v2.4.0.6
FAIR VALUE OF ASSETS AND LIABILITIES
 12 Months Ended
Dec. 31, 2011
FAIR VALUE OF ASSETS AND LIABILITIES [Abstract]  
FAIR VALUE OF ASSETS AND LIABILITIES
 
25.
FAIR VALUE OF ASSETS AND LIABILITIES

Disclosures about Fair Value of Financial Instruments

Fair value estimates, methods and assumptions are set forth below for our financial instruments.

Short-Term Financial Instruments

The carrying values of short-term financial instruments are deemed to approximate fair values. Such instruments are considered readily convertible to cash and include cash and due from banks, interest-bearing deposits in other banks, accrued interest receivable, the majority of short-term borrowings and accrued interest payable.

Investment Securities

The fair value of investment securities is based on market price quotations received from securities dealers. Where quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Loans

Fair values of loans are estimated based on discounted cash flows of portfolios of loans with similar financial characteristics including the type of loan, interest terms and repayment history. Fair values are calculated by discounting scheduled cash flows through estimated maturities using estimated market discount rates. Estimated market discount rates are reflective of credit and interest rate risks inherent in the Company's various loan types and are derived from available market information, as well as specific borrower information.

Deposit Liabilities

The fair values of deposits with no stated maturity, such as noninterest-bearing demand deposits and interest-bearing demand and savings accounts, are equal to the amount payable on demand. The fair value of time deposits is estimated using discounted cash flow analyses. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Short-Term Borrowings and Long-Term Debt

The fair value for a portion of our short-term borrowings is estimated by discounting scheduled cash flows using rates currently offered for securities of similar remaining maturities. The fair value of our long-term debt, primarily FHLB advances, is estimated by discounting scheduled cash flows over the contractual borrowing period at the estimated market rate for similar borrowing arrangements.
 
Off-Balance Sheet Financial Instruments

The fair values of off-balance sheet financial instruments are estimated based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties, current settlement values or quoted market prices of comparable instruments.
 
For derivative financial instruments, the fair values are based upon current settlement values, if available. If there are no relevant comparables, fair values are based on pricing models using current assumptions for interest rate swaps and options.

Limitations

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our 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.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of future business and the value of assets and liabilities that are not considered financial instruments. For example, significant assets and liabilities that are not considered financial assets or liabilities include deferred tax assets, premises and equipment and intangible assets. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.

 
December 31, 2011
  
December 31, 2010
 
 
Carrying/
     
Carrying/
    
 
notional
  
Estimated
  
notional
  
Estimated
 
 
amount
  
fair value
  
amount
  
fair value
 
 
(Dollars in thousands)
 
Financial assets
           
   Cash and due from banks
$76,233  $76,233  $61,725  $61,725 
   Interest-bearing deposits in other banks
 180,839   180,839   729,014   729,014 
   Investment securities
 1,493,925   1,493,970   705,345   705,430 
   Net loans and leases, including loans held for sale
 1,992,644   1,908,557   2,046,338   1,985,261 
   Accrued interest receivable
 11,674   11,674   11,279   11,279 
                 
Financial liabilities
               
   Deposits:
               
      Noninterest-bearing deposits
 729,149   729,149   611,744   611,744 
      Interest-bearing demand and savings deposits
 1,705,551   1,705,551   1,729,361   1,729,361 
      Time deposits
 1,008,828   1,012,121   791,842   793,333 
      Total deposits
 3,443,528   3,446,821   3,132,947   3,134,438 
   Short-term borrowings
 34   34   202,480   202,351 
   Long-term debt
 158,298   89,646   459,803   407,175 
   Accrued interest payable (included in other liabilities)
 10,019   10,019   9,528   9,528 
                 
Off-balance sheet financial instruments
               
   Commitments to extend credit
 451,378   2,257   415,005   2,075 
   Standby letters of credit and financial guarantees written
 13,159   99   11,056   83 
   Interest rate options
 68,979   515   63,994   (170)
   Forward interest rate contracts
 33,776   (413)  40,658   682 
   Forward foreign exchange contracts
 547   547   1,889   1,891 
 
Fair Value Measurements

We group our financial assets and liabilities at fair value into three levels based on the markets in which the financial assets and liabilities are traded and the reliability of the assumptions used to determine fair value as follows:
 
·  
Level 1 – Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities traded in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

·  
Level 2 – Valuation is based upon 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 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of discounted cash flow models and similar techniques that requires the use of significant judgment or estimation.

We base our fair values on the price that we would expect to receive if an asset were sold or pay to transfer a liability in an orderly transaction between market participants at the measurement date. We also maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements.

We use fair value measurements to record adjustments to certain financial assets and liabilities and to determine fair value disclosures. Available for sale securities and derivatives are recorded at fair value on a recurring basis. From time to time, we may be required to record other financial assets at fair value on a nonrecurring basis such as loans held for sale, impaired loans and mortgage servicing rights. These nonrecurring fair value adjustments typically involve application of the lower of cost or fair value accounting or write-downs of individual assets.

The following table below presents the balances of assets and liabilities measured at fair value on a recurring basis:
 
     
Fair Value at Reporting Date Using
 
Fair
  
Quoted Prices in Active Markets for Identical Assets
  
Significant Other Observable Inputs
  
Significant
Unobservable
Inputs
 
Value
  
(Level 1)
  
(Level 2)
  
(Level 3)
 
(Dollars in thousands)
December 31, 2011
          
Available for sale securities:
          
  U.S. Government sponsored entities debt securities
$373,177  $-  $373,177  $-
  States and political subdivisions
 12,994   -   -   12,994
  U.S. Government sponsored entities mortgage-backed securities
 1,097,302   -   1,097,302   -
  Corporate
 8,551   -   8,551   -
  Other
 970   970   -   -
Derivatives:
              
  Interest rate contracts
 102   -   102   -
  Amended TARP warrant
 (677)  -   (677)  -
   Total
$1,492,419  $970  $1,478,455  $12,994
                
December 31, 2010
              
Available for sale securities:
              
  U.S. Government sponsored entities debt securities
$201,855  $-  $201,855  $-
  States and political subdivisions
 12,619   -   -   12,619
  U.S. Government sponsored entities mortgage-backed securities
 486,964   -   486,964   -
  Non-agency collateralized mortgage obligations
 17   -   -   17
  Other
 1,062   1,062   -   -
Derivatives:
              
  Interest rate contracts
 512   -   512   -
   Total
$703,029  $1,062  $689,331  $12,636
 
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:
 
 
Available for sale
securities
  
Available for sale non-
agency collateralized
mortgage obligations (1)
 
 
(Dollars in thousands)
 
       
Balance at December 31, 2009
$13,778  $46,469 
   Principal payments received
 (1,159)  (1,052)
   Realized net losses included in net loss
 -   (7,275)
   Unrealized net loss included in other comprehensive loss
 -   6,222 
   Purchases, sales, issuances and settlements, net
 -   (44,347)
Balance at December 31, 2010
$12,619  $17 
   Principal payments received
 (354)  (17)
   Unrealized net gain included in other comprehensive income
 729   - 
Balance at December 31, 2011
$12,994  $- 
         
(1) Represents non-agency collateralized mortgage obligations previously classified as Level 2 for which the
 
market became inactive during 2008; therefore the fair value measurement was derived from discounted cash
 
flow models using unobservable inputs and assumptions.
       
 
For assets measured at fair value on a nonrecurring basis that were recorded at fair value on our balance sheet, the following table provides the level of valuation assumptions used to determine the respective fair values:
 
     
Fair Value Measurements Using
   
  Fair  
Quoted Prices in Active Markets for Identical Assets
  
Significant Other Observable Inputs
  
Significant
Unobservable
Inputs
  
Total
 
Value
  
(Level 1)
  
(Level 2)
  
(Level 3)
  
Losses
  (Dollars in thousands)
December 31, 2011
             
Loans held for sale (1)
$12,414  $-  $12,414  $-  $4,624
Impaired loans (1)
 131,836   -   131,836   -   36,566
Other real estate (2)
 61,681   -   61,681   -   6,670
                  $47,860
December 31, 2010
                  
Loans held for sale (1)
$35,300  $-  $35,300  $-  $1,460
Impaired loans (1)
 205,509   -   205,509   -   150,503
Goodwill (3)
 -   -   -   -   102,689
Other real estate (2)
 57,507   -   57,507   -   7,256
                  $261,908
(1) Represents carrying value and related write-downs of loans for which adjustments are based on agreed upon
purchase prices for the loans or the appraised value of the collateral.
  
                    
(2) Represents other real estate that is carried at the lower of carrying value or fair value less costs to sell.
Fair value is generally based upon independent market prices or appraised values of the collateral.
                    
(3) Represents carrying value subsequent to write-downs for impairment.