Fair Value

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

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.

			March 31, 2013
	Level 1		Level 2		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	157	$	—	$	157
Municipal obligations		—		55,913		55,913
Corporate debt securities		3,750		—		3,750
Mortgage-backed securities		—		2,594,725		2,594,725
Collateralized mortgage obligations		—		193,623		193,623
Equity securities		5,371		—		5,371
Total available-for-sale securities		9,278		2,844,261		2,853,539
Derivative assets (1)		—		21,254		21,254
Total recurring fair value measurements—assets	$	9,278	$	2,865,515	$	2,874,793
Liabilities
Derivative liabilities (1)	$	—	$	22,075	$	22,075
Total recurring fair value measurements—liabilities	$	—	$	22,075	$	22,075

(1) For further disaggregation of derivative assets and liabilities, see Note 5—Derivatives

			December 31, 2012
	Level 1		Level 2		Total
Assets
Available for sale debt securities:
U.S. Treasury and government agency securities	$	18,265	$	—	$	18,265
Municipal obligations		—		50,165		50,165
Corporate debt securities		2,250		—		2,250
Mortgage-backed securities		—		1,774,406		1,774,406
Collateralized mortgage obligations		—		198,077		198,077
Equity securities		5,279		—		5,279
Total available-for-sale securities		25,794		2,022,648		2,048,442
Derivative assets (1)		—		20,093		20,093
Total recurring fair value measurements—assets	$	25,794	$	2,042,741	$	2,068,535
Liabilities
Derivative liabilities (1)	$	—	$	21,100	$	21,100
Total recurring fair value measurements—liabilities	$	—	$	21,100	$	21,100

(1) For further disaggregation of derivative assets and liabilities, see Note 5—Derivatives

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 are 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. 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 LIBOR swap curves and Overnight Index Swap rate (“OIS”) curves, 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.

The Company also has certain derivative instruments associated with the Banks’ mortgage-banking activities. These derivative instruments include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis. The fair value of these derivative instruments is measured using observable market prices for similar instruments and classified as level 2 measurements.

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 reported at the fair value of the underlying collateral. Impairment is measured based on the fair value of the collateral, which is typically derived from third-party appraisals that take into consideration prices in observed transactions involving similar locations or based on other market-based information such as recent sales activity for similar assets in the property’s market, in accordance with ASC 310 and are consequently considered level 2 assets. However, in some cases a discounted cash flow valuation technique is used and these assets are considered level 3 using a range of 3.15% to 8% as the discount for expected levels of future cash flows.

Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Subsequently, other real estate owned is carried at the lower of carrying value or fair value less estimated selling costs. Fair values are determined by sales agreement or third-party appraisal. However, in some cases an appraised value is not available or the Company determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price. The Company may apply discount adjustments to the appraised value for estimated selling costs, information from comparable sales, and marketability of the property. As such, other real estate owned is recorded with subsequent write downs after transfer as level 3, using a sales comparison valuation technique with a discount of 10% to 25% for the difference between comparable sales and/or selling costs.

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.

			March 31, 2013
	(Level 1)		(Level 2)		(Level 3)		Total
Collateral dependent impaired loans	$	—	$	42,504	$	33,072	$	75,576
Other real estate owned		—		—		38,146		38,146
Total nonrecurring fair value measurements	$	—	$	42,504	$	71,218	$	113,722
			December 31, 2012
	(Level 1)		(Level 2)		(Level 3)		Total
Collateral dependent impaired loans	$	—	$	72,694	$	3,719	$	76,413
Other real estate owned		—		—		45,040		45,040
Total nonrecurring fair value measurements	$	—	$	72,694	$	48,759	$	121,453

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. Cost recovery loans are based on appraisals. 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 March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013
	(Level 1)		(Level 2)		(Level 3)		Total Fair Value		Carrying Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	777,152	$	—	$	—	$	777,152	$	777,152
Available for sale securities		9,278		2,844,261		—		2,853,539		2,853,539
Held to maturity securities		—		1,848,886		—		1,848,886		1,808,740
Loans, net		—		42,504		11,325,804		11,368,308		11,344,985
Loans held for sale		—		34,813		—		34,813		34,813
Accrued interest receivable		46,390		—		—		46,390		46,390
Derivative financial instruments		—		21,254		—		21,254		21,254
Financial liabilities:
Deposits	$	—	$	—	$	15,263,799	$	15,263,799	$	15,253,351
Federal funds purchased		32,814		—		—		32,814		32,814
Securities sold under agreements to repurchase		689,723		—		—		689,723		689,723
Long-term debt		—		406,304		—		406,304		393,920
Accrued interest payable		6,374		—		—		6,374		6,374
Derivative financial instruments		—		22,075		—		22,075		22,075

	December 31, 2012
	(Level 1)		(Level 2)		(Level 3)		Total Fair Value		Carrying Amount
Financial assets:
Cash, interest-bearing bank deposits, and federal funds sold	$	1,948,679	$	—	$	—	$	1,948,679	$	1,948,679
Available for sale securities		25,794		2,022,648		—		2,048,442		2,048,442
Held to maturity securities		—		1,710,465		—		1,710,465		1,668,018
Loans, net		—		72,694		11,494,409		11,567,103		11,441,631
Loans held for sale		—		50,605		—		50,605		50,605
Accrued interest receivable		45,616		—		—		45,616		45,616
Derivative financial instruments		—		20,093		—		20,093		20,093
Financial liabilities:
Deposits	$	—	$	—	$	15,757,044	$	15,757,044	$	15,744,188
Federal funds purchased		25,704		—		—		25,704		25,704
Securities sold under agreements to repurchase		613,429		—		—		613,429		613,429
Long-term debt		—		410,791		—		410,791		396,589
Accrued interest payable		4,814		—		—		4,814		4,814
Derivative financial instruments		—		21,100		—		21,100		21,100