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Estimated Fair Values | 3 Months Ended
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Mar. 31, 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. The inputs used in the fair value measurements 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 March 31, 2012, December 31, 2011 and March 31, 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.
| March 31, 2012 |  | December 31, 2011 |  | March 31, 2011
Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Cash and due from banks | $ | 552,663 |  |  | $ | 552,663 |  |  | $ | 590,801 |  |  | $ | 590,801 |  |  | $ | 406,252 |  |  | $ | 406,252 |
Overnight investments | 752,334 |  |  | 752,334 |  |  | 434,975 |  |  | 434,975 |  |  | 585,286 |  |  | 585,286 |
Investment securities available for sale | 4,457,739 |  |  | 4,457,739 |  |  | 4,056,423 |  |  | 4,056,423 |  |  | 4,202,016 |  |  | 4,202,016 |
Investment securities held to maturity | 1,688 |  |  | 1,844 |  |  | 1,822 |  |  | 1,980 |  |  | 2,341 |  |  | 2,537 |
Loans held for sale | 73,457 |  |  | 75,342 |  |  | 92,539 |  |  | 93,235 |  |  | 48,222 |  |  | 48,222 |
Loans covered by loss share agreements, net of allowance for loan and lease losses | 2,097,752 |  |  | 2,055,797 |  |  | 2,272,891 |  |  | 2,236,343 |  |  | 2,603,505 |  |  | 2,590,214 |
Loans and leases not covered by loss share agreements, net of allowance for loan and lease losses | 11,303,146 |  |  | 11,171,217 |  |  | 11,400,754 |  |  | 11,312,900 |  |  | 11,214,383 |  |  | 11,062,010 |
Receivable from FDIC for loss share agreements (1) | 410,351 |  |  | 297,963 |  |  | 539,511 |  |  | 446,172 |  |  | 624,322 |  |  | 557,356 |
Income earned not collected | 52,406 |  |  | 52,406 |  |  | 42,216 |  |  | 42,216 |  |  | 98,501 |  |  | 98,501 |
Stock issued by: |  |  |  |  |  |  |  |  |  |  |
Federal Home Loan Bank of Atlanta | 41,043 |  |  | 41,043 |  |  | 41,042 |  |  | 41,042 |  |  | 47,123 |  |  | 47,123 |
Federal Home Loan Bank of San Francisco | 12,356 |  |  | 12,356 |  |  | 12,976 |  |  | 12,976 |  |  | 14,875 |  |  | 14,875 |
Federal Home Loan Bank of Seattle | 4,490 |  |  | 4,490 |  |  | 4,490 |  |  | 4,490 |  |  | 4,490 |  |  | 4,490 |
Deposits | 17,759,492 |  |  | 17,810,831 |  |  | 17,577,274 |  |  | 17,638,359 |  |  | 17,811,736 |  |  | 17,862,769 |
Short-term borrowings | 677,993 |  |  | 677,993 |  |  | 615,222 |  |  | 615,222 |  |  | 666,417 |  |  | 666,417 |
Long-term obligations | 649,818 |  |  | 679,727 |  |  | 687,599 |  |  | 719,999 |  |  | 801,081 |  |  | 813,652 |
Accrued interest payable | 21,486 |  |  | 21,486 |  |  | 23,719 |  |  | 23,719 |  |  | 27,930 |  |  | 27,930 |
Interest rate swap | 10,325 |  |  | 10,325 |  |  | 10,714 |  |  | 10,714 |  |  | 7,775 |  |  | 7,775 |
(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 March 31, 2012 and 2011, other assets include $57,889 and $66,488 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 March 31, 2012, December 31, 2011 and March 31, 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)
March 31, 2012 |  |  |  |  |  |  |
Assets measured at fair value |  |  |  |  |  |  |
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 1,065,036 |  |  | $ | 1,065,036 |  |  | $ | — |  |  | $ | — |
Government agency | 2,855,385 |  |  | 2,855,385 |  |  | — |  |  | — |
Corporate bonds | 226,428 |  |  | 226,428 |  |  | — |  |  | — |
Residential mortgage-backed securities | 290,908 |  |  | — |  |  | 290,908 |  |  | — |
Equity securities | 18,943 |  |  | 18,943 |  |  | — |  |  | — |
State, county, municipal | 1,039 |  |  | — |  |  | 1,039 |  |  | — |
Total | $ | 4,457,739 |  |  | $ | 4,165,792 |  |  | $ | 291,947 |  |  | $ | — |
Liabilities measured at fair value |  |  |  |  |  |  |
Interest rate swaps accounted for as cash flow hedges | $ | 10,325 |  |  | $ | — |  |  | $ | 10,325 |  |  | $ | — |
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 |  |  | $ | — |
March 31, 2011 |  |  |  |  |  |  |
Assets measured at fair value |  |  |  |  |  |  |
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 3,565,503 |  |  | $ | 3,565,503 |  |  | $ | — |  |  | $ | — |
Government agency | — |  |  | — |  |  | — |  |  | — |
Corporate bonds | 459,717 |  |  | 459,717 |  |  | — |  |  | — |
Residential mortgage-backed securities | 155,922 |  |  | — |  |  | 155,922 |  |  | — |
Equity securities | 19,621 |  |  | 19,621 |  |  | — |  |  | — |
State, county, municipal | 1,253 |  |  | — |  |  | 1,253 |  |  | — |
Total | $ | 4,202,016 |  |  | $ | 4,044,841 |  |  | $ | 157,175 |  |  | $ | — |
Liabilities measured at fair value |  |  |  |  |  |  |
Interest rate swaps accounted for as cash flow hedges | $ | 7,775 |  |  | $ | — |  |  | $ | 7,775 |  |  | $ | — |
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 March 31, 2012, December 31, 2011 or March 31, 2011, and there were no transfers between Level 1 and Level 2 categories during the three month periods ended March 31, 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 March 31, 2012, December 31, 2011 and March 31, 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)
March 31, 2012 |  |  |  |  |  |  |
Loans held for sale | $ | 45,146 |  |  | $ | — |  |  | $ | 45,146 |  |  | $ | — |
Impaired loans not covered by loss share agreements | 82,882 |  |  | — |  |  | — |  |  | 82,882 |
December 31, 2011 |  |  |  |  |  |  |
Loans held for sale | 63,470 |  |  | — |  |  | 63,470 |  |  | — |
Impaired loans not covered by loss share agreements | 128,365 |  |  | — |  |  | — |  |  | 128,365 |
March 31, 2011 |  |  |  |  |  |  |
Loans held for sale | 48,222 |  |  | — |  |  | 48,222 |  |  | — |
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 per cent 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 March 31, 2012, December 31, 2011 or March 31, 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 perc ent 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 re garding OREO for the three month periods ended March 31, 2012 and 2011.
| Three Months Ended March 31
| 2012 |  | 2011
Current year foreclosures: |  |  |
Covered under loss share agreements | $ | 20,532 |  |  | $ | 40,800 |
Not covered under loss share agreements | 6,308 |  |  | 6,129 |
Loan charge-offs recorded due to the measurement and initial recognition of OREO: |  |  |
Covered under loss share agreements | 959 |  |  | 3,787 |
Not covered under loss share agreements | 458 |  |  | 668 |
Write-downs recorded subsequent to foreclosure for OREO: |  |  |
Covered under loss share agreements | 122 |  |  | 4,566 |
Not covered under loss share agreements | 483 |  |  | 749 |
Fair value of OREO remeasured in current year: |  |  |
Covered under loss share agreements | 21,344 |  |  | 48,016 |
Not covered under loss share agreements | 8,048 |  |  | 10,705 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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