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Fair Value Of Assets And Liabilities | 3 Months Ended
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Mar. 31, 2014
Fair Value Disclosures [Abstract] |
Fair Value Of Assets And Liabilities | Note 17 – Fair Value of Assets & Liabilities FHN groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires FHN to maximize the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are: Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques. Transfers between fair value levels are recognized at the end of the fiscal quarter in which the associated change in inputs occurs.
Recurring Fair Value Measurements
The following table presents the balance of assets and liabilities measured at fair value on a recurring basis as of March 31, 2014: |
|  |  |  | March 31, 2014 |
(Dollars in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Trading securities - capital markets: |  |  |  |  |  |  |  |  |  |  |  |
| U.S. treasuries | $ | - |  | $ | 145,136 |  | $ | - |  | $ | 145,136 |
| Government agency issued MBS |  | - |  |  | 412,994 |  |  | - |  |  | 412,994 |
| Government agency issued CMO |  | - |  |  | 124,304 |  |  | - |  |  | 124,304 |
| Other U.S. government agencies |  | - |  |  | 86,672 |  |  | - |  |  | 86,672 |
| States and municipalities |  | - |  |  | 29,787 |  |  | - |  |  | 29,787 |
| Corporate and other debt |  | - |  |  | 382,341 |  |  | 5 |  |  | 382,346 |
| Equity, mutual funds, and other |  | - |  |  | 6,922 |  |  | - |  |  | 6,922 |
|  | Total trading securities - capital markets |  | - |  |  | 1,188,156 |  |  | 5 |  |  | 1,188,161 |
Trading securities - mortgage banking: |  |  |  |  |  |  |  |  |  |  |  |
| Principal only |  | - |  |  | - |  |  | 4,764 |  |  | 4,764 |
| Interest only |  | - |  |  | - |  |  | 339 |  |  | 339 |
| Subordinated bonds |  | - |  |  | - |  |  | 1,485 |  |  | 1,485 |
|  | Total trading securities - mortgage banking |  | - |  |  | - |  |  | 6,588 |  |  | 6,588 |
Loans held-for-sale |  | - |  |  | - |  |  | 229,219 |  |  | 229,219 |
Securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |
| U.S. treasuries |  | - |  |  | 39,990 |  |  | - |  |  | 39,990 |
| Government agency issued MBS |  | - |  |  | 792,562 |  |  | - |  |  | 792,562 |
| Government agency issued CMO |  | - |  |  | 2,531,770 |  |  | - |  |  | 2,531,770 |
| Other U.S. government agencies |  | - |  |  | - |  |  | 2,182 |  |  | 2,182 |
| States and municipalities |  | - |  |  | 13,655 |  |  | 1,500 |  |  | 15,155 |
| Venture capital |  | - |  |  | - |  |  | 4,300 |  |  | 4,300 |
| Equity, mutual funds, and other |  | 26,482 |  |  | - |  |  | - |  |  | 26,482 |
|  | Total securities available-for-sale |  | 26,482 |  |  | 3,377,977 |  |  | 7,982 |  |  | 3,412,441 |
Mortgage servicing rights |  | - |  |  | - |  |  | 4,687 |  |  | 4,687 |
Other assets: |  |  |  |  |  |  |  |  |  |  |  |
| Deferred compensation assets |  | 23,335 |  |  | - |  |  | - |  |  | 23,335 |
| Derivatives, forwards and futures |  | 4,015 |  |  | - |  |  | - |  |  | 4,015 |
| Derivatives, interest rate contracts |  | - |  |  | 162,450 |  |  | - |  |  | 162,450 |
|  | Total other assets |  | 27,350 |  |  | 162,450 |  |  | - |  |  | 189,800 |
|  | Total assets | $ | 53,832 |  | $ | 4,728,583 |  | $ | 248,481 |  | $ | 5,030,896 |
Trading liabilities - capital markets: |  |  |  |  |  |  |  |  |  |  |  |
| U.S. treasuries | $ | - |  | $ | 420,574 |  | $ | - |  | $ | 420,574 |
| Government agency issued MBS |  | - |  |  | 1,083 |  |  | - |  |  | 1,083 |
| Government agency issued CMO |  | - |  |  | 503 |  |  | - |  |  | 503 |
| Other U.S. government agencies |  | - |  |  | 9,739 |  |  | - |  |  | 9,739 |
| States and municipalities |  | - |  |  | 1,436 |  |  | - |  |  | 1,436 |
| Corporate and other debt |  | - |  |  | 233,287 |  |  | - |  |  | 233,287 |
| Equity, mutual funds, and other |  | - |  |  | 635 |  |  | - |  |  | 635 |
|  | Total trading liabilities - capital markets |  | - |  |  | 667,257 |  |  | - |  |  | 667,257 |
Other liabilities: |  |  |  |  |  |  |  |  |  |  |  |
| Derivatives, forwards and futures |  | 2,738 |  |  | - |  |  | - |  |  | 2,738 |
| Derivatives, interest rate contracts |  | - |  |  | 130,180 |  |  | - |  |  | 130,180 |
| Derivatives, other |  | - |  |  | - |  |  | 4,945 |  |  | 4,945 |
|  | Total other liabilities |  | 2,738 |  |  | 130,180 |  |  | 4,945 |  |  | 137,863 |
|  | Total liabilities | $ | 2,738 |  | $ | 797,437 |  | $ | 4,945 |  | $ | 805,120 |
The following table presents the balance of assets and liabilities measured at fair value on a recurring basis as of March 31, 2013: |
|  |  |  | March 31, 2013 |
(Dollars in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Trading securities - capital markets: |  |  |  |  |  |  |  |  |  |  |  |
| U.S. treasuries | $ | - |  | $ | 99,618 |  | $ | - |  | $ | 99,618 |
| Government agency issued MBS |  | - |  |  | 385,351 |  |  | - |  |  | 385,351 |
| Government agency issued CMO |  | - |  |  | 283,932 |  |  | - |  |  | 283,932 |
| Other U.S. government agencies |  | - |  |  | 195,051 |  |  | - |  |  | 195,051 |
| States and municipalities |  | - |  |  | 21,141 |  |  | - |  |  | 21,141 |
| Corporate and other debt |  | - |  |  | 396,186 |  |  | 5 |  |  | 396,191 |
| Equity, mutual funds, and other |  | - |  |  | 8 |  |  | - |  |  | 8 |
|  | Total trading securities - capital markets |  | - |  |  | 1,381,287 |  |  | 5 |  |  | 1,381,292 |
Trading securities - mortgage banking: |  |  |  |  |  |  |  |  |  |  |  |
| Principal only |  | - |  |  | - |  |  | 5,293 |  |  | 5,293 |
| Interest only |  | - |  |  | - |  |  | 11,161 |  |  | 11,161 |
|  | Total trading securities - mortgage banking |  | - |  |  | - |  |  | 16,454 |  |  | 16,454 |
Loans held-for-sale |  | - |  |  | - |  |  | 232,684 |  |  | 232,684 |
Securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |
| U.S. treasuries |  | - |  |  | 39,994 |  |  | - |  |  | 39,994 |
| Government agency issued MBS |  | - |  |  | 1,065,551 |  |  | - |  |  | 1,065,551 |
| Government agency issued CMO |  | - |  |  | 1,849,353 |  |  | - |  |  | 1,849,353 |
| Other U.S. government agencies |  | - |  |  | - |  |  | 3,276 |  |  | 3,276 |
| States and municipalities |  | - |  |  | 13,755 |  |  | 1,500 |  |  | 15,255 |
| Venture capital |  | - |  |  | - |  |  | 4,300 |  |  | 4,300 |
| Equity, mutual funds, and other |  | 14,996 |  |  | - |  |  | - |  |  | 14,996 |
|  | Total securities available-for-sale |  | 14,996 |  |  | 2,968,653 |  |  | 9,076 |  |  | 2,992,725 |
Mortgage servicing rights |  | - |  |  | - |  |  | 109,102 |  |  | 109,102 |
Other assets: |  |  |  |  |  |  |  |  |  |  |  |
| Deferred compensation assets |  | 22,785 |  |  | - |  |  | - |  |  | 22,785 |
| Derivatives, forwards and futures |  | 15,793 |  |  | - |  |  | - |  |  | 15,793 |
| Derivatives, interest rate contracts |  | - |  |  | 258,539 |  |  | - |  |  | 258,539 |
|  | Total other assets |  | 38,578 |  |  | 258,539 |  |  | - |  |  | 297,117 |
|  | Total assets | $ | 53,574 |  | $ | 4,608,479 |  | $ | 367,321 |  | $ | 5,029,374 |
Trading liabilities - capital markets: |  |  |  |  |  |  |  |  |  |  |  |
| U.S. treasuries | $ | - |  | $ | 434,119 |  | $ | - |  | $ | 434,119 |
| Government agency issued MBS |  | - |  |  | 26,121 |  |  | - |  |  | 26,121 |
| Government agency issued CMO |  | - |  |  | 24,986 |  |  | - |  |  | 24,986 |
| Other U.S. government agencies |  | - |  |  | 50,547 |  |  | - |  |  | 50,547 |
| Corporate and other debt |  | - |  |  | 245,533 |  |  | - |  |  | 245,533 |
|  | Total trading liabilities - capital markets |  | - |  |  | 781,306 |  |  | - |  |  | 781,306 |
Other short-term borrowings |  | - |  |  | - |  |  | 10,984 |  |  | 10,984 |
Other liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
| Derivatives, forwards and futures |  | 16,580 |  |  | - |  |  | - |  |  | 16,580 |
| Derivatives, interest rate contracts |  | - |  |  | 181,364 |  |  | - |  |  | 181,364 |
| Derivatives, other |  | - |  |  | 5 |  |  | 2,050 |  |  | 2,055 |
|  | Total other liabilities |  | 16,580 |  |  | 181,369 |  |  | 2,050 |  |  | 199,999 |
|  | Total liabilities | $ | 16,580 |  | $ | 962,675 |  | $ | 13,034 |  | $ | 992,289 |
Changes in Recurring Level 3 Fair Value Measurements |
The changes in Level 3 assets and liabilities measured at fair value for the three months ended March 31, 2014 and 2013, on a recurring basis are summarized as follows:
|  |  | Three Months Ended March 31, 2014 |
|  |  |  |  |  |  |  |  |  | Securities available-for-sale |  | Mortgage |  |  |  |  |  |
|  |  | Trading |  | Loans held- |  | Investment |  | Venture |  | servicing |  | Net derivative |  |
(Dollars in thousands) | securities |  | for-sale |  | portfolio |  | Capital |  | rights, net |  | liabilities |  |
Balance on January 1, 2014 | $ | 7,200 |  |  | $ | 230,456 |  |  | $ | 3,826 |  | $ | 4,300 |  |  | $ | 72,793 |  |  | $ | (2,915) |  |
| Total net gains/(losses) included in: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Net income |  | (85) |  |  |  | 1,187 |  |  |  | - |  |  | - |  |  |  | 1,133 |  |  |  | (2,341) |  |
|  | Other comprehensive income /(loss) |  | - |  |  |  | - |  |  |  | (17) |  |  | - |  |  |  | - |  |  |  | - |  |
| Purchases |  | 1,559 |  |  |  | 4,106 |  |  |  | - |  |  | - |  |  |  | - |  |  |  | - |  |
| Issuances |  | - |  |  |  | - |  |  |  | - |  |  | - |  |  |  | - |  |  |  | - |  |
| Sales |  | (1,715) |  |  |  | - |  |  |  | - |  |  | - |  |  |  | (68,519) |  |  |  | - |  |
| Settlements |  | (366) |  |  |  | (4,193) |  |  |  | (127) |  |  | - |  |  |  | (720) |  |  |  | 311 |  |
| Net transfers into/(out of) Level 3 |  | - |  |  |  | (2,337) | (b) |  |  | - |  |  | - |  |  |  | - |  |  |  | - |  |
Balance on March 31, 2014 | $ | 6,593 |  |  | $ | 229,219 |  |  | $ | 3,682 |  | $ | 4,300 |  |  | $ | 4,687 |  |  | $ | (4,945) |  |
Net unrealized gains/(losses) included in net income | $ | (40) | (a) |  | $ | 1,187 | (a) |  | $ | - |  | $ | - |  |  | $ | 73 | (a) |  | $ | (2,341) | (c) |
|  |  | Three Months Ended March 31, 2013 |  |
|  |  |  |  |  |  |  |  |  | Securities available-for-sale |  | Mortgage |  |  |  |  |  | Other |  |
|  |  | Trading |  | Loans held- |  | Investment |  | Venture |  | servicing |  | Net derivative |  | short-term |  |
(Dollars in thousands) | securities |  | for-sale |  | portfolio | Capital |  | rights, net |  | liabilities |  | borrowings |  |
Balance on January 1, 2013 | $ | 17,992 |  |  | $ | 221,094 |  |  | $ | 5,253 |  | $ | 4,300 |  |  | $ | 114,311 |  |  | $ | (2,175) |  |  | $ | (11,156) |  |
| Total net gains/(losses) included in: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Net income |  | 921 |  |  |  | 175 |  |  |  | - |  |  | - |  |  |  | 833 |  |  |  | (186) |  |  |  | 172 |  |
|  | Other comprehensive income /(loss) |  | - |  |  |  | - |  |  |  | (37) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |
| Purchases |  | - |  |  |  | 18,467 |  |  |  | - |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |
| Issuances |  | - |  |  |  | - |  |  |  | - |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |
| Sales |  | - |  |  |  | - |  |  |  | - |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |
| Settlements |  | (2,454) |  |  |  | (4,228) |  |  |  | (440) |  |  | - |  |  |  | (6,042) |  |  |  | 311 |  |  |  | - |  |
| Net transfers into/(out of) Level 3 |  | - |  |  |  | (2,824) | (b) |  |  | - |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |
Balance on March 31, 2013 | $ | 16,459 |  |  | $ | 232,684 |  |  | $ | 4,776 |  | $ | 4,300 |  |  | $ | 109,102 |  |  | $ | (2,050) |  |  | $ | (10,984) |  |
Net unrealized gains/(losses) included in net income | $ | 431 | (a) |  | $ | 175 | (a) |  | $ | - |  | $ | - |  |  | $ | 925 | (a) |  | $ | (186) | (c) |  | $ | 172 | (a) |
Primarily included in mortgage banking income on the Consolidated Condensed Statements of Income. Transfers out of recurring loans held-for-sale level 3 balances reflect movements out of loans held-for-sale and into real estate acquired by foreclosure (level 3 nonrecurring). Included in Other expense. Nonrecurring Fair Value Measurements From time to time, FHN may be required to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of LOCOM accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis which were still held on the balance sheet at March 31, 2014 and 2013, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment, the related carrying value, and the fair value adjustments recorded during the respective periods.
|  |  |  |  |  |  |  |  |  |  |  |  | Three Months Ended |
| Carrying value at March 31, 2014 | March 31, 2014 |
(Dollars in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Net gains/(losses) |
Loans held-for-sale - SBAs | $ | - |  | $ | 3,494 |  | $ | - |  | $ | 3,494 |  | $ | 42 |
Loans held-for-sale - first mortgages |  | - |  |  | - |  |  | 9,191 |  |  | 9,191 |  |  | (17) |
Loans, net of unearned income (a) |  | - |  |  | - |  |  | 57,035 |  |  | 57,035 |  |  | (488) |
Real estate acquired by foreclosure (b) |  | - |  |  | - |  |  | 42,970 |  |  | 42,970 |  |  | (858) |
Other assets (c) |  | - |  |  | - |  |  | 64,210 |  |  | 64,210 |  |  | (1,252) |
|  |  |  |  |  |  |  |  |  |  |  |  | $ | (2,573) |
|  |  |  |  |  |  |  |  |  |  |  |  | Three Months Ended |
| Carrying value at March 31, 2013 |  | March 31, 2013 |
(Dollars in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Net gains/(losses) |
Loans held-for-sale - SBAs | $ | - |  | $ | 8,156 |  | $ | - |  | $ | 8,156 |  | $ | - |
Loans held-for-sale - first mortgages |  | - |  |  | - |  |  | 11,633 |  |  | 11,633 |  |  | 84 |
Loans, net of unearned income (a) |  | - |  |  | - |  |  | 121,360 |  |  | 121,360 |  |  | (206) |
Real estate acquired by foreclosure (b) |  | - |  |  | - |  |  | 32,655 |  |  | 32,655 |  |  | (1,018) |
Other assets (c) |  | - |  |  | - |  |  | 74,109 |  |  | 74,109 |  |  | (1,609) |
|  |  |  |  |  |  |  |  |  |  |  |  | $ | (2,749) |
Certain previously reported amounts have been reclassified to agree with current presentation. |
Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral. Write-downs on these loans are recognized as part of provision. Represents the fair value and related losses of foreclosed properties that were measured subsequent to their initial classification as foreclosed assets. Balance excludes foreclosed real estate related to government insured mortgages. Represents tax credit investments. In first quarter 2013, FHN exercised c lean-up call s on first lien mortgage proprietary securitization trusts. In accordance with accounting requirements, FHN initially recognized the associated loans at fair value. Fair value was primarily determined through reference to observable inputs, including current market prices for similar loans. Since these loans were from the 2003 vintage, adjustments were made for the higher yields associated with the loans in comparison to more currently originated loans being sold. This resulted in recognition of an immaterial premium for these transaction s.
Level 3 Measurements |
The following tables provide information regarding the unobservable inputs utilized in determining the fair value of level 3 recurring and non-recurring measurements as of March 31, 2014 and 2013: |
(Dollars in Thousands) |  |  |  |  |  |  |  |  |
|  | Fair Value at |  |  |  |  |  |  |
Level 3 Class |  | March 31, 2014 | Valuation Techniques | Unobservable Input | Values Utilized |
Trading securities - mortgage |  | $ | 6,588 |  | Discounted cash flow |  | Prepayment speeds |  | 40% - 46% |
|  |  |  |  |  |  | Discount rate |  | 47% - 49% |
Loans held-for-sale - residential real estate |  |  | 238,410 |  | Discounted cash flow |  | Prepayment speeds - First mortgage |  | 6% - 10% |
|  |  |  |  |  |  | Prepayment speeds - Heloc |  | 3% - 12% |
|  |  |  |  |  |  | Credit spreads |  | 2% - 4% |
|  |  |  |  |  |  | Delinquency adjustment factor |  | 15% - 25% added to credit spread |
|  |  |  |  |  |  | Loss severity trends - First mortgage |  | 50% - 60% of UPB |
|  |  |  |  |  |  | Loss Severity trends - Heloc |  | 35% - 100% of UPB |
|  |  |  |  |  |  | Draw rate - Heloc |  | 2% - 11% |
Venture capital investments |  |  | 4,300 |  | Industry comparables |  | Adjustment for minority interest and small business status |  | 40% - 50% discount |
|  |  |  |  | Discounted cash flow |  | Discount rate |  | 25% - 30% |
|  |  |  |  |  |  | Earnings capitalization rate |  | 20% - 25% |
Mortgage servicing rights |  |  | 4,687 |  | Discounted cash flow |  | Prepayment speeds |  | 15.2 CPR |
|  |  |  |  |  |  | Discount rate |  | 9.8% |
|  |  |  |  |  |  | Cost to service |  | $141.40/Loan |
|  |  |  |  |  |  | Earnings on escrow |  | 1.385% |
Derivative liabilities, other |  |  | 4,945 |  | Discounted cash flow |  | Visa covered litigation resolution amount |  | $4.4 billion - $5.2 billion |
|  |  |  |  |  |  | Probability of resolution scenarios |  | 10% - 30% |
|  |  |  |  |  |  | Time until resolution |  | 12 - 48 months |
Loans, net of unearned income (a) |  |  | 57,035 |  | Appraisals from comparable properties |  | Marketability adjustments for specific properties |  | 0% - 10% of appraisal |
|  |  |  |  | Other collateral valuations |  | Borrowing base certificates adjustment |  | 20% - 50% of gross value |
|  |  |  |  |  |  | Financial Statements/Auction Values adjustment |  | 0% - 25% of reported value |
Real estate acquired by foreclosure (b) |  |  | 42,970 |  | Appraisals from comparable properties |  | Adjustment for value changes since appraisal |  | 0% - 10% of appraisal |
Other assets (c) |  |  | 64,210 |  | Discounted cash flow |  | Adjustments to current sales yields for specific properties |  | 0% - 15% adjustment to yield |
|  |  |  |  | Appraisals from comparable properties |  | Marketability adjustments for specific properties |  | 0% - 25% of appraisal |
Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral. Write-downs on these loans are recognized as part of provision. Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as foreclosed assets. Balance excludes foreclosed real estate related to government insured mortgages. Represents tax credit investments.
(Dollars in Thousands) |  |  |  |  |  |  |  |  |
|  | Fair Value at |  |  |  |  |  |  |
Level 3 Class |  | March 31, 2013 | Valuation Techniques | Unobservable Input | Values Utilized |
Trading securities - mortgage |  | $ | 16,454 |  | Discounted cash flow |  | Prepayment speeds |  | 32% |
|  |  |  |  |  |  | Discount rate |  | 46% |
Loans held-for-sale - residential real estate |  |  | 244,317 |  | Discounted cash flow |  | Prepayment speeds |  | 6% - 10% |
|  |  |  |  |  |  | Credit spreads |  | 2% - 4% |
|  |  |  |  |  |  | Delinquency adjustment factor |  | 15% - 25% added to credit spread |
|  |  |  |  |  |  | Loss severity trends |  | 50% - 60% of UPB |
Venture capital investments |  |  | 4,300 |  | Industry comparables |  | Adjustment for minority interest and small business status |  | 40% - 50% discount |
|  |  |  |  | Discounted cash flow |  | Discount rate |  | 25% - 30% |
|  |  |  |  |  |  | Earnings capitalization rate |  | 20% - 25% |
Mortgage servicing rights |  |  | 109,102 |  | Discounted cash flow |  | Prepayment speeds |  | 20.7 CPR |
|  |  |  |  |  |  | Discount rate |  | 11.8% |
|  |  |  |  |  |  | Cost to service |  | $118.10/Loan |
|  |  |  |  |  |  | Earnings on escrow |  | 1.385% |
Other short-term borrowings |  |  | 10,984 |  | Discounted cash flow |  | (a) |  | (a) |
Derivative liabilities, other |  |  | 2,050 |  | Discounted cash flow |  | Visa covered litigation resolution amount |  | $4.4 billion - $5.0 billion |
|  |  |  |  |  |  | Probability of resolution scenarios |  | 10% - 60% |
|  |  |  |  |  |  | Time until resolution |  | 6 - 18 months |
Loans, net of unearned income (b) |  |  | 125,223 |  | Appraisals from comparable properties |  | Marketability adjustments for specific properties |  | 0% - 10% of appraisal |
|  |  |  |  | Other collateral valuations |  | Borrowing base certificates |  | 20% - 50% of gross value |
|  |  |  |  |  |  | Financial Statements/Auction Values |  | 0% - 25% of reported value |
Real estate acquired by foreclosure (c) |  |  | 32,655 |  | Appraisals from comparable properties |  | Adjustment for value changes since appraisal |  | 0% - 10% of appraisal |
Other assets (d) |  |  | 74,109 |  | Discounted cash flow |  | Adjustments to current sales yields for specific properties |  | 0% - 15% adjustment to yield |
|  |  |  |  | Appraisals from comparable properties |  | Marketability adjustments for specific properties |  | 0% - 25% of appraisal |
The inputs and associated ranges for Other short-term borrowings mirror those of the related MSR. Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral. Write-downs on these loans are recognized as part of provision. Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as foreclosed assets. Balance excludes foreclosed real estate related to government insured mortgages. Represents tax credit investments. Mortgage servicing rights and other retained interests. Prepayment rates and credit spreads (part of the discount rate) are significant unobservable inputs used in the fair value measurement of FHN's MSR, principal only strips, excess interest IO, and subordinated bonds. Cost to service and earnings on escrow are additional unobservable inputs included in the valuation of MSR. Increases in prepayment rates, credit spreads and costs to service in isolation would result in significantly lower fair value measurements for the associated assets. Conversely, decreases in prepayment rates, credit spreads and costs to service in isolation would result in significantly higher fair value measurements for the associated assets. An increase/(decrease) in earnings on escrow in isolation would be accompanied by an increase/(decrease) in the value of the related MSR. Generally, when market interest rates decline and other factors favorable to prepayments occur, there is a corresponding increase in prepayment rates as customers are expected to refinance existing mortgages under more favorable interest rate terms. Generally, changes in discount rates directionally mirror the changes in market interest rates. In third quarter 2013, FHN agreed to sell substantially all its remaining legacy mortgage servicing. Sales commenced in fourth quarter 2013 and were substantially completed in first quarter 2014. FHN used the price in the definitive agreement, as adjusted for the portion of pricing that was not specific to the MSR and excess interest, as a third-party pricing source in the valuation of the remaining servicing assets as of March 31, 201 4. Prior to the contracted servicing sale, the MSR Hedging Working Group reviewed the overall assessment of the estimated fair value of MSR and excess interests weekly and was responsible for approving the critical assumptions used by management to determine the estimated fair value of FHN's retained interests. In addition, this working group reviewed the source of significant changes to the carrying values each quarter and was responsible for hedges and approving hedging strategies during periods when the MSR was hedged. Hedges were terminated upon execution of the definitive agreement to sell servicing. Subsequent to the contracted servicing sale, FHN's Corporate Accounting monitors sale activity and changes in the fair value of MSR and excess interest monthly. Prior to the contracted servicing sale, FHN also engaged in a process referred to as “price discovery” on a quarterly basis to assess the reasonableness of the estimated fair value of retained interests. Price discovery was conducted through a process of obtaining the following information: (1) quarterly informal (and an annual formal) valuation of the servicing portfolio by prominent independent mortgage-servicing brokers and (2) a collection of surveys and benchmarking data made available by independent third parties that include peer participants in the mortgage banking business. Although there was no single source of market information that could be relied upon to assess the fair value of MSR or excess interests, FHN reviewed all information obtained during price discovery to determine whether the estimated fair value of MSR was reasonable when compared to market information. Loans held-for-sale. Prepayment rates, credit spreads, and delinquency adjustment factors are significant unobservable inputs used in the fair value measurement of FHN's residential real estate l oans held-for-sale. Loss severity trends are also assessed to evaluate the reasonableness of fair value estimates resulting from discounted cash flows methodologies as well as to estimate fair value for newly repurchased loans and loans that are near foreclosure. Significant increases (decreases) in any of these inputs in isolation would result in significantly lower (higher) fair value measurements. Draw rates are an a d ditional significant unobservable input for HELOCs. Increases (decreases) in the draw rate estimates for HELOCs would increase (decrease) their fair value. All observable and unobservabl e inputs are re-assessed monthly. Fair value measurements are reviewed at least monthly by FHN's Corporate Accounting Department. Venture capital investments. The unobservable inputs used in the estimation of fair value for Venture capital investments are adjustments for minority interest and small business status when compared to industry comparables and the discount rate and earnings capitalization rate for a discounted cash flow analysis. For both valuation techniques, the inputs are intended to reflect the nature of the small business and the status of equity tranches held by FHN in relation to the overall valuation. The valuation of venture capital investments is reviewed at least quarterly by FHN's Equity Investment Review Committee. Changes in valuation are discussed with respect to the appropriateness of the adjustments in relation to the associated triggering events. Derivative liabilities. The determination of fair value for FHN's derivative liabilities associated with its prior sales of Visa Class B shares include estimation of both the resolution amount for Visa's Covered Litigation matters as well as the length of time until the resolution occurs. Significant increases (decreases) in either of these inputs in isolation would result in significantly higher (lower) fair value measurements for the derivative liabilities. Additionally, FHN performs a probability weighted multiple resolution scenario to calculate the estimated fair value of these derivative liabilities. Assignment of higher (lower) probabilities to the larger potential resolution scenarios would result in an increase (decrease) in the estimated fair value of the derivative liabilities. The valuation inputs and process are discussed with senior and executive management when significant events affecting the estimate of fair value occur. Inputs are compared to information obtained from the public issuances and filings of Visa, Inc. as well as public information released by other participants in the applicable litigation matters. Loans, net of unearned income and Real estate acquired by foreclosure. Collateral-dependent loans and Real estate acquired by foreclosure are primarily valued using appraisals based on sales of comparable properties in the same or similar markets. Multiple appraisal firms are utilized to ensure that estimated values are consistent between firms. This process occurs within FHN's Credit Risk Management and Loan Servicing function s (primarily consumer) and the Credit Risk Management Committee reviews valuation methodologies and loss information for reasonableness. Back testing is performed during the year through comparison to ultimate disposition values and is reviewed quarterly within the Credit Risk Management function. Other collateral (receivables, inventory, equipment, etc.) is valued through borrowing base certificates, financial statements and/or auction valuations. These valuations are discounted based on the quality of reporting, knowledge of the marketability/collectability of the collateral and historical disposition rates. Other a ssets – tax credit investments. The estimated fair value of tax credit investments is generally determined in relation to the yield (i.e., future tax credits to be received) an acquirer of these investments would expect in relation to the yields experienced on current new issue and/or secondary market transactions. Thus, as tax credits are recognized, the future yield to a market participant is reduced, resulting in consistent impairment of the individual investments. Individual investments are reviewed for impairment quarterly, which may include the consideration of additional marketability discounts related to specific investments. Unusual valuation adjustments, and the associated triggering events, are discussed with senior and executive management, when appropriate. A portfolio review is conducted annually, with the assistance of a third party, to assess the reasonableness of current valuations. Fair Value Option FHN elected the fair value option on a prospective basis for almost all types of mortgage loans originated for sale purposes under the Financial Instruments Topic (“ASC 825”). FHN determined that the election reduced certain timing differences and better matched changes in the value of such loans with changes in the value of derivatives used as economic hedges for these assets at the time of election. After the 2008 divestiture of certain mortgage banking operations and the significant decline of mortgage loans originated for sale, FHN discontinued hedging the mortgage warehouse. Repurchased loans are recognized within loans held-for-sale at fair value at the time of repurchase, which includes consideration of the credit status of the loans and the estimated liquidation value. FHN has elected to continue recognition of these loans at fair value in periods subsequent to reacquisition. Due to the credit-distressed nature of the vast majority of repurchased loans and the related loss severities experienced upon repurchase, FHN believes that the fair value election provides a more timely recognition of changes in value for these loans that occur subsequent to repurchase. Absent the fair value election, these loans would be subject to valuation at the LOCOM value, which would prevent subsequent values from exceeding the initial fair value, determined at the time of repurchase but would require recognition of subsequent declines in value. Thus, the fair value election provides for a more timely recognition of any potential future recoveries in asset values while not affecting the requirement to recognize subsequent declines in value. Prior to 2010, FHN transferred certain servicing assets in transactions that did not qualify for sale treatment due to certain recourse provisions. In fourth quarter 2013, these recourse provisions expired and the transaction was recognized as a sale. The associated proceeds were recognized within other short-term borrowings in the Consolidated Statements of Condition. Since the servicing assets were recognized at fair value and changes in the fair value of the related fi nancing liabilities mirror ed the change in fair value of the associated servicing assets, management elected to account for the financing liabilities at fair value. Since the servicing assets had already been delivered to the buyer, the fair value of the financing liabilities assoc iated with the transaction did not reflect any instrument-specific credit risk.
The following tables reflect the differences between the fair value carrying amount of residential real estate loans held-for-sale measured at fair value in accordance with management’s election and the aggregate unpaid principal amount FHN is contractually entitled to receive at maturity. |
|  | March 31, 2014 |
(Dollars in thousands) | Fair value carrying amount |  | Aggregate unpaid principal |  | Fair value carrying amount less aggregate unpaid principal |
Residential real estate loans held-for-sale reported at fair value: |  |  |  |  |  |  |  |  |  |
| Total loans | $ | 229,219 |  | $ | 374,401 |  |  | $ | (145,182) |
| Nonaccrual loans |  | 61,842 |  |  | 133,600 |  |  |  | (71,758) |
| Loans 90 days or more past due and still accruing |  | 7,260 |  |  | 15,010 |  |  |  | (7,750) |
|  | March 31, 2013 |
(Dollars in thousands) | Fair value carrying amount |  | Aggregate unpaid principal |  | Fair value carrying amount less aggregate unpaid principal |
Residential real estate loans held-for-sale reported at fair value: |  |  |  |  |  |  |  |  |  |
| Total loans | $ | 232,684 |  | $ | 367,952 |  |  | $ | (135,268) |
| Nonaccrual loans |  | 59,494 |  |  | 128,601 |  |  |  | (69,107) |
| Loans 90 days or more past due and still accruing |  | 8,179 |  |  | 18,370 |  |  |  | (10,191) |
Certain previously reported amounts have been reclassified to agree with current presentation. |
Assets and liabilities accounted for under the fair value election are initially measured at fair value with subsequent changes in fair value recognized in earnings. Such changes in the fair value of assets and liabilities for which FHN elected the fair value option are included in current period earnings with classification in the income statement line item reflected in the following table:
|  |  | Three Months Ended |
|  |  | March 31
(Dollars in thousands) | 2014 |  | 2013 |
Changes in fair value included in net income: |  |  |  |  |  |
| Mortgage banking noninterest income |  |  |  |  |  |
|  | Loans held-for-sale | $ | 1,187 |  | $ | 175 |
|  | Other short-term borrowings |  | - |  |  | 172 |
For the three months ended March 31, 2014 and 2013, the amounts for residential real estate loans held-for-sale include gain s of $1.8 million and $1.9 million, respectively, included in pretax earnings that are attributable to changes in instrument-specific credit risk. The portion of the fair value adjustments related to credit risk was determined based on both a quality adjustment for delinquencies and the full credit spread on the non-conforming loans. Interest income on residential real estate loans held-for-sale measured at fair value is calculated based on the note rate of the loan and is recorded in the interest income section of the Consolidated Condensed Statements of Income as interest on loans held-for-sale. Determination of Fair Value In accordance with ASC 820-10-35, fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value of financial instruments and MSR recorded at fair value in the Consolidated Condensed Statements of Condition and for estimating the fair value of financial instruments for which fair value is disclosed under ASC 825-10-50. Short-term financial assets. Federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with other financial institutions and the Federal Reserve are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization. Trading securities and trading liabilities. Trading securities and trading liabilities are recognized at fair value through current earnings. Trading inventory held for broker-dealer operations is included in trading securities and trading liabilities. Broker-dealer long positions are valued at bid price in the bid-ask spread. Short positions are valued at the ask price. Inventory positions are valued using observable inputs including current market transactions, LIBOR and U.S. treasury curves, credit spreads, and consensus prepayment speeds. Trading securities also include retained interests in prior securitizations that qualify as financial assets, which primarily include interest-only strips, principal-only strips, subordinated bonds and excess interest. In third quarter 2013, FHN agreed to sell substantially all of its remaining legacy mortgage servicing, including excess interest. Since that time FHN has used the price in the definitive agreement, as adjusted for the portion of pricing that was not specific to the excess interest, as a third-party pricing source in the valuation of the excess interest. FHN uses inputs including yield curves, credit spreads, and prepayment speeds to determine the fair value of principal-only strips. Subordinated bonds are bonds with junior priority and are valued using an internal model which includes, contractual terms, frequency and severity of loss (credit spreads), prepayment speeds of the underlying collateral, and the yield that a market participant would require. The fair value of excess interest wa s determined using prices from closely comparable assets such as MSR that are tested against prices determined using a valuation model that calculates the present value of estimated future cash flows. Inputs utilized in valuing excess interest are consistent with those used to value the related MSR. The fair value of excess interest typically changes based on changes in the discount rate and differences between modeled prepayment speeds and credit losses and actual experience. FHN uses assumptions in the model that it believes are comparable to those used by brokers and other service providers. FHN also periodically compares its estimates of fair value and assumptions with brokers, service providers, recent market activity, and against its own experience. Securities available-for-sale. Securities available-for-sale includes the investment portfolio accounted for as available-for-sale under ASC 320-10-25, federal bank stock holdings, short-term investments in mutual funds, and venture capital investments. Valuations of available-for-sale securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include LIBOR and U.S. treasury curves, consensus prepayment estimates, and credit spreads. When available, broker quotes are used to support these valuations. Certain government agency debt obligations with limited trading activity are valued using a discounted cash flow model that incorporates a combination of observable and unobservable inputs. Primary observable inputs include contractual cash flows and the treasury curve. Significant unobservable inputs include estimated trading spreads and estimated prepayment speed s. Investments in the s tock of the Federal Reserve Bank and Federal Home Loan Banks are recognized at historical cost in the Consolidated Condensed Statements of Condition which is considered to approximate fair value. Short-term investments in mutual funds are measured at the funds' reported closing net asset values. Investments in equity securities are valued using quoted market prices. Venture capital investments are typically measured using significant internally generated inputs including adjustments to industry comparables and discounted cash flows analysis. Securities held-to-maturity. Securities held-to-maturity reflects debt securities for which management has the positive intent and ability to hold to maturity. To the extent possible, valuations of held-to-maturity securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include LIBOR and U.S. treasury curves and credit spreads. Debt securities with limited trading activity are valued using a discounted cash flow model that incorporates a combination of observable and unobservable inputs. Primary observable inputs include contractual cash flows, the treasury curve and credit spreads from similar instruments. Significant unobservable inputs include estimated credit spreads for individual issuers and instruments as well as prepayment speeds, as applicable. Loans held-for-sale. FHN determines the fair value of residential real estate loans held-for-sale using a discounted cash flow model which incorporates both observable and unobservable inputs. Typical inputs include contractual cash flow requirements, current mortgage rates for similar products, estimated prepayment rates, credit spreads and de linquency penalty adjustments. Adjustments for delinquency and other differences in loan characteristics are typically reflected in the model's discount rates. Loss severity trends and the value of underlying collateral are also considered in assessing the appropriate fair value for severely delinquent loans and loans in foreclosure. The valuation of HELOCs also incorporates estimates of loan draw rates as well as estimated cancellation rates for loans expected to become delinquent. Loans held-for-sale also includes loans made by the Small Business Administration (“SBA”), which are accounted for a t LOCOM. The fair value of SBA loans is determined using an expected cash flow model that utilizes observable inputs such as the spread between LIBOR and prime rates, consensus prepayment speeds, and the treasury curve. The fair value of other non-residential real estate loans held-for-sale is approximated by their carrying values based on current transaction values. Loans, net of unearned income. Loans, net of unearned income are recognized at the amount of funds advanced, less charge-offs and an estimation of credit risk represented by the allowance for loan losses. The fair value estimates for disclosure purposes differentiate loans based on their financial characteristics, such as product classification, vintage, loan category, pricing features, and remaining maturity. The fair value of floating rate loans is estimated through comparison to recent market activity in loans of similar product types, with adjustments made for differences in loan characteristics. In situations where market pricing inputs are not available, fair value is considered to approximate book value due to the monthly repricing for commercial and consumer loans, with the exception of floating rate 1-4 family residential mortgage loans which reprice annually and will lag movements in market rates. The fair value for floating rate 1-4 family mortgage loans is calculated by discounting future cash flows to their present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have been applied to the floating rate 1-4 family residential mortgage portfolio. The fair value of fixed rate loans is estimated through comparison to recent market activity in loans of similar product types, with adjustments made for differences in loan characteristics. In situations where market pricing inputs are not available, fair value is estimated by discounting future cash flows to their present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have been applied to the fixed rate mortgage and installment loan portfolios. For all loan portfolio classes, adjustments are made to reflect liquidity or illiquidity of the market. Such adjustments reflect discounts that FHN believes are consistent with what a market participant would consider in determining fair value given current market conditions. Individually impaired loans are measured using either a discounted cash flow methodology or the estimated fair value of the underlying collateral less costs to sell, if the loan is considered collateral-dependent. In accordance with accounting standards, the discounted cash flow analysis utilizes the loan's effective interest rate for discounting expected cash flow amounts. Thus, this analysis is not considered a fair value measurement in accordance with ASC 820. However, the results of this methodology are considered to approximate fair value for the applicable loans. Expected cash flows are derived from internally-developed inputs primarily reflecting expected default rates on contractual cash flows. For loans measured using the estimated fair value of collateral less costs to sell, fair value is estimated using appraisals of the collateral. Collateral values are monitored and additional write-downs are recognized if it is determined that the estimated collateral values have declined further. Estimated costs to sell are based on current amounts of disposal costs for similar assets. Carrying value is considered to reflect fair value for these loans. Mortgage servicing rights. FHN recognizes all classes of MSR at fair value. In third quarter 2013, FHN agreed to sell substantially all of its remaining legacy mortgage servicing. Since that time FHN has used the price in the definitive agreement, as adjusted for the portion of pricing that was not specific to the MSR, as a third-party pricing source in the valuation of the MSR held at March 31, 2014. Since sales of MSR 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 MSR. As such, FHN primarily relie d on a discounted cash flow model to estimate the fair value of its MSR. This model calculates estimated fair value of the MSR using predominant risk characteristics of MSR such as interest rates, type of product (fixed vs. variable), age (new, seasoned, or moderate), agency type and other factors. FHN uses assumptions in the model that it believes are comparable to those used by brokers and other service providers. FHN also periodically compares its estimates of fair value and assumptions with brokers, service providers, recent market activity, and against its own experience. Derivative assets and liabilities. The fair value for forwards and futures contracts is based on current transactions involving identical securities. Futures contracts are exchange-traded and thus have no credit risk factor assigned as the risk of non-performance is limited to the clearinghouse used. Valuations of other derivatives (primarily interest rate related swaps, swaptions, caps, and collars) are based on inputs observed in active markets for similar instruments. Typical inputs include the LIBOR curve, Overnight Indexed Swap ("OIS") curve, option volatility, and option skew. In measuring the fair value of these derivative assets and liabilities, FHN has elected to consider credit risk based on the net exposure to individual counterparties. Credit risk is mitigated for these instruments through the use of mutual margining and master netting agreements as well as collateral posting requirements. Any remaining credit risk related to interest rate derivatives is considered in determining fair value through evaluation of additional factors such as customer loan grades and debt ratings. Foreign currency related derivatives also utilize observable exchange rates in the determination of fair value. In conjunction with the sale s of portion s of its Visa Class B shares, FHN and the purchasers entered into derivative transactions whereby FHN will make, or receive, cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. The fair value of these derivative s ha s been determined using a discounted cash flow methodology for estimated future cash flows determined through use of probability weighted scenarios for multiple estimates of Visa's aggregate exposure to covered litigation matters, which include consideration of amounts funded by Visa into its escrow account for the covered litigation matters. Since this estimation process required application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified within Level 3 in fair value measurements disclosures. Real estate acquired by foreclosure. Real estate acquired by foreclosure primarily consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated costs to sell the real estate. Estimated fair value is determined using appraised values with subsequent adjustments for deterioration in values that are not reflected in the most recent appraisal. Real estate acquired by foreclosure also includes properties acquired in compliance with HUD servicing guidelines which are carried at the estimated amount of the underlying government in surance or guarantee. Nonearning assets. For disclosure purposes, nonearning assets include cash and due from banks, accrued interest receivable, and capital markets receivables. Due to the short-term nature of cash and due from banks, accrued interest receivable, and capital markets receivables, the fair value is approximated by the book value. Other assets. For disclosure purposes, other assets consist of tax credit investments and deferred compensation assets that are considered financial assets. Tax credit in vestments are written down to estimated fair value quarterly based on the estimated value of the associated tax credits. Deferred compensation assets are recognized at fair value, which is based on quoted prices in active markets. Defined maturity deposits. The fair value of these deposits is estimated by discounting future cash flows to their present value. Future cash flows are discounted by using the current market rates of similar instruments applicable to the remaining maturity. For disclosure purposes, defined maturity deposits include all certificates of deposit and other time deposits. Undefined maturity deposits. In accordance with ASC 825, the fair value of these deposits is approximated by the book value. For the purpose of this disclosure, undefined maturity deposits include demand deposits, checking interest accounts, savings accounts, and money market accounts. Short-term financial liabilities. The fair value of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings are approximated by the book value. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization. Prior to fourth quarter 2013, Other short-term borrowings include d a liability associated with transf ers of MSR that did not qualify for sa le accounting. This liability was accounted for at elected fair value, which was measured consistent with the related MSR, as previously described. Term borrowings. The fair value of term borrowings is based on quoted market prices or dealer quotes for the identical liability when traded as an asset. When pricing information for the identical liability is not available, relevant prices for similar debt instruments are used with adjustments being made to the prices obtained for differences in characteristics of the debt instruments. If no relevant pricing information is available, the fair value is approximated by the present value of the contractual cash flows discounted by the investor's yield which considers FHN's and FTBNA's debt ratings. Other noninterest-bearing liabilities. For disclosure purposes, other noninterest-bearing liabilities include accrued interest payable and capital markets payables. Due to the short-term nature of these liabilities, the book value is considered to approximate fair value. Loan commitments. Fair values of these commitments are based on fees charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties' credit standing. Other commitments. Fair values of these commitments are based on fees charged to enter into similar agreements. The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. Due to market illiquidity, the fair values for loans, net of unearned income, loans held-for-sale, and term borrowings as of March 31, 2014 and 2013, involve the use of significant internally-developed pricing assumptions for certain components of these line items. These assumptions are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. Assets and liabilities that are not financial instruments (including MSR) have not been included in the following table such as the value of long-term relationships with deposit and trust customers, premises and equipment, goodwill and other intangibles, deferred taxes, and certain other assets and other liabilities. Accordingly, the total of the fair value amounts does not represent, and should not be construed to represen t, the underlying value of the C ompany. The following table s summarize the book value and estimated fair value of financial instruments recorded in the Consolidated Condensed Statements of Condition as well as unfunded commitments as of March 31, 2014 and 2013.
|  |  |  | March 31, 2014 |
|  |  |  | Book |  | Fair Value |
(Dollars in thousands) | Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, net of unearned income and allowance for loan losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Commercial, financial and industrial | $ | 7,680,262 |  | $ | - |  | $ | - |  | $ | 7,595,334 |  | $ | 7,595,334 |
|  | Commercial real estate |  | 1,136,895 |  |  | - |  |  | - |  |  | 1,093,796 |  |  | 1,093,796 |
| Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Consumer real estate |  | 5,134,606 |  |  | - |  |  | - |  |  | 4,824,384 |  |  | 4,824,384 |
|  | Permanent mortgage |  | 599,721 |  |  | - |  |  | - |  |  | 540,843 |  |  | 540,843 |
|  | Credit card & other |  | 320,731 |  |  | - |  |  | - |  |  | 322,690 |  |  | 322,690 |
Total loans, net of unearned income and allowance for loan losses |  | 14,872,215 |  |  | - |  |  | - |  |  | 14,377,047 |  |  | 14,377,047 |
Short-term financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total interest-bearing cash |  | 685,540 |  |  | 685,540 |  |  | - |  |  | - |  |  | 685,540 |
| Federal funds sold |  | 16,555 |  |  | - |  |  | 16,555 |  |  | - |  |  | 16,555 |
| Securities purchased under agreements to resell |  | 605,276 |  |  | - |  |  | 605,276 |  |  | - |  |  | 605,276 |
Total short-term financial assets |  | 1,307,371 |  |  | 685,540 |  |  | 621,831 |  |  | - |  |  | 1,307,371 |
Trading securities (a) |  | 1,194,749 |  |  | - |  |  | 1,188,156 |  |  | 6,593 |  |  | 1,194,749 |
Loans held-for-sale (a) |  | 361,359 |  |  | - |  |  | 3,494 |  |  | 357,865 |  |  | 361,359 |
Securities available-for-sale (a) (b) |  | 3,571,179 |  |  | 26,482 |  |  | 3,377,977 |  |  | 166,720 |  |  | 3,571,179 |
Securities held-to-maturity |  | 4,274 |  |  | - |  |  | - |  |  | 5,454 |  |  | 5,454 |
Derivative assets (a) |  | 166,465 |  |  | 4,015 |  |  | 162,450 |  |  | - |  |  | 166,465 |
Other assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Tax credit investments |  | 64,210 |  |  | - |  |  | - |  |  | 64,210 |  |  | 64,210 |
| Deferred compensation assets |  | 23,335 |  |  | 23,335 |  |  | - |  |  | - |  |  | 23,335 |
Total other assets |  | 87,545 |  |  | 23,335 |  |  | - |  |  | 64,210 |  |  | 87,545 |
Nonearning assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Cash & due from banks |  | 450,270 |  |  | 450,270 |  |  | - |  |  | - |  |  | 450,270 |
| Capital markets receivables |  | 51,082 |  |  | - |  |  | 51,082 |  |  | - |  |  | 51,082 |
| Accrued interest receivable |  | 73,010 |  |  | - |  |  | 73,010 |  |  | - |  |  | 73,010 |
Total nonearning assets |  | 574,362 |  |  | 450,270 |  |  | 124,092 |  |  | - |  |  | 574,362 |
Total assets | $ | 22,139,519 |  | $ | 1,189,642 |  | $ | 5,478,000 |  | $ | 14,977,889 |  | $ | 21,645,531 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Defined maturity |  | 1,436,657 |  |  | - |  |  | 1,448,362 |  |  | - |  |  | 1,448,362 |
| Undefined maturity | $ | 15,236,086 |  | $ | - |  | $ | 15,236,086 |  | $ | - |  | $ | 15,236,086 |
Total deposits |  | 16,672,743 |  |  | - |  |  | 16,684,448 |  |  | - |  |  | 16,684,448 |
Trading liabilities (a) |  | 667,257 |  |  | - |  |  | 667,257 |  |  | - |  |  | 667,257 |
Short-term financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Federal funds purchased |  | 1,135,665 |  |  | - |  |  | 1,135,665 |  |  | - |  |  | 1,135,665 |
| Securities sold under agreements to repurchase |  | 411,795 |  |  | - |  |  | 411,795 |  |  | - |  |  | 411,795 |
| Total other borrowings |  | 204,023 |  |  | - |  |  | 204,023 |  |  | - |  |  | 204,023 |
Total short-term financial liabilities |  | 1,751,483 |  |  | - |  |  | 1,751,483 |  |  | - |  |  | 1,751,483 |
Term borrowings |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Real estate investment trust-preferred |  | 45,845 |  |  | - |  |  | - |  |  | 49,350 |  |  | 49,350 |
| Term borrowings - new market tax credit investment |  | 18,000 |  |  | - |  |  | - |  |  | 17,810 |  |  | 17,810 |
| Borrowings secured by residential real estate |  | 77,119 |  |  | - |  |  | - |  |  | 66,554 |  |  | 66,554 |
| Other long term borrowings |  | 1,366,084 |  |  | - |  |  | 1,362,408 |  |  | - |  |  | 1,362,408 |
Total term borrowings |  | 1,507,048 |  |  | - |  |  | 1,362,408 |  |  | 133,714 |  |  | 1,496,122 |
Derivative liabilities (a) |  | 137,863 |  |  | 2,738 |  |  | 130,180 |  |  | 4,945 |  |  | 137,863 |
Other noninterest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Capital markets payables |  | 39,510 |  |  | - |  |  | 39,510 |  |  | - |  |  | 39,510 |
| Accrued interest payable |  | 33,244 |  |  | - |  |  | 33,244 |  |  | - |  |  | 33,244 |
Total other noninterest-bearing liabilities |  | 72,754 |  |  | - |  |  | 72,754 |  |  | - |  |  | 72,754 |
Total liabilities | $ | 20,809,148 |  | $ | 2,738 |  | $ | 20,668,530 |  | $ | 138,659 |  | $ | 20,809,927 |
Classes are detailed in the recurring and nonrecurring measur ement tables. Level 3 includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $66.0 million.
|  |  |  | March 31, 2013 |
|  |  |  | Book |  | Fair Value |
(Dollars in thousands) | Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, net of unearned income and allowance for loan losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Commercial, financial and industrial | $ | 8,005,081 |  | $ | - |  | $ | - |  | $ | 7,854,761 |  | $ | 7,854,761 |
|  | Commercial real estate |  | 1,100,740 |  |  | - |  |  | - |  |  | 1,064,915 |  |  | 1,064,915 |
| Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Consumer real estate |  | 5,458,763 |  |  | - |  |  | - |  |  | 4,916,105 |  |  | 4,916,105 |
|  | Permanent mortgage |  | 767,835 |  |  | - |  |  | - |  |  | 644,070 |  |  | 644,070 |
|  | Credit card & other |  | 292,033 |  |  | - |  |  | - |  |  | 293,746 |  |  | 293,746 |
Total loans, net of unearned income and allowance for loan losses |  | 15,624,452 |  |  | - |  |  | - |  |  | 14,773,597 |  |  | 14,773,597 |
Short-term financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total interest-bearing cash |  | 431,182 |  |  | 431,182 |  |  | - |  |  | - |  |  | 431,182 |
| Federal funds sold |  | 33,738 |  |  | - |  |  | 33,738 |  |  | - |  |  | 33,738 |
| Securities purchased under agreements to resell |  | 732,696 |  |  | - |  |  | 732,696 |  |  | - |  |  | 732,696 |
Total short-term financial assets |  | 1,197,616 |  |  | 431,182 |  |  | 766,434 |  |  | - |  |  | 1,197,616 |
Trading securities (a) |  | 1,397,746 |  |  | - |  |  | 1,381,287 |  |  | 16,459 |  |  | 1,397,746 |
Loans held-for-sale (a) |  | 390,874 |  |  | - |  |  | 8,156 |  |  | 382,718 |  |  | 390,874 |
Securities available-for-sale (a) (b) |  | 3,190,219 |  |  | 14,996 |  |  | 2,968,653 |  |  | 206,570 |  |  | 3,190,219 |
Derivative assets (a) |  | 274,332 |  |  | 15,793 |  |  | 258,539 |  |  | - |  |  | 274,332 |
Other assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Tax credit investments |  | 74,109 |  |  | - |  |  | - |  |  | 74,109 |  |  | 74,109 |
| Deferred compensation assets |  | 22,785 |  |  | 22,785 |  |  | - |  |  | - |  |  | 22,785 |
Total other assets |  | 96,894 |  |  | 22,785 |  |  | - |  |  | 74,109 |  |  | 96,894 |
Nonearning assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Cash & due from banks |  | 275,262 |  |  | 275,262 |  |  | - |  |  | - |  |  | 275,262 |
| Capital markets receivables |  | 169,927 |  |  | - |  |  | 169,927 |  |  | - |  |  | 169,927 |
| Accrued interest receivable |  | 82,711 |  |  | - |  |  | 82,711 |  |  | - |  |  | 82,711 |
Total nonearning assets |  | 527,900 |  |  | 275,262 |  |  | 252,638 |  |  | - |  |  | 527,900 |
Total assets | $ | 22,700,033 |  | $ | 760,018 |  | $ | 5,635,707 |  | $ | 15,453,453 |  | $ | 21,849,178 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Defined maturity | $ | 1,511,333 |  | $ | - |  | $ | 1,543,436 |  | $ | - |  | $ | 1,543,436 |
| Undefined maturity |  | 14,693,134 |  |  | - |  |  | 14,693,134 |  |  | - |  |  | 14,693,134 |
Total deposits |  | 16,204,467 |  |  | - |  |  | 16,236,570 |  |  | - |  |  | 16,236,570 |
Trading liabilities (a) |  | 781,306 |  |  | - |  |  | 781,306 |  |  | - |  |  | 781,306 |
Short-term financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Federal funds purchased |  | 1,361,670 |  |  | - |  |  | 1,361,670 |  |  | - |  |  | 1,361,670 |
| Securities sold under agreements to repurchase |  | 488,010 |  |  | - |  |  | 488,010 |  |  | - |  |  | 488,010 |
| Total other borrowings |  | 186,898 |  |  | - |  |  | 175,914 |  |  | 10,984 |  |  | 186,898 |
Total short-term financial liabilities |  | 2,036,578 |  |  | - |  |  | 2,025,594 |  |  | 10,984 |  |  | 2,036,578 |
Term borrowings |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Real estate investment trust-preferred |  | 45,777 |  |  | - |  |  | - |  |  | 47,000 |  |  | 47,000 |
| Term borrowings - new market tax credit investment |  | 18,000 |  |  | - |  |  | - |  |  | 18,747 |  |  | 18,747 |
| Borrowings secured by residential real estate |  | 375,261 |  |  | - |  |  | - |  |  | 221,809 |  |  | 221,809 |
| Other long term borrowings |  | 1,758,826 |  |  | - |  |  | 1,731,763 |  |  | - |  |  | 1,731,763 |
Total term borrowings |  | 2,197,864 |  |  | - |  |  | 1,731,763 |  |  | 287,556 |  |  | 2,019,319 |
Derivative liabilities (a) |  | 199,999 |  |  | 16,580 |  |  | 181,369 |  |  | 2,050 |  |  | 199,999 |
Other noninterest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Capital markets payables |  | 97,954 |  |  | - |  |  | 97,954 |  |  | - |  |  | 97,954 |
| Accrued interest payable |  | 43,437 |  |  | - |  |  | 43,437 |  |  | - |  |  | 43,437 |
Total other noninterest-bearing liabilities |  | 141,391 |  |  | - |  |  | 141,391 |  |  | - |  |  | 141,391 |
Total liabilities | $ | 21,561,605 |  | $ | 16,580 |  | $ | 21,097,993 |  | $ | 300,590 |  | $ | 21,415,163 |
Classes are detailed in the recurring and nonrecurring measur ement tables. Level 3 includes restricted investments in FHLB-Cincinnati stock of $125.5 million and FRB stock of $66.0 million.
| Contractual Amount |  | Fair Value |
(Dollars in thousands) | March 31, 2014 |  | March 31, 2013 |  | March 31, 2014 |  | March 31, 2013 |
Unfunded Commitments: |  |  |  |  |  |  |  |  |  |  |  |
Loan commitments | $ | 8,237,754 |  | $ | 8,486,803 |  | $ | 1,805 |  | $ | 1,634 |
Standby and other commitments |  | 316,399 |  |  | 318,884 |  |  | 5,642 |  |  | 5,355 |

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