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Fair Value | 3 Months Ended
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Mar. 31, 2012
Fair Value |
Fair Value | Note 14 – Fair Value Relevant accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at March 31, 2012.
($ in thousands) |  |  |  |  |  |
Description of Financial Instruments |  | Fair Value at March 31, 2012 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Recurring |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprise securities |  | $ | 23,591 |  |  |  | — |  |  |  | 23,591 |  |  |  | — |
Mortgage-backed securities |  |  | 111,069 |  |  |  | — |  |  |  | 111,069 |  |  |  | — |
Corporate bonds |  |  | 13,137 |  |  |  | — |  |  |  | 13,137 |  |  |  | — |
Equity securities |  |  | 11,385 |  |  |  | 404 |  |  |  | 10,981 |  |  |  | — |
Total available for sale securities |  | $ | 159,182 |  |  |  | 404 |  |  |  | 158,778 |  |  |  | — |
Nonrecurring |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans – covered |  | $ | 55,527 |  |  |  | — |  |  |  | — |  |  |  | 55,527 |
Impaired loans – non-covered |  |  | 80,284 |  |  |  | — |  |  |  | — |  |  |  | 80,284 |
Other real estate – covered |  |  | 79,535 |  |  |  | — |  |  |  | 79,535 |  |  |  | — |
Other real estate – non-covered |  |  | 36,838 |  |  |  | — |  |  |  | 36,838 |  |  |  | — |
The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2011.
($ in thousands) |  |  |  |  |  |
Description of Financial Instruments |  | Fair Value at December 31, 2011 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Recurring |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprise securities |  | $ | 34,665 |  |  |  | — |  |  |  | 34,665 |  |  |  | — |
Mortgage-backed securities |  |  | 124,105 |  |  |  | — |  |  |  | 124,105 |  |  |  | — |
Corporate bonds |  |  | 12,488 |  |  |  | — |  |  |  | 12,488 |  |  |  | — |
Equity securities |  |  | 11,368 |  |  |  | 398 |  |  |  | 10,969 |  |  |  | — |
Total available for sale securities |  | $ | 182,626 |  |  |  | 398 |  |  |  | 182,227 |  |  |  | — |
Nonrecurring |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans – covered |  | $ | 55,690 |  |  |  | — |  |  |  | 55,690 |  |  |  | — |
Impaired loans – non-covered |  |  | 85,286 |  |  |  | — |  |  |  | 85,286 |  |  |  | — |
Other real estate – covered |  |  | 85,272 |  |  |  | — |  |  |  | 85,272 |  |  |  | — |
Other real estate – non-covered |  |  | 37,023 |  |  |  | — |  |  |  | 37,023 |  |  |  | — |
The following is a description of the valuation methodologies used for instruments measured at fair value. Securities — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. Level 1 securities for the Company include certain equity securities. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, collateralized mortgage obligations, government-sponsored entity securities, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Impaired loans —Fair values for impaired loans in the above table are collateral dependent and are estimated based on underlying collateral values, as determined by third-party appraisers, which are then adjusted for the cost related to liquidation of the collateral. Other real estate – Other real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Transfers of assets or liabilities between levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There were no transfers between Level 1 and Level 2 for assets or liabilities measured on a recurring basis during the three months ended March 31, 2012 or 2011. For the three months ended March 31, 2012 and 2011, the increase in the fair value of securities available for sale was $265,000 and $176,000, respectively, which is included in other comprehensive income (tax expense of $104,000 and $69,000, respectively). Fair value measurement methods at March 31, 2012 and 2011 are consistent with those used in prior reporting periods. The carrying amounts and estimated fair values of financial instruments at March 31, 2012 and December 31, 2011 are as follows:
|  |  |  | March 31, 2012 |  |  | December 31, 2011 |
($ in thousands) |  | Level in Fair Value Hierarchy |  | Carrying Amount |  |  | Estimated Fair Value |  |  | Carrying Amount |  |  | Estimated Fair Value |
Cash and due from banks, noninterest-bearing |  | Level 1 |  | $ | 58,001 |  |  |  | 58,001 |  |  |  | 80,341 |  |  |  | 80,341 |
Due from banks, interest-bearing |  | Level 1 |  |  | 234,137 |  |  |  | 234,137 |  |  |  | 135,218 |  |  |  | 135,218 |
Federal funds sold |  | Level 1 |  |  | 1,203 |  |  |  | 1,203 |  |  |  | 608 |  |  |  | 608 |
Securities available for sale |  | Level 2 |  |  | 159,182 |  |  |  | 159,182 |  |  |  | 182,626 |  |  |  | 182,626 |
Securities held to maturity |  | Level 2 |  |  | 57,066 |  |  |  | 61,226 |  |  |  | 57,988 |  |  |  | 62,754 |
Presold mortgages in process of settlement |  | Level 1 |  |  | 7,003 |  |  |  | 7,003 |  |  |  | 6,090 |  |  |  | 6,090 |
Loans – non-covered, net of allowance |  | Level 3 |  |  | 2,048,069 |  |  |  | 1,996,128 |  |  |  | 2,033,542 |  |  |  | 1,987,979 |
Loans – covered, net of allowance |  | Level 3 |  |  | 335,728 |  |  |  | 335,728 |  |  |  | 355,426 |  |  |  | 355,426 |
FDIC indemnification asset |  | Level 3 |  |  | 113,405 |  |  |  | 112,518 |  |  |  | 121,677 |  |  |  | 121,004 |
Accrued interest receivable |  | Level 1 |  |  | 10,969 |  |  |  | 10,969 |  |  |  | 11,779 |  |  |  | 11,779 |
Deposits |  | Level 2 |  |  | 2,831,059 |  |  |  | 2,835,780 |  |  |  | 2,755,037 |  |  |  | 2,759,504 |
Securities sold under agreements to repurchase |  | Level 2 |  |  | — |  |  |  | — |  |  |  | 17,105 |  |  |  | 17,105 |
Borrowings |  | Level 2 |  |  | 133,894 |  |  |  | 107,148 |  |  |  | 133,925 |  |  |  | 106,333 |
Accrued interest payable |  | Level 2 |  |  | 1,659 |  |  |  | 1,659 |  |  |  | 1,872 |  |  |  | 1,872 |
Fair value methods and assumptions are set forth below for the Company’s financial instruments. Cash and Due from Banks, Federal Funds Sold, Presold Mortgages in Process of Settlement, Accrued Interest Receivable, and Accrued Interest Payable - The carrying amounts approximate their fair value because of the short maturity of these financial instruments. (Level 1) Available for Sale and Held to Maturity Securities - Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or matrix pricing. (Level 2)
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Index
Loans – For non-impaired loans, fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial and agricultural, real estate construction, real estate mortgages and installment loans to individuals. Each loan category is further segmented into fixed and variable interest rate terms. The fair value for each category is determined by discounting scheduled future cash flows using current interest rates offered on loans with similar risk characteristics. (Level 3) As discussed above, fair values for impaired loans are estimated based on estimated proceeds expected upon liquidation of the collateral. (Level 3) FDIC Indemnification Asset – Fair value is equal to the FDIC reimbursement rate of the expected losses to be incurred and reimbursed by the FDIC and then discounted over the estimated period of receipt. (Level 3) Deposits and Securities Sold Under Agreements to Repurchase - The fair value of securities sold under agreements to repurchase and deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, checking, and money market accounts, is equal to the amount payable on demand as of the valuation date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. (Level 2) Borrowings - The fair value of borrowings is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered by the Company’s lenders for debt of similar remaining maturities. (Level 2) Fair value estimates are made at a specific point 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 Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as foreclosed properties, deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

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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 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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