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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2015
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, we utilize valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
• | Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
• | Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
• | Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and our creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes our valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with our monthly and/or quarterly valuation process. Financial Assets and Financial Liabilities: Financial assets and financial liabilities measured at fair value on a recurring basis include the following: Securities Available for Sale. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, we obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. We review the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, we do not purchase investment portfolio securities that are esoteric or that have a complicated structure. Our entire portfolio consists of traditional investments, nearly all of which are U.S. Treasury obligations, federal agency bullet or mortgage pass-through securities, or general obligation or revenue based municipal bonds. Pricing for such instruments is fairly generic and is easily obtained. From time to time, we will validate prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models. Trading Securities. U.S. Treasury securities and exchange-listed common stock are reported at fair value utilizing Level 1 inputs. Other securities classified as trading are reported at fair value utilizing Level 2 inputs in the same manner as described above for securities available for sale. Derivatives. Derivatives are generally reported at fair value utilizing Level 2 inputs, except for foreign currency contracts, which are reported at fair value utilizing Level 1 inputs. We obtain dealer quotations and utilize internally developed valuation models to value commodity swaps/options. We utilize internally developed valuation models and/or third-party models with observable market data inputs to validate the valuations provided by the dealers. Though there has never been a significant discrepancy in the valuations, should such a significant discrepancy arise, we would obtain price verification from a third-party dealer. We utilize internal valuation models with observable market data inputs to estimate fair values of customer interest rate swaps, caps and floors. We also obtain dealer quotations for these derivatives for comparative purposes to assess the reasonableness of the model valuations. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value, reported amounts are considered to have been derived utilizing Level 3 inputs. For purposes of potential valuation adjustments to our derivative positions, we evaluate the credit risk of our counterparties as well as ours. Accordingly, we have considered factors such as the likelihood of our default and the default of our counterparties, our net exposures and remaining contractual life, among other things, in determining if any fair value adjustments related to credit risk are required. Counterparty exposure is evaluated by netting positions that are subject to master netting arrangements, as well as considering the amount of collateral securing the position. We review our counterparty exposure on a regular basis, and, when necessary, appropriate business actions are taken to adjust the exposure. We also utilize this approach to estimate our own credit risk on derivative liability positions. To date, we have not realized any significant losses due to a counterparty’s inability to pay any net uncollateralized position. The change in value of derivative assets and derivative liabilities attributable to credit risk was not significant during the reported periods. The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
| Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
September 30, 2015 |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |
U.S. Treasury | $ | 3,782,387 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,782,387 |
Residential mortgage-backed securities | — |  |  | 1,130,531 |  |  | — |  |  | 1,130,531 |
States and political subdivisions | — |  |  | 4,017,333 |  |  | — |  |  | 4,017,333 |
Other | — |  |  | 42,437 |  |  | — |  |  | 42,437 |
Trading account securities: |  |  |  |  |  |  |
U.S. Treasury | 16,244 |  |  | — |  |  | — |  |  | 16,244 |
States and political subdivisions | — |  |  | 3,428 |  |  | — |  |  | 3,428 |
Derivative assets: |  |  |  |  |  |  |
Interest rate swaps, caps and floors | — |  |  | 48,022 |  |  | — |  |  | 48,022 |
Commodity swaps and options | — |  |  | 17,370 |  |  | — |  |  | 17,370 |
Foreign currency forward contracts | 33 |  |  | — |  |  | — |  |  | 33 |
Derivative liabilities: |  |  |  |  |  |  |
Interest rate swaps, caps and floors | — |  |  | 50,919 |  |  | — |  |  | 50,919 |
Commodity swaps and options | — |  |  | 17,314 |  |  | — |  |  | 17,314 |
Foreign currency forward contracts | 19 |  |  | — |  |  | — |  |  | 19 |
| Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
December 31, 2014 |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |
U.S. Treasury | $ | 3,811,252 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,811,252 |
Residential mortgage-backed securities | — |  |  | 1,398,724 |  |  | — |  |  | 1,398,724 |
States and political subdivisions | — |  |  | 3,208,907 |  |  | — |  |  | 3,208,907 |
Other | — |  |  | 42,371 |  |  | — |  |  | 42,371 |
Trading account securities: |  |  |  |  |  |  |
U.S. Treasury | 15,339 |  |  | — |  |  | — |  |  | 15,339 |
States and political subdivisions | — |  |  | 87 |  |  | — |  |  | 87 |
Derivative assets: |  |  |  |  |  |  |
Interest rate swaps, caps and floors | — |  |  | 40,931 |  |  | 170 |  |  | 41,101 |
Commodity swaps and options | — |  |  | 32,829 |  |  | — |  |  | 32,829 |
Foreign currency forward contracts | 666 |  |  | — |  |  | — |  |  | 666 |
Derivative liabilities: |  |  |  |  |  |  |
Interest rate swaps, caps and floors | — |  |  | 43,853 |  |  | — |  |  | 43,853 |
Commodity swaps and options | — |  |  | 32,729 |  |  | — |  |  | 32,729 |
Foreign currency forward contracts | 617 |  |  | — |  |  | — |  |  | 617 |
Derivative assets measured at fair value on a recurring basis using significant unobservable (Level 3) inputs at December 31, 2014 consisted of interest rate swaps sold to loan customers. The significant unobservable (Level 3) inputs used in the fair value measurement of these interest rate swaps sold to loan customers primarily related to the probability of default and loss severity in the event of default. The probability of default is determined by the underlying risk grade of the loan (see Note 4 – Loans) underlying the interest rate swap in that the probability of default increases as a loan’s risk grade deteriorates, while the loss severity was estimated through an analysis of the collateral supporting both the underlying loan and interest rate swap. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity. As of December 31, 2014, the weighted-average risk grade of loans underlying interest rate swaps measured at fair value using significant unobservable (Level 3) inputs was 11.0, while the weighted-average loss severity in the event of default on the interest rate swaps was 20%. There were no derivative assets measured at fair value using significant unobservable (Level 3) inputs as of September 30, 2015. A reconciliation of the beginning and ending balances of derivative assets measured at fair value on a recurring basis using significant unobservable (Level 3) inputs is not presented as such amounts were not significant during the reported periods. Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on a non-recurring basis during the reported periods include certain impaired loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs based on observable market data, typically in the case of real estate collateral, or Level 3 inputs based on customized discounting criteria, typically in the case of non-real estate collateral such as inventory, accounts receivable, equipment or other business assets. The following table presents impaired loans that were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for loan losses based upon the fair value of the underlying collateral during the reported periods.
| Nine Months Ended September 30, 2015 |  | Nine Months Ended September 30, 2014
| Level 2 |  | Level 3 |  | Level 2 |  | Level 3
Carrying value of impaired loans before allocations | $ | 130 |  |  | $ | 959 |  |  | $ | — |  |  | $ | 2,944 |
Specific valuation allowance (allocations) reversals of prior allocations | (71 | ) |  | 150 |  |  | — |  |  | (1,275 | )
Fair value | $ | 59 |  |  | $ | 1,109 |  |  | $ | — |  |  | $ | 1,669 |
Non-Financial Assets and Non-Financial Liabilities: We do not have any non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during the reported periods include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. During the reported periods, all fair value measurements for foreclosed assets utilized Level 2 inputs. The following table presents foreclosed assets that were remeasured and reported at fair value during the reported periods:
| Nine Months Ended September 30,
| 2015 |  | 2014
Foreclosed assets remeasured at initial recognition: |  |  |
Carrying value of foreclosed assets prior to remeasurement | $ | 975 |  |  | $ | 4,077 |
Charge-offs recognized in the allowance for loan losses | (149 | ) |  | (285 | )
Fair value | $ | 826 |  |  | $ | 3,792 |
Foreclosed assets remeasured subsequent to initial recognition: |  |  |
Carrying value of foreclosed assets prior to remeasurement | $ | 205 |  |  | $ | 5,002 |
Write-downs included in other non-interest expense | (36 | ) |  | (1,277 | )
Fair value | $ | 169 |  |  | $ | 3,725 |
Charge-offs recognized upon loan foreclosures are generally offset by general or specific allocations of the allowance for loan losses and generally do not, and did not during the reported periods, significantly impact our provision for loan losses. Regulatory guidelines require us to reevaluate the fair value of other real estate owned on at least an annual basis. Our policy is to comply with the regulatory guidelines. Accordingly, appraisals are never considered to be outdated, and we do not make any adjustments to the appraised values. Financial Accounting Standards Board (“FASB”) ASC Topic 825 “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. A detailed description of the valuation methodologies used in estimating the fair value of financial instruments is set forth in the 2014 Form 10-K. The estimated fair values of financial instruments that are reported at amortized cost in our consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows:
| September 30, 2015 |  | December 31, 2014
| Carrying Amount |  | Estimated Fair Value |  | Carrying Amount |  | Estimated Fair Value
Financial assets: |  |  |  |  |  |  |
Level 2 inputs: |  |  |  |  |  |  |
Cash and cash equivalents | $ | 3,754,905 |  |  | $ | 3,754,905 |  |  | $ | 4,364,123 |  |  | $ | 4,364,123 |
Securities held to maturity | 2,677,485 |  |  | 2,717,608 |  |  | 2,926,486 |  |  | 2,966,390 |
Cash surrender value of life insurance policies | 174,514 |  |  | 174,514 |  |  | 172,050 |  |  | 172,050 |
Accrued interest receivable | 97,434 |  |  | 97,434 |  |  | 128,436 |  |  | 128,436 |
Level 3 inputs: |  |  |  |  |  |  |
Loans, net | 11,248,577 |  |  | 11,280,538 |  |  | 10,887,993 |  |  | 10,939,684 |
Financial liabilities: |  |  |  |  |  |  |
Level 2 inputs: |  |  |  |  |  |  |
Deposits | 24,324,397 |  |  | 24,324,599 |  |  | 24,135,930 |  |  | 24,136,402 |
Federal funds purchased and repurchase agreements | 632,179 |  |  | 632,179 |  |  | 803,119 |  |  | 803,119 |
Junior subordinated deferrable interest debentures | 137,115 |  |  | 137,115 |  |  | 137,115 |  |  | 137,115 |
Subordinated notes payable and other borrowings | 100,000 |  |  | 99,385 |  |  | 100,000 |  |  | 95,591 |
Accrued interest payable | 1,127 |  |  | 1,127 |  |  | 1,132 |  |  | 1,132 |
Under ASC Topic 825, entities may choose to measure eligible financial instruments at fair value at specified election dates. The fair value measurement option (i) may be applied instrument by instrument, with certain exceptions, (ii) is generally irrevocable and (iii) is applied only to entire instruments and not to portions of instruments. Unrealized gains and losses on items for which the fair value measurement option has been elected must be reported in earnings at each subsequent reporting date. During the reported periods, we had no financial instruments measured at fair value under the fair value measurement option.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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