Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 14. Fair Value of Financial Instruments

The FASB defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The FASB's guidance also established a fair value hierarchy that prioritizes the inputs to these valuation techniques used to measure fair value, giving preference to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs such as a reporting entity's own data (level 3). Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in markets that are not active, observable inputs other than quoted prices, such as interest rates and yield curves, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Available for sale securities classified as level 1 within the valuation hierarchy include U.S. Treasury securities, obligations of U.S. Government-sponsored agencies, and certain other debt and equity securities. Level 2 classified available for sale securities include mortgage-backed debt securities and collateralized mortgage obligations that are agency securities, and state and municipal bonds. The Company invests only in high quality securities of investment grade quality with a targeted duration, for the overall portfolio, generally between two to five years. Company policies limit investments to securities having a rating of no less than "Baa", or its equivalent by a nationally recognized statistical rating agency, except for certain non-rated obligations of counties, parishes and municipalities within our markets in Mississippi, Louisiana, Texas, Florida and Alabama. There were no transfers between levels during the periods shown.

The fair value of derivative financial instruments, which are predominantly interest rate swaps, is obtained from a third-party pricing service that uses an industry-standard discounted cash flow model that relies on inputs, such as interest rate futures, observable in the marketplace. To comply with the accounting guidance, credit valuation adjustments are incorporated in the fair values to appropriately reflect nonperformance risk for both the Company and the counterparties. Although the Company has determined that the majority of the inputs used to value the derivative instruments fall within level 2 of the fair value hierarchy, the credit value adjustments utilize level 3 inputs, such as estimates of current credit spreads. The Company has determined that the impact of the credit valuation adjustments is not significant to the overall valuation of these derivatives. As a result, the Company has classified its derivative valuations in their entirety in level 2 of the fair value hierarchy.

Fair Value of Assets Measured on a Recurring Basis

The following table presents for each of the fair-value hierarchy levels the Company's financial assets and liabilities that are measured at fair value (in thousands) on a recurring basis at December 31, 2011 and 2010.

	As of December 31, 2011
	Level 1		Level 2		Total
Assets
Available for sale securities:
U.S. Treasury and government agency securities	$	250,067	$	—	$	250,067
Debt securities issued by states of the United States and political subdivisions of the states		—		309,665		309,665
Corporate debt securities		4,494		—		4,494
Residential mortgage-backed securities		—		2,480,345		2,480,345
Collateralized mortgage obligations		—		1,446,076		1,446,076
Equity securities		6,253		—		6,253
Derivative financial instruments—assets		—		14,952		14,952
Total assets	$	260,814	$	4,251,038	$	4,511,852
Liabilities
Derivative financial instruments—liabilities		—		15,643		15,643
Total Liabilities	$	—	$	15,643	$	15,643

	As of December 31, 2010
	Level 1		Level 2		Total
Assets
Available for sale securities:
U.S. Treasury and government agency securities	$	117,435	$	—	$	117,435
Debt securities issued by states of the United States and political subdivisions of the states		—		180,443		180,443
Corporate debt securities		15,285		—		15,285
Residential mortgage-backed securities		—		799,686		799,686
Collateralized mortgage obligations		—		372,051		372,051
Equity securities		3,985		—		3,985
Short-term investments		274,974		—		274,974
Derivative financial instruments—assets		—		2,952		2,952
Total assets	$	411,679	$	1,355,132	$	1,766,811
Liabilities
Derivative financial instruments—liabilities	$	—	$	2,952	$	2,952
Total Liabilities	$	—	$	2,952	$	2,952

Fair Value of Assets Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis and, therefore, are not included in the above table. Collateral-dependent impaired loans are level 2 assets measured using appraisals from external parties of the collateral less any prior liens or based on recent sales activity for similar assets in the property's market. Other real estate owned are level 2 assets carried at the balance of the loan or at estimated fair value less estimated selling costs, whichever is less. Fair values are determined by sales agreement or appraisal.

The following table presents for each of the fair value hierarchy levels the Company's financial assets that are measured at fair value (in thousands) on a nonrecurring basis at December 31, 2011 and 2010.

	As of December 31, 2011
	Level 1		Level 2		Total
Assets
Impaired loans	$	—	$	55,252	$	55,252
Other real estate owned		—		144,367		144,367
Total assets	$	—	$	199,619	$	199,619

	As of December 31, 2010
	Level 1		Level 2		Total
Assets
Impaired loans	$	—	$	95,787	$	95,787
Other real estate owned		—		32,520		32,520
Total assets	$	—	$	128,307	$	128,307

Accounting guidance from the FASB requires the disclosure of estimated fair value information about certain on- and off-balance sheet financial instruments, including those financial instruments that are not measured and reported at fair value on a recurring basis. The significant methods and assumptions used by the Company to estimate the fair value of financial instruments are discussed below.

Cash, Short-Term Investments and Federal Funds Sold—For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities Available for Sale—The fair value measurement for securities available for sale was discussed earlier.

Loans, Net—The fair value measurement for certain impaired loans was discussed earlier. For the remaining portfolio, fair values were generally estimated by discounting scheduled cash flows using discount rates determined with reference to current market rates at which loans with similar terms would be made to borrowers with similar credit quality.

Accrued Interest Receivable and Accrued Interest Payable—The carrying amounts are a reasonable estimate of fair values.

Deposits—The accounting guidance requires that the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking and savings accounts, be assigned fair values equal to amounts payable upon demand (carrying amounts). The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities Sold under Agreements to Repurchase, Federal Funds Purchased, and FHLB Borrowings—For these short-term liabilities, the carrying amount is a reasonable estimate of fair value.

Long-Term Debt—The fair value is estimated by discounting the future contractual cash flows using current market rates at which debt with similar terms could be obtained.

Derivative Financial Instruments – The fair value measurement for derivative financial instruments was discussed earlier.

The estimated fair values of the Company's financial instruments were as follows (in thousands):

	December 31,
	2011				2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash, interest-bearing deposits, federal funds sold, and short-term investments	$	1,622,366	$	1,622,366	$	778,851	$	778,851
Securities available for sale		4,496,900		4,496,900		1,488,885		1,488,885
Loans, net		11,052,144		11,189,662		4,875,167		5,085,925
Loans held for sale		72,378		72,378		21,866		21,866
Accrued interest receivable		53,973		53,973		30,157		30,157
Derivative financial instruments		14,952		14,952		2,952		2,952
Financial liabilities:
Deposits	$	15,713,579	$	15,737,667	$	6,775,719	$	6,787,931
Federal funds purchased		16,819		16,819		—		—
Securities sold under agreements to repurchase		1,027,635		1,027,635		364,676		364,676
FHLB borrowings		—		—		10,172		10,172
Long-term debt		353,890		365,421		376		376
Accrued interest payable		8,284		8,284		4,007		4,007
Derivative financial instruments		15,643		15,643		2,952		2,952