Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements

Fair Value Measurements

Note 4. Fair Value Measurements

        The following tables summarize assets and liabilities measured at fair value as of December 31, 2011 and 2010 by level in the fair value hierarchy:

			Fair Value Measurements at Reporting Date Using
(in thousands)	Balance as of December 31, 2011		Quoted Prices in Active Markets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Measured on a Recurring Basis
Assets
Securities available-for-sale:
U.S. Treasury	$	19,182	$	19,182	$	—	$	—
Federal agency—Debt		1,973,862		—		1,973,862		—
Federal agency—MBS		681,044		—		681,044		—
CMOs—Federal agency		4,326,907		—		4,326,907		—
CMOs—Non-agency		69,001		—		69,001		—
State and municipal		401,604		—		401,604		—
Other debt securities		99,074		—		79,491		19,583
Equity securities and mutual funds		1,227		1,227		—		—
Trading securities		61,975		61,922		53		—
Mark-to-market derivatives (1)		62,230		2,552		59,678		—
Total assets at fair value	$	7,696,106	$	84,883	$	7,591,640	$	19,583
Liabilities
Mark-to-market derivatives (2)	$	52,881	$	1,542	$	51,339	$	—
Other liabilities		263		—		263		—
Total liabilities at fair value	$	53,144	$	1,542	$	51,602	$	—
Measured on a Nonrecurring Basis
Assets
Collateral dependent impaired loans (3):
Commercial (4)	$	2,484	$	—	$	—	$	2,484
Commercial real estate mortgages		6,830		—		6,830		—
Residential mortgages		5,555		—		5,084		471
Real estate construction		18,528		—		9,680		8,848
Equity lines of credit		3,471		—		2,588		883
Installment		675		—		675		—
Collateral dependent impaired covered loans (3):
Commercial		422		—		—		422
Other real estate owned (5)		66,837		—		56,898		9,939
Private equity and alternative investments		6,558		—		—		6,558
Total assets at fair value	$	111,360	$	—	$	81,755	$	29,605

(1)

Reported in Other assets in the consolidated balance sheets.

(2)

Reported in Other liabilities in the consolidated balance sheets.

(3)

Impaired loans for which fair value was calculated using the collateral valuation method.

(4)

Includes lease financing.

(5)

Other real estate owned balance of $129.3 million in the consolidated balance sheets includes $98.6 million of covered OREO and is net of estimated disposal costs.

			Fair Value Measurements at Reporting Date Using
(in thousands)	Balance as of December 31, 2010		Quoted Prices in Active Markets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Measured on a Recurring Basis
Assets
Securities available-for-sale:
U.S. Treasury	$	14,113	$	14,113	$	—	$	—
Federal agency—Debt		1,142,328		—		1,142,328		—
Federal agency—MBS		551,346		—		551,346		—
CMOs—Federal agency		3,497,147		—		3,497,147		—
CMOs—Non-agency		118,295		—		118,295		—
State and municipal		343,380		—		343,380		—
Other debt securities		43,630		—		22,648		20,982
Equity securities and mutual funds		10,436		10,436		—		—
Trading securities		255,397		249,861		5,536		—
Mark-to-market derivatives (1)		46,712		3,258		43,454		—
Total assets at fair value	$	6,022,784	$	277,668	$	5,724,134	$	20,982
Liabilities
Mark-to-market derivatives (2)	$	26,437	$	1,215	$	25,222	$	—
Other liabilities		160		—		160		—
Total liabilities at fair value	$	26,597	$	1,215	$	25,382	$	—
Measured on a Nonrecurring Basis
Assets
Collateral dependent impaired loans (3):
Commercial (4)	$	1,528	$	—	$	1,528	$	—
Commercial real estate mortgages		31,684		—		21,236		10,448
Residential mortgages		9,061		—		8,210		851
Real estate construction		98,059		—		98,059		—
Equity lines of credit		3,092		—		2,224		868
Collateral dependent impaired covered loans (3):
Commercial		2,557		—		—		2,557
Other real estate owned (5)		88,993		—		65,605		23,388
Private equity and alternative investments		10,804		—		—		10,804
Total assets at fair value	$	245,778	$	—	$	196,862	$	48,916

(1)

Reported in Other assets in the consolidated balance sheets.

(2)

Reported in Other liabilities in the consolidated balance sheets.

(3)

Impaired loans for which fair value was calculated using the collateral valuation method.

(4)

Includes lease financing.

(5)

Other real estate owned balance of $178.2 million in the consolidated balance sheets includes $120.9 million of covered OREO and is net of estimated disposal costs.

        At December 31, 2011, $7.70 billion, or approximately 33 percent, of the Company's total assets were recorded at fair value on a recurring basis, compared with $6.02 billion, or 28 percent at December 31, 2010. The majority of these financial assets were valued using Level 1 or Level 2 inputs.

        Less than 1 percent of total assets were measured using Level 3 inputs. At December 31, 2011, $53.1 million of the Company's total liabilities were recorded at fair value on a recurring basis using Level 1 or Level 2 inputs, compared with $26.6 million at December 31, 2010. There were no transfers between Level 1 and Level 2 of the fair value hierarchy for assets or liabilities measured on a recurring basis during 2011. At December 31, 2011, $111.4 million, or approximately 0.5 percent of the Company's total assets, were recorded at fair value on a nonrecurring basis, compared with $245.8 million, or approximately 1 percent at December 31, 2010. These assets were measured using Level 2 and Level 3 inputs.

        For assets measured at fair value on a nonrecurring basis, the following table presents the total net (losses) gains, which include charge-offs, recoveries, specific reserves, OREO valuation write-downs and write-ups, gains and losses on sales of OREO, and impairment write-downs on private equity and alternative investments, recognized in 2011 and 2010:

	For the year ended December 31,
(in thousands)	2011			2010
Collateral dependent impaired loans:
Commercial	$	(394	)	$	(7,943	)
Commercial real estate mortgages		5,673			(24,368	)
Residential mortgages		(484	)		(2,538	)
Real estate construction		(13,001	)		(6,477	)
Equity lines of credit		(705	)		(1,226	)
Installment		(4,596	)		—
Collaterial dependent impaired covered loans:
Commercial		(325	)		(414	)
Other real estate owned (1)		(41,531	)		(36,364	)
Private equity and alternative investments		(1,183	)		(1,433	)
Total net losses recognized	$	(56,546	)	$	(80,763	)

(1)

Net losses on OREO includes $38.5 million and $20.9 million of net losses related to covered OREO for the years ended December 31, 2011 and December 31, 2010, respectively, a significant portion of which is reimbursable by the FDIC.

        Level 3 assets measured at fair value on a recurring basis consist of collateralized debt obligation senior notes. The fair value of these securities is determined using an internal cash flow model that incorporates management's assumptions about risk-adjusted discount rates, prepayment expectations, projected cash flows and collateral performance. These assumptions are not directly observable in the market. Unrealized gains and losses on securities available-for-sale are reported as a component of AOCI in the consolidated balance sheets. Activity in Level 3 assets measured at fair value on a recurring basis for 2011 and 2010 is summarized in the following table:

Level 3 Assets Measured on a Recurring Basis

	December 31, 2011			December 31, 2010
(in thousands)	Securities Available-for-Sale			Securities Available-for-Sale
Balance, beginning of period	$	20,982		$	26,779
Total realized/unrealized gains (losses):
Included in other comprehensive income		651			(4,168	)
Settlements		(2,051	)		(1,520	)
Other (1)		1			(109	)
Balance, end of period	$	19,583		$	20,982

(1)

Other rollforward activity consists of amortization of premiums and accretion of discounts recognized on the initial purchase of the securities available-for-sale.

        There were no purchases, sales, or transfers in and/or out of Level 3 assets measured on a recurring basis during these periods. Paydowns of $2.1 million and $1.5 million were received on Level 3 assets measured on a recurring basis for 2011 and 2010, respectively. There were no gains or losses for 2011 and 2010 included in earnings that were attributable to the change in unrealized gains or losses relating to assets still held as of December 31, 2011 and 2010.

        Level 3 assets measured at fair value on a nonrecurring basis include certain collateral dependent impaired loans, OREO for which fair value is not solely based on market observable inputs, and certain private equity and alternative investments. Non-observable inputs related to valuing loans and OREO may include adjustments to external appraised values based on an internally generated discounted cash flow analysis or management's assumptions about market trends or other factors that are not directly observable. Private equity and alternative investments do not have readily determinable fair values. These investments are carried at cost and evaluated for impairment on a quarterly basis. Due to the lack of readily determinable fair values for these investments, the impairment assessment is based primarily on a review of investment performance and the likelihood that the capital invested would be recovered.

Fair Value of Financial Instruments

        A financial instrument is broadly defined as cash, evidence of an ownership interest in another entity, or a contract that imposes a contractual obligation on one entity and conveys a corresponding right to a second entity to require delivery or exchange of a financial instrument. The table below summarizes the estimated fair values for the Company's financial instruments as of December 31, 2011 and December 31, 2010. The disclosure does not include estimated fair value amounts for assets and liabilities which are not defined as financial instruments but which have significant value. These assets and liabilities include the value of customer-relationship intangibles, goodwill, affordable housing investments carried at cost, other assets, deferred taxes and other liabilities. Accordingly, the total of the fair values presented does not represent the underlying value of the Company.

        Following is a description of the methods and assumptions used in estimating the fair values for each class of financial instrument:

        Cash and due from banks, Due from banks—interest bearing and Federal funds sold —For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

        Securities available-for-sale, Securities held-to-maturity and Trading securities—For securities available-for-sale and held-to-maturity, the fair value is determined by quoted market prices, where available, or on observable market inputs appropriate for the type of security. If quoted market prices or observable market inputs are not available, discounted cash flows may be used to determine an appropriate fair value. Fair values for trading securities are based on quoted market prices or dealer quotes. The fair value of trading securities for which quoted prices are not available is based on observable market inputs.

        Loans and leases—Loans are not recorded at fair value on a recurring basis. Nonrecurring fair value adjustments are periodically recorded on impaired loans that are measured for impairment based on the fair value of collateral. Due to the lack of activity in the secondary market for the types of loans in the Company's portfolio, a model-based approach is used for determining the fair value of loans for purposes of the disclosures in the following table. The fair value of loans is estimated by discounting future cash flows using discount rates that incorporate the Company's assumptions concerning current market yields, credit risk and liquidity premiums. Loan cash flow projections are based on contractual loan terms adjusted for the impact of current interest rate levels on borrower behavior, including prepayments. Loan prepayment assumptions are based on industry standards for the type of loans being valued. Projected cash flows are discounted using yield curves based on current market conditions. Yield curves are constructed by product type using the Bank's loan pricing model for like-quality credits. The discount rates used in the Company's model represent the rates the Bank would offer to current borrowers for like-quality credits. These rates could be different from what other financial institutions could offer for these loans.

        Covered loans—The fair value of covered loans is based on estimates of future loan cash flows and appropriate discount rates, which incorporate the Company's assumptions about market funding cost and liquidity premium. The estimates of future loan cash flows are determined using the Company's assumptions concerning the amount and timing of principal and interest payments, prepayments and credit losses.

        FDIC indemnification asset—The fair value of the FDIC indemnification asset is estimated by discounting estimated future cash flows based on estimated current market rates.

        Investment in FHLB and FRB stock—Investments in government agency stock are recorded at cost. Ownership of these securities is restricted to member banks and the securities do not have readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB and FRB stock is equal to the carrying amount.

        Derivative contracts—The fair value of non-exchange traded (over-the-counter) derivatives is obtained from third party market sources. The Company provides client data to the third party source for purposes of calculating the credit valuation component of the fair value measurement of client derivative contracts. The fair value of interest rate contracts include interest receivable and payable and cash collateral, if any.

        Deposits—The fair value of demand and interest checking deposits, savings deposits, and certain money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit ("CD") is determined by discounting expected future cash flows using the rates offered by the Bank for deposits of similar type and remaining maturity at the measurement date. This value is compared to the termination value of each CD given the bank's standard early withdrawal penalties. The fair value reported is the higher of the discounted present value of each CD and the termination value after the recovery of prepayment penalties. The Bank reviews pricing for its CD products weekly. This review gives consideration to market pricing for products of similar type and maturity offered by other financial institutions.

        Federal funds purchased and Securities sold under repurchase agreements—The carrying amount is a reasonable estimate of fair value.

        Other short-term borrowings—The fair value of the current portion of long-term debt classified in short-term borrowings is obtained through third-party pricing sources. The carrying amount of the remaining other short-term borrowings is a reasonable estimate of fair value.

        Long-term debt—The fair value of long-term debt is obtained through third-party pricing sources.

        FDIC clawback liability—The FDIC clawback liability represents an estimated payment by the Company to the FDIC if actual cumulative losses on acquired covered assets are lower than the cumulative losses originally estimated by the FDIC at the time of acquisition. The fair value of the FDIC clawback liability is estimated by discounting estimated future cash flows based on estimated current market rates.

        Off-balance sheet commitments, which include commitments to extend credit, are excluded from the table below. A reasonable estimate of fair value for these instruments is the carrying amount of deferred fees and the reserve for any credit losses related to these off-balance sheet instruments. This estimate is not material to the Company's financial position.

	December 31, 2011				December 31, 2010
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	$	168.4	$	168.4	$	126.9	$	126.9
Due from banks—interest bearing		76.4		76.4		142.8		142.8
Federal funds sold		—		—		165.0		165.0
Securities available-for-sale		7,571.9		7,571.9		5,720.7		5,720.7
Securities held-to-maturity		467.7		473.9		—		—
Trading securities		62.0		62.0		255.4		255.4
Loans and leases, net of allowance		12,046.8		12,400.5		11,129.6		11,428.4
Covered loans, net of allowance		1,417.3		1,472.6		1,790.1		1,764.7
FDIC indemnification asset		204.3		184.3		295.5		268.0
Investment in FHLB and FRB stock		107.4		107.4		120.7		120.7
Derivative assets		62.2		62.2		46.7		46.7
Financial Liabilities:
Deposits	$	20,387.6	$	20,392.3	$	18,176.9	$	18,181.4
Federal funds purchased and securities sold under
repurchase agreements		50.0		50.0		—		—
Other short-term borrowings		—		—		153.4		153.5
Long-term debt		697.8		718.7		705.0		711.2
Derivative liabilities		52.9		52.9		26.4		26.4
FDIC clawback liability		8.1		8.1		6.9		6.9