Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 8. Fair Value Measurements

FASB ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For the Company, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. However, many of such instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. Also, it is the Company’s general practice and intent to hold its financial instruments to maturity whether or not categorized as “available-for-sale” and not to engage in trading or sales activities, except for certain loans. For fair value disclosure purposes, the Company utilized certain value measurement criteria required under the FASB ASC Topic 820, Fair Value Measurements and Disclosures, and discussed below.

Estimated fair values have been determined by the Company using the best available data and an estimation methodology it believes to be suitable for each category of financial instruments. Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.

Cash and cash equivalents, which are comprised of cash and due from banks, our balance at the Federal Reserve Bank and securities purchased under agreements to resell, had recorded values of $730.5million and $968.1 million as of September 30, 2013 and December 31, 2012, respectively, which approximated fair values. 

The estimated fair values of investment securities are based on quoted market prices, if available, or estimated using a methodology based on management’s inputs. The fair values of the Company’s investment securities held-to-maturity and loans held for sale are based on using “unobservable inputs” that are the best information available in the circumstances.

The net loan portfolio at September 30, 2013 and December 31, 2012 has been valued using the present value of discounted cash flow where market prices were not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. The carrying value of accrued interest receivable approximates fair value.

The estimated fair values of demand deposits (i.e. interest-and noninterest-bearing checking accounts, savings, and certain types of demand and money market accounts) are equal to the amount payable on demand at the reporting date (i.e. their carrying amounts). The fair values of securities sold under agreements to repurchase and short term borrowings are equal to their carrying amounts as they are overnight borrowings.

The fair values of certificates of deposit and subordinated debentures are estimated using a discounted cash flow calculation that applies current interest rates to discounted expected cash flows. Based upon time deposit maturities at September 30, 2013, the carrying values approximate their fair values. The carrying amount of accrued interest payable approximates its fair value (in thousands).

	September 30, 2013
			Quoted prices in	Significant other	Significant
			active markets for	observable	unobservable
	Carrying	Estimated	identical assets	inputs	inputs
	amount	fair value	(Level 1)	(Level 2)	(Level 3)
	(in thousands)
Cash and cash equivalents	$               730,455	$                730,455	$                        730,455	$                            -	$                           -
Investment securities available-for-sale	1,083,154	1,083,154	-	1,082,588	566
Investment securities held-to-maturity	97,459	94,806	-	-	94,806
Federal Home Loan and Atlantic Central Bankers Bank stock	3,209	3,209	3,209	-	-
Commercial loans held for sale	25,557	25,557	-	-	25,557
Loans, net	1,991,455	1,991,080	-	-	1,991,080
Demand and interest checking	3,050,167	3,050,167	3,050,167	-	-
Savings and money market	504,447	504,447	504,447	-	-
Time deposits	14,603	14,550	-	-	14,550
Subordinated debenture	13,401	7,934	-	-	7,934
Securities sold under agreements to repurchase	22,057	22,057	22,057	-	-
Interest rate swaps	(351)	(351)	-	(351)	-
Accrued interest payable	73	73	73	-	-

	December 31, 2012
			Quoted prices in	Significant other	Significant
			active markets for	observable	unobservable
	Carrying	Estimated	identical assets	inputs	inputs
	amount	fair value	(Level 1)	(Level 2)	(Level 3)
	(in thousands)
Cash and cash equivalents	$               968,092	$                968,092	$                        968,092	$                            -	$                           -
Investment securities available-for-sale	718,065	718,065	-	717,468	597
Investment securities held-to-maturity	45,179	41,008	-	-	41,008
Federal Home Loan and Atlantic Central Bankers Bank stock	3,621	3,621	3,621	-	-
Commercial loans held for sale	11,341	11,341	-	-	11,341
Loans, net	1,902,854	1,900,191	-	-	1,900,191
Demand and interest checking	2,775,207	2,775,207	2,775,207	-	-
Savings and money market	517,098	517,098	517,098	-	-
Time deposits	20,916	20,985	-	-	20,985
Subordinated debentures	13,401	9,287	-	-	9,287
Securities sold under agreements to repurchase	18,548	18,548	18,548	-	-
Interest rate swaps	45	45	-	45	-
Accrued interest payable	103	103	103	-	-

The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments, including commitments to extend credit, and the fair value of letters of credit are considered immaterial.

		Fair Value Measurements at Reporting Date Using
		Quoted prices in active	Significant other	Significant
		markets for identical	observable	unobservable
	Fair value	assets	inputs	inputs
	September 30, 2013	(Level 1)	(Level 2)	(Level 3)
Assets
Investment securities available for sale:
U.S. Government agency securities	$                           14,367	$                                      -	$                             14,367	$                                      -
Federally insured student loan securities	149,036	-	149,036	-
Obligations of states and political subdivisions	432,686	-	432,686	-
Residential mortgage-backed securities	229,502	-	229,502	-
Commercial mortgage-backed securities	96,710	-	96,710	-
Other debt securities	160,853	-	160,287	566
Total investment securities available for sale	1,083,154	-	1,082,588	566
Loans:
Loans held for sale	25,557	-	-	25,557
Total assets	1,108,711	-	1,082,588	26,123
Liabilities
Other liabilities:
Derivative instrument -interest rate swaps	351	-	351	-
Total liabilities	$                                351	$                                      -	$                                  351	$                                      -

		Fair Value Measurements at Reporting Date Using
		Quoted prices in active	Significant other	Significant
		markets for identical	observable	unobservable
	Fair value	assets	inputs	inputs
	December 31, 2012	(Level 1)	(Level 2)	(Level 3)
Assets
Investment securities available for sale
U.S. Government agency securities	$                             7,500	$                                      -	$                               7,500	$                                      -
Federally insured student loan securities	143,770	-	143,770	-
Obligations of states and political subdivisions	159,093	-	159,093	-
Residential mortgage-backed securities	277,807	-	277,807	-
Commercial mortgage-backed securities	97,031	-	97,031	-
Other debt securities	32,864	-	32,267	597
Total investment securities available for sale	718,065	-	717,468	597
Loans:
Loans held for sale	11,341	-	-	11,341
Other assets:
Derivative instrument -interest rate swaps	45	-	45	-
Total assets	$                         729,451	$                                      -	$                           717,513	$                             11,938

In addition, FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a common definition for fair value to be applied to assets and liabilities. It clarifies that fair value is an exit price, representing the amount 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. It also establishes a framework for measuring fair value and expands disclosures concerning fair value measurements. FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 1 valuation is based on quoted market prices for identical assets or liabilities to which the Company has access at the measurement date. Level 2 valuation is based on other observable inputs for the asset or liability, either directly or indirectly. This includes quoted prices for similar assets in active or inactive markets, inputs other than quoted prices that are observable for the asset or liability such as yield curves, volatilities, prepayment speeds, credit risks, default rates, or inputs that are derived principally from, or corroborated through, observable market data by market-corroborated reports. Level 3 valuation is based on “unobservable inputs” which the Company believes is the best information available in the circumstances. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The changes in the Company’s Level 3 assets measured at fair value on a recurring basis, segregated by fair value hierarchy level, are summarized below (in thousands):

	Fair Value Measurements Using
	Significant Unobservable Inputs
	(Level 3)
	Available-for-sale		Held-for-sale
	securities		loans
	September 30, 2013	December 31, 2012	September 30, 2013	December 31, 2012
Beginning balance	$                               597	$                                   630	$                              11,341	$                                       -
Transfers into level 3	-	-	27,316	-
Transfers out of level 3	-	-	-	-
Total gains or losses (realized/unrealized)
Included in earnings	(1)	(2)	1,028	376
Included in other comprehensive income	26	20	-	-
Purchases, issuances, and settlements
Purchases	-	-		-
Issuances	-	-	189,327	28,876
Sales	-	-	(203,455)	(17,911)
Settlements	(56)	(51)	-	-
Ending balance	$                               566	$                                   597	$                              25,557	$                              11,341

The other debt securities included in level 3 at September 30, 2013 and December 31, 2012 have been valued on the present value of cash flows, which discounts expected cash flows from principal and interest using yield to maturity at the measurement date. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk.

Assets measured at fair value on a nonrecurring basis, segregated by fair value hierarchy, during the periods shown are summarized below (in thousands):

		Fair Value Measurements at Reporting Date Using
		Quoted prices in active	Significant other	Significant
		markets for identical	observable	unobservable
	Fair value	assets	inputs	inputs
Description	September 30, 2013	(Level 1)	(Level 2)	(Level 3)
Impaired loans	$                           48,750	$                                      -	$                                      -	$                             48,750
Other real estate owned	20,111	-	-	20,111
Intangible assets	6,253			6,253
	$                           75,114	$                                      -	$                                      -	$                             75,114

		Fair Value Measurements at Reporting Date Using
		Quoted prices in active	Significant other	Significant
		markets for identical	observable	unobservable
	Fair value	assets	inputs	inputs
Description	December 31, 2012	(Level 1)	(Level 2)	(Level 3)
Impaired loans	$                           25,841	$                                      -	$                                      -	$                             25,841
Other real estate owned	4,241	-	-	4,241
Intangible assets	7,004	-	-	7,004
	$                           37,086	$                                      -	$                                      -	$                             37,086

At September 30, 2013, impaired loans that are measured based on the value of underlying collateral have been presented at their fair value, less costs to sell, of $48.8 million through specific reserves and other write downs of $12.6 million or by recording charge-offs when the carrying value exceeds the fair value. Included in the impaired balance at September 30, 2013 were troubled debt restructured loans with a balance of $3.8 million which have specific reserves of $1.2 million.  Valuation techniques consistent with the market and/or cost approach were used to measure fair value and primarily included observable inputs for the individual impaired loans being evaluated such as recent sales of similar assets or observable market data for operational or carrying costs. In cases where such inputs were unobservable, the loan balance is reflected within the Level 3 hierarchy. The fair value of other real estate owned is based on an appraisal of the property using the market approach for valuation.