Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2011

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

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Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The following is a description of the inputs and valuation methodologies used for financial assets measured at fair value on a recurring basis. There have been no significant changes in the valuation techniques during the period ended June 30, 2011.

Investment securities: fair value for available-for-sale securities is estimated by obtaining quoted market prices for identical assets, where available. If such prices are not available, fair value is based on independent asset pricing services and models, the inputs of which are market-based or independently sourced market parameters, including but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections, and cash flows. For those securities where greater reliance on unobservable inputs occurs, such securities are classified as Level 3 within the hierarchy.

The following schedules disclose the major classes of assets measured at fair value on a recurring basis at June 30, 2011 and December 31, 2010.

	Assets/		Quoted Prices		Significant
	Liabilities		in Active Markets		Other		Significant
	Measured at		for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
(Dollars in thousands)	6/30/11		(Level 1)		(Level 2)		(Level 3)
Financial assets
U.S. government and federal agency	$	210		—		210		—
U.S. government sponsored enterprises		36,121		—		36,121		—
State and local governments and other issues		987,591		—		987,591		—
Collateralized debt obligations		5,953		—		—		5,953
Residential mortgage-backed securities		1,754,540		—		1,754,341		199
Total financial assets	$	2,784,415		—		2,778,263		6,152

	Assets/		Quoted Prices		Significant
	Liabilities		in Active Markets		Other		Significant
	Measured at		for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
(Dollars in thousands)	12/31/10		(Level 1)		(Level 2)		(Level 3)
Financial assets
U.S. government and federal agency	$	211		—		211		—
U.S. government sponsored enterprises		41,518		—		41,518		—
State and local governments and other issues		657,421		—		657,421		—
Collateralized debt obligations		6,595		—		—		6,595
Residential mortgage-backed securities		1,690,102		—		1,689,946		156
Total financial assets	$	2,395,847		—		2,389,096		6,751

The following schedules reconcile the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six month period ended June 30, 2011 and the year ended December 31, 2010.

	Significant Unobservable Inputs (Level 3)
				Collateralized			Residential
				Debt			Mortgage-backed
(Dollars in thousands)	Total			Obligations			Securities
Balance as of December 31, 2010	$	6,751			6,595			156
Total unrealized gains included in other comprehensive income		1,641			1,598			43
Amortization, accretion and principal payments		(2,240	)		(2,240	)		—
Balance as of June 30, 2011	$	6,152			5,953			199

	Significant Unobservable Inputs (Level 3)
				State and Local			Collateralized			Residential
				Governments and			Debt			Mortgage-backed
(Dollars in thousands)	Total			Other Issues			Obligations			Securities
Balance as of December 31, 2009	$	9,988			2,088			6,789			1,111
Total unrealized gains included in other comprehensive income		3,381			—			3,276			105
Amortization, accretion and principal payments		(1,510	)		—			(1,510	)		—
Sales, maturities and calls		(3,020	)		—			(1,960	)		(1,060	)
Transfers out of Level 3		(2,088	)		(2,088	)		—			—
Balance as of December 31, 2010	$	6,751			—			6,595			156

The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis. There have been no significant changes in the valuation techniques during the six months ended June 30, 2011.

Other real estate owned: other real estate owned is carried at the lower of fair value at acquisition date or estimated fair value, less estimated cost to sell. Estimated fair value of other real estate owned is based on appraisals or evaluations. Other real estate owned is classified within Level 3 of the fair value hierarchy.

Collateral-dependent impaired loans, net of ALLL: loans included in the Company’s financials for which it is probable that the Company will not collect all principal and interest due according to contractual terms are considered impaired. Estimated fair value of collateral-dependent impaired loans is based on the fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

In determining fair values of other real estate owned and the collateral-dependent impaired loan, the Company considers the appraisal or evaluation as the starting point for determining fair value and the Company also considers other factors and events in the environment that may affect the fair value.

The following schedules disclose the major classes of assets with a recorded change during the period in the condensed consolidated financial statements resulting from re-measuring the assets at fair value on a non-recurring basis at June 30, 2011 and December 31, 2010.

	Assets/		Quoted Prices		Significant
	Liabilities		in Active Markets		Other		Significant
	Measured at		for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
(Dollars in thousands)	6/30/11		(Level 1)		(Level 2)		(Level 3)
Financial assets
Other real estate owned	$	13,378		—		—		13,378
Collateral-dependent impaired loans, net of allowance for loan and lease losses		37,959		—		—		37,959
Total financial assets	$	51,337		—		—		51,337

	Assets/		Quoted Prices		Significant
	Liabilities		in Active Markets		Other		Significant
	Measured at		for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
(Dollars in thousands)	12/31/10		(Level 1)		(Level 2)		(Level 3)
Financial assets
Other real estate owned	$	17,492		—		—		17,492
Collateral-dependent impaired loans, net of allowance for loan and lease losses		47,283		—		—		47,283
Total financial assets	$	64,775		—		—		64,775

The following is a description of the methods used to estimate the fair value of all other financial instruments recognized at amounts other than fair value.

Financial Assets

The estimated fair value of cash and cash equivalents and accrued interest receivable is the book value of such financial assets.

Non-marketable equity securities: fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.

Loans held for sale: fair value is estimated at book value due to the insignificant time between origination date and sale date.

Loans receivable, net of ALLL: fair value for loans, net of ALLL, is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities.

Financial Liabilities

The estimated fair value of accrued interest payable is the book value of such financial liabilities.

Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The estimated fair value of demand, NOW, savings, and money market deposits is the book value since rates are regularly adjusted to market rates.

Advances from FHLB: fair value of advances is estimated based on borrowing rates currently available to the Company for advances with similar terms and maturities.

Securities sold under agreements to repurchase (“repurchase agreements”), federal funds purchased and other borrowed funds: fair value of term repurchase agreements and other term borrowings is estimated based on current repurchase rates and borrowing rates currently available to the Company for repurchases and borrowings with similar terms and maturities. The estimated fair value for overnight repurchase agreements and other borrowings is book value.

Subordinated debentures: fair value of the subordinated debt is estimated by discounting the estimated future cash flows using current estimated market rates for subordinated debt issuances with similar characteristics.

Off-balance sheet financial instruments: commitments to extend credit and letters of credit represent the principal categories of off-balance sheet financial instruments. Rates for these commitments are set at time of loan closing, such that no adjustment is necessary to reflect these commitments at market value. The Company has immaterial off-balance sheet financial instruments.

The following presents the carrying amounts and estimated fair values of the Company’s financial instruments:

	June 30, 2011				December 31, 2010
(Dollars in thousands)	Amount		Fair Value		Amount		Fair Value
Financial assets
Cash and cash equivalents	$	129,041		129,041		105,091		105,091
Investment securities, available-for-sale		2,784,415		2,784,415		2,395,847		2,395,847
Loans held for sale		35,440		35,440		76,213		76,213
Loans receivable, net of allowance for loan and lease losses		3,462,016		3,514,290		3,612,182		3,631,716
Accrued interest receivable		35,229		35,229		30,246		30,246
Non-marketable equity securities		50,762		50,762		65,040		65,040
Total financial assets	$	6,496,903		6,549,177		6,284,619		6,304,153
Financial liabilities
Deposits	$	4,704,799		4,714,635		4,521,902		4,533,974
FHLB advances		925,061		938,708		965,141		974,853
Repurchase agreements, federal funds purchased and other borrowed funds		314,102		314,104		269,408		269,414
Accrued interest payable		6,261		6,261		7,245		7,245
Subordinated debentures		125,203		69,529		125,132		70,404
Total financial liabilities	$	6,075,426		6,043,237		5,888,828		5,855,890