Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

14. Fair Value Measurements

The Company adopted ASC Topic 820 on January 1, 2008, and determined the fair values of our financial instruments based on the following:

• Level 1 - Quoted prices in active markets for identical assets or liabilities.

• Level 2 - Observable prices in active markets for similar assets or liabilities; prices for identical or similar assets or liabilities in markets that are not active; directly observable market inputs for substantially the full term of the asset and liability; market inputs that are not directly observable but are derived from or corroborated by observable market data.

• Level 3 – Unobservable inputs based on the Company's own judgments about the assumptions that a market participant would use.

The Company uses the following methodologies to measure the fair value of its financial assets and liabilities on a recurring basis:

Securities Available for Sale. For certain actively traded agency preferred stocks and U.S. Treasury securities, the Company measures the fair value based on quoted market prices in active exchange markets at the reporting date, a Level 1 measurement. The Company also measures securities by using quoted market prices for similar securities or dealer quotes, a Level 2 measurement. This category generally includes U.S. Government agency securities, state and municipal securities, mortgage-backed securities ("MBS"), commercial MBS, collateralized mortgage obligations, asset-backed securities, and corporate bonds.

Trading Securities. The Company measures the fair value of trading securities based on quoted market prices in active exchange markets at the reporting date, a Level 1 measurement.

Warrants. The Company measures the fair value of warrants based on unobservable inputs based on assumption and management judgment, a Level 3 measurement.

Currency Option Contracts and Foreign Exchange Contracts. The Company measures the fair value of currency option and foreign exchange contracts based on dealer quotes on a recurring basis, a Level 2 measurement.

Interest Rate Swaps. Fair value of interest rate swaps is derived from observable market prices for similar assets on a recurring basis, a Level 2 measurement.

The valuation techniques for the assets and liabilities valued on a nonrecurring basis are as follows:

Impaired Loans. The Company does not record loans at fair value on a recurring basis. However, from time to time, nonrecurring fair value adjustments to collateral dependent impaired loans are recorded based on either the current appraised value of the collateral, a Level 2 measurement, or management's judgment and estimation of value reported on old appraisals which are then adjusted based on recent market trends, a Level 3 measurement.

Loans Held for Sale. The Company records loans held for sale at fair value based on quoted prices from third party sale analyses, existing sale agreements or appraisal reports adjusted by sales commission assumptions, a Level 3 measurement.

Goodwill. The Company completes "step one" of the impairment test by comparing the fair value of each reporting unit (as determined based on the discussion below) with the recorded book value (or "carrying amount") of its net assets, with goodwill included in the computation of the carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of that reporting unit is not considered impaired, and "step two" of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, step two of the impairment test is performed to determine the amount of impairment. Step two of the impairment test compares the carrying amount of the reporting unit's goodwill to the "implied fair value" of that goodwill. The implied fair value of goodwill is computed by assuming all assets and liabilities of the reporting unit would be adjusted to the current fair value, with the offset as an adjustment to goodwill. This adjusted goodwill balance is the implied fair value used in step two. An impairment charge is then recognized for the amount by which the carrying amount of goodwill exceeds its implied fair value. In connection with the determination of fair value, certain data and information is utilized, including earnings forecasts at the reporting unit level for the next four years. Other key assumptions include terminal values based on future growth rates and discount rates for valuing the cash flows, which have inputs for the risk-free rate, market risk premium and adjustments to reflect inherent risk and required market returns. Because of the significance of unobservable inputs in the valuation of goodwill impairment, goodwill subject to nonrecurring fair value adjustments is classified as Level 3 measurement.

Core Deposit Intangibles. Core deposit intangibles is initially recorded at fair value based on a valuation of the core deposits acquired and is amortized over its estimated useful life to its residual value in proportion to the economic benefits consumed. The Company assesses the recoverability of this intangible asset on a nonrecurring basis using the core deposits remaining at the assessment date and the fair value of cash flows expected to be generated from the core deposits, a Level 3 measurement.

Other Real Estate Owned. Real estate acquired in the settlement of loans is initially recorded at fair value based on the appraised value of the property on the date of transfer, less estimated costs to sell, a Level 2 measurement. From time to time, nonrecurring fair value adjustments are made to other real estate owned based on the current updated appraised value of the property, also a Level 2 measurement, or management's judgment and estimation of value reported on old appraisals which are then adjusted based on recent market trends, a Level 3 measurement.

Investments in Venture Capital. The Company periodically reviews its investments in venture capital for other-than-temporary impairment ("OTTI") on a nonrecurring basis. Investments in venture capital were written down to their fair value based on available financial reports from venture capital partnerships and management's judgment and estimation, a Level 3 measurement.

Equity Investments. The Company records equity investments at fair value on a nonrecurring basis based on quoted market prices in active exchange markets at the reporting date, a Level 1 measurement.

The following table presents the Company's hierarchy for its assets and liabilities measured at fair value on a recurring basis at September 30, 2011, and at December 31, 2010:

	Fair Value Measurements Using						Total at
As of September 30, 2011	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets
Securities available-for-sale
U.S. government sponsored entities	$	—	$	351,448	$	—	$	351,448
State and municipal securities		—		1,887		—		1,887
Mortgage-backed securities		—		221,018		—		221,018
Collateralized mortgage obligations		—		18,685		—		18,685
Asset-backed securities		—		171		—		171
Corporate debt securities		—		407,429		—		407,429
Mutual funds		6,079		—		—		6,079
Preferred stock of government sponsored entities		—		2,352		—		2,352
Trust preferred securities		46,074		—		—		46,074
Other equity securities		2,228		—		—		2,228
Total securities available-for-sale		54,381		1,002,990		—		1,057,371
Trading securities		152,462		4,515		—		156,977
Warrants		—		—		47		47
Option contracts		—		161		—		161
Foreign exchange contracts		—		1,196		—		1,196
Total assets	$	206,843	$	1,008,862	$	47	$	1,215,752
Liabilities
Interest rate swaps	$	—	$	3,928	$	—	$	3,928
Option contracts		—		501		—		501
Foreign exchange contracts		—		3,904		—		3,904
Total liabilities	$	—	$	8,333	$	—	$	8,333

	Fair Value Measurements Using						Total at
As of December 31, 2010	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets
Securities available-for-sale
U.S. Treasury securities	$	118,828	$	—	$	—	$	118,828
U.S. government sponsored entities		—		825,082		—		825,082
State and municipal securities		—		1,718		—		1,718
Mortgage-backed securities		—		642,305		—		642,305
Collateralized mortgage obligations		—		25,194		—		25,194
Asset-backed securities		—		240		—		240
Corporate debt securities		—		369,425		—		369,425
Mutual funds		3,927		—		—		3,927
Preferred stock of government sponsored entities		—		719		—		719
Trust preferred securities		14,437		—		—		14,437
Other equity securities		1,692		—		—		1,692
Total securities available-for-sale		138,884		1,864,683		—		2,003,567
Trading securities		23		3,795		—		3,818
Warrants		—		—		40		40
Option contracts		—		106		—		106
Foreign exchange contracts		—		4,629		—		4,629
Total assets	$	138,907	$	1,873,213	$	40	$	2,012,160
Liabilities
Interest rate swaps	$	—	$	6,508	$	—	$	6,508
Option contracts		—		72		—		72
Foreign exchange contracts		—		1,873		—		1,873
Total liabilities	$	—	$	8,453	$	—	$	8,453

The Company measured the fair value of its warrants on a recurring basis using significant unobservable inputs. The fair value of warrants was $47,000 at September 30, 2011, compared to $40,000 at December 31, 2010. The fair value adjustment of warrants was included in other operating income in the first nine months of 2011.

For financial assets measured at fair value on a nonrecurring basis that were still reflected in the balance sheet at September 30, 2011, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets at September 30, 2011, and at December 31, 2010, and the total losses for the periods indicated:

	As of September 30, 2011								Total Losses/(Gains)
	Fair value measurements using								For the three months ended					For the nine months ended
	Level 1		Level 2		Level 3		Total at fair  value		September 30, 2011		September 30, 2010			September 30, 2011		September 30, 2010
	(In thousands)
Assets
Impaired loans by type:
Commercial loans	$	—	$	—	$	16,609	$	16,609	$	—	$	2,642		$	1,868	$	4,079
Construction loans- residential		—		—		—		—		—		1,009			—		4,635
Construction loans- other		—		—		—		—		—		7,188			—		21,919
Real estate loans		—		—		37,387		37,387		—		(127	)		532		17,485
Land loans		—		—		904		904		—		6,638			—		9,728
Residential mortgage loans		—		—		10,219		10,219		73		87			73		915
Total impaired loans		—		—		65,119		65,119		73		17,437			2,473		58,761
Loans held-for-sale		—		—		1,276		1,276		—		176			—		3,160
Other real estate owned (1)		—		71,462		1,054		72,516		4,125		(425	)		6,505		1,739
Investments in venture capital		—				8,636		8,636		50		231			337		553
Equity investments		323		—		—		323		199		—			199		—
Total assets	$	323	$	71,462	$	76,085	$	147,870	$	4,447	$	17,419		$	9,514	$	64,213

(1) Other real estate owned balance of $94.3 million in the consolidated balance sheet is net of estimated disposal costs.

	As of December 31, 2010								Total Losses
	Fair value measurements using						Total at		For the twelve months ended
	Level 1		Level 2		Level 3		fair value		December 31, 2010		December 31, 2009
	(In thousands)
Assets
Impaired loans by type:
Commercial loans	$	—	$	—	$	4,824	$	4,824	$	3,411	$	16,293
Construction loans- residential		—		—		500		500		1,295		23,234
Construction loans- other		—		—		5,659		5,659		—		12,493
Real estate loans		—		—		99,309		99,309		1,407		27,350
Land loans		—		—		730		730		1,003		11,639
Total impaired loans		—		—		111,022		111,022		7,116		91,009
Loans held-for-sale		—		—		2,873		2,873		3,160		19,252
Other real estate owned (1)		—		72,159		11,105		83,264		20,139		28,216
Investments in venture capital		—		—		8,410		8,410		760		1,982
Equity investments		522		—		—		522		304		—
Total assets	$	522	$	72,159	$	133,410	$	206,091	$	31,479	$	140,459

(1) Other real estate owned balance of $77.7 million in the consolidated balance sheet is net of estimated disposal costs.