Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

(15)    FAIR VALUE MEASUREMENTS

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. If there has been a significant decrease in the volume and level of activity for the asset or liability, regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from one level to another.

The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:

Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Valuation Techniques

There have been no changes in the valuation techniques used during the current period.

Trading Securities

These equity and fixed income securities are valued based on market quoted prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.

U.S. Treasury Securities

Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2.

Agency Mortgage-Backed Securities

Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2.

Agency Collateralized Mortgage Obligations and Private Mortgage-Backed Securities

The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, recent reported trades, new issue data, broker and dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.

Single and Pooled Issuer Trust Preferred Securities

The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, recent reported trades, new issue data, broker and dealer quotes and collateral performance. These trust preferred securities are categorized as Level 3.

Derivative Instruments

Derivatives

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of December 31, 2011 and 2010, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2.

Residential Mortgage Loan Commitments and Forward Sales Agreements

The fair value of the commitments and agreements are estimated using the anticipated market price based on pricing indications provided from syndicate banks. These commitments and agreements are categorized as Level 2.

Loans Held for Sale

Effective July 1, 2010, the Company elected to account for new originations of loans held for sale at fair value. Fair value is measured using quoted market prices when available. If quoted market prices are not available, comparable market values or discounted cash flow analysis may be utilized. These assets are typically categorized as Level 2.

Impaired Loans

Loans that are deemed to be impaired are valued based upon the lower of cost or fair value of the underlying collateral or discounted cash flow analyses. The inputs used in the appraisals of the collateral are not always observable, and therefore the loans may be categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. The inputs used in performing discounted cash flow analyses are not observable and therefore such loans are classified as Level 3.

Other Real Estate Owned

The fair values are estimated based upon recent appraisal values of the property less costs to sell the property. Certain inputs used in appraisals are not always observable, and therefore Other Real Estate Owned may be categorized as Level 3 within the fair value hierarchy. When inputs in appraisals are observable, they are classified as Level 2.

Goodwill and Other Intangible Assets

Goodwill and identified intangible assets are subject to impairment testing. The Company conducts an annual impairment test of goodwill in the third quarter of each year and more frequently if necessary. To estimate the fair value of goodwill and other intangible assets the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31 were as follows:

			Fair Value Measurements at Reporting Date Using
	Balance		Quoted Prices in Active Markets for Identical Assets         (Level 1)		Significant Other Observable Inputs         (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
2011
Description
Assets
Trading Securities	$	8,240	$	8,240	$	—	$	—
Securities Available for Sale:
Agency Mortgage-Backed Securities		238,391		—		238,391		—
Agency Collateralized Mortgage Obligations		53,801		—		53,801		—
Private Mortgage-Backed Securities		6,110		—		—		6,110
Single Issuer Trust Preferred Securities Issued by Banks and Insurers		4,210		—		—		4,210
Pooled Trust Preferred Securities Issued by Banks and Insurers		2,820		—		—		2,820
Loans Held for Sale		20,500		—		20,500		—
Derivative Instruments		25,841		—		25,841		—
Liabilities
Derivative Instruments		44,407		—		44,407		—
2010
Description
Assets
Trading Securities	$	7,597	$	7,597	$	—	$	—
Securities Available for Sale:
U.S. Treasury Securities		717		—		717		—
Agency Mortgage-Backed Securities		313,302		—		313,302		—
Agency Collateralized Mortgage Obligations		46,135		—		46,135		—
Private Mortgage-Backed Securities		10,254		—		—		10,254
Single Issuer Trust Preferred Securities Issued by Banks and Insurers		4,221		—		—		4,221
Pooled Trust Preferred Securities Issued by Banks and Insurers		2,828		—		—		2,828
Loans Held for Sale		27,917		—		27,917		—
Derivative Instruments		12,520		—		12,520		—
Liabilities
Derivative Instruments		24,280		—		24,280		—

During the years ended December 31, 2011 and 2010, there were no transfers between the Levels of the fair value hierarchy for any assets or liabilities measured at fair value on a recurring basis.

The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3). These instruments were valued using pricing models and discounted cash flow methodologies.

Reconciliation for All Assets and Liabilities Measured at Fair Value on

a Recurring Basis Using Significant Unobservable Inputs (Level 3)

	Securities Available for Sale
	Pooled Trust Preferred Securities			Single Trust Preferred Securities			Private Mortgage- Backed Securities			Total
	(Dollars in Thousands)
Year-to-Date
Balance at December 31, 2009	$	2,595		$	3,010		$	14,289		$	19,894
Gains and Losses (realized/unrealized)
Included in earnings		(112	)		—			(222	)		(334	)
Included in Other Comprehensive Income		388			1,211			1,197			2,796
Purchases		—			—			—			—
Sales		—			—			—			—
Issuances		—			—			—			—
Settlements		(43	)		—			(5,010	)		(5,053	)
Transfers in to Level 3		—			—			—			—
Balance at December 31, 2010	$	2,828		$	4,221		$	10,254		$	17,303
Gains and Losses (realized/unrealized)
Included in earnings		(8	)		—			(235	)		(243	)
Included in Other Comprehensive Income		37			(11	)		49			75
Purchases		—			—			—			—
Sales		—			—			—			—
Issuances		—			—			—			—
Settlements		(37	)		—			(3,958	)		(3,995	)
Transfers in to Level 3		—			—			—			—
Balance at December 31, 2011	$	2,820		$	4,210		$	6,110		$	13,140

Assets and liabilities measured at fair value on a nonrecurring basis at December 31 were as follows:

			Fair Value Measurements at Reporting Date Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
	(Dollars in Thousands)
2011
Description
Impaired Loans	$	36,861	$	—	$	—	$	36,861	$	(2,682	)
Other Real Estate Owned		6,658		—		—		6,658
2010
Description
Impaired Loans	$	23,411	$	—	$	—	$	23,411	$	(2,547	)
Other Real Estate Owned		7,273		—		2,933		4,340

The estimated fair values and related carrying amounts of the Company’s financial instruments are as follows:

	DECEMBER 2011				DECEMBER 2010
	BOOK VALUE		FAIR VALUE		BOOK VALUE		FAIR VALUE
	(Dollars In Thousands)				(Dollars In Thousands)
FINANCIAL ASSETS
Securities Held To Maturity(a)	$	204,956	$	211,494	$	202,732	$	201,234
Loans, Net of Allowance for Loan Losses(b)		3,746,130		3,807,938		3,509,424		3,554,761
FINANCIAL LIABILITIES
Time Certificates of Deposits(c)	$	630,162	$	639,333	$	693,176	$	697,064
Federal Home Loan Bank Advances(c)		229,701		233,880		302,414		297,740
Federal Funds Purchased and Assets Sold Under Repurchase Agreements(c)		216,128		219,857		168,119		171,702
Junior Subordinated Debentures(d)		61,857		60,620		61,857		60,796
Subordinated Debentures(c)		30,000		27,217		30,000		23,655

(a) The fair values presented are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analyses.

(b) Fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or cash flows.

(c) Fair value was determined by discounting anticipated future cash payments using rates currently available for instruments with similar remaining maturities.

(d) Fair value was determined based upon market prices of securities with similar terms and maturities.

This summary excludes financial assets and liabilities for which the carrying value approximates fair value. For financial assets, these include cash and due from banks, federal funds sold, short-term investments, Federal Home Loan Bank stock, and cash surrender value of life insurance policies. For financial liabilities, these include demand, savings, money market deposits, and federal funds purchased, and assets sold under repurchase agreements. The estimated fair value of demand, savings and money market deposits is the amount payable at the reporting date. Also excluded from the summary are financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described.