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Fair Value of Assets and Liabilities | 9 Months Ended
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Sep. 30, 2013
Fair Value Disclosures [Abstract] |
Fair Value of Assets and Liabilities | Note 8. Fair Value of Assets and Liabilities 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
Transfers in and out of Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the nine month periods ended September 30, 2013 and 2012. Recurring Measurements The following is a description of the inputs and valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended September 30, 2013. 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. Such securities are classified in Level 2 of the valuation hierarchy. Where Level 1 or Level 2 inputs are not available, such securities are classified as Level 3 within the hierarchy. Fair value determinations of investment securities are the responsibility of the Company’s corporate accounting department. The Company contracts with independent third party pricing vendors to generate fair value estimates and the Company reviews the vendors’ inputs for fair value estimates and the recommended assignments of levels within the fair value hierarchy on a quarterly basis. The review includes the extent to which markets for investment securities are determined to have limited or no activity, or are judged to be active markets. The Company reviews the extent to which observable and unobservable inputs are used as well as the appropriateness of the underlying assumptions about risk that a market participant would use in active markets, with adjustments for limited or inactive markets. In considering the inputs to the fair value estimates, the Company places less reliance on quotes that are judged to not reflect orderly transactions, or are non-binding indications. The Company makes independent inquiries of other knowledgeable parties in testing the reliability of the inputs, including consideration for illiquidity, credit risk, and cash flow estimates. In assessing credit risk, the Company reviews payment performance, collateral adequacy, credit rating histories, and issuers’ financial statements with follow-up discussion with issuers. For those markets determined to be inactive, the valuation techniques used are models for which management verifies that discount rates are appropriately adjusted to reflect illiquidity and credit risk. The Company also independently obtains cash flow estimates that are stressed at levels that exceed those used by the independent third party pricing vendors. Interest rate swap derivative financial instruments: fair values for interest rate swap derivative financial instruments are based upon the estimated amounts to settle the contracts considering current interest rates and are calculated using discounted cash flows that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. The inputs used to determine fair value include the 3 month LIBOR forward curve to estimate variable rate cash inflows and the spot LIBOR curve to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such difference is discounted to a present value to estimate the fair value of the interest rate swaps. The Company also obtains and compares the reasonableness of the pricing from an independent party. The following schedules disclose the fair value measurement of assets and liabilities measured at fair value on a recurring basis:
|  |  | Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands) | Fair Value September 30, 2013 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Investment securities, available-for-sale |  |  |  |  |  |  |
U.S. government sponsored enterprises | $ | 11,556 |  |  | — |  |  | 11,556 |  |  | — |
State and local governments | 1,341,384 |  |  | — |  |  | 1,341,384 |  |  | — |
Corporate bonds | 442,845 |  |  | — |  |  | 442,845 |  |  | — |
Residential mortgage-backed securities | 1,523,168 |  |  | — |  |  | 1,523,168 |  |  | — |
Total assets measured at fair value on a recurring basis | $ | 3,318,953 |  |  | — |  |  | 3,318,953 |  |  | — |
Interest rate swaps | $ | 2,004 |  |  | — |  |  | 2,004 |  |  | — |
Total liabilities measured at fair value on a recurring basis | $ | 2,004 |  |  | — |  |  | 2,004 |  |  | — |
|  |  | Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands) | Fair Value December 31, 2012 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Investment securities, available-for-sale |  |  |  |  |  |  |
U.S. government and federal agency | $ | 202 |  |  | — |  |  | 202 |  |  | — |
U.S. government sponsored enterprises | 17,480 |  |  | — |  |  | 17,480 |  |  | — |
State and local governments | 1,214,518 |  |  | — |  |  | 1,214,518 |  |  | — |
Corporate bonds | 288,795 |  |  | — |  |  | 288,795 |  |  | — |
Collateralized debt obligations | 1,708 |  |  | — |  |  | 1,708 |  |  | — |
Residential mortgage-backed securities | 2,160,302 |  |  | — |  |  | 2,160,302 |  |  | — |
Total assets measured at fair value on a recurring basis | $ | 3,683,005 |  |  | — |  |  | 3,683,005 |  |  | — |
Interest rate swaps | $ | 16,832 |  |  | — |  |  | 16,832 |  |  | — |
Total liabilities measured at fair value on a recurring basis | $ | 16,832 |  |  | — |  |  | 16,832 |  |  | — |
Non-recurring Measurements The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended September 30, 2013. Other real estate owned: OREO is carried at the lower of fair value at acquisition date or estimated fair value, less estimated cost to sell. Estimated fair value of OREO is based on appraisals or evaluations (new or updated). OREO is classified within Level 3 of the fair value hierarchy. Collateral-dependent impaired loans, net of ALLL: loans included in the Company’s loan portfolio 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. The Company’s credit departments review appraisals for OREO and collateral-dependent loans, giving consideration to the highest and best use of the collateral. The appraisal or evaluation (new or updated) is considered the starting point for determining fair value. The valuation techniques used in preparing appraisals or evaluations (new or updated) include the cost approach, income approach, sales comparison approach, or a combination of the preceding valuation techniques. The key inputs used to determine the fair value of the collateral-dependent loans and OREO include selling costs, discounted cash flow rate or capitalization rate, and adjustment to comparables. Valuations and significant inputs obtained by independent sources are reviewed by the Company for accuracy and reasonableness. The Company also considers other factors and events in the environment that may affect the fair value. The appraisals or evaluations (new or updated) are reviewed at least quarterly and more frequently based on current market conditions, including deterioration in a borrower’s financial condition and when property values may be subject to significant volatility. After review and acceptance of the collateral appraisal or evaluation (new or updated), adjustments to the impaired loan or OREO may occur. The Company generally obtains appraisals or evaluations (new or updated) annually. The following schedules disclose the fair value measurement of assets with a recorded change during the period resulting from re-measuring the assets at fair value on a non-recurring basis:
|  |  | Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands) | Fair Value September 30, 2013 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Other real estate owned | $ | 7,646 |  |  | — |  |  | — |  |  | 7,646 |
Collateral-dependent impaired loans, net of ALLL | 19,066 |  |  | — |  |  | — |  |  | 19,066 |
Total assets measured at fair value on a non-recurring basis | $ | 26,712 |  |  | — |  |  | — |  |  | 26,712 |
|  |  | Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands) | Fair Value December 31, 2012 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Other real estate owned | $ | 13,983 |  |  | — |  |  | — |  |  | 13,983 |
Collateral-dependent impaired loans, net of ALLL | 22,966 |  |  | — |  |  | — |  |  | 22,966 |
Total assets measured at fair value on a non-recurring basis | $ | 36,949 |  |  | — |  |  | — |  |  | 36,949 |
Non-recurring Measurements Using Significant Unobservable Inputs (Level 3) The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
| Fair Value |  | Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands) | September 30, 2013 |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted Average) 1
Other real estate owned | $ | 6,828 |  |  | Sales comparison approach |  | Selling costs |  | 1.0% - 11.0% (7.0%)
|  |  |  |  | Adjustment to comparables |  | 0.0% - 10.0% (0.0%)
| 818 |  |  | Combined approach |  | Selling costs |  | 5.0% - 5.0% (5.0%)
|  |  |  |  | Adjustment to comparables |  | 25.0% - 25.0% (25.0%)
| $ | 7,646 |  |  |  |  |  |  |
Collateral-dependent impaired loans, net of ALLL | $ | 442 |  |  | Cost approach |  | Selling costs |  | 10.0% - 50.0% (19.2%)
| 2,553 |  |  | Income approach |  | Selling costs |  | 8.0% - 8.0% (8.0%)
|  |  |  |  | Discount rate |  | 8.3% - 8.3% (8.3%)
| 13,700 |  |  | Sales comparison approach |  | Selling costs |  | 0.0% - 10.0% (8.0%)
|  |  |  |  | Discount rate |  | 0.0% - 0.0% (0.0%)
|  |  |  |  | Adjustment to comparables |  | 0.0% - 1.0% (0.0%)
| 2,371 |  |  | Combined approach |  | Selling costs |  | 8.0% - 8.0% (8.0%)
|  |  |  |  | Adjustment to comparables |  | 10.0% - 36.0% (22.5%)
| $ | 19,066 |  |  |  |  |  |  |
__________ 1 The range for selling costs and adjustments to comparables indicate reductions to the fair value. Fair Value of Financial Instruments The following is a description of the methods used to estimate the fair value of all other assets and liabilities recognized at amounts other than fair value. Cash and cash equivalents: fair value is estimated at book value. Loans held for sale: fair value is estimated at book value. Loans receivable, net of ALLL: fair value is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities. The market rates used are based on current rates the Company would impose for similar loans and reflect a market participant assumption about risks associated with non-performance, illiquidity, and the structure and term of the loans along with local economic and market conditions. Estimated fair value of impaired loans is based on the fair value of the collateral, less estimated cost to sell, or the present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate). All impaired loans are classified as Level 3 and all other loans are classified as Level 2 within the hierarchy. Accrued interest receivable: fair value is estimated at book value. Non-marketable equity securities: fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities. Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from a knowledgeable independent third party and reviewed by the Company. The rates were the average of current rates offered by the Company’s local competitors. The estimated fair value of demand, NOW, savings, and money market deposits is the book value since rates are regularly adjusted to market rates and transactions are executed at book value daily. Therefore, such deposits are classified in Level 1 of the valuation hierarchy. Certificate accounts and wholesale deposits are classified as Level 2 within the hierarchy. Federal Home Loan Bank (“FHLB”) advances: fair value of non-callable FHLB advances is estimated by discounting the future cash flows using rates of similar advances with similar maturities. Such rates were obtained from current rates offered by FHLB. The estimated fair value of callable FHLB advances was obtained from FHLB and the model was reviewed by the Company, including discussions with FHLB. Securities sold under agreements to repurchase (“repurchase agreements”) 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. The market rates used were averages of currently traded trust preferred securities with similar characteristics to the Company’s issuances and obtained from an independent third party. Accrued interest payable: fair value is estimated at book value. 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 an insignificant amount of off-balance sheet financial instruments. The following schedules present the carrying amounts, estimated fair values and the level within the fair value hierarchy of the Company’s financial instruments:
|  |  | Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands) | Carrying Amount September 30, 2013 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Financial assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 254,684 |  |  | 254,684 |  |  | — |  |  | — |
Investment securities, available-for-sale | 3,318,953 |  |  | — |  |  | 3,318,953 |  |  | — |
Loans held for sale | 61,505 |  |  | 61,505 |  |  | — |  |  | — |
Loans receivable, net of ALLL | 3,870,334 |  |  | — |  |  | 3,758,724 |  |  | 194,190 |
Accrued interest receivable | 44,261 |  |  | 44,261 |  |  | — |  |  | — |
Non-marketable equity securities | 52,192 |  |  | — |  |  | 52,192 |  |  | — |
Total financial assets | $ | 7,601,929 |  |  | 360,450 |  |  | 7,129,869 |  |  | 194,190 |
Financial liabilities |  |  |  |  |  |  |
Deposits | $ | 5,612,880 |  |  | 4,153,782 |  |  | 1,486,996 |  |  | — |
FHLB advances | 967,382 |  |  | — |  |  | 986,292 |  |  | — |
Repurchase agreements and other borrowed funds | 322,779 |  |  | — |  |  | 322,779 |  |  | — |
Subordinated debentures | 125,526 |  |  | — |  |  | 72,554 |  |  | — |
Accrued interest payable | 3,568 |  |  | 3,568 |  |  | — |  |  | — |
Interest rate swaps | 2,004 |  |  | — |  |  | 2,004 |  |  | — |
Total financial liabilities | $ | 7,034,139 |  |  | 4,157,350 |  |  | 2,870,625 |  |  | — |
|  |  | Fair Value Measurements At the End of the Reporting Period Using
(Dollars in thousands) | Carrying Amount December 31, 2012 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Financial assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 187,040 |  |  | 187,040 |  |  | — |  |  | — |
Investment securities, available-for-sale | 3,683,005 |  |  | — |  |  | 3,683,005 |  |  | — |
Loans held for sale | 145,501 |  |  | 145,501 |  |  | — |  |  | — |
Loans receivable, net of ALLL | 3,266,571 |  |  | — |  |  | 3,184,987 |  |  | 186,201 |
Accrued interest receivable | 37,770 |  |  | 37,770 |  |  | — |  |  | — |
Non-marketable equity securities | 48,812 |  |  | — |  |  | 48,812 |  |  | — |
Total financial assets | $ | 7,368,699 |  |  | 370,311 |  |  | 6,916,804 |  |  | 186,201 |
Financial liabilities |  |  |  |  |  |  |
Deposits | $ | 5,364,461 |  |  | 3,585,126 |  |  | 1,789,134 |  |  | — |
FHLB advances | 997,013 |  |  | — |  |  | 1,027,101 |  |  | — |
Repurchase agreements and other borrowed funds | 299,540 |  |  | — |  |  | 299,540 |  |  | — |
Subordinated debentures | 125,418 |  |  | — |  |  | 70,895 |  |  | — |
Accrued interest payable | 4,675 |  |  | 4,675 |  |  | — |  |  | — |
Interest rate swaps | 16,832 |  |  | — |  |  | 16,832 |  |  | — |
Total financial liabilities | $ | 6,807,939 |  |  | 3,589,801 |  |  | 3,203,502 |  |  | — |

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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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