Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

9.    Fair Value Measurements

The Company follows FASB ASC 820-10, Fair Value Measurements and Disclosures (formerly SFAS 157, “Fair Value Measurements”), which among other things, requires enhanced disclosures about assets and liabilities carried at fair value. ASC 820-10 establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value. The three broad levels of the hierarchy are as follows:

Level I — Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The type of financial instruments included in Level I are highly liquid cash instruments with quoted prices such as G-7 government, agency securities, listed equities and money market securities, as well as listed derivative instruments.

Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Instruments which are generally included in this category are corporate bonds and loans, mortgage whole loans, municipal bonds and OTC derivatives.

Level III — These instruments have little to no pricing observability as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Instruments that are included in this category generally include certain commercial mortgage loans, certain private equity investments, distressed debt, non-investment grade residual interests in securitizations, as well as certain highly structured OTC derivative contracts.

The results of the fair value hierarchy as of December 31, 2012, are as follows:

	Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(dollars in thousands)
Financial Instruments Measured at Fair Value on a Recurring Basis  — Securities AFS
U.S. Treasury	$	2,004	$	—	$	2,004	$	—
U.S. Government Sponsored Enterprises		130,340		—		130,340		—
SBA Backed Securities		8,156		—		8,156		—
U.S. Government Agency and Sponsored Enterprises
Mortgage-Backed Securities		1,233,357		—		1,233,357		—
Privately Issued Residential Mortgage-Backed Securities		2,947		—		2,947		—
Obligations Issued by States and Political Subdivisions		55,174		—		1,734		53,440
Other Debt Securities		2,253		—		2,253		—
Equity Securities		570		228		—		342
Total	$	1,434,801	$	228	$	1,380,791	$	53,782
Financial Instruments Measured at Fair Value on a Non-recurring Basis
Impaired Loans	$	3,587	$	—	$	—	$	3,587

Impaired loan balances in the table above represent those collateral dependent loans where management has estimated the credit loss during the year by comparing the loan’s carrying value against the expected realizable fair value of the collateral. Specific provisions relate to impaired loans recognized for 2012 for the estimated credit loss amounted to $1,909,000. The Company uses discounts to appraisals, as necessary, based on management’s observations of the local real estate market for loans in this category.

There were no transfers between level 1 and 2 for the year ended December 31, 2012. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the year ended December 31, 2012.

The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands) at December 31, 2012. Management continues to monitor the assumptions used to value the assets listed below.

					Unobservable Input
Asset	Fair Value		Valuation Technique	Unobservable Input	Value or Range
Securities AFS (1)		$53,782	Discounted cash flow	Discount rate	0%-1%(2)
Impaired Loans		3,587	Appraisal of collateral(3)	Appraisal adjustments(4)	0%-25% discount

⁽¹⁾  Municipal securities generally have maturities of one year or less and, therefore, the amortized cost equates to the fair value.

⁽²⁾  Weighted averages.

⁽³⁾  Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

⁽⁴⁾  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated expenses.

The changes in Level 3 securities for the year ended December 31, 2012 are as shown in the table below:

	Auction Rate Securities		Obligations Issued by States and Political Subdivisions			Equity Securities			Total
	(dollars in thousands)
Balance at December 31, 2011	$	3,725	$	14,772		$	417		$	18,914
Purchases		—		90,960			—			90,960
Maturities		—		(56,214	)		(75	)		(56,289	)
Amortization		—		(41	)		—			(41	)
Change in fair value		238		—			—			238
Balance at December 31, 2012	$	3,963	$	49,477		$	342		$	53,782

The amortized cost of Level 3 securities was $54,504,000 with an unrealized loss of $722,000 at December 31, 2012. The securities in this category are generally equity investments, municipal securities with no readily determinable fair value or failed auction rate securities. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity.

The results of the fair value hierarchy as of December 31, 2011, are as follows:

	Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(dollars in thousands)
Financial Instruments Measured at Fair Value on a Recurring Basis — Securities AFS
U.S. Treasury	$	2,012	$	—	$	2,012	$	—
U.S. Government Sponsored Enterprises		174,957		—		174,957		—
SBA Backed Securities		8,801		—		8,801		—
U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities		1,035,838		—		1,035,838		—
Privately Issued Residential Mortgage-Backed Securities		3,198		—		3,198		—
Privately Issued Commercial Mortgage-Backed Securities		—		—		—		—
Obligations Issued by States and Political Subdivisions		20,642		—		2,145		18,497
Other Debt Securities		12,610		—		12,610		—
Equity Securities		618		201		—		417
Total	$	1,258,676	$	201	$	1,239,561	$	18,914
Financial Instruments Measured at Fair Value on a Non-recurring Basis
Impaired Loans	$	1,439	$	—	$	—	$	1,439
Other Real Estate Owned	$	1,183	$	—	$	—	$	1,183

Impaired loan balances in the table above represent those collateral dependent loans where management has estimated the credit loss during the year by comparing the loan’s carrying value against the expected realizable fair value of the collateral. Specific provisions relates to impaired loans recognized for 2011 for the estimated credit loss amounted to $1,699,000. The Company uses discounts to appraisals, as necessary, based on management’s observations of the local real estate market for loans in this category. Other real estate owned is carried at fair value less costs to sell, based on the expected realizable fair value of collateral.

There were no transfers between level 1 and 2 for the year ended December 31, 2011. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the year ended December 31, 2011.

The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands) at December 31, 2011. Management continues to monitor the assumptions used to value the assets listed below.

					Unobservable Input
Asset	Fair Value		Valuation Technique	Unobservable Input	Value or Range
Securities AFS (1)		$18,914	Discounted cash flow	Discount rate	0%-1%(2)
Impaired Loans		1,439	Appraisal of collateral(3)	Appraisal adjustments(4)	0%-25% discount
Other real estate owned		1,183	Appraisal of collateral(3)	Appraisal adjustments(4)	0%

⁽¹⁾  Municipal securities generally have maturities of one year or less and, therefore, the amortized cost equates to the fair value.

⁽²⁾  Weighted averages.

⁽³⁾  Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

⁽⁴⁾  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated expenses.

The changes in Level 3 securities for the year ended December 31, 2011, are shown in the table below:

	Auction Rate Securities			Obligations Issued by States and Political Subdivisions			Equity Securities			Total
	(dollars in thousands)
Balance at December 31, 2010	$	4,393		$	15,988		$	279		$	20,660
Purchases		—			25,314			145			25,459
Maturities		—			(26,528	)		(7	)		(26,535	)
Amortization		—			(2	)		—			(2	)
Change in fair value		(668	)		—			—			(668	)
Balance at December 31, 2011	$	3,725		$	14,772		$	417		$	18,914

The amortized cost of Level 3 securities was $19,864,000 with an unrealized loss of $950,000 at December 31, 2011. The securities in this category are generally equity investments, municipal securities with no readily determinable fair value or failed auction rate securities. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity.