Fair Value Measurement

As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market or most advantageous market for the asset or liability. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, Management determines the fair value of the Corporation's assets and liabilities using valuation models or third-party pricing services. Both of these approaches rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on Management's judgment, assumptions and estimates related to credit quality, liquidity, interest rates and other relevant inputs.

GAAP establishes a three-level valuation hierarchy for determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy, highest ranking to lowest, are as follow:


•	Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.


•	Level 2 — Significant other observable inputs other than Level 1 prices such quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.


•	Level 3 — Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The level in the fair value hierarchy ascribed to a fair value measurement in its entirety is based on the lowest level input that is significant to the overall fair value measurement.

Valuation adjustments, such as those pertaining to counterparty and the Corporation's own credit quality and liquidity, may be necessary to ensure that assets and liabilities are recorded at fair value. Credit valuation adjustments are made when market pricing does not accurately reflect the counterparty's credit quality. As determined by Management, liquidity valuation adjustments may be made to the fair value of certain assets to reflect the uncertainty in the pricing and trading of the instruments when Management is unable to observe recent market transactions for identical or similar instruments. Liquidity valuation adjustments are based on the following factors:


•	the amount of time since the last relevant valuation;


•	whether there is an actual trade or relevant external quote available at the measurement date; and


•	volatility associated with the primary pricing components.

Management ensures that fair value measurements are accurate and appropriate by relying upon various controls, including:


•	an independent review and approval of valuation models;


•	recurring detailed reviews of profit and loss; and


•	a validation of valuation model components against benchmark data and similar products, where possible.

Management reviews any changes to its valuation methodologies to ensure they are appropriate and justified, and refines valuation methodologies as more market-based data becomes available. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.

Additional information regarding the Corporation's accounting policies for determining fair value is provided in Note 1 (Summary of Significant Accounting Policies) under the heading "Fair Value Measurements" to the 2013 Form 10-K.

The following tables present the balance of assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2014, December 31, 2013, and June 30, 2013:



			Fair Value by Hierarchy
(In thousands)	June 30, 2014		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	2,935	$	2,935	$	—	$	—
Non-marketable equity securities	3,281		—		10		3,271
U.S. States and political subdivisions	240,805		—		240,805		—
Residential mortgage-backed securities:
U.S. government agencies	1,018,174		—		1,018,174		—
Commercial mortgage-backed securities:
U.S. government agencies	85,698		—		85,698		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,598,031		—		1,598,031		—
Non-agency	8		—		1		7
Commercial collateralized mortgage-backed securities:
U.S. government agencies	182,033		—		182,033		—
Corporate debt securities	53,490		—		—		53,490
Asset-backed securities:
Collateralized loan obligations	293,965		—		—		293,965
Total available for sale securities	3,478,420		2,935		3,124,752		350,733
Residential loans held for sale	21,632		—		21,632		—
Derivative assets:
Interest rate swaps - nondesignated	47,952		—		47,952		—
Mortgage loan commitments	2,491		—		2,491		—
Forward sale contracts	—		—		—		—
Foreign exchange	107		—		107		—
Total derivative assets	50,550		—		50,550		—
Total fair value of assets (a)	$	3,550,602	$	2,935	$	3,196,934	$	350,733
Derivative liabilities:
Interest rate swaps - fair value hedges	$	8,989	$	—	$	8,989	$	—
Interest rate swaps - nondesignated	47,952		—		47,952		—
Forward sales contracts	545		—		545		—
Foreign exchange	48		—		48		—
Credit contracts	10		—		10		—
Total derivative liabilities	57,544		—		57,544		—
True-up liability	12,581		—		—		12,581
Total fair value of liabilities (a)	$	70,125	$	—	$	57,544	$	12,581
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	21,987	$	—	$	—	$	21,987
Impaired loans (c)	56,006		—		—		56,006
Other property (d)	17,052		—		—		17,052
Other real estate covered by loss share (e)	22,782		—		—		22,782
Total fair value	$	117,827	$	—	$	—	$	117,827

(a) - There were no transfers between levels 1 and 2 of the fair value hierarchy during the three months ended June 30, 2014.

(b) - MSRs with a recorded investment of $22.2 million were reduced by a specific valuation allowance totaling $0.6 million to a reported carrying value of $21.6 million resulting in recognition of $0.1 million in expense included in loans sales and servicing income in the three months ended June 30, 2014.

(c) - Collateral dependent impaired loans with a recorded investment of $62.2 million were reduced by specific valuation allowance allocations totaling $6.2 million to a reported net carrying value of $56.0 million.

(d) - Amounts do not include assets held at cost at June 30, 2014. During the three months ended June 30, 2014, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.7 million included in noninterest expense.

(e) - Amounts do not include assets held at cost at June 30, 2014. During the three months ended June 30, 2014, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses $0.7 million included in noninterest expense.



			Fair Value by Hierarchy
(In thousands)	December 31, 2013		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	3,036	$	3,036	$	—	$	—
Nonmarketable equity securities	3,281		—		10		3,271
U.S. States and political subdivisions	262,367		—		262,367		—
Residential mortgage-backed securities:
U.S. government agencies	969,922		—		969,922		—
Commercial mortgage-backed securities:
U.S. government agencies	69,567		—		69,567		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,518,393		—		1,518,393		—
Non-agency	9		—		—		9
Commercial collateralized mortgage-backed securities:
U.S. government agencies	102,268		—		102,268		—
Corporate debt securities	50,644		—		—		50,644
Asset-backed securities
Collateralized loan obligations	293,687		—		—		293,687
Total available-for-sale securities	3,273,174		3,036		2,922,527		347,611
Residential loans held for sale	11,622		—		11,622		—
Derivative assets:
Interest rate swaps - nondesignated	46,577		—		46,577		—
Mortgage loan commitments	891		—		891		—
Forward sale contracts	384		—		384		—
Foreign exchange	50		—		50		—
Total derivative assets	47,902		—		47,902		—
Total fair value of assets (a)	$	3,332,698	$	3,036	$	2,982,051	$	347,611
Derivative liabilities:
Interest rate swaps - fair value hedges	$	11,574	$	—	$	11,574	$	—
Interest rate swaps - nondesignated	46,577		—		46,577		—
Foreign exchange	50		—		50		—
Total derivative liabilities	58,201		—		58,201		—
True-up liability	11,463		—		—		11,463
Total fair value of liabilities (a)	$	69,664	$	—	$	58,201	$	11,463
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	23,041	$	—	$	—	$	23,041
Impaired loans (c)	47,870		—		—		47,870
Other property (d)	10,018		—		—		10,018
Other real estate covered by loss share (e)	8,754		—		—		8,754
Total fair value	$	89,683	$	—	$	—	$	89,683

(a) - There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the year ended December 31, 2013.

(b) - MSRs with a recorded investment of $22.8 million were reduced by a specific valuation allowance totaling $0.3 million to a reported carrying value of $22.5 million resulting in a recovery of previously recognized expense of $2.3 million in recoveries included in loans sales and servicing income in the year ended ended December 31, 2013.

(c) - Collateral dependent impaired loans with a recorded investment of $52.6 million were reduced by specific valuation allowance allocations totaling $4.8 million to a reported net carrying value of $47.9 million.

(d) Amounts do not include assets held at cost at December 31, 2013. During the year ended December 31, 2013, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $1.4 million included in noninterest expense.

(e) Amounts do not include assets held at cost at December 31, 2013. During the year ended December 31, 2013, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $1.0 million included in noninterest expense.



			Fair Value by Hierarchy
(In thousands)	June 30, 2013		Level 1		Level 2		Level 3
Recurring fair value measurement
Available-for-sale securities:
Marketable equity securities	$	3,213	$	3,213	$	—	$	—
Non-marketable equity securities	3,281				10		3,271
U.S. States and political subdivisions	277,934		—		277,934		—
Residential mortgage-backed securities:
U.S. government agencies	1,075,928		—		1,075,928		—
Commercial mortgage-backed securities:
U.S. government agencies	56,497		—		56,497		—
Residential collateralized mortgage-backed securities:
U.S. government agencies	1,566,728		—		1,566,728		—
Non-agency	10		—		2		8
Commercial collateralized mortgage-backed securities:
U.S. government agencies	106,568		—		106,568		—
Corporate debt securities	51,138		—		—		51,138
Asset-backed securities:
Collateralized loan obligations	158,095		—		—		158,095
Total available-for-sale securities	3,299,392		3,213		3,083,667		212,512
Residential loans held for sale	22,855		—		22,855		—
Derivative assets:
Interest rate swaps - nondesignated	47,804		—		47,804		—
Mortgage loan commitments	779		—		779		—
Forward sale contracts	4,458		—		4,458		—
Foreign exchange	117		—		117		—
Total derivative assets	53,158		—		53,158		—
Total fair value of assets (a)	$	3,375,405	$	3,213	$	3,159,680	$	212,512
Derivative liabilities:
Interest rate swaps - fair value hedges	14,319		—		14,319		—
Interest rate swaps - nondesignated	47,804		—		47,804		—
Foreign exchange	94		—		94		—
Total derivative liabilities	62,217		—		62,217		—
True-up liability	10,937		—		—		10,937
Total fair value of liabilities (a)	$	73,154	$	—	$	62,217	$	10,937
Nonrecurring fair value measurement
Mortgage servicing rights (b)	$	22,529	$	—	$	—	$	22,529
Impaired loans (c)	52,606		—		—		52,606
Other property (d)	16,825		—		—		16,825
Other real estate covered by loss share (e)	18,338		—		—		18,338
Total fair value	$	110,298	$	—	$	—	$	110,298

(a) - There were no transfers between levels 1 and 2 of the fair value hierarchy during the three months ended June 30, 2013.

(b) - MSRs with a recorded investment of $22.6 million were reduced by a specific valuation allowance totaling $0.5 million to a reported carrying value of $22.1 million resulting in recovery of a previously recognized expense of $0.8 million in the three months ended June 30, 2013.

(c) - Collateral dependent impaired loans with a recorded investment of $58.1 million were reduced by specific valuation allowance allocations totaling $5.5 million to a reported net carrying value of $52.6 million.

(d) - Amounts do not include assets held at cost at June 30, 2013. During the three months ended June 30, 2013, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.3 million included in noninterest expense.

(e) - Amounts do not include assets held at cost at June 30, 2013. During the three months ended June 30, 2013, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.6 million included in noninterest expense.

The following section describes the valuation methodologies used by the Corporation to measure financial assets and liabilities at fair value. During the three months ended June 30, 2014 and 2013, there were no significant changes to the valuation techniques used by the Corporation to measure fair value.

Available-for-sale securities. When quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1. The quoted prices are not adjusted. Level 1 instruments include money market mutual funds.

Securities are classified as Level 2 if quoted prices for identical securities are not available, and fair value is determined using pricing models by a third-party pricing service. Approximately 90% of the available-for-sale portfolio is Level 2. For the majority of available-for sale securities, the Corporation obtains fair value measurements from an independent third-party pricing service. These instruments include: municipal bonds; bonds backed by the U.S. government; corporate bonds; MBS; securities issued by the U.S. Treasury; and certain agency CMOs. The independent pricing service uses industry-standard models to price U.S. Government agencies and MBS that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Obligations of state and political subdivisions are valued using a matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. For collateralized mortgage securities, depending on the characteristics of a given tranche, a volatility driven multidimensional static model or Option-Adjusted Spread model is generally used. Substantially all assumptions used by the independent pricing service for securities classified as Level 2 are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.

Securities are classified as Level 3 when there is limited activity in the market for a particular instrument and fair value is determined by obtaining broker quotes. As of June 30, 2014, less than 10% of the available-for-sale portfolio is Level 3, which consists of single issuer trust preferred securities and CLOs.

The single issuer trust preferred securities are measured at unadjusted prices obtained from the independent pricing service. The independent pricing service prices these instruments through a broker quote when sufficient information, such as cash flows or other security structure or market information, is not available to produce an evaluation. Broker-quoted securities are adjusted by the independent pricing service based solely on the receipt of updated quotes from market makers or broker-dealers recognized as market participants. A list of such issues is compiled by the independent pricing service daily. For broker-quoted issues, the independent pricing service applies a zero spread relationship to the bid-side valuation, resulting in the same values for the mean and ask.

CLO are securitized products where payments from multiple middle-sized and large business loans are pooled together and segregated into different classes of bonds with payments on these bonds based on their priority within the overall deal structure. The markets for such securities are generally characterized by low trading volumes and wide bid-ask spreads, all driven by more limited market participants. Although estimated prices are generally obtained for such securities, the level of market observable assumptions used is limited in the valuation. Specifically, market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level. Accordingly, the securities are currently valued by a third-party that primarily utilizes dealer or pricing service prices and, subsequently, verifies this pricing through a disciplined process to ensure proper valuations and to highlight differences in cash flow modeling or other risks to determine if the market perception of the risk of a CLO is beginning to deviate from other similar tranches. This is done by establishing ranges for appropriate pricing yields for each CLO tranche and, using a standardized cash flow scenario, ensuring yields are consistent with expectations.

On a monthly basis, Management validates the pricing methodologies utilized by our independent pricing service to ensure the fair-value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy. Management substantiates the fair values determined for a sample of securities held in portfolio by reviewing the key assumptions used by the independent pricing service to value the securities and comparing the fair values to prices from other independent sources for the same and similar securities. Management analyzes variances and conducts additional research with the independent pricing service, if necessary, and takes appropriate action based on its findings.

Loans held for sale. These loans are regularly traded in active markets through programs offered by FHLMC and FNMA, and observable pricing information is available from market participants. The prices are adjusted as necessary to include any embedded servicing value in the loans and to take into consideration the specific characteristics of certain loans. These adjustments represent unobservable inputs to the valuation but are not considered significant to the fair value of the loans. Accordingly, residential real estate loans held for sale are classified as Level 2.

Impaired loans. Certain impaired collateral dependent loans are reported at fair value less costs to sell the collateral. Collateral values are estimated using Level 3 inputs, consisting of third-party appraisals or price opinions and internal adjustments necessary in the judgment of Management to reflect current market conditions and current operating results for the specific collateral. Collateral may be in the form of real estate or personal property including equipment and inventory. The vast majority of the collateral is real estate. When impaired collateral dependent loans are individually re-measured and reported at fair value of the collateral, less costs to sell, a direct loan charge off to the ALL and/or a specific valuation allowance allocation is recorded.

Other Property. Certain other property which consists of foreclosed assets and properties securing residential and commercial loans, upon initial recognition and transfer from loans, are re-measured and reported at fair value less costs to sell to the property through a charge-off to the ALL based on the fair value of the foreclosed assets. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 3 inputs, consisting of third-party appraisals or price opinions and internal adjustments necessary in the judgment of Management to reflect current market conditions and current operating results for the specific collateral. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down further through a charge to noninterest expense.

Mortgage Servicing Rights. The Corporation carries its MSRs at lower of cost or fair value, and, therefore, they subject to fair value measurements on a nonrecurring basis. Since sales of MSRs tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSRs. As such, like other participants in the mortgage banking business, the Corporation relies primarily on a discounted cash flow model, incorporating assumptions about loan prepayment rates, discount rates, servicing costs and other economic factors, to estimate the fair value of its mortgage servicing rights. Since the valuation model uses significant unobservable inputs, the Corporation classifies MSRs within Level 3.

The Corporation utilizes a third-party vendor to perform the modeling to estimate the fair value of its MSRs. The Corporation reviews the estimated fair values and assumptions used by the third-party in the model on a quarterly basis. The Corporation also compares the estimates of fair value and assumptions to recent market activity and against its own experience. See Note 12 (Mortgage Servicing Rights and Mortgage Servicing Activity) for further information on MSRs valuation assumptions.

Derivatives. The Corporation's derivatives include interest rate swaps and written loan commitments and forward sales contracts related to residential mortgage loan origination activity. Valuations for interest rate swaps are derived from third-party models whose significant inputs are readily observable market parameters, primarily yield curves, with appropriate adjustments for liquidity and credit risk. These fair value measurements are classified as Level 2. The fair values of written loan commitments and forward sales contracts on the associated loans are based on quoted prices for similar loans in the secondary market, consistent with the valuation of residential mortgage loans held for sale. Expected net future cash flows related to loan servicing activities are included in the fair value measurement of written loan commitments. A written loan commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that the Corporation will approve the potential borrower for the loan. Therefore, when determining fair value, the Corporation makes estimates of expected "fallout" (interest rate locked pipeline loans not expected to close), using models, which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon a fixed rate loan commitment at one lender and enter into a new lower fixed rate loan commitment at another, when a borrower is not approved as an acceptable credit by the lender or for a variety of other non-economic reasons. Fallout is not a significant input to the fair value of the written loan commitments in their entirety. These measurements are classified as Level 2.

Derivative assets are typically secured through securities with financial counterparties or cross collateralization with a borrowing customer. Derivative liabilities are typically secured through the Corporation pledging securities to financial counterparties or, in the case of a borrowing customer, by the right of setoff. The Corporation considers factors such as the likelihood of default by itself and its counterparties, right of setoff, and remaining maturities in determining the appropriate fair value adjustments. All derivative counterparties approved by the Corporation's Asset and Liability Committee are regularly reviewed, and appropriate business action is taken to adjust the exposure to certain counterparties, as necessary. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of marketable collateral securing the position. This approach used to estimate impacted exposures to counterparties is also used by the Corporation to estimate its own credit risk on derivative liability positions. To date, no material losses have been incurred due to a counterparty's inability to pay any uncollateralized position. There was no significant change in value of derivative assets and liabilities attributed to credit risk for the three months ended June 30, 2014.

True-up liability. In connection with the George Washington and Midwest acquisitions in 2010, the Bank has agreed to pay the FDIC should the estimated losses on the acquired loan portfolios as well as servicing fees earned on the acquired loan portfolios not meet thresholds as stated in the loss sharing agreements (the "true-up liability"). This contingent consideration is classified as a liability within accrued taxes, expenses and other liabilities on the consolidated balance sheets and is remeasured at fair value each reporting date until the contingency is resolved. The changes in fair value are recognized in earnings in the current period.

An expected value methodology is used as a starting point for determining the fair value of the true-up liability based on the contractual terms prescribed in the loss sharing agreements. The resulting values under both calculations are discounted over 10 years (the period defined in the loss sharing agreements) to reflect the uncertainty in the timing and payment of the true-up liability by the Bank to arrive at a net present value. The discount rate used to value the true-up liability was 3.12% and 3.59% as of June 30, 2014 and 2013, respectively. Increasing or decreasing the discount rate by one percentage point would change the liability by approximately $0.7 million and $0.8 million, respectively, as of June 30, 2014.

In accordance with the loss sharing agreements governing the Midwest acquisition, on July 15, 2020 (the “Midwest True-Up Measurement Date”), the Bank has agreed to pay to the FDIC half of the amount, if positive, calculated as: (1) 20% of the intrinsic loss estimate of the FDIC (approximately $152 million); minus (2) the sum of (A) 25% of the asset premium paid in connection with the Midwest acquisition (approximately $21 million); plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the Midwest acquisition was $7.9 million, $7.1 million, and $6.8 million as of June 30, 2014, December 31, 2013, and June 30, 2013, respectively.

In accordance with the loss sharing agreements governing the George Washington acquisition, on April 14, 2020 (the “George Washington True-Up Measurement Date”), the Bank has agreed to pay to the FDIC 50% of the excess, if any, of (1) 20% of the stated threshold (approximately $34.4 million) less (2) the sum of (A) 25% of the asset discount (approximately $12 million) received in connection with the George Washington acquisition plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the George Washington acquisition was $4.7 million, $4.3 million, and $4.1 million as of June 30, 2014, December 31, 2013, and June 30, 2013, respectively.

For the purposes of the above calculations, cumulative shared-loss payments means: (i) the aggregate of all of the payments made or payable to the Bank under the loss sharing agreements minus (ii) the aggregate of all of the payments made or payable to the FDIC. The cumulative servicing amount means the period servicing amounts (as defined in the loss sharing agreements) for every consecutive twelve-month period prior to and ending on the Midwest and George Washington True-Up Measurement Dates. The cumulative loss share payments and cumulative service amounts components of the true-up calculations are estimated each period end based on the expected amount and timing of cash flows of the acquired loan portfolios. See Note 4 (Loans) and Note 5 (Allowance for Loan Losses) for additional information on the estimated cash flows of the acquired loan portfolios.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three and six months ended June 30, 2014 and 2013 are summarized as follows:



	Three Months Ended June 30,										Six Months Ended June 30,
	2014				2013						2014				2013
(In thousands)	Available-for-sale securities		True-up liability		Available-for-sale securities			True-up liability			Available-for-sale securities		True-up liability		Available-for-sale securities			True-up liability
Balance at beginning of period	$	349,425	$	11,983	$	51,234		$	12,783		$	347,610	$	11,463	$	49,661		$	12,259
Fair value of assets acquired	—		—		3,271			—			—		—		3,271			—
(Gains) losses included in earnings ^(a)	—		598		—			(1,846		)	—		1,118		—			(1,322		)
Unrealized gains (losses) ^(b)	1,253		—		(1,923		)	—			3,021		—		(363		)	—
Purchases	—		—		159,916			—			—		—		159,916			—
Settlements	55		—		14			—			102		—		27			—
Balance at ending of period	$	350,733	$	12,581	$	212,512		$	10,937		$	350,733	$	12,581	$	212,512		$	10,937

^(a)Reported in "Other expense"

^(b) Reported in "Other comprehensive income (loss)"

Fair Value Option

Residential mortgage loans held for sale are recorded at fair value under fair value option accounting guidance. The election of the fair value option aligns the accounting for these loans with the related hedges. It also eliminates the requirements of the hedge accounting under GAAP.

Interest income on loans held for sale is accrued on the principal outstanding primarily using the “simple-interest” method. None of these loans were 90 days or more past due, nor were any on nonaccrual as of June 30, 2014, December 31, 2013, and June 30, 2013. The aggregate fair value, contractual balance and gain or loss on loans held for sale was as follows:



(In thousands)	June 30, 2014		December 31, 2013		June 30, 2013
Aggregate fair value carrying amount	$	21,632	$	11,622	$	22,855
Aggregate unpaid principal / contractual balance	20,886		11,438		23,220
Carrying amount over aggregate unpaid principal ^(a)	$	746	$	184	$	(365	)

^(a)These changes are included in "Loan sales and servicing income" in the Consolidated Statements of Income.

Disclosures about Fair Value of Financial Instruments

The carrying amount and estimated fair value of the Corporation’s financial instruments that are carried at either fair value or cost as of June 30, 2014, December 31, 2013, and June 30, 2013 are shown in the tables below.



	June 30, 2014
	Carrying Amount		Fair Value
(In thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	642,570	$	642,570	$	642,570	$	—	$	—
Available-for-sale securities	3,478,420		3,478,420		2,935		3,124,752		350,733
Held-to-maturity securities	3,052,118		3,001,866		—		3,001,866		—
Other securities	148,433		148,433		—		148,433		—
Loans held for sale	21,632		21,632		—		21,632		—
Net originated loans	11,375,243		11,458,318		—		—		11,458,318
Net acquired loans	3,018,810		3,166,228		—		—		3,166,228
Net covered loans and loss share receivable	433,538		433,538		—		—		433,538
Accrued interest receivable	63,172		63,172		—		63,172		—
Derivatives	50,550		50,550		—		50,550		—
Financial liabilities:
Deposits	$	19,298,396	$	19,300,842	$	—	$	19,300,842	$	—
Federal funds purchased and securities sold under agreements to repurchase	1,218,855		1,218,855		—		1,218,855		—
Wholesale borrowings	649,021		652,615		—		652,615		—
Long-term debt	324,433		335,757		—		335,757		—
Accrued interest payable	8,311		8,311		—		8,311		—
Derivatives	57,544		57,544		—		57,544		—



	December 31, 2013
	Carrying Amount		Fair Value
(In thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	917,822	$	917,822	$	917,822	$	—	$	—
Available-for-sale securities	3,273,174		3,273,174		3,036		2,922,527		347,611
Held-to-maturity securities	2,935,688		2,824,240		—		2,824,240		—
Other securities	180,803		180,803		—		180,803		—
Loans held for sale	11,622		11,622		—		11,622		—
Net originated loans	10,116,903		10,017,722		—		—		10,017,722
Net acquired loans	3,494,874		3,627,275						3,627,275
Net covered loans and loss share receivable	547,943		547,943		—		—		547,943
Accrued interest receivable	52,929		52,929		—		52,929		—
Derivatives	47,902		47,902		—		47,902		—
Financial liabilities:
Deposits	$	19,533,601	$	19,532,368	$	—	$	19,532,368	$	—
Federal funds purchased and securities sold under agreements to repurchase	851,535		851,535		—		851,535		—
Wholesale borrowings	200,600		204,124		—		204,124		—
Long-term debt	324,428		319,711		—		319,711		—
Accrued interest payable	9,339		9,339		—		9,339		—
Derivatives	58,201		58,201		—		58,201		—



	June 30, 2013
	Carrying Amount		Fair Value
(In thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	909,490	$	909,490	$	909,490	$	—	$	—
Available for sale securities	3,299,392		3,299,392		3,213		3,083,667		212,512
Held to maturity securities	2,551,860		2,487,071		—		2,487,071		—
Other securities	267,565		267,565		—		267,565		—
Loans held for sale	22,855		22,855		—		22,855		—
Net originated loans	9,033,980		8,984,845		—		—		8,984,845
Net acquired loans	4,250,362		4,250,362						4,250,362
Net covered loans and loss share receivable	711,367		711,367		—		—		711,367
Accrued interest receivable	48,635		48,635		—		48,635		—
Derivatives	53,158		53,158		—		53,158		—
Financial liabilities:
Deposits	$	19,119,722	$	19,125,843	$	—	$	19,125,843	$	—
Federal funds purchased and securities sold under agreements to repurchase	844,871		844,871		—		844,871		—
Wholesale borrowings	201,337		205,210		—		205,210		—
Long-term debt	324,422		322,322		—		322,322		—
Accrued interest payable	9,066		9,066		—		9,066		—
Derivatives	62,217		62,217		—		62,217		—

The following methods and assumptions were used to estimate the fair values of each class of financial instrument presented:

Cash and cash equivalents – For these short-term instruments, the carrying amount is considered a reasonable estimate of fair value.

Investment securities – See Financial Instruments Measured at Fair Value above.

Loans held for sale – The majority of loans held for sale are residential mortgage loans which are recorded at fair value. All other loans held for sale are recorded at the lower of cost or market, less costs to sell. See Financial Instruments Measured at Fair Value above.

Net originated loans – The originated loan portfolio was segmented based on loan type and repricing characteristics. Carrying values are used to estimate fair values of variable rate loans. A discounted cash flow method was used to estimate the fair value of fixed-rate loans. Discounting was based on the contractual cash flows, and discount rates are based on the year-end yield curve plus a spread that reflects current pricing on loans with similar characteristics. If applicable, prepayment assumptions are factored into the fair value determination based on historical experience and current economic conditions.

Net acquired and covered loans – Fair values for acquired and covered loans were estimated based on a discounted projected cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.

Loss share receivable – This loss sharing asset is measured separately from the related covered assets as it is not contractually embedded in the covered assets and is not transferable with the covered assets should the Bank choose to dispose of them. Fair value was estimated using discounted projected cash flows related to the FDIC loss share agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing and receipt from the FDIC.

Accrued interest receivable – The carrying amount is considered a reasonable estimate of fair value.

Mortgage servicing rights – See Financial Instruments Measured at Fair Value above.

Deposits – The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market accounts and other savings accounts, are established at carrying value because of the customers' ability to withdraw funds immediately. A discounted cash flow method is used to estimate the fair value of fixed rate time deposits. Discounting was based on the contractual cash flows and the current rates at which similar deposits with similar remaining maturities would be issued.

Federal funds purchased and securities sold under agreements to repurchase, wholesale borrowings and long-term debt – The carrying amount of variable rate borrowings including federal funds purchased is considered to be their fair value. Quoted market prices or the discounted cash flow method was used to estimate the fair value of the Corporation's long-term debt. Discounting was based on the contractual cash flows and the current rate at which debt with similar terms could be issued.

Accrued interest payable – The carrying amount is considered a reasonable estimate of fair value.

Derivative assets and liabilities – See Financial Instruments Measured at Fair Value above.

True-up liability – See Financial Instruments Measured at Fair Value above.