Fair Value

9 Months Ended

Sep. 30, 2012

Fair Value

2. Fair Value

The Financial Accounting Standards Board (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.

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following tables present for each of the fair value hierarchy levels the Company’s assets and liabilities that are measured at fair value (in thousands) on a recurring basis in the consolidated balance sheets.

	September 30, 2012
	(Level 1)		(Level 2)		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	18,408	$	—	$	18,408
Municipal obligations		—		76,132		76,132
Corporate debt securities		3,750		—		3,750
Mortgage-backed securities		—		1,904,520		1,904,520
Collateralized mortgage obligations		—		200,696		200,696
Equity securities		5,283		—		5,283
Total available-for-sale securities		27,441		2,181,348		2,208,789
Derivatives
Interest rate contracts - assets		—		21,198		21,198
Total recurring fair value measurements - assets	$	27,441	$	2,202,546	$	2,229,987
Liabilities
Derivatives
Interest rate contracts - liabilities	$	—	$	22,423	$	22,423
Total recurring fair value measurements - liabilities	$	—	$	22,423	$	22,423

	December 31, 2011
	(Level 1)		(Level 2)		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	250,067	$	—	$	250,067
Municipal obligations		—		309,665		309,665
Corporate debt securities		4,494		—		4,494
Mortgage-backed securities		—		2,480,345		2,480,345
Collateralized mortgage obligations		—		1,446,076		1,446,076
Equity securities		6,253		—		6,253
Total available-for-sale securities		260,814		4,236,086		4,496,900
Derivatives
Interest rate contracts - assets		—		14,952		14,952
Total recurring fair value measurements - assets	$	260,814	$	4,251,038	$	4,511,852
Liabilities
Derivatives
Interest rate contracts - liabilities	$	—	$	15,643	$	15,643
Total recurring fair value measurements - liabilities	$	—	$	15,643	$	15,643

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 securities include residential mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies, and state and municipal bonds. The level 2 fair value measurements for investment securities are obtained quarterly from a third-party pricing service that uses industry-standard pricing models. Substantially all of the model inputs were observable in the marketplace or can be supported by observable data. 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 not 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 valuation hierarchy 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. The Company’s policy is to measure counterparty credit risk quarterly for all derivative instruments subject to master netting arrangements consistent with how market participants would price the net risk exposure at the measurement date.

Fair Value of Assets Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis. Collateral-dependent impaired loans are level 2 assets measured using third-party appraisals of the collateral or other market-based information such as 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 of collateral less estimated selling costs, whichever is less. Fair values are determined by sales agreement or third-party appraisal.

The following tables present 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.

	September 30, 2012
	(Level 1)		(Level 2)		Total
Collateral dependent impaired loans	$	—	$	77,259	$	77,259
Other real estate owned		—		130,046		130,046
Total nonrecurring fair value measurements	$	—	$	207,305	$	207,305
	December 31, 2011
	(Level 1)		(Level 2)		Total
Collateral dependent impaired loans	$	—	$	55,252	$	55,252
Other real estate owned		—		144,367		144,367
Total nonrecurring fair value measurements	$	—	$	199,619	$	199,619

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 these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities – The fair value measurement for securities available for sale was discussed earlier. The same measurement techniques were applied to the valuation of securities held to maturity.

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

Accrued Interest Receivable and Accrued Interest Payable - The carrying amounts are a reasonable estimate of fair value.

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 and Federal Funds Purchased - 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 following tables present the estimated fair values of the Company’s financial instruments by fair value hierarchy levels and the corresponding carrying amount at September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012
							Total		Carrying
	(Level 1)		(Level 2)		(Level 3)		Fair Value		Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	734,680	$	—	$	—	$	734,680	$	734,680
Available for sale securities		27,441		2,181,348		—		2,208,789		2,208,789
Held to maturity securities		—		1,889,136		—		1,889,136		1,844,482
Loans, net		—		77,259		11,484,291		11,561,550		11,298,857
Loans held for sale		—		50,389		—		50,389		50,389
Accrued interest receivable		47,607		—		—		47,607		47,607
Derivative financial instruments		—		21,198		—		21,198		21,198
Financial liabilities:
Deposits	$	—	$	—	$	14,789,902	$	14,789,902	$	14,772,951
Federal funds purchased		29,521		—		—		29,521		29,521
Securities sold under agreements to repurchase		719,113		—		—		719,113		719,113
Long-term debt		—		333,371		—		333,371		308,327
Accrued interest payable		6,526		—		—		6,526		6,526
Derivative financial instruments		—		22,423		—		22,423		22,423

	December 31, 2011
							Total		Carrying
	(Level 1)		(Level 2)		(Level 3)		Fair Value		Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	1,622,366	$	—	$	—		1,622,366	$	1,622,366
Available for sale securities		260,814		4,236,086		—		4,496,900		4,496,900
Loans, net		—		55,252		11,134,410		11,189,662		11,052,144
Loans held for sale		—		72,378		—		72,378		72,378
Accrued interest receivable		53,973		—		—		53,973		53,973
Derivative financial instruments		—		14,952		—		14,952		14,952
Financial liabilities:
Deposits	$	—	$	—	$	15,737,667	$	15,737,667	$	15,713,579
Federal funds purchased		16,819		—		—		16,819		16,819
Securities sold under agreements to repurchase		1,027,635		—		—		1,027,635		1,027,635
Long-term debt		—		365,421		—		365,421		353,890
Accrued interest payable		8,284		—		—		8,284		8,284
Derivative financial instruments		—		15,643		—		15,643		15,643