Note 12 - Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Text Block]

12. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and Cash Equivalents.  For cash and cash equivalents, the carrying amount was assumed to be a reasonable estimate of fair value and a Level 1 measurement.

Short-term Investments.  For short-term investments, the carrying amount was assumed to be a reasonable estimate of fair value and a Level 1 measurement.

Securities Purchased under Agreements to Resell. The fair value of securities purchased under agreements to resell is based on dealer quotes and a Level 2 measurement.

Securities.  For securities, including securities held-to-maturity, available-for-sale and for trading, fair values were based on quoted market prices at the reporting date.  If a quoted market price was not available, fair value was estimated using quoted market prices for similar securities or dealer quotes.  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.

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

Loans. Fair values were estimated for portfolios of loans with similar financial characteristics. Each loan category was further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.

The fair value of performing loans was calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan and a Level 3 measurement.

The fair value of impaired loans was calculated based on the net realizable fair value of the collateral or the observable market price of the most recent sale or quoted price from loans held for sale. The Company does not record loans at fair value on a recurring basis. Nonrecurring fair value adjustments to collateral dependent impaired loans are recorded based on the current appraised value of the collateral and a Level 2 measurement.

Deposit Liabilities. The fair value of demand deposits, savings accounts, and certain money market deposits was assumed to be the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit was estimated using the rates currently offered for deposits with similar remaining maturities and a Level 3 measurement.

Securities Sold under Agreements to Repurchase. The fair value of securities sold under agreements to repurchase is based on dealer quotes and a Level 2 measurement.

Advances from Federal Home Loan Bank. The fair value of the advances is based on quotes from the FHLB to settle the advances and a Level 2 measurement.

Other Borrowings. This category includes federal funds purchased, revolving lines of credit, and other short-term borrowings. The fair value of other borrowings is based on current market rates for borrowings with similar remaining maturities and a Level 1 measurement.

Long-term Debt. The fair value of long-term debt is estimated based on the quoted market prices or dealer quotes and a Level 2 measurement.

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

Interest Rate Swaps. Fair value of interest rate swaps was derived from observable market prices for similar assets and a Level 2 measurement.

Off-Balance-Sheet Financial Instruments. The fair value of commitments to extend credit, standby letters of credit, and financial guarantees written were estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter parties. The fair value of guarantees and letters of credit was based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter parties at the reporting date. Off-balance-sheet financial instruments were fair valued based on the assumptions that a market participant would use and a Level 3 measurement.

Fair value was estimated in accordance with ASC Topic 825, formerly SFAS 107. Fair value estimates were made at specific points in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates were based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates were subjective in nature and involved uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The following table presents the estimated fair value of financial instruments at June 30, 2012, and at December 31, 2011:

Fair Value of Financial Instruments

	As of June 30, 2012				As of December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Financial Assets
Cash and due from banks	$	134,744	$	134,744	$	117,888	$	117,888
Short-term investments		513,636		513,636		294,956		294,956
Securities purchased under agreements to resell		10,000		10,000		-		-
Securities held-to-maturity		1,019,977		1,073,077		1,153,504		1,203,977
Securities available-for-sale		1,166,783		1,166,783		1,294,478		1,294,478
Trading securities		104,465		104,465		4,542		4,542
Loans held-for-sale		500		500		760		760
Loans, net		6,842,554		6,799,987		6,844,483		6,825,571
Investment in Federal Home Loan Bank stock		47,966		47,966		52,989		52,989
Warrants		169		169		218		218

	Notional Amount		Fair Value		Notional Amount		Fair Value
Option contracts	$	862	$	4	$	3,026	$	34
Foreign exchange contracts		204,813		1,910		238,581		2,151

	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Liabilities
Deposits	$	7,384,233	$	7,392,033	$	7,229,131	$	7,240,857
Securities sold under agreements to repurchase		1,400,000		1,533,780		1,400,000		1,547,900
Advances from Federal Home Loan Bank		21,200		21,597		225,000		227,825
Other borrowings		18,834		18,834		19,800		19,801
Long-term debt		171,136		96,681		171,136		98,676

	Notional Amount		Fair Value		Notional Amount		Fair Value
Option contracts	$	205	$	1	$	1,282	$	5
Interest rate swaps		300,000		742		300,000		2,634
Foreign exchange contracts		154,267		1,089		128,215		486

	Notional Amount		Fair Value			Notional Amount		Fair Value
Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	1,718,710	$	(1,587	)	$	1,626,523	$	(1,253	)
Standby letters of credit		54,110		(188	)		62,076		(367	)
Other letters of credit		77,252		(37	)		64,233		(38	)
Bill of lading guarantees		143		-			187		-