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Fair Value of Financial Assets and Liabilities | 9 Months Ended
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Sep. 30, 2012
Fair Value of Financial Assets and Liabilities [Abstract] |
Fair Value of Financial Assets and Liabilities | Note 7 – Fair Value of Financial Assets and Liabilities Fair Value Measurements ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows: Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities. 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 and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. 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. Recurring Measurements The following tables present the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011 and indicates the level within the fair value hierarchy of the valuation techniques.
(in thousands) |  |  |  |  | Fair Value Measurements at September 30, 2012 Using |
|  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets measured – recurring basis |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and government agencies |  | $ | 26,655 |  |  | $ | 0 |  |  | $ | 26,655 |  |  | $ | 0 |
State and political subdivisions |  |  | 105,364 |  |  |  | 0 |  |  |  | 105,364 |  |  |  | 0 |
U.S. government sponsored agency mortgage-backed securities |  |  | 452,731 |  |  |  | 0 |  |  |  | 452,731 |  |  |  | 0 |
Marketable equity securities |  |  | 36,480 |  |  |  | 36,269 |  |  |  | 0 |  |  |  | 211 |
Mortgage servicing rights |  |  | 2,281 |  |  |  | 0 |  |  |  | 0 |  |  |  | 2,281 |
(in thousands) |  |  |  |  | Fair Value Measurements at December 31, 2011 Using |
|  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets measured – recurring basis |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and government agencies |  | $ | 33,248 |  |  | $ | 0 |  |  | $ | 33,248 |  |  | $ | 0 |
State and political subdivisions |  |  | 72,144 |  |  |  | 0 |  |  |  | 72,144 |  |  |  | 0 |
U.S. government sponsored agency mortgage-backed securities |  |  | 400,843 |  |  |  | 507 |  |  |  | 400,336 |  |  |  | 0 |
Marketable equity securities |  |  | 21,163 |  |  |  | 20,675 |  |  |  | 277 |  |  |  | 211 |
Mortgage servicing rights |  |  | 2,282 |  |  |  | 0 |  |  |  | 0 |  |  |  | 2,282 |
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. These valuation methodologies were applied to all of CTBI's financial assets carried at fair value. CTBI had no liabilities measured at fair value as of September 30, 2012 and December 31, 2011. There have been no significant changes in the valuation techniques during the quarter ended September 30, 2012. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. Available-for-Sale Securities Securities classified as available-for-sale are reported at fair value on a recurring basis. CTBI's CRA investment funds (included in marketable equity securities) are classified as Level 1 of the valuation hierarchy where quoted market prices are available in the active market on which the individual securities are traded. If quoted market prices are not available, CTBI obtains fair value measurements from an independent pricing service, such as Interactive Data, which utilizes pricing models to determine fair value measurement. CTBI reviews the pricing quarterly to verify the reasonableness of the pricing. 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 factors. U.S. Treasury and government agencies, state and political subdivisions, and U.S. government sponsored agency mortgage-backed securities are classified as Level 2 inputs. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The securities owned by CTBI that were measured using Level 3 criteria are auction rate securities (included in marketable equity securities) issued by FNMA. Fair value determinations for Level 3 measurements of auction rate securities are estimated on a quarterly basis where assumptions used are reviewed to ensure the estimated fair value complies with accounting standards generally accepted in the United States. The fair market value for these auction rate securities are determined by valuing the underlying collateral which includes the public preferred stock of FNMA. Consideration is also given for the relative illiquidity of these shares. The securities that remain in the auction-rate security structure are valued assuming that they are exchanged into the contractual shares of public preferred stock. Likewise, consideration is given for the uncertainty of the reorganization process currently on-going. See the table below for inputs and valuation techniques used for Level 3 securities. Mortgage Servicing Rights Mortgage servicing rights do not trade in an active, open market with readily observable prices. CTBI reports mortgage servicing rights at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value. In determining fair value, CTBI utilizes the expertise of an independent third party. Accordingly, fair value is determined by the independent third party by utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy. Fair value determinations for Level 3 measurements of mortgage servicing rights are tested for impairment on a quarterly basis where assumptions used are reviewed to ensure the estimated fair value complies with accounting standards generally accepted in the United States. See the table below for inputs and valuation techniques used for Level 3 mortgage servicing rights. Transfers between Levels Transfers between Levels 1, 2, and 3 and the reasons for those transfers are as follows:
(in thousands) |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  | Reason for Transfer
Transfers from level: |  |  |  |  |  |  |  |  |  |
U.S. government sponsored agency mortgage-backed securities |  | $ | 464 |  |  | $ | 0 |  |  | $ | 0 |  | Quoted prices in exact security not available on the measurement date
Marketable equity securities |  |  | 0 |  |  |  | 323 |  |  |  | 0 |  | Quoted prices available on the measurement date
Total transfers from level |  | $ | 464 |  |  | $ | 323 |  |  | $ | 0 |  |
Transfers to level: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government sponsored agency mortgage-backed securities |  | $ | 0 |  |  | $ | 464 |  |  | $ | 0 |  | Quoted prices in exact security not available on the measurement date
Marketable equity securities |  |  | 323 |  |  |  | 0 |  |  |  | 0 |  | Quoted prices available on the measurement date
Total transfers to level |  | $ | 323 |  |  | $ | 464 |  |  | $ | 0 |  |
Level 3 Reconciliation Following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs for three and nine months ended September 30, 2012 and 2011:
(in thousands) |  | Three Months Ended September 30, 2012 |  |  | Nine Months Ended September 30, 2012 |
|  | Marketable Equity Securities |  |  | Mortgage Servicing Rights |  |  | Marketable Equity Securities |  |  | Mortgage Servicing Rights |
Beginning balance |  | $ | 211 |  |  | $ | 2,503 |  |  | $ | 211 |  |  | $ | 2,282 |
Total recognized gains (losses) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in net income |  |  | 0 |  |  |  | (257 | ) |  |  | 0 |  |  |  | (85 | )
Issues |  |  | 0 |  |  |  | 170 |  |  |  | 0 |  |  |  | 510 |
Settlements |  |  | 0 |  |  |  | (135 | ) |  |  | 0 |  |  |  | (426 | )
Ending balance |  | $ | 211 |  |  | $ | 2,281 |  |  | $ | 211 |  |  | $ | 2,281 |
Total gains (losses) for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date |  | $ | 0 |  |  | $ | (257 | ) |  | $ | 0 |  |  | $ | (85 | )
(in thousands) |  | Three Months Ended September 30, 2011 |  |  | Nine Months Ended September 30, 2011 |
|  | Marketable Equity Securities |  |  | Mortgage Servicing Rights |  |  | Marketable Equity Securities |  |  | Mortgage Servicing Rights |
Beginning balance |  | $ | 211 |  |  | $ | 3,029 |  |  | $ | 211 |  |  | $ | 3,161 |
Total recognized gains (losses) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in net income |  |  | 0 |  |  |  | (763 | ) |  |  | 0 |  |  |  | (957 | )
Issues |  |  | 0 |  |  |  | 127 |  |  |  | 0 |  |  |  | 378 |
Settlements |  |  | 0 |  |  |  | 7 |  |  |  | 0 |  |  |  | (182 | )
Ending balance |  | $ | 211 |  |  | $ | 2,400 |  |  | $ | 211 |  |  | $ | 2,400 |
Total gains (losses) for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date |  | $ | 0 |  |  | $ | (763 | ) |  | $ | 0 |  |  | $ | (957 | )
Realized and unrealized gains and losses for items reflected in the table above are included in net income in the consolidated statements of income as follows:
(in thousands) |  | Three Months Ended September 30, 2012 |  |  | Nine Months Ended September 30, 2012 |
|  | Noninterest Income |  |  | Noninterest Expense |  |  | Noninterest Income |  |  | Noninterest Expense |
Total gains |  | $ | (392 | ) |  | $ | 0 |  |  | $ | (511 | ) |  | $ | 0 |
Nonrecurring Measurements The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a nonrecurring basis as of September 30, 2012 and December 31, 2011 and indicates the level within the fair value hierarchy of the valuation techniques.
(in thousands) |  |  |  |  | Fair Value Measurements at September 30, 2012 Using |
|  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets measured – nonrecurring basis |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans (collateral dependent) |  | $ | 5,927 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 5,927 |
Other real estate/assets owned |  |  | 7,222 |  |  |  | 0 |  |  |  | 0 |  |  |  | 7,222 |
(in thousands) |  |  |  |  | Fair Value Measurements at December 31, 2011 Using |
|  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets measured – nonrecurring basis |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans (collateral dependent) |  | $ | 7,898 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 7,898 |
Other real estate/assets owned |  |  | 16,362 |  |  |  | 0 |  |  |  | 0 |  |  |  | 16,362 |
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. Impaired Loans (Collateral Dependent) The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy. CTBI considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the Chief Credit Officer. Appraisals are reviewed for accuracy and consistency by the Chief Credit Officer. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the Chief Credit Officer by comparison to historical results. Loans considered impaired under ASC 310-35, Impairment of a Loan, are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect subsequent (1) partial write-downs that are based on the observable market price or current appraised value of the collateral or (2) the full charge-off of the loan carrying value. Adjustments for the quarters ended September 30, 2012, December 31, 2011, and September 30, 2011 were $0.5 million, $2.1 million, and $0.5 million, respectively. Other Real Estate Owned In accordance with the provisions of ASC 360, Property, Plant, and Equipment, other real estate owned (OREO) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of OREO is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy. Long-lived assets are subject to nonrecurring fair value adjustments to reflect subsequent partial write-downs that are based on the observable market price or current appraised value of the collateral. Fair value adjustments on other real estate/assets owned for the quarters ended September 30, 2012, December 31, 2011, and September 30, 2011 were $0.6 million, $3.7 million, and $0.7 million, respectively. Appraisals of OREO are obtained when the real estate is acquired and subsequently as deemed necessary by the Chief Credit Officer. Appraisers are selected from the list of approved appraisers maintained by management. Unobservable (Level 3) Inputs The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.
(in thousands) |  | Quantitative Information about Level 3 Fair Value Measurements |
|  | Fair Value at September 30, 2012 |  | Valuation Technique(s) | Unobservable Input |  | Range (Weighted Average) |
Marketable equity securities |  | $ | 211 |  | Discount cash flows, Market comparable | Offered quotes of underlying securities held as collateral |  | Not applicable |
Mortgage servicing rights |  | $ | 2,281 |  | Discount cash flows, computer pricing model | Constant prepayment rate |  |  | 15.4% - 24.8% (17.6%) |
|  |  |  |  |  | Probability of default |  |  | 1.27% - 4.85% (2.12%) |
|  |  |  |  |  | Discount rate |  | Not applicable (10.5%) |
Impaired loans (collateral-dependent) |  | $ | 5,927 |  | Market comparable properties | Marketability discount |  |  | 5.0% - 10.0% (7.0%) |
Other real estate/assets owned |  | $ | 7,222 |  | Market comparable properties | Comparability adjustments (%) |  |  | 5.0% - 10.0% (6.0%) |
Sensitivity of Significant Unobservable Inputs The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and of how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement. Marketable Equity Securities The significant unobservable input used in the fair value measurement of CTBI's marketable equity securities is offered quotes on underlying securities held as collateral of public preferred stock. Significant increases (decreases) in the assumptions for the underlying securities would result in a significantly lower (higher) fair value measurement by affecting the implied market price of the public preferred stock for FNMA. Mortgage Servicing Rights Market value for mortgage servicing rights is derived based on unobservable inputs, such as prepayment speeds of the underlying loans generated using the Andrew Davidson Prepayment Model, FHLMC/FNMA guidelines, the weighted-average life of the loan, the discount rate, the weighted average coupon, and the weighted average default rate. Significant increases (decreases) in either of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for prepayment speeds is accompanied by a directionally opposite change in the assumption for interest rates. Fair Value of Financial Instruments The following table presents estimated fair value of CTBI's financial instruments as of September 30, 2012 and indicates the level within the fair value hierarchy of the valuation techniques.
(in thousands) |  |  |  |  | Fair Value Measurements at September 30, 2012 Using |
|  | Carrying Amount |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 202,541 |  |  | $ | 202,541 |  |  | $ | 0 |  |  | $ | 0 |
Certificates of deposit in other banks |  |  | 8,758 |  |  |  | 0 |  |  |  | 8,795 |  |  |  | 0 |
Securities available-for-sale |  |  | 621,230 |  |  |  | 36,269 |  |  |  | 584,750 |  |  |  | 211 |
Securities held-to-maturity |  |  | 1,662 |  |  |  | 0 |  |  |  | 1,662 |  |  |  | 0 |
Loans held for sale |  |  | 771 |  |  |  | 788 |  |  |  | 0 |  |  |  | 0 |
Loans, net |  |  | 2,518,348 |  |  |  | 0 |  |  |  | 0 |  |  |  | 2,540,421 |
Federal Home Loan Bank stock |  |  | 25,673 |  |  |  | 0 |  |  |  | 25,673 |  |  |  | 0 |
Federal Reserve Bank stock |  |  | 4,885 |  |  |  | 0 |  |  |  | 4,885 |  |  |  | 0 |
Accrued interest receivable |  |  | 13,394 |  |  |  | 0 |  |  |  | 13,394 |  |  |  | 0 |
Mortgage servicing rights |  |  | 2,281 |  |  |  | 0 |  |  |  | 0 |  |  |  | 2,281 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 2,911,844 |  |  | $ | 599,984 |  |  | $ | 2,312,129 |  |  | $ | 0 |
Repurchase agreements |  |  | 218,511 |  |  |  | 0 |  |  |  | 0 |  |  |  | 218,475 |
Federal funds purchased |  |  | 8,821 |  |  |  | 0 |  |  |  | 8,821 |  |  |  | 0 |
Advances from Federal Home Loan Bank |  |  | 1,472 |  |  |  | 0 |  |  |  | 1,774 |  |  |  | 0 |
Long-term debt |  |  | 61,341 |  |  |  | 0 |  |  |  | 0 |  |  |  | 31,144 |
Accrued interest payable |  |  | 5,127 |  |  |  | 0 |  |  |  | 5,127 |  |  |  | 0 |
Unrecognized financial instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Letters of credit |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Commitments to extend credit |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Forward sale commitments |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
The following table presents estimated fair value of CTBI's financial instruments as of December 31, 2011 and indicates the level within the fair value hierarchy of the valuation techniques.
(in thousands) |  |  |  |  | Fair Value Measurements at December 31, 2011 Using |
|  | Carrying Amount |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 238,481 |  |  | $ | 238,481 |  |  | $ | 0 |  |  | $ | 0 |
Certificates of deposit in other banks |  |  | 11,875 |  |  |  | 0 |  |  |  | 11,860 |  |  |  | 0 |
Securities available-for-sale |  |  | 527,398 |  |  |  | 21,182 |  |  |  | 506,005 |  |  |  | 211 |
Securities held-to-maturity |  |  | 1,662 |  |  |  | 0 |  |  |  | 1,661 |  |  |  | 0 |
Loans held for sale |  |  | 536 |  |  |  | 550 |  |  |  | 0 |  |  |  | 0 |
Loans, net |  |  | 2,523,377 |  |  |  | 0 |  |  |  | 0 |  |  |  | 2,520,297 |
Federal Home Loan Bank stock |  |  | 25,673 |  |  |  | 0 |  |  |  | 25,673 |  |  |  | 0 |
Federal Reserve Bank stock |  |  | 4,883 |  |  |  | 0 |  |  |  | 4,883 |  |  |  | 0 |
Accrued interest receivable |  |  | 12,280 |  |  |  | 0 |  |  |  | 12,280 |  |  |  | 0 |
Mortgage servicing rights |  |  | 2,282 |  |  |  | 0 |  |  |  | 0 |  |  |  | 2,282 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 2,878,359 |  |  | $ | 584,735 |  |  | $ | 2,294,987 |  |  | $ | 0 |
Repurchase agreements |  |  | 217,177 |  |  |  | 0 |  |  |  | 0 |  |  |  | 217,062 |
Federal funds purchased |  |  | 13,104 |  |  |  | 0 |  |  |  | 13,104 |  |  |  | 0 |
Advances from Federal Home Loan Bank |  |  | 21,609 |  |  |  | 0 |  |  |  | 21,617 |  |  |  | 0 |
Long-term debt |  |  | 61,341 |  |  |  | 0 |  |  |  | 0 |  |  |  | 31,030 |
Accrued interest payable |  |  | 2,171 |  |  |  | 0 |  |  |  | 2,171 |  |  |  | 0 |
Unrecognized financial instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Letters of credit |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |
Commitments to extend credit |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Forward sale commitments |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents – The carrying amount approximates fair value. Certificates of deposit in other banks – Fair values are based on quoted market prices or dealer quotes for similar instruments. Securities held-to-maturity – Fair values are based on quoted market prices, if available. If a quoted price is not available, fair value is estimated using quoted prices for similar securities. The fair value estimate is provided to management from a third party using modeling assumptions specific to each type of security that are reviewed and approved by management. Quarterly sampling of fair values provided by additional third parties supplement the fair value review process. Loans held for sale – The fair value is predetermined at origination based on sale price. Loans (net of the allowance for loan and lease losses) – The fair value of fixed rate loans and variable rate mortgage loans is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. For other variable rate loans, the carrying amount approximates fair value. Loans acquired through acquisition were booked at their fair value on their date of acquisition. Management utilized a third party to assist in the valuation of the acquired loans and considered such factors as coupon rate on the acquired loans versus the current rate for similar instruments on the date of acquisition, weighted average expected life and expected loss rates using both national and regional loss rates on similar loans, and the historic loss rates on the pools of loans acquired. Federal Home Loan Bank stock – The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank. Federal Reserve Bank stock – The carrying value of Federal Reserve Bank stock approximates fair value based on the redemption provisions of the Federal Reserve Bank. Accrued interest receivable – The carrying amount approximates fair value. Deposits – The fair value of fixed maturity time deposits is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. For deposits including demand deposits, savings accounts, NOW accounts, and certain money market accounts, the carrying value approximates fair value. Repurchase agreements – The fair value is estimated by discounting future cash flows using current rates. Federal funds purchased – The carrying amount approximates fair value. Advances from Federal Home Loan Bank – The fair value of these fixed-maturity advances is estimated by discounting future cash flows using rates currently offered for advances of similar remaining maturities. Long-term debt – The fair value is estimated by discounting future cash flows using current rates. Accrued interest payable – The carrying amount approximates fair value. Commitments to originate loans, forward sale commitments, letters of credit, and lines of credit – The fair value of commitments to originate loans is 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 counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of forward sale commitments is estimated based on current market prices for loans of similar terms and credit quality. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The fair values of these commitments are not material.

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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. Reference 8: 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=7491637&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -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 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -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 11: 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=7578670&loc=d3e19207-110258 Reference 12: 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 13: 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 + Details
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