XML 15 R14.htm IDEA: XBRL DOCUMENT  v2.3.0.11
Fair Value Measurements
 6 Months Ended
Jun. 30, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements
Note 8. Fair Value Measurements
 
The FASB ASC topic 825, Financial Instruments, requires disclosure of the estimated fair value of an entity's assets and liabilities considered to be financial instruments. For the Company, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. However, many such instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. Also, it is the Company's general practice and intent to hold its financial instruments to maturity whether or not categorized as “available-for-sale” and not to engage in trading or sales activities, except for certain loans. For fair value disclosure purposes, the Company utilized certain value measurement criteria required under the FASB ASC 820, Fair Value Measurements and Disclosures, and explained below.
 
Estimated fair values have been determined by the Company using the best available data and an estimation methodology it believes to be suitable for each category of financial instruments. Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.
 
Cash and cash equivalents, which are comprised of cash and due from banks, the Company's balance at the Federal Reserve and federal funds sold, had recorded book values of $368.8 million and $472.3 million as of June 30, 2011 and December 31, 2010, respectively, which approximated fair values.  The estimated fair values of investment securities are based on quoted market prices, if available, or by an estimated methodology based on management's inputs. The fair values of the Company's investment securities held-to-maturity are based on using “unobservable inputs” that are the best information available in the circumstances.
 
The net loan portfolio at June 30, 2011 and December 31, 2010 has been valued using the present value of discounted cash flow where market prices were not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. The carrying value of accrued interest approximates fair value.
 
The estimated fair values of demand, savings, money market and interest checking deposits are equal to the amount payable on demand at the reporting date (i.e. their carrying amounts). The fair values of securities sold under agreements to repurchase and short-term borrowings are equal to their carrying amounts as they are overnight borrowings.
 
The fair values of certificates of deposit and subordinated debentures are estimated using a discounted cash flow calculation that applies current interest rates to discounted expected cash flows. Based upon time deposit maturities at June 30, 2011, the carrying values approximate their fair values. The carrying amount of accrued interest payable approximates its fair value.

   
June 30, 2011
  
December 31, 2010
 
 
 
Carrying
  
Estimated
  
Carrying
  
Estimated
 
   
amount
  
fair value
  
amount
  
fair value
 
   
(in thousands)
 
Cash and cash equivalents
 $368,823  $368,823  $472,319  $472,319 
Investment securities available-for-sale
  353,099   353,099   231,165   231,165 
Investment securities held-to-maturity
  18,102   13,498   21,364   16,550 
Loans receivable, net
  1,678,660   1,654,704   1,619,195   1,597,764 
Demand deposits (non-interest bearing)
  1,073,228   1,073,228   945,605   945,605 
Savings, money market and interest checking
  1,076,654   1,076,654   975,973   975,973 
Certificates of deposit
  12,821   12,881   102,519   102,587 
Subordinated debentures and notes
  13,401   9,185   13,401   9,185 
Securities sold under agreements to repurchase
  20,258   20,258   14,383   14,383 
Short-term borrowings
  -   -   136,000   136,000 
 
The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments, including commitments to extend credit, and the fair value of letters of credit are considered immaterial.

In addition, FASB ASC topic 820, Fair Value Measurements and Disclosures, establishes a common definition for fair value to be applied to assets and liabilities. It clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a framework for measuring fair value and expands disclosures concerning fair value measurements. FASB ASC topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 1 valuation is based on quoted market prices for identical assets or liabilities to which the Company has access at the measurement date. Level 2 valuation is based on other observable inputs for the asset or liability, either directly or indirectly. This includes quoted prices for similar assets in active or inactive markets, inputs other than quoted prices that are observable for the asset or liability such as yield curves, volatilities, prepayment speeds, credit risks, default rates, or inputs that are derived principally from, or corroborated through, observable market data by market-corroborated reports. Level 3 valuation is based on “unobservable inputs” which the Company believes is the best information available in the circumstances. A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assets measured at fair value on a recurring basis, segregated by fair value hierarchy level, are summarized below (in thousands):
 
      
Fair Value Measurements at Reporting Date Using
 
Description
 
Fair value
June 30, 2011
  
Quoted prices in active markets for identical assets
(Level 1)
  
Significant other
observable inputs
(Level 2)
  
Significant
unobservable inputs
(Level 3)
 
              
Investment
            
U.S. Government agency securities
 $9,466  $-  $9,466  $- 
Obligations of states and political subdivisions
  102,332   -   102,332   - 
Mortgage-backed securities
  203,549   -   203,549   - 
Other debt securities
  29,118   -   28,476   642 
Other equity securities
  3,000   3,000   -   - 
Federal Home Loan and Atlantic Central
                
  Bankers Bank stock
  5,634   -   -   5,634 
   $353,099  $3,000  $343,823  $6,276 
                  
       
Fair Value Measurements at Reporting Date Using
 
Description
 
Fair value
December 31, 2010
  
Quoted prices in active markets for identical assets
(Level 1)
  
Significant other observable inputs
(Level 2)
  
Significant unobservable inputs
(Level 3)
 
                  
Investment
                
Obligations of states and political subdivisions
 $103,988  $-  $103,988  $- 
Mortgage-backed securities
  76,915   -   76,915   - 
Other debt securities
  44,024   -   43,276   748 
Federal Home Loan and Atlantic Central
                
  Bankers Bank stock
  6,238   -   -   6,238 
   $231,165  $-  $224,179  $6,986 

The changes in the Company's Level 3 assets are set forth below (in thousands).

Fair Value Measurements Using
 
Significant Unobservable Inputs
 
(Level 3)
 
   
Available-for-sale
 
   
securities
 
   
June 30,
2011
  
December 31,
2010
 
Beginning balance
 $6,986  $7,222 
Transfers into level 3
  -   - 
Transfers out of level 3
  -   - 
Total gains or losses (realized/unrealized)
        
Included in earnings
  (2)  (13)
Included in other comprehensive income
  (72)  186 
Purchases, issuances, and settlements
        
Purchases
  -   - 
Issuances
  -   - 
Sales
        
Settlements
  (636)  (409)
Ending balance
 $6,276  $6,986 

 
Assets measured at fair value on a nonrecurring basis, segregated by fair value hierarchy, during the periods shown are summarized below (in thousands):
 
      
Fair Value Measurements at Reporting Date Using
 
Description
 
June 30, 2011
  
Quoted prices in active markets for identical assets
(Level 1)
  
Significant other observable inputs
(Level 2)
  
Significant unobservable inputs
(Level 3)
 
              
Impaired loans
 $19,526  $-  $-  $19,526 
Other real estate owned
  3,764   -   -   3,764 
   $23,290  $-  $-  $23,290 
                  
       
Fair Value Measurements at Reporting Date Using
 
Description
 
December 31, 2010
  
Quoted prices in active markets for identical assets
(Level 1)
  
Significant other observable inputs
(Level 2)
  
Significant unobservable inputs
(Level 3)
 
                  
Impaired loans
 $15,297  $-  $-  $15,297 
Other real estate owned
  2,115   -   -   2,115 
   $17,412  $-  $-  $17,412 
 
At June 30, 2011, impaired loans totaled $19.5 million with a specific reserve of $5.2 million, compared to impaired loans at December 31, 2010 of $15.3 million with a specific reserve of $5.3 million. Valuation techniques consistent with the market approach and/or cost approach were used to measure fair value and primarily included observable inputs for the individual impaired loans being evaluated such as recent sales of similar assets or observable market data for operational or carrying costs. In cases where such inputs were unobservable, the loan balance is reflected within the Level 3 hierarchy. The fair value of other real estate owned is based on an appraisal of the property using the market approach for valuation.