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Estimated Fair Values | 3 Months Ended
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Mar. 31, 2014
Fair Value Disclosures [Abstract] |
Estimated Fair Values | Estimated Fair Values Fair value estimates are intended to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Where there is no active market for a financial instrument, BancShares has made estimates using discounted cash flow or other valuation techniques. Inputs to these valuation methods are subjective in nature, involve uncertainties and require significant judgment and therefore cannot be determined with precision. Accordingly, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares could realize in a current market exchange. Assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the highest level of input that is significant to the fair value measurement (with level 1 considered highest and level 3 considered lowest). A brief description of each level follows:
• | Level 1 values are based on quoted prices for identical instruments in active markets.
• | Level 2 values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
• | Level 3 values are generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation techniques include the use of discounted cash flow models and similar techniques.
The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below: Investment securities available for sale. U.S.Treasury, government agency, mortgage-backed securities and municipal securities are generally measured at fair value using a third party pricing service and are classified as level 2 instruments. Equity securities are measured at fair value using observable closing prices. Management also considers the level of market activity by examining the trade volume of each security. Due to the relatively inactive nature of the markets for the existing equity securities, the inputs used for these equity securities are considered level 2 inputs. Loans held for sale. 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. These loans are generally traded in active secondary markets and are priced using current market pricing for similar securities adjusted for servicing, interest rate risk and credit risk. Accordingly, the inputs used to calculate fair value of residential real estate loans are classified as Level 2 inputs. Loans and leases (acquired and originated). 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 measurement for the FDIC receivable 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. The inputs used in the fair value measurement for the FHLB stock are considered level 2 inputs. Preferred stock issued under the TARP program and other acquired financial assets. Preferred securities issued under the Troubled Asset Recovery Program are recorded at cost and are evaluated quarterly 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. Other acquired financial assets represent acquired investments in various entities for Community Reinvestment Act and correspondent banking purposes. These investments were recorded at fair value at acquisition date based on level 2 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 measurement 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 measurement for long-term obligations are considered level 2 inputs. Payable to the FDIC for loss share agreements. The fair value of the payable to the 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 measurement for the payable to the FDIC are considered level 3 inputs. See Note J for more information on the payable to the 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. The inputs used in the fair value measurement 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 March 31, 2014 and December 31, 2013. 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 that would cause the fair value to differ from the carrying value.
(Dollars in thousands) | March 31, 2014 |  | December 31, 2013
Carrying value |  | Fair value |  | Carrying value |  | Fair value
Cash and due from banks | $ | 543,471 |  |  | $ | 543,471 |  |  | $ | 533,599 |  |  | $ | 533,599 |
Overnight investments | 1,161,469 |  |  | 1,161,469 |  |  | 859,324 |  |  | 859,324 |
Investment securities available for sale | 5,676,237 |  |  | 5,676,237 |  |  | 5,387,703 |  |  | 5,387,703 |
Investment securities held to maturity | 782 |  |  | 835 |  |  | 907 |  |  | 974 |
Loans held for sale | 53,361 |  |  | 54,057 |  |  | 47,271 |  |  | 47,956 |
Acquired loans, net of allowance for loan and lease losses | 1,225,825 |  |  | 1,201,309 |  |  | 975,906 |  |  | 956,388 |
Originated loans, net of allowance for loan and lease losses | 12,022,277 |  |  | 11,659,364 |  |  | 11,924,424 |  |  | 11,589,149 |
Receivable from the FDIC for loss share agreements (1) | 74,784 |  |  | 37,303 |  |  | 93,397 |  |  | 38,438 |
Income earned not collected | 49,668 |  |  | 49,668 |  |  | 48,390 |  |  | 48,390 |
Federal Home Loan Bank stock | 34,417 |  |  | 34,417 |  |  | 40,819 |  |  | 40,819 |
Preferred stock and other acquired financial assets | 17,783 |  |  | 18,521 |  |  | 33,564 |  |  | 34,786 |
Deposits | 18,763,545 |  |  | 18,785,474 |  |  | 17,874,066 |  |  | 17,898,570 |
Short-term borrowings | 617,794 |  |  | 617,794 |  |  | 511,418 |  |  | 511,418 |
Long-term obligations | 440,300 |  |  | 453,313 |  |  | 510,769 |  |  | 526,037 |
Payable to the FDIC for loss share agreements | 111,339 |  |  | 115,129 |  |  | 109,378 |  |  | 111,941 |
Accrued interest payable | 5,675 |  |  | 5,675 |  |  | 6,737 |  |  | 6,737 |
Interest rate swap | 6,501 |  |  | 6,501 |  |  | 7,220 |  |  | 7,220 |
(1) The fair value of the FDIC receivable excludes amortization expected to be recognized in prospective periods. 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 fair value, and impaired loans, OREO, goodwill and other intangible assets, which are periodically tested for impairment. Non-impaired 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, 2014 and December 31, 2013.
| March 31, 2014
|  |  | Fair value measurements using:
(Dollars in thousands) | Fair value |  | Level 1 inputs |  | Level 2 inputs |  | Level 3 inputs
Assets measured at fair value |  |  |  |  |  |  |
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 1,273,221 |  |  | $ | — |  |  | $ | 1,273,221 |  |  | $ | — |
Government agency | 1,812,774 |  |  | — |  |  | 1,812,774 |  |  | — |
Mortgage-backed securities | 2,566,666 |  |  | — |  |  | 2,566,666 |  |  | — |
Equity securities | 22,560 |  |  | — |  |  | 22,560 |  |  | — |
Municipal securities | 186 |  |  | — |  |  | 186 |  |  | — |
Other | 830 |  |  | — |  |  | 830 |  |  | — |
Total | $ | 5,676,237 |  |  | $ | — |  |  | $ | 5,676,237 |  |  | $ | — |
Liabilities measured at fair value |  |  |  |  |  |  |
Interest rate swaps accounted for as cash flow hedges | $ | 6,501 |  |  | $ | — |  |  | $ | 6,501 |  |  | $ | — |
| December 31, 2013
|  |  | Fair value measurements using:
| Fair value |  | Level 1 inputs |  | Level 2 inputs |  | Level 3 inputs
Assets measured at fair value |  |  |  |  |  |  |
Investment securities available for sale |  |  |  |  |  |  |
U.S. Treasury | $ | 373,437 |  |  | $ | — |  |  | $ | 373,437 |  |  | $ | — |
Government agency | 2,544,229 |  |  | — |  |  | 2,544,229 |  |  | — |
Mortgage-backed securities | 2,446,873 |  |  | — |  |  | 2,446,873 |  |  | — |
Equity securities | 22,147 |  |  | — |  |  | 22,147 |  |  | — |
Municipal securities | 187 |  |  | — |  |  | 187 |  |  | — |
Other | 830 |  |  | — |  |  | 830 |  |  | — |
Total | $ | 5,387,703 |  |  | $ | — |  |  | $ | 5,387,703 |  |  | $ | — |
Liabilities measured at fair value |  |  |  |  |  |  |
Interest rate swaps accounted for as cash flow hedges | $ | 7,220 |  |  | $ | — |  |  | $ | 7,220 |  |  | $ | — |
There were no transfers between levels during the three months ended March 31, 2014. Certain financial assets and liabilities are carried at fair value on a nonrecurring basis, including loans held for sale, impaired loans and OREO. 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. These loans are generally traded in active secondary markets and are priced using current market pricing for similar securities adjusted for servicing, interest rate risk and credit risk. Accordingly, residential real estate loans held for sale are classified as Level 2. Impaired loans are deemed to be at fair value if an associated allowance or current period charge-off has been recorded. The value of impaired loans is 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, discounted using the effective interest rate. OREO is measured and reported at fair value using 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. OREO that has been recently remeasured is deemed to be at fair value and included in the table below. For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of March 31, 2014 and December 31, 2013.
| March 31, 2014
|  |  | Fair value measurements using:
(Dollars in thousands) | Fair value |  | Level 1 inputs |  | Level 2 inputs |  | Level 3 inputs
Loans held for sale | $ | 14,911 |  |  | $ | — |  |  | $ | 14,911 |  |  | $ | — |
Originated impaired loans | 73,301 |  |  | — |  |  | — |  |  | 73,301 |
Other real estate not covered under loss share agreements remeasured during current year | 17,678 |  |  | — |  |  | — |  |  | 17,678 |
Other real estate covered under loss share agreements remeasured during current year | 32,402 |  |  | — |  |  | — |  |  | 32,402 |
| December 31, 2013
|  |  | Fair value measurements using:
| Fair value |  | Level 1 inputs |  | Level 2 inputs |  | Level 3 inputs
Loans held for sale | 29,389 |  |  | — |  |  | 29,389 |  |  | — |
Originated impaired loans | 77,817 |  |  | — |  |  | — |  |  | 77,817 |
Other real estate not covered under loss share agreements remeasured during current year | 20,526 |  |  | — |  |  | — |  |  | 20,526 |
Other real estate covered under loss share agreements remeasured during current year | 37,587 |  |  | — |  |  | — |  |  | 37,587 |
No financial liabilities were carried at fair value on a nonrecurring basis as of March 31, 2014 and December 31, 2013.

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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 21 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13537-108611 Reference 2: 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=28364263&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: 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=25499696&loc=d3e19207-110258 Reference 5: 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 6: 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=28364263&loc=d3e13504-108611 + Details
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