Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

(20)  Fair Value Measurements

(a) Fair Value Hierarchy and Fair Value Measurement: The Company groups its assets and liabilities that are recorded 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. These levels are:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3: Significant inputs to the valuation model are unobservable.

The following table presents the Company's assets measured at fair value on a recurring basis for the years ending Decmber 31, 2012 and 2011:

(dollars in thousands)	Fair Value at December 31, 2012
	Level 1		Level 2		Level 3		Total
U.S. government agencies	$	-	$	88,586	$	-	$	88,586
Residential pass-through securities		-		168,423		-		168,423
Taxable state and political subdivisions		-		5,312		-		5,312
Tax exempt state and political subdivisions		-		58,985		-		58,985
Corporate obligations		-		10,435		-		10,435
Agency-issued collateralized mortgage obligations		-		14,046		-		14,046
Asset-backed securities		-		25,188		-		25,188
Investments in mutual funds and other equities		-		1,993		-		1,993
Total	$	-	$	372,968	$	-	$	372,968

(dollars in thousands)	Fair Value at December 31, 2011
	Level 1		Level 2		Level 3		Total
U.S. government agencies	$	-	$	76,574	$	-	$	76,574
U.S. Treasuries		-		42,597		-		42,597
Residential pass-through securities		-		117,398		-		117,398
Taxable state and political subdivisions		-		9,758		-		9,758
Tax exempt state and political subdivisions		-		37,335		-		37,335
Corporate obligations		-		10,287		-		10,287
Investments in mutual funds and other equities		-		2,006		-		2,006
Total	$	-	$	295,955	$	-	$	295,955

There were no transfers between Level 1 and Level 2 during the years ended December 31, 2012 and 2011.

When available, the Company uses quoted market prices to determine the fair value of investment securities. These investments are included in Level 1. When quoted market prices are unobservable, the Company uses quotes from independent pricing vendors based on recent trading activity and other relevant information including market interest rate curves, referenced credit spreads and estimated prepayment rates where applicable. These investments are included in Level 2 and comprise the Company's portfolio of U.S. agency securities, U.S. treasury securities, residential pass-through securities, municipal bonds and other corporate bonds.

Certain financial assets of the Company may be measured at fair value on a non-recurring basis. These assets are subject to fair value adjustments that result from application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following table presents the Company's assets measured at fair value on a nonrecurring basis for the years ended December 31, 2012 and 2011:

(dollars in thousands)	December 31, 2012
	Level 1		Level 2		Level 3		Total		Total losses for the period
Non-covered impaired loans (1)	$	-	$	-	$	38,299	$	38,299	$	(8,485	)
Non-covered other real estate owned (2)		-		-		3,023		3,023		(844	)
Covered other real estate owned (2)		-		-		13,460		13,460		(3,704	)
Total	$	-	$	-	$	54,782	$	54,782	$	(13,033	)

(dollars in thousands)	December 31, 2011
	Level 1		Level 2		Level 3		Total		Total losses for the period
Non-covered impaired loans (1)	$	-	$	-	$	44,845	$	44,845	$	(8,182	)
Non-covered other real estate owned (2)		-		-		1,976		1,976		(272	)
Covered other real estate owned (2)		-		-		26,622		26,622		(6,672	)
Total	$	-	$	-	$	73,443	$	73,443	$	(15,126	)

(1)	Represents carrying value and related specific valuation allowances, which are included in the allowance for loan losses.
(2)	Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as non-covered other real estate owned and covered other real estate owned.

Following is a description of methods and assumptions used to estimate the fair value of each class of financial instrument for which a non-recurring change in fair value has been recorded:

Non-covered impaired loans: A loan is considered impaired when, based upon currently known information, it is deemed probable that the Company will be unable to collect all amounts due as scheduled according to the original terms of the agreement. Non-covered impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, based on the loan's observable market price or the fair value of collateral, if the loan is collateral dependent.

The Company generally obtains appraisals for collateral dependent loans on an annual basis. Depending on the loan, the Company may obtain appraisals more frequently than 12 months, particularly if the credit is deteriorating. If the loan is performing and market conditions are stable, the Company may not obtain appraisals on an annual basis. This policy does not vary by loan type.

Impaired loans that are collateral dependent are reviewed quarterly. The review involves a collateral valuation review, which also contemplates an assessment of whether the last appraisal is outdated. Recent appraisals, adjustments to outdated appraisals, knowledgeable third party opinions of value and current market conditions are combined to determine whether a specific reserve and/or a loan charge-off is required. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. For the year ended December 31, 2012, non-covered impaired loans totaling $8.7 million had adjustments to appraisals, based on unobservabel inputs, ranging from 10% to 57%, with a weighted average adjustment of 27%.

In the rare case where an appraisal is not available, the Company consults with third party industry specific experts for estimates as well as relies upon the Company's market knowledge and expertise.

Non-covered and covered other real estate owned: Non-covered and covered other real estate owned includes properties acquired through foreclosure. These properties are recorded at the lower of cost or estimated fair value (less estimated cost to sell), based on periodic evaluations.

The Company deducts a minimum of 10% of the appraised value for selling costs on non-covered and covered other real estate owned. If the property has been actively listed for sale for more than nine months and has had limited interest, the Company will typically reduce the fair value further based upon input from third party industry experts and knowledgable management and may include adjustments for outdated appraisals (Level 3).

(b) Disclosures about Fair Value of Financial Instruments: The table below is a summary of fair value estimates for financial instruments at December 31, 2012 and 2011, excluding financial instruments recorded at fair value on a recurring basis (summarized in a separate table). The carrying amounts in the following table are recorded in the statement of condition under the indicated captions. The Company has excluded non-financial assets and non-financial liabilities such as Bank premises and equipment, deferred taxes and other liabilities.

(dollars in thousands)	December 31, 2012
			Fair value measurements using:
	Carrying value		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	32,145	$	32,145	$	32,145	$	-	$	-
Interest-bearing deposits		75,428		75,428		75,428		-		-
Investment securities available for sale		372,968		372,968		-		372,968		-
FHLB stock		7,441		7,441		7,441		-		-
Loans held for sale		18,043		18,043		-		18,043		-
Non-covered loans		853,134		858,660		-		-		858,660
Covered loans		217,339		234,396		-		-		234,396
Bank owned life insurance		17,704		17,704		17,704		-		-
FDIC indemnification asset		34,571		22,630		-		-		22,630
Financial liabilities:
Deposits		1,462,973		1,468,189		-		-		1,468,189
Junior subordinated debentures		25,774		12,155		-		-		12,155

(dollars in thousands)	December 31, 2011
			Fair value measurements using:
	Carrying value		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	25,399	$	25,399	$	25,399	$	-	$	-
Interest-bearing deposits		80,514		80,514		80,514		-		-
Investment securities available for sale		295,955		295,955		-		295,955		-
FHLB stock		7,576		7,576		7,576		-		-
Loans held for sale		22,421		22,421		-		22,421		-
Non-covered loans		812,830		821,964		-		-		821,964
Covered loans		269,081		304,145		-		-		304,145
Bank owned life insurance		17,513		17,513		17,513		-		-
FDIC indemnification asset		65,586		41,041		-		-		41,041
Financial liabilities:
Deposits		1,466,344		1,471,615		-		-		1,471,615
Junior subordinated debentures		25,774		9,802		-		-		9,802

Following is a description of methods and assumptions used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:

Cash and Cash Equivalents:The carrying value of cash and cash equivalent instruments approximates fair value.

Interest-bearing Deposits: The carrying values of interest-bearing deposits maturing within ninety days approximate their fair values. Fair values of other interest-earning deposits are estimated using discounted cash flow analyses based on current rates for similar types of deposits.

Investment Securities: Fair values for investment securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing, or broker indicative bids, when market quotes are not readily accessible or available.

FHLB stock: The Bank's investment in FHLB stock is carried at par, which approximates its fair value.

Loans Held for Sale:The carrying value of loans held for sale approximates fair value.

Non-covered Loans: The loan portfolio is composed of commercial, consumer, real estate construction and real estate loans. The carrying value of variable rate loans approximates their fair value. The fair value of fixed rate loans is estimated by discounting the estimated future cash flows of loans, sorted by type and security, by the weighted average rate of such loans and rising rates currently offered by the Bank for similar loans.

Covered Loans: Covered loans are measured at estimated fair value on the date of acquisition. Subsequent to acquisition, the fair value of covered loans is measured using the same methodology as that of non-covered loans.

Bank Owned Life Insurance: Fair values of insurance policies owned are based on the insurance contract's cash surrender value.

FDIC Indemnification Asset: The FDIC indemnification asset is calculated as the expected future cash flows under the loss share agreement discounted by a rate reflective of a U.S. government agency.

Deposits: For deposits with no contractual maturity such as checking accounts, money market accounts and savings accounts, fair values approximate book values. The fair value of certificates of deposit are based on discounted cash flows using the difference between the actual deposit rate and an alternative cost of funds rate, currently offered by the Bank for similar types of deposits.

Trust Preferred Securities/Junior Subordinated Debentures: The fair value of trust preferred securities is estimated at their recorded value due to the cost of the instrument re-pricing on a quarterly basis.

Off-Balance Sheet Items: Commitments to extend credit represent the principal category of off-balance sheet financial instruments. The fair value of these commitments are not material since they are for relatively short periods of time and are subject to customary credit terms, which would not include terms that would expose the Company to significant gains or losses.