Fair Value Information

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Information

8. FAIR VALUE INFORMATION

Fair Value Hierarchy

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The following disclosure provides the fair value information for financial assets and liabilities as of March 31, 2013. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (Level 1, Level 2, and Level 3).

• Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

• 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 the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flows and similar techniques.

There were no transfers in and out of Level 1 and Level 2 measurement during the three months ended March 31, 2013 and 2012.

Determination of Fair Value

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not recorded at fair value.

Cash and Cash Equivalents — The carrying amount of cash and cash equivalents is considered to approximate fair value due to the liquidity of these instruments.

Interest-Bearing Balances Due from Depository Institutions — The carrying value of due from depository institutions is considered to approximate fair value due to the short-term nature of these deposits.

FHLB Stock — The carrying amount of FHLB stock approximates fair value, as the stock may be sold back to the FHLB at carrying value.

Investment Securities Held–to- Maturity — Investment securities held-to-maturity are valued based upon quotes obtained from an independent third-party pricing service. The Company categorized its held-to-maturity investment as a level 3 valuation.

Investment Securities Available-for-Sale — Investment securities available-for-sale are generally valued based upon quotes obtained from an independent third-party pricing service. This service uses evaluated pricing applications and model processes. Observable market inputs, such as, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data are considered as part of the evaluation. The inputs are related directly to the security being evaluated, or indirectly to a similarly situated security. Market assumptions and market data are utilized in the valuation models. The Company reviews the market prices provided by the third-party pricing service for reasonableness based on the Company’s understanding of the market place and credit issues related to the securities. The Company has not made any adjustments to the market quotes provided by them and accordingly, the Company categorized its investment portfolio within Level 2 of the fair value hierarchy.

Non-Covered Loans — The carrying amount of loans and lease finance receivables is their contractual amounts outstanding, reduced by deferred net loan origination fees and the allocable portion of the allowance for credit losses.

The fair value of loans, other than loans on nonaccrual status, was estimated by discounting the remaining contractual cash flows using the estimated current rate at which similar loans would be made to borrowers with similar credit risk characteristics and for the same remaining maturities, reduced by deferred net loan origination fees and the allocable portion of the allowance for credit losses. Accordingly, in determining the estimated current rate for discounting purposes, no adjustment has been made for any change in borrowers’ credit risks since the origination of such loans. Rather, the allocable portion of the allowance for credit losses is considered to provide for such changes in estimating fair value. As a result, this fair value is not necessarily the value which would be derived using an exit price. These loans are included within Level 3 of the fair value hierarchy.

Non-covered impaired loans and OREO are generally measured using the fair value of the underlying collateral, which is determined based on the most recent appraisal information received, less costs to sell (approximately 8%). Appraised values may be adjusted based on factors such as the changes in market conditions from the time of valuation or discounted cash flows of the property. As such, these loans and OREO fall within Level 3 of the fair value hierarchy.

The majority of our commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the borrower or us, they only have value to the borrower and us. The estimated fair value approximates the recorded deferred fee amounts and is excluded from the following table because it is not material.

Covered Loans — Covered loans were measured at fair value on the date of acquisition. Thereafter, covered loans are not measured at fair value on a recurring basis. The above valuation discussion for non-covered loans is applicable to covered loans following their acquisition date.

Swaps — The fair value of the interest rate swap contracts are provided by our counterparty using a system that constructs a yield curve based on cash LIBOR rates, Eurodollar futures contracts, and 3-year through 30-year swap rates. The yield curve determines the valuations of the interest rate swaps. Accordingly, the swap is categorized as a Level 2 valuation.

Deposits & Borrowings — The amounts payable to depositors for demand, savings, and money market accounts, and short-term borrowings are considered to approximate fair value. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value of long-term borrowings and junior subordinated debentures is estimated using the rates currently offered for borrowings of similar remaining maturities. Interest-bearing deposits and borrowings are included within Level 2 of the fair value hierarchy.

Accrued Interest Receivable/Payable — The amounts of accrued interest receivable on loans and lease finance receivables and investments and accrued interest payable on deposits and borrowings are considered to approximate fair value and are included within Level 2 of the fair value hierarchy.

The tables below presents the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012.

Assets and Liabilities Measured at Fair Value on a Recurring Basis
	Carrying Value at March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Government agency	$	390,638	$	—	$	390,638	$	—
Residential mortgage-backed securities		892,637		—		892,637		—
CMO’s / REMIC’s - residential		477,577		—		477,577		—
Municipal bonds		624,799		—		624,799		—
Other securities		5,022				5,022
Total investment securities - AFS		2,390,673		—		2,390,673		—
Interest rate swaps		21,358		—		21,358		—
Total assets	$	2,412,031	$	—	$	2,412,031	$	—
Description of liability
Interest rate swaps	$	21,358	$	—	$	21,358	$	—
Total liabilities	$	21,358	$	—	$	21,358	$	—

	Carrying Value at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Government agency	$	359,300	$	—	$	359,300	$	—
Residential mortgage-backed securities		887,598		—		887,598		—
CMO’s / REMIC’s - residential		571,960		—		571,960		—
Municipal bonds		625,429		—		625,429		—
Other securities		5,100				5,100
Total investment securities - AFS		2,449,387		—		2,449,387		—
Interest rate swaps		23,966		—		23,966		—
Total assets	$	2,473,353	$	—	$	2,473,353	$	—
Description of liability
Interest rate swaps	$	23,966	$	—	$	23,966	$	—
Total liabilities	$	23,966	$	—	$	23,966	$	—

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We may be required to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at fair value on a non-recurring basis that were still held on the balance sheet at March 31, 2013 and December 31, 2012, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets for investments with losses during the period.

	Carrying Value at March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses for the Three Months Ended March 31, 2013
	(Dollars in thousands)
Description of assets
Impaired loans-non-covered	$	4,169	$	—	$	—	$	4,169	$	(2,164	)
OREO-non-covered		828		—		—		828		(73	)
OREO-covered		—		—		—		—		—
Total assets	$	4,997	$	—	$	—	$	4,997	$	(2,237	)

	Carrying Value at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses for the Year Ended December 31, 2012
	(Dollars in thousands)
Description of assets
Impaired loans-non-covered	$	12,460	$	—	$	—	$	12,460	$	(3,930	)
OREO-non-covered		3,008		—		—		3,008		(336	)
OREO-covered		1,067		—		—		1,067		(467	)
Total assets	$	16,535	$	—	$	—	$	16,535	$	(4,733	)

Fair Value of Financial Instruments

The following disclosure presents estimated fair value of financial instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company could have realized in a current market exchange as of March 31, 2013 and December 31, 2012, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

	March 31, 2013
			Estimated Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and cash equivalents	$	135,278	$	135,278	$	—	$	—	$	135,278
Interest-earning balances due from depository institutions		70,000		—		70,000		—		70,000
FHLB stock		50,981		—		50,981		—		50,981
Investment securities available-for-sale		2,390,673		—		2,390,673		—		2,390,673
Investment securities held-to-maturity		1,975		—		—		2,425		2,425
Total loans, net of allowance for credit losses		3,275,990		—		—		3,394,235		3,394,235
Accrued interest receivable		22,985		—		22,985		—		22,985
Swaps		21,358		—		21,358		—		21,358
Liabilities
Deposits:
Noninterest-bearing	$	2,366,719	$	2,366,719	$	—	$	—	$	2,366,719
Interest-bearing		2,319,442		—		2,320,514		—		2,320,514
Borrowings		699,117		—		727,065		—		727,065
Junior subordinated debentures		46,393		—		46,649		—		46,649
Accrued interest payable		1,306		—		1,306		—		1,306
Swaps		21,358		—		21,358		—		21,358

	December 31, 2012
			Estimated Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and cash equivalents	$	98,431	$	98,431	$	—	$	—	$	98,431
Interest-earning balances due from depository institutions		70,000		—		70,000		—		70,000
FHLB stock		56,651		—		56,651		—		56,651
Investment securities available-for-sale		2,449,387		—		2,449,387		—		2,449,387
Investment securities held-to-maturity		2,050		—		—		2,515		2,515
Total loans, net of allowance for credit losses		3,355,087		—		—		3,503,332		3,503,332
Accrued interest receivable		22,355		—		22,355		—		22,355
Swaps		23,966		—		23,966		—		23,966
Liabilities
Deposits:
Noninterest-bearing	$	2,420,993	$	2,420,993	$	—	$	—	$	2,420,993
Interest-bearing		2,352,994		—		2,354,126		—		2,354,126
Borrowings		698,178		—		727,512		—		727,512
Junior subordinated debentures		67,012		—		67,415		—		67,415
Accrued interest payable		1,493		—		1,493		—		1,493
Swaps		23,966		—		23,966		—		23,966

The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2013 and December 31, 2012. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented above.