Estimated Fair Values

6 Months Ended

Jun. 30, 2012

Estimated Fair Values [Abstract]

Estimated Fair Values

Estimated Fair Values

Fair value estimates are made at a specific point in time based on relevant market information and information about each financial instrument. Where information regarding the fair value of a financial instrument is publicly available, those values are used, as is the case with investment securities, residential mortgage loans and certain long-term obligations. In these cases, an open market exists in which those financial instruments are actively traded.

Because no market exists for many financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. For financial instruments with a fixed interest rate, an analysis of the related cash flows is the basis for estimating fair values. The expected cash flows are discounted to the valuation date using an appropriate discount rate. The discount rates used represent the rates under which similar transactions would be currently negotiated. For financial instruments with fixed and variable rates, fair value estimates also consider the impact of liquidity discounts appropriate as of the measurement date.

Fair value represents the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements BancShares considers the principal or most advantageous market in which the specific assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. As required under US GAAP, individual fair value estimates are ranked based on the relative reliability of the inputs used in the valuation. Fair values determined using level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities that are not actively traded in observable markets are based on level 3 inputs, which are considered to be nonobservable. BancShares recognizes transfers between levels of the fair value hierarchy at the end of the respective reporting period.

Estimated fair values of financial assets and financial liabilities are provided in the following table. The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below:

Investment securities. Investment securities are measured based on quoted market prices, when available. For certain residential mortgage-backed securities and state, county, and municipal securities, fair values are determined using broker prices based on recent sales of similar securities. The inputs used in the fair value measurement of investment securities are considered Level 1 or Level 2 inputs. The details of investment securities available for sale and the corresponding level of inputs are provided in the below table of assets measured at fair value on a recurring basis.

Loans held for sale. Fair value for loans held for sale is generally based on market prices for loans with similar characteristics or external valuations. The inputs used in the fair value measurements for loans held for sale are considered Level 2 inputs.

Loans and leases. For variable rate loans, carrying value is a reasonable estimate of fair value. For other fixed rate loans, fair values are estimated based on discounted future cash flows using the current interest rates at which loans with similar terms would be made to borrowers of similar credit quality. Additional valuation adjustments are made for liquidity and credit risk. The inputs used in the fair value measurements for loans and leases are considered Level 3 inputs.

Receivable from the FDIC for loss share agreements. Fair value is estimated based on discounted future cash flows using current discount rates. The inputs used in the fair value measurements for the receivable from the FDIC are considered Level 3 inputs.

Deposits. For non-time deposits and variable rate time deposits, carrying value is a reasonable estimate of fair value. The fair value of fixed-rate time deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits of similar remaining maturities. The inputs used in the fair value measurements for deposits are considered Level 2 inputs.

Long-term obligations. For fixed rate trust preferred securities, the fair values are determined based on recent trades of the actual security. For other long-term obligations, fair values are estimated by discounting future cash flows using current interest rates for similar financial instruments. The inputs used in the fair value measurements for long-term obligations are considered Level 2 inputs.

Interest Rate Swap. Under the terms of the existing cash flow hedge, BancShares pays a fixed payment to the counterparty in exchange for receipt of a variable payment that is determined based on the 3-month LIBOR rate. The fair value of the cash flow hedge is therefore based on projected LIBOR rates for the duration of the hedge, values that, while observable in the market, are subject to adjustment due to pricing considerations for the specific instrument. If the fair value of the swap is a net asset, the risk of default by the counterparty is considered in the determination of fair value and would be considered a Level 3 input. The inputs used in the fair value measurements of the interest rate swap are considered Level 2 inputs.

For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of June 30, 2012, December 31, 2011, and June 30, 2011. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short term in nature and there is no interest rate or credit risk relating to them that would cause the fair value to differ from carrying value.

	June 30, 2012				December 31, 2011				June 30, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and due from banks	$	571,004	$	571,004	$	590,801	$	590,801	$	537,717	$	537,717
Overnight investments	984,536		984,536		434,975		434,975		741,654		741,654
Investment securities available for sale	4,634,248		4,634,248		4,056,423		4,056,423		4,014,241		4,014,241
Investment securities held to maturity	1,578		1,715		1,822		1,980		2,098		2,278
Loans held for sale	76,374		78,139		92,539		93,235		56,004		56,004
Loans covered by loss share agreements, net of allowance for loan and lease losses	1,911,554		1,873,323		2,272,891		2,236,343		2,330,303		2,318,304
Loans and leases not covered by loss share agreements, net of allowance for loan and lease losses	11,277,326		11,200,523		11,400,754		11,312,900		11,348,239		11,213,325
Receivable from FDIC for loss share agreements (1)	313,978		297,963		539,511		446,172		522,507		529,514
Income earned not collected	49,743		49,743		42,216		42,216		50,876		50,876
Stock issued by:
Federal Home Loan Bank of Atlanta	38,105		38,105		41,042		41,042		45,002		45,002
Federal Home Loan Bank of San Francisco	11,746		11,746		12,976		12,976		14,238		14,238
Federal Home Loan Bank of Seattle	4,490		4,490		4,490		4,490		4,490		4,490
Deposits	17,801,646		17,854,346		17,577,274		17,638,359		17,662,966		17,711,225
Short-term borrowings	700,299		700,299		615,222		615,222		655,808		655,808
Long-term obligations	644,682		677,372		687,599		719,999		792,661		807,407
Accrued interest payable	23,093		23,093		23,719		23,719		27,930		27,930
Interest rate swap	11,020		11,020		10,714		10,714		9,800		9,800

(1) The fair value of the receivable from FDIC for loss share agreements excludes amounts expected to be recovered through accretion income in prospective periods.

At June 30, 2012 and 2011, other assets include $54,341 and $63,730 of stock in various Federal Home Loan Banks (FHLB). The FHLB stock, which is redeemable only through the issuer, is carried at its par value. The investment in the FHLB stock is considered a long-term investment and its value is based on the ultimate recoverability of par value which is considered a level 1 input. Management has concluded that the investment in FHLB stock was not other-than-temporarily impaired for any period presented.

For off-balance sheet commitments and contingencies, carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares’ financial position.

Among BancShares’ assets and liabilities, investment securities available for sale and interest rate swaps accounted for as cash flow hedges are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including loans held for sale, which are carried at the lower of cost or market. Impaired loans, OREO, goodwill and other intangible assets are periodically tested for impairment. Loans held for investment, deposits, short-term borrowings and long-term obligations are not reported at fair value. BancShares did not elect to voluntarily report any assets or liabilities at fair value.

For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of June 30, 2012, December 31, 2011, and June 30, 2011:

			Fair value measurements using:
Description	Fair value		Quoted prices in active markets for identical assets and liabilities (Level 1 inputs)		Quoted prices for similar assets and liabilities (Level 2 inputs)		Significant unobservable inputs (Level  3 inputs)
June 30, 2012
Assets measured at fair value
Investment securities available for sale
U.S. Treasury	$	878,685	$	878,685	$	—	$	—
Government agency	2,978,198		2,978,198		—		—
Corporate bonds	50,446		50,446		—		—
Residential mortgage-backed securities	707,645		—		707,645		—
Equity securities	18,238		18,238		—		—
State, county, municipal	1,036		—		1,036		—
Total	$	4,634,248	$	3,925,567	$	708,681	$	—
Liabilities measured at fair value
Interest rate swaps accounted for as cash flow hedges	$	11,020	$	—	$	11,020	$	—
December 31, 2011
Assets measured at fair value
Investment securities available for sale
U.S. Treasury	$	887,819	$	887,819	$	—	$	—
Government agency	2,592,209		2,592,209		—		—
Corporate bonds	252,820		252,820		—		—
Residential mortgage-backed securities	307,221		—		307,221		—
Equity securities	15,313		15,313		—		—
State, county, municipal	1,041		—		1,041		—
Total	$	4,056,423	$	3,748,161	$	308,262	$	—
Liabilities measured at fair value
Interest rate swaps accounted for as cash flow hedges	$	10,714	$	—	$	10,714	$	—
June 30, 2011
Assets measured at fair value
Investment securities available for sale
U.S. Treasury	$	1,289,282	$	1,289,282	$	—	$	—
Government agency	1,904,843		1,904,843		—		—
Corporate bonds	466,971		466,971		—		—
Residential mortgage-backed securities	333,483		—		333,483		—
Equity securities	18,609		18,609		—		—
State, county, municipal	1,053		—		1,053		—
Total	$	4,014,241	$	3,679,705	$	334,536	$	—
Liabilities measured at fair value
Interest rate swaps accounted for as cash flow hedges	$	9,800	$	—	$	9,800	$	—

Prices for US Treasury securities, government agency securities, corporate bonds and equity securities are readily available in the active markets in which those securities are traded and the resulting fair values are shown in the ‘Level 1 input’ column. Prices for mortgage-backed securities and state, county and municipal securities are obtained using the fair values of similar assets and the resulting fair values are shown in the ‘Level 2 input’ column. There were no assets or liabilities valued on a recurring basis using level 3 inputs at June 30, 2012, December 31, 2011, or June 30, 2011, and there were no transfers between Level 1 and Level 2 categories during the three- and six-month periods ended June 30, 2012 and 2011.

There were no investment securities with fair values determined by reliance on significant nonobservable inputs during 2012 or 2011.

Certain assets and liabilities are carried at fair value on a nonrecurring basis. Loans held for sale are carried at the lower of aggregate cost or fair value and are therefore carried at fair value only when fair value is less than the asset cost. Certain impaired loans are also carried at fair value. For assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of June 30, 2012, December 31, 2011, and June 30, 2011:

			Fair value measurements using:
Description	Fair value		Quoted prices in active markets for identical assets and liabilities (Level 1 inputs)		Quoted prices for similar assets and liabilities (Level 2 inputs)		Significant nonobservable inputs (Level 3 inputs)
June 30, 2012
Loans held for sale	$	49,277	$	—	$	49,277	$	—
Impaired loans not covered by loss share agreements	111,288		—		—		111,288
December 31, 2011
Loans held for sale	63,470		—		63,470		—
Impaired loans not covered by loss share agreements	128,365		—		—		128,365
June 30, 2011
Loans held for sale	56,004		—		56,004		—
Impaired loans not covered by loss share agreements	101,245		—		—		101,245

The values of loans held for sale are generally based on market prices for loans with similar characteristics or external valuations.

The values of impaired loans are determined by either collateral valuations or discounted present value of the expected cash flow calculations. Collateral values are determined using appraisals or other third-party value estimates of the subject property with discounts generally between 10 and 14 percent applied for estimated holding and selling costs and other external factors that may impact the marketability of the property. Impaired loans are assigned to an asset manager and monitored monthly for significant changes since the last valuation. If significant changes are noted, the asset manager orders a new valuation or adjusts the valuation accordingly. Expected cash flows are determined using expected loss rates developed from historic experience for loans with similar risk characteristics.

No financial liabilities were carried at fair value on a nonrecurring basis as of June 30, 2012, December 31, 2011, or June 30, 2011.

OREO is measured and reported at fair value using level 3 inputs for valuations based on nonobservable criteria. The values of OREO is determined by collateral valuations. Collateral values are determined using appraisals or other third-party value estimates of the subject property with discounts generally between 10 and 14 percent applied for estimated holding and selling costs and other external factors that may impact the marketability of the property. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. The asset manager uses the information gathered from brokers and other market sources to identify any significant changes in the market or the subject property as they occur. Valuations are then adjusted or new appraisals are ordered to ensure the reported values reflect the most current information. The following table provides information regarding OREO for the three- and six-month periods ended June 30, 2012 and 2011.

	Three Months Ended June 30				Six Months Ended June 30
	2012		2011		2012		2011
Current year foreclosures:
Covered under loss share agreements	$	41,098	$	68,375	$	61,630	$	109,175
Not covered under loss share agreements	12,475		19,765		18,783		13,636
Loan charge-offs recorded due to the measurement and initial recognition of OREO:
Covered under loss share agreements	7,392		7,447		8,351		7,447
Not covered under loss share agreements	130		1,385		588		2,053
Write-downs recorded subsequent to foreclosure for OREO:
Covered under loss share agreements	11,137		11,431		11,259		15,997
Not covered under loss share agreements	2,629		2,433		3,112		1,684
Fair value of OREO remeasured in current period:
Covered under loss share agreements	24,136		7,759		33,697		12,572
Not covered under loss share agreements	9,301		17,272		12,893		6,567