Disclosures Regarding Fair Value

12 Months Ended

Dec. 31, 2011

Disclosures Regarding Fair Value [Abstract]

Disclosures Regarding Fair Value

20. Disclosures Regarding Fair Value

Valuation Methodologies

Following is a description of the valuation methodologies used for fair value measurements.

Investment securities available for sale.    Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange or NASDAQ, as well as securities that are traded by dealers or brokers in active over-the-counter markets. Instruments classified as Level 1 are instruments that have been priced directly from dealer trading desks and represent actual prices at which such securities have traded within active markets. Level 2 securities are valued based on pricing models that use relevant observable information generated by transactions that have occurred in the market place that involve similar securities. Level 3 securities include asset-backed securities in less liquid markets.

Mortgage loans held for sale.    Mortgage loans held for sale are carried at the lower of cost or fair value. The fair value of mortgage loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies these loans subjected to nonrecurring fair value adjustments as Level 2.

Commercial loans held for sale.    Loans held for sale are measured at the lower of cost or fair value. Commercial loans held for sale for which binding sales contracts have been entered into as of the balance sheet date are considered Level 1 instruments. Collateral dependent commercial loans held for sale are valued based on independent collateral appraisals less estimated selling costs and are generally classified as Level 2 assets. If quoted market prices, binding sales contracts or appraised collateral values are not available, the Company considers discounted cash flow analyses with market assumptions and classifies such loans as Level 3 instruments.

Impaired loans.    Impaired loans are recorded at fair value less estimated selling costs. Once a loan is identified as individually impaired, the Company measures impairment. The fair value of impaired loans is estimated using one of several methods, including collateral value and discounted cash flows and, in rare cases, the market value of the note. Those impaired loans not requiring an allowance represent loans for which the net present value of the expected cash flows or fair value of the collateral less costs to sell exceed the recorded investments in such loans. At December 31, 2011 and 2010, a majority of the total impaired loans were evaluated based on the fair value of the collateral. When the fair value of the collateral is based on an executed sales contract with an independent third party, the Company records the impaired loan as nonrecurring Level 1. If the collateral is based on another observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or the Company determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loan's effective interest rate. The measurement of impaired loans using future cash flows discounted at the loan's effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from fair value disclosure requirements. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.

Foreclosed real estate and repossessed personal property.    Foreclosed real estate and repossessed personal property is carried at the lower of carrying value or fair value less estimated selling costs. Fair value is generally based upon current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for selling costs. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the asset as nonrecurring Level 2. However, the Company also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals such as changes in absorption rates or market conditions from the time of valuation. In situations where management adjustments are significant to the fair value measurement in its entirety, such measurements are classified as Level 3 within the valuation hierarchy.

Derivative financial instruments.    Currently, the Company enters into loan commitments and forward sales commitments. The valuation of these instruments is computed using internal valuation models utilizing observable market-based inputs. As such, derivative financial instruments subjected to recurring fair value adjustments are classified as Level 2.

Long-lived assets held for sale.    Nonrecurring fair value adjustments on long-lived assets held for sale reflect impairment writedowns. Appraisals are used to determine impairment, and these appraisals may require significant adjustments to market-based valuation inputs. As a result, the assets subjected to nonrecurring fair value adjustments are typically classified as Level 3 due to the fact that Level 3 inputs are significant to the fair value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes assets and liabilities measured at fair value on a recurring basis at the dates indicated, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
State and municipal	$	—	$	120,965	$	—	$	120,965
Collateralized mortgage obligations		—		118,949		—		118,949
Other mortgage-backed (federal agencies)		—		21,078		—		21,078
Derivative financial instruments		—		481		—		481
Total assets measured at fair value on a recurring basis	$	—	$	261,473	$	—	$	261,473
Liabilities
Derivative financial instruments	$	—	$	25	$	—	$	25

	December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
U.S. Treasury and federal agencies	$	—	$	37,426	$	—	$	37,426
State and municipal		7,530		44,932		—		52,462
Collateralized mortgage obligations		25,992		82,179		—		108,171
Other mortgage-backed (federal agencies)		—		20,716		—		20,716
Derivative financial instruments		—		278		—		278
Total assets measured at fair value on a recurring basis	$	33,522	$	185,531	$	—	$	219,053
Liabilities
Derivative financial instruments	$	—	$	136	$	—	$	136

For additional disclosure regarding the fair value of defined benefit pension plan assets, see Note 15, Benefit Plans.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

For financial assets measured at fair value on a nonrecurring basis that were reflected in the Consolidated Balance Sheets, the following tables summarize the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets as of the periods indicated (in thousands).

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held for sale	$	—	$	3,648	$	—	$	3,648
Commercial loans held for sale		—		12,857		1,321		14,178
Impaired loans in gross loans		—		36,314		7,111		43,425
Foreclosed real estate and repossessed personal property		3,491		2,266		22,067		27,824
Long-lived assets held for sale		—		—		1,603		1,603
Total assets measured at fair value on a nonrecurring basis	$	3,491	$	55,085	$	32,102	$	90,678

	December 31, 2010
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held for sale	$	—	$	4,793	$	—	$	4,793
Commercial loans held for sale		1,303		21,231		43,623		66,157
Impaired loans in gross loans		—		49,083		6,649		55,732
Foreclosed real estate and repossessed personal property		5,999		13,939		149		20,087
Long-lived assets held for sale		—		—		235		235
Total assets measured at fair value on a nonrecurring basis	$	7,302	$	89,046	$	50,656	$	147,004

Carrying Amounts and Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value

For assets and liabilities that are not presented on the Consolidated Balance Sheets at fair value, the Company uses several different valuation methodologies as outlined below.

For financial instruments that have quoted market prices, those quotes are used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, are assumed to have a fair value that approximates reported book value. If no market quotes are available, financial instruments are valued by discounting the expected cash flows using an estimated current market interest rate for the financial instrument.

Certain of the Company's assets and liabilities are financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following Consolidated Balance Sheet captions: cash and cash equivalents, retail repurchase agreements, commercial paper, and other short-term borrowings.

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 the premium or discount on any particular financial instrument that could result from the sale of the Company's entire holdings. Because no ready market exists for a significant portion of its financial instruments, fair value estimates are based on many judgments. 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 impact the estimates.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not financial instruments. Significant assets and liabilities that are not financial instruments include those resulting from the Company's mortgage-banking operations, the value of the long-term relationships with the Company's deposit clients, deferred income taxes, and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant impact on fair value estimates and have not been considered in the estimates.

Commitments to extend credit are primarily short-term and are generally at variable market rates. Commitments to extend credit may be terminated by the Company based on material adverse change clauses. Standby letters of credit are generally short-term and have no associated rate unless funding occurs. As such, commitments to extend credit and standby letters of credit are deemed to have no material fair value.

The following table summarizes the carrying amount and fair values for other financial instruments included in the Consolidated Balance Sheets at the dates indicated (in thousands). The Company has used management's best estimate of fair value based on those methodologies. Thus, the fair values presented may not be the amounts which could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses, which would be incurred in an actual sale or settlement, are not taken into consideration in the fair values presented.

	December 31, 2011				December 31, 2010
	Carrying amount		Fair value		Carrying amount		Fair value
Assets
Loans (1)	$	704,537	$	715,288	$	710,760	$	703,856
Total assets	$	704,537	$	715,288	$	710,760	$	703,856
Liabilities
Deposits	$	1,064,181	$	1,069,792	$	1,173,362	$	1,178,905
FHLB advances		—		—		35,000		35,224
Total liabilities	$	1,064,181	$	1,069,792	$	1,208,362	$	1,214,129

(1) Includes Loans, net less impaired loans valued based on the fair value of underlying collateral.