Estimated Fair Values

9 Months Ended

Sep. 30, 2011

Estimated Fair Values [Abstract]

Estimated Fair Values

Estimated Fair Values

Fair value estimates are made at a specific point in time based on relevant market information and information about each financial instrument. Where information regarding the fair value of a financial instrument is publicly available, those values are used, as is the case with investment securities, residential mortgage loans and certain long-term obligations. In these cases, an open market exists in which those financial instruments are actively traded.

Because no market exists for many 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. For financial instruments with a fixed interest rate, an analysis of the related cash flows is the basis for estimating fair values. The expected cash flows are discounted to the valuation date using an appropriate discount rate. The discount rates used represent the rates under which similar transactions would be currently negotiated. For financial instruments with fixed and variable rates, fair value estimates also consider the impact of liquidity discounts appropriate as of the measurement date.

Estimated fair values for certain financial assets and financial liabilities are provided in the following table:

	September 30, 2011				December 31, 2010				September 30, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and due from banks	$	539,337	$	539,337	$	460,178	$	460,178	$	493,786	$	493,786
Overnight investments	410,002		410,002		398,390		398,390		1,049,158		1,049,158
Investment securities available for sale	3,994,825		3,994,825		4,510,076		4,510,076		3,786,841		3,786,841
Investment securities held to maturity	1,943		2,108		2,532		2,741		2,645		2,864
Loans held for sale	78,178		78,178		88,933		88,933		79,853		79,853
Loans covered by loss share agreements, net of allowance for loan and lease losses	2,482,400		2,469,613		1,956,205		1,946,423		2,178,821		2,150,909
Loans and leases not covered by loss share agreements, net of allowance for loan and lease losses	11,424,392		11,329,623		11,304,059		10,995,653		11,371,102		10,995,807
Receivable from FDIC for loss share agreements	607,907		610,907		623,261		624,785		651,844		654,210
Income earned not collected	43,886		43,886		83,644		83,644		83,204		83,204
Stock issued by:
Federal Home Loan Bank of Atlanta	43,302		43,302		47,123		47,123		48,291		48,291
Federal Home Loan Bank of San Francisco	13,605		13,605		15,490		15,490		16,135		16,135
Federal Home Loan Bank of Seattle	4,490		4,490		4,490		4,490		4,490		4,490
Deposits	17,663,275		17,712,240		17,635,266		17,695,357		17,743,028		17,808,921
Short-term borrowings	600,384		600,384		546,597		546,597		652,716		652,716
Long-term obligations	744,839		774,799		809,949		826,501		819,145		851,107
Accrued interest payable	22,153		22,153		37,004		37,004		33,533		33,533

At September 30, 2011 and 2010, other assets include $61,397 and $68,916 of stock in various Federal Home Loan Banks (FHLB). The FHLB stock, which is redeemable only through the issuer, is carried at its par value. The investment in the FHLB stock is considered a long-term investment and its value is based on the ultimate recoverability of par value. Management has concluded that the investment in FHLB stock was not other-than-temporarily impaired for any period presented.

For off-balance sheet commitments and contingencies, carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares’ financial position.

Fair value represents the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements BancShares considers the principal or most advantageous market in which the specific assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. As required under US GAAP, individual fair value estimates are ranked based on the relative reliability of the inputs used in the valuation. Fair values determined using level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities that are not actively traded in observable markets are based on level 3 inputs, which are considered to be nonobservable. BancShares recognizes transfers between levels of the fair value hierarchy at the end of the respective reporting period.

Among BancShares’ assets and liabilities, investment securities available for sale and interest rate swaps accounted for as cash flow hedges are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including loans held for sale, which are carried at the lower of cost or market. Impaired loans, OREO, goodwill and other intangible assets are periodically tested for impairment. Loans held for investment, deposits, short-term borrowings and long-term obligations are not reported at fair value. BancShares did not elect to voluntarily report any assets or liabilities at fair value.

For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of September 30, 2011, December 31, 2010 and September 30, 2010:

			Fair value measurements using:
Description	Fair value		Quoted prices in active markets for identical assets and liabilities (Level 1 inputs)		Quoted prices for similar assets and liabilities (Level 2 inputs)		Significant unobservable inputs (Level  3 inputs)
September 30, 2011
Assets measured at fair value
Investment securities available for sale
U.S. Treasury	$	987,934	$	987,934	$	—	$	—
Government agency	2,260,909		2,260,909		—		—
Corporate bonds	404,643		404,643		—		—
Residential mortgage-backed securities	324,192		—		324,192		—
Equity securities	16,104		16,104		—		—
State, county, municipal	1,043		—		1,043		—
Total	$	3,994,825	$	3,669,590	$	325,235	$	—
Liabilities measured at fair value
Interest rate swaps accounted for as cash flow hedges	$	13,531	$	—	$	13,531	$	—
December 31, 2010
Assets measured at fair value
Investment securities available for sale
U.S. Treasury	$	1,939,400	$	1,939,400	$	—	$	—
Government agency	1,919,986		1,919,986		—		—
Corporate bonds	486,658		486,658		—		—
Residential mortgage-backed securities	143,545		—		143,545		—
Equity securities	19,231		19,231		—		—
State, county, municipal	1,256		—		1,256		—
Total	$	4,510,076	$	4,365,275	$	144,801	$	—
Liabilities measured at fair value
Interest rate swaps accounted for as cash flow hedges	$	9,492	$	—	$	9,492	$	—
September 30, 2010
Assets measured at fair value
Investment securities available for sale
U.S. Treasury	$	3,121,251	$	3,121,251	$	—	$	—
Government agency	—		—		—		—
Corporate bonds	489,189		489,189		—		—
Residential mortgage-backed securities	156,136		—		156,136		—
Equity securities	18,997		18,997		—		—
State, county, municipal	1,268		—		1,268		—
Total	$	3,786,841	$	3,629,437	$	157,404	$	—
Liabilities measured at fair value
Interest rate swaps accounted for as cash flow hedges	$	14,263	$	—	$	14,263	$	—

Prices for US Treasury securities, government agency securities, corporate bonds and equity securities are readily available in the active markets in which those securities are traded and the resulting fair values are shown in the ‘Level 1 input’ column. Prices for mortgage-backed securities and state, county and municipal securities are obtained using the fair values of similar assets and the resulting fair values are shown in the ‘Level 2 input’ column. There were no assets or liabilities valued based on level 3 inputs at September 30, 2011, December 31, 2010 or September 30, 2010, and there were no transfers between Level 1 and Level 2 inputs during the nine month periods ended September 30, 2011 and 2010.

Under the terms of the existing cash flow hedge, BancShares pays a fixed payment to the counterparty in exchange for receipt of a variable payment that is determined based on the 3-month LIBOR rate. The fair value of the cash flow hedge is therefore based on projected LIBOR rates for the duration of the hedge,values that, while observable in the market, are subject to adjustment due to pricing considerations for the specific instrument.

For those investment securities available for sale with fair values that are determined by reliance on significant nonobservable inputs, the following table identifies the factors causing the change in fair value during the first nine months of 2010:

	Investment securities available for sale with fair values based on significant nonobservable inputs
Description	2010
Beginning balance, January 1,	$	1,287
Total gains (losses), realized or unrealized:
Included in earnings	—
Included in other comprehensive income	—
Purchases, sales, issuances and settlements, net	—
Transfers in/out of Level 3	(1,287		)
Ending balance, September 30	$	—

There were no investment securities with fair values determined by reliance on significant nonobservable inputs during 2011.

No gains or losses were reported for the nine month periods ended September 30, 2011 and 2010 that relate to fair values estimated based on significant nonobservable inputs. The investment securities valued using level 3 inputs that were transferred out during the first quarter of 2010 result from changes in US GAAP adopted January 1, 2010 related to investments in the retained interest of a residual interest strip that resulted from an asset securitization.

Certain assets and liabilities are carried at fair value on a nonrecurring basis. Loans held for sale are carried at the lower of aggregate cost or fair value and are therefore carried at fair value only when fair value is less than the asset cost. Certain impaired loans are also carried at fair value. For assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of September 30, 2011, December 31, 2010 and September 30, 2010:

			Fair value measurements using:
Description	Fair value		Quoted prices in active markets for identical assets and liabilities (Level 1 inputs)		Quoted prices for similar assets and liabilities (Level 2 inputs)		Significant nonobservable inputs (Level 3 inputs)
September 30, 2011
Loans held for sale	$	78,178	$	—	$	78,178	$	—
Impaired loans:
Covered by loss share agreements	247,361		—		—		247,361
Not covered by loss share agreements	81,661		—		—		81,661
December 31, 2010
Loans held for sale	88,933		—		88,933		—
Impaired loans:
Covered by loss share agreements	192,406		—		—		192,406
Not covered by loss share agreements	89,500		—		—		89,500
September 30, 2010
Loans held for sale	79,853		—		79,853		—
Impaired loans:
Covered by loss share agreements	142,116		—		—		142,116
Not covered by loss share agreements	48,320		—		—		48,320

The values of loans held for sale are based on prices observed for similar pools of loans. The values of impaired loans are determined by either the collateral value or the discounted present value of the expected cash flows. No financial liabilities were carried at fair value on a nonrecurring basis as of September 30, 2011, December 31, 2010 or September 30, 2010.

OREO is measured and reported at fair value using Level 3 inputs for valuations based on nonobservable criteria. During the nine month period ended September 30, 2011, foreclosures of other real estate not covered by loss share agreements totaled $30,226, all of which were valued using Level 3 inputs. Based on updates to Level 3 inputs, noncovered OREO with a fair value of $12,380 as of September 30, 2011 incurred write-downs that totaled $2,910 during the nine month period ended September 30, 2011. Foreclosures of other real estate covered by loss share agreements totaled $92,245, all of which were valued using Level 3 inputs.

During the nine month period ended September 30, 2010, foreclosures of other real estate not covered by loss share agreements totaled $16,217, all of which were valued using Level 3 inputs. Based on updates to Level 3 inputs, noncovered OREO with a fair value of $8,025 as of September 30, 2010 incurred write-downs that totaled $2,344 during the nine month period ended September 30, 2010. Foreclosures of other real estate covered by loss share agreements totaled $39,342, all of which were valued using Level 3 inputs.