparables	Constant prepayment rate	until 2016 – 5.5% to 26.19%
					2016 to maturity – 3.0%
				Constant default rate	yr 1 – 0.3% to 2.75%
					yrs 2-5 – 0.48% to 0.87%
					yrs 6 to maturity – 0.59% to 0.65%
				Loss given default	100%
				Loss given deferral	8.17% to 100%
				Discount rate (spread over forward LIBOR)	5.1% to 5.7%



	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%

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 June 30, 2014								Fair value at December 31, 2013
(In thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS
HTM securities adjusted for OTTI	$	—	$	—	$	—	$	—	$	—	$	—	$	8,483	$	8,483
Private equity investments, carried at cost	—		—		547		547		—		—		13,270		13,270
Impaired loans	—		15,610		—		15,610		—		11,765		—		11,765
Other real estate owned	—		10,597		—		10,597		—		24,684		—		24,684
	$	—	$	26,207	$	547	$	26,754	$	—	$	36,449	$	21,753	$	58,202

The previous fair values may not be current as of the dates indicated, but rather as of the date the fair value change occurred, such as a charge for impairment. Accordingly, carrying values may not equal current fair value.



	Gains (losses) from fair value changes
(In thousands)	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2014			2013			2014			2013
ASSETS
HTM securities adjusted for OTTI	$	—		$	—		$	(27	)	$	(403	)
Private equity investments, carried at cost	(133		)	(609		)	(133		)	(1,429		)
Impaired loans	(104		)	(832		)	(2,282		)	(1,566		)
Other real estate owned	(937		)	(2,156		)	(3,171		)	(6,468		)
	$	(1,174	)	$	(3,597	)	$	(5,613	)	$	(9,866	)

During the three and six months ended June 30, we recognized net gains of $1.5 million and $2.5 million in 2014, and $2.1 million and $6.3 million in 2013 from the sale of other real estate owned (“OREO”) properties that had a carrying value at the time of sale of approximately $24.6 million and $38.7 million during the six months ended June 30, 2014 and 2013, respectively. Previous to their sale in these periods, we recognized impairment on these properties of $0.3 million and $0.5 million in 2014, and $0.3 million and $0.4 million in 2013.

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 for these investments. Amounts of private equity investments carried at cost were $48.5 million at June 30, 2014 and $53.6 million at December 31, 2013. Amounts of other noninterest-bearing investments carried at cost were $246.5 million at June 30, 2014 and $248.4 million at December 31, 2013, 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:



	June 30, 2014					December 31, 2013
(In thousands)	Carrying value		Estimated fair value		Level	Carrying value		Estimated fair value		Level
Financial assets:
HTM investment securities	$	615,104	$	643,926	3	$	588,981	$	609,547	3
Loans and leases (including loans held for sale), net of allowance	39,118,830		38,777,966		3	38,468,402		38,088,242		3
Financial liabilities:
Time deposits	2,500,303		2,507,425		2	2,593,038		2,602,955		2
Foreign deposits	252,207		252,323		2	1,980,161		1,979,805		2
Long-term debt (less fair value hedges)	1,930,649		2,072,925		2	2,269,762		2,423,643		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 6 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 any 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.