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ESTIMATED FAIR VALUES | 12 Months Ended
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Dec. 31, 2012
Estimated Fair Values [Abstract] |
Estimated Fair Values | ESTIMATED FAIR VALUES 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. 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.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 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 unobservable. BancShares recognizes transfers between levels of the fair value hierarchy at the end of the respective reporting period. 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 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 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. Due to post-acquisition improvements in expected losses, significant portions of the FDIC receivable will be recovered through amortization of the receivable over the remaining life of the loss share agreement rather than by cash flows from the FDIC. The estimated amounts to be amortized in future periods have no fair value. The inputs used in the fair value measurements for the receivable from the FDIC are considered level 3 inputs. The FDIC loss share agreements are not transferable and, accordingly, there is no market for this receivable. FHLB stock. The carrying amount of FHLB stock is a reasonable estimate of fair value as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares believes its investment in FHLB stock is ultimately recoverable at par. Securities issued under the TARP program. Securities issued under the Troubled Asset Recovery Program are recorded at cost and are evaluated for impairment based on the ultimate recoverability of the purchase price. The fair value of these securities is derived from a third-party proprietary model that is considered to be a level 3 input. 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. Payable to FDIC for loss share agreements. The fair value of the payable to FDIC for loss share agreements is determined by the projected cash flows based on expected payments to the FDIC in accordance with the loss share agreements. Cash flows are discounted to reflect the timing of the estimated amounts due to the FDIC. The inputs used in the fair value measurements for the payable to the FDIC are considered level 3 inputs. See Note S for more information on payable to FDIC. 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 three-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 is considered a level 3 input. The inputs used in the fair value measurements of the interest rate swap are considered level 2 inputs. 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. For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of December 31, 2012, and 2011. Estimated fair values of financial assets and financial liabilities are provided in the following table.
| December 31, 2012 |  | December 31, 2011
| Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Cash and due from banks | $ | 639,730 |  |  | $ | 639,730 |  |  | $ | 590,801 |  |  | $ | 590,801 |
Overnight investments | 443,180 |  |  | 443,180 |  |  | 434,975 |  |  | 434,975 |
Investment securities available for sale | 5,226,228 |  |  | 5,226,228 |  |  | 4,056,423 |  |  | 4,056,423 |
Investment securities held to maturity | 1,342 |  |  | 1,448 |  |  | 1,822 |  |  | 1,980 |
Loans held for sale | 86,333 |  |  | 87,654 |  |  | 92,539 |  |  | 93,235 |
Loans covered under loss share agreements, net of allowance for loan and lease losses | 1,669,263 |  |  | 1,635,878 |  |  | 2,272,891 |  |  | 2,236,343 |
Loans and leases not covered under loss share agreements, net of allowance for loan and lease losses | 11,397,069 |  |  | 11,238,597 |  |  | 11,400,754 |  |  | 11,312,900 |
Receivable from FDIC for loss share agreements | 270,192 |  |  | 100,161 |  |  | 617,377 |  |  | 526,252 |
Income earned not collected | 47,666 |  |  | 47,666 |  |  | 42,216 |  |  | 42,216 |
Stock issued by: |  |  |  |  |  |  |
Federal Home Loan Bank of Atlanta | 36,139 |  |  | 36,139 |  |  | 41,042 |  |  | 41,042 |
Federal Home Loan Bank of San Francisco | 10,107 |  |  | 10,107 |  |  | 12,976 |  |  | 12,976 |
Federal Home Loan Bank of Seattle | 4,410 |  |  | 4,410 |  |  | 4,490 |  |  | 4,490 |
Securities issued under the TARP program | 40,768 |  |  | 40,793 |  |  | — |  |  | — |
Deposits | 18,086,025 |  |  | 18,126,893 |  |  | 17,577,274 |  |  | 17,638,359 |
Short-term borrowings | 568,505 |  |  | 568,505 |  |  | 615,222 |  |  | 615,222 |
Long-term obligations | 444,921 |  |  | 472,642 |  |  | 687,599 |  |  | 719,999 |
Payable to FDIC for loss share agreements | 101,641 |  |  | 125,065 |  |  | 77,866 |  |  | 90,070 |
Accrued interest payable | 9,353 |  |  | 9,353 |  |  | 23,719 |  |  | 23,719 |
Interest rate swap | 10,398 |  |  | 10,398 |  |  | 10,714 |  |  | 10,714 |
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 has not elected 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 December 31, 2012, and 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)
December 31, 2012 |  |  |  |  |  |  |
Assets measured at fair value |  |  |  |  |  |  |
Investment securities available for sale: |  |  |  |  |  |  |
U.S. Treasury | $ | 823,632 |  |  | $ | 823,632 |  |  | $ | — |  |  | $ | — |
Government agency | 3,055,204 |  |  | 3,055,204 |  |  | — |  |  | — |
Corporate bonds | 820 |  |  | 820 |  |  | — |  |  | — |
Residential mortgage-backed securities | 1,329,657 |  |  | — |  |  | 1,329,657 |  |  | — |
Equity securities | 16,365 |  |  | 16,365 |  |  | — |  |  | — |
State, county, municipal | 550 |  |  | — |  |  | 550 |  |  | — |
Total | $ | 5,226,228 |  |  | $ | 3,896,021 |  |  | $ | 1,330,207 |  |  | $ | — |
Liabilities measured at fair value |  |  |  |  |  |  |
Interest rate swaps accounted for as cash flow hedges | $ | 10,398 |  |  | $ | — |  |  | $ | 10,398 |  |  | $ | — |
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 |  |  | $ | — |
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 transfers between Level 1 and Level 2 inputs during the years ended December 31, 2012, and 2011. Under the terms of the existing cash flow hedges, BancShares pays a fixed payment to the counterparty in exchange for receipt of a variable payment that is determined based on the three-month LIBOR rate. The fair value of the cash flow hedges are therefore based on projected LIBOR rates for the duration of the hedges, values that, while observable in the market, are subject to adjustment due to pricing considerations for the specific instrument. There were no financial instruments with fair values determined by reliance on significant nonobservable inputs during 2012 or 2011. No gains or losses were reported for the years ended December 31, 2012, and 2011 that relate to fair values estimated based on significant nonobservable inputs. 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. OREO is measured and reported at fair value using level 3 inputs for valuations based on nonobservable criteria. For assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of December 31, 2012, and 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)
December 31, 2012 |  |  |  |  |  |  |
Loans held for sale | $ | 65,244 |  |  | $ | — |  |  | $ | 65,244 |  |  | $ | — |
Impaired loans not covered by loss share agreements | 51,644 |  |  | — |  |  | — |  |  | 51,644 |
Other real estate owned not covered by loss share agreements | 21,113 |  |  | — |  |  | — |  |  | 21,113 |
December 31, 2011 |  |  |  |  |  |  |
Loans held for sale | 63,470 |  |  | — |  |  | 63,470 |  |  | — |
Impaired loans not covered by loss share agreements | 128,365 |  |  | — |  |  | — |  |  | 128,365 |
Other real estate owned not covered by loss share agreements | 14,905 |  |  | — |  |  | — |  |  | 14,905 |
The values of loans held for sale are based on prices observed for similar pools of loans. The values of impaired loans are determined by either the collateral value or by the discounted present value of expected cash flows. No covered loans are carried at fair value because all covered loans are accounted for as loans acquired with deteriorated credit quality under the expected cash flow model. No financial liabilities were carried at fair value on a nonrecurring basis as of December 31, 2012, and 2011. The following table provides additional information regarding OREO for 2012 and 2011.
| Covered | Not covered | Total
Balance at January 1, 2011 | $ | 112,748 |  | $ | 52,842 |  | $ | 165,590 |
Acquired in FDIC-assisted transactions | 36,303 |  | — |  | 36,303 |
Additions | 138,280 |  | 38,612 |  | 176,892 |
Sales | (118,738 | ) | (33,569 | ) | (152,307 | )
Writedowns | (19,994 | ) | (7,486 | ) | (27,480 | )
Balance at December 31, 2011 | 148,599 |  | 50,399 |  | 198,998 |
Additions | 105,059 |  | 35,586 |  | 140,645 |
Sales | (124,435 | ) | (33,564 | ) | (157,999 | )
Writedowns | (26,646 | ) | (8,908 | ) | (35,554 | )
Balance at December 31, 2012 | $ | 102,577 |  | $ | 43,513 |  | $ | 146,090 |

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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 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -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 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -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 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -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 5: 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 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13433-108611 Reference 7: 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. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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