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Fair Value | 6 Months Ended
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Jun. 30, 2012
Fair Value [Abstract] |
FAIR VALUE | 3. FAIR VALUE Fair Value Option Management elected to adopt the fair value option for its investment in certain equity securities in order to provide financial statement users with greater visibility into the Corporation’s financial instruments that do not have a defined maturity date. Fair value changes attributable to unrealized gains (losses) that were included in earnings for the three and six months ended June 30, 2012 were $(164) and $24, respectively. Fair value changes attributable to unrealized losses that were included in earnings for the three and six month ended June 30, 2011 were ($16) and $87, respectively. Realized gains on the sale of securities for which the fair value option was elected were $24 and $156 during the three and six months ended June 30, 2012. Realized gains on the sale of securities for which the fair value option was elected were $0 and $10 during the three and six months ended June 30, 2011. Dividend income is recorded based on cash dividends and comprises the “Dividends” line item in the accompanying consolidated statement of income. Dividend income was $18 and $31 for the three and six months ended June 30, 2012 and $8 and $15 for the three and six months ended June 30, 2011. Fair Value Measurement Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy has also been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs are used to measure fair value: Level 1: Quoted prices (unadjusted) for 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 company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The fair values of most trading securities and securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or 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 relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value of one corporate bond held by the Corporation has been determined by using Level 3 inputs. The Corporation has engaged a valuation expert to price this security using a proprietary model, which incorporates assumptions about certain factors that market participants would use in pricing the securities, including bid/ask spreads and liquidity and credit premiums. Trust preferred securities which are issued by financial institutions and insurance companies are priced using Level 3 inputs. The decline in the level of observable inputs and market activity in this class of investments by the measurement date has been significant and resulted in unreliable external pricing. Broker pricing and bid/ask spreads, when available, vary widely, and the once-active market has become comparatively inactive. The Corporation engaged a third party consultant who has developed a model for pricing these securities. Information such as historical and current performance of the underlying collateral, deferral and default rates, collateral coverage ratios, break in yield calculations, cash flow projections, liquidity and credit premiums required by a market participant, and financial trend analysis with respect to the individual issuing financial institutions and insurance companies are utilized in determining individual security valuations. Due to the current market conditions as well as the limited trading activity of these securities, the market value of the securities is highly sensitive to assumption changes and market volatility. The Corporation’s derivative instrument is an interest rate swap that is similar to those that trade in liquid markets. As such, significant fair value inputs can generally be verified and do not typically involve significant management judgments (Level 2 inputs). The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals prepared by third-parties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also adjusts appraised values based on the length of time that has passed since the appraisal and other factors. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2012 and December 31, 2011:
|  |  |  |  | Fair Value Measurements at June 30, 2012 Using |
Description |  | Total |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities Available For Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 6,069 |  |  | $ | 0 |  |  | $ | 6,069 |  |  | $ | 0 |
U.S. Government sponsored entities |  |  | 113,030 |  |  |  | 0 |  |  |  | 113,030 |  |  |  | 0 |
States and political subdivisions |  |  | 161,583 |  |  |  | 0 |  |  |  | 161,583 |  |  |  | 0 |
Residential mortgage and asset backed |  |  | 372,436 |  |  |  | 3,148 |  |  |  | 369,288 |  |  |  | 0 |
Commercial mortgage and asset backed |  |  | 2,132 |  |  |  | 0 |  |  |  | 2,132 |  |  |  | 0 |
Corporate notes and bonds |  |  | 13,416 |  |  |  | 0 |  |  |  | 11,345 |  |  |  | 2,071 |
Pooled trust preferred |  |  | 360 |  |  |  | 0 |  |  |  | 0 |  |  |  | 360 |
Pooled SBA |  |  | 44,883 |  |  |  | 44,883 |  |  |  | 0 |  |  |  | 0 |
Other securities |  |  | 1,543 |  |  |  | 1,543 |  |  |  | 0 |  |  |  | 0 |
Total Securities Available For Sale |  | $ | 715,452 |  |  | $ | 49,574 |  |  | $ | 663,447 |  |  | $ | 2,431 |
Trading Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities – financial services |  | $ | 654 |  |  | $ | 654 |  |  | $ | 0 |  |  | $ | 0 |
Equity securities – industrials |  |  | 476 |  |  |  | 476 |  |  |  | 0 |  |  |  | 0 |
Equity securities – health care |  |  | 428 |  |  |  | 428 |  |  |  | 0 |  |  |  | 0 |
Certificates of deposit |  |  | 382 |  |  |  | 382 |  |  |  | 0 |  |  |  | 0 |
International mutual funds |  |  | 252 |  |  |  | 252 |  |  |  | 0 |  |  |  | 0 |
Equity securities – energy |  |  | 209 |  |  |  | 209 |  |  |  | 0 |  |  |  | 0 |
Equity securities – materials |  |  | 162 |  |  |  | 162 |  |  |  | 0 |  |  |  | 0 |
Equity securities – technology |  |  | 158 |  |  |  | 158 |  |  |  | 0 |  |  |  | 0 |
Equity securities – consumer discretionary |  |  | 156 |  |  |  | 156 |  |  |  | 0 |  |  |  | 0 |
Large cap growth mutual funds |  |  | 147 |  |  |  | 147 |  |  |  | 0 |  |  |  | 0 |
Money market mutual funds |  |  | 108 |  |  |  | 108 |  |  |  | 0 |  |  |  | 0 |
Large cap value mutual funds |  |  | 103 |  |  |  | 103 |  |  |  | 0 |  |  |  | 0 |
Corporate notes and bonds |  |  | 101 |  |  |  | 0 |  |  |  | 101 |  |  |  | 0 |
Real estate investment trust mutual funds |  |  | 64 |  |  |  | 64 |  |  |  | 0 |  |  |  | 0 |
U.S. Government sponsored entities |  |  | 56 |  |  |  | 0 |  |  |  | 56 |  |  |  | 0 |
Equity securities – consumer staples |  |  | 54 |  |  |  | 54 |  |  |  | 0 |  |  |  | 0 |
Small cap mutual funds |  |  | 25 |  |  |  | 25 |  |  |  | 0 |  |  |  | 0 |
Mid cap mutual funds |  |  | 25 |  |  |  | 25 |  |  |  | 0 |  |  |  | 0 |
Total Trading Securities |  | $ | 3,560 |  |  | $ | 3,403 |  |  | $ | 157 |  |  | $ | 0 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | (1,779 | ) |  | $ | 0 |  |  | $ | (1,779 | ) |  | $ | 0 |
|  |  |  |  | Fair Value Measurements at December 31, 2011 Using |
Description |  | Total |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities Available For Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 8,130 |  |  | $ | 0 |  |  | $ | 8,130 |  |  | $ | 0 |
U.S. Government sponsored entities |  |  | 107,492 |  |  |  | 2,000 |  |  |  | 105,492 |  |  |  | 0 |
States and political subdivisions |  |  | 158,437 |  |  |  | 4,655 |  |  |  | 153,782 |  |  |  | 0 |
Residential mortgage and asset backed |  |  | 300,126 |  |  |  | 8,577 |  |  |  | 291,549 |  |  |  | 0 |
Commercial mortgage and asset backed |  |  | 2,122 |  |  |  | 0 |  |  |  | 2,122 |  |  |  | 0 |
Corporate notes and bonds |  |  | 13,860 |  |  |  | 0 |  |  |  | 11,800 |  |  |  | 2,060 |
Pooled trust preferred |  |  | 340 |  |  |  | 0 |  |  |  | 0 |  |  |  | 340 |
Pooled SBA |  |  | 46,056 |  |  |  | 46,056 |  |  |  | 0 |  |  |  | 0 |
Other securities |  |  | 1,544 |  |  |  | 1,544 |  |  |  | 0 |  |  |  | 0 |
Total Securities Available For Sale |  | $ | 638,107 |  |  | $ | 62,832 |  |  | $ | 572,875 |  |  | $ | 2,400 |
Trading Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities – financial services |  | $ | 779 |  |  | $ | 779 |  |  | $ | 0 |  |  | $ | 0 |
Equity securities – industrials |  |  | 324 |  |  |  | 324 |  |  |  | 0 |  |  |  | 0 |
International mutual funds |  |  | 257 |  |  |  | 257 |  |  |  | 0 |  |  |  | 0 |
Certificates of deposit |  |  | 255 |  |  |  | 255 |  |  |  | 0 |  |  |  | 0 |
Money market mutual funds |  |  | 241 |  |  |  | 241 |  |  |  | 0 |  |  |  | 0 |
Equity securities – health care |  |  | 204 |  |  |  | 204 |  |  |  | 0 |  |  |  | 0 |
Equity securities – utilities |  |  | 197 |  |  |  | 197 |  |  |  | 0 |  |  |  | 0 |
Large cap growth mutual funds |  |  | 145 |  |  |  | 145 |  |  |  | 0 |  |  |  | 0 |
Equity securities – consumer staples |  |  | 145 |  |  |  | 145 |  |  |  | 0 |  |  |  | 0 |
Equity securities – consumer discretionary |  |  | 126 |  |  |  | 126 |  |  |  | 0 |  |  |  | 0 |
Large cap value mutual funds |  |  | 105 |  |  |  | 105 |  |  |  | 0 |  |  |  | 0 |
Corporate notes and bonds |  |  | 100 |  |  |  | 0 |  |  |  | 100 |  |  |  | 0 |
Equity securities – technology |  |  | 75 |  |  |  | 75 |  |  |  | 0 |  |  |  | 0 |
Equity securities – energy |  |  | 72 |  |  |  | 72 |  |  |  | 0 |  |  |  | 0 |
Real estate investment trust mutual funds |  |  | 68 |  |  |  | 68 |  |  |  | 0 |  |  |  | 0 |
U.S. Government sponsored entities |  |  | 55 |  |  |  | 0 |  |  |  | 55 |  |  |  | 0 |
Equity securities – materials |  |  | 37 |  |  |  | 37 |  |  |  | 0 |  |  |  | 0 |
Small cap mutual funds |  |  | 25 |  |  |  | 25 |  |  |  | 0 |  |  |  | 0 |
Mid cap mutual funds |  |  | 23 |  |  |  | 23 |  |  |  | 0 |  |  |  | 0 |
Total Trading Securities |  | $ | 3,233 |  |  | $ | 3,078 |  |  | $ | 155 |  |  | $ | 0 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | (1,669 | ) |  | $ | 0 |  |  | $ | (1,669 | ) |  | $ | 0 |
The table below presents a reconciliation and income statement classification of gains and losses for all securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended June 30, 2012:
|  | Corporate notes and bonds |  |  | Pooled trust preferred |
Balance, April 1, 2012 |  | $ | 2,040 |  |  | $ | 340 |
Total gains or losses: |  |  |  |  |  |  |  |
Included in other comprehensive income (unrealized) |  |  | 31 |  |  |  | 20 |
Balance, June 30, 2012 |  | $ | 2,071 |  |  | $ | 360 |
The table below presents a reconciliation and income statement classification of gains and losses for all securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2012:
|  | Corporate notes and bonds |  |  | Pooled trust preferred |
Balance, January 1, 2012 |  | $ | 2,060 |  |  | $ | 340 |
Total gains or losses: |  |  |  |  |  |  |  |
Included in other comprehensive income (unrealized) |  |  | 11 |  |  |  | 20 |
Balance, June 30, 2012 |  | $ | 2,071 |  |  | $ | 360 |
The table below presents a reconciliation and income statement classification of gains and losses for all securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended June 30, 2011:
|  | Residential mortgage and asset backed |  |  | Corporate notes and bonds |  |  | Pooled trust preferred |
Balance, April 1, 2011 |  | $ | 4,106 |  |  | $ | 1,895 |  |  | $ | 1,402 |
Total gains or losses: |  |  |  |  |  |  |  |  |  |  |  |
Included in other comprehensive income (unrealized) |  |  | 0 |  |  |  | (35 | ) |  |  | (40 | )
Purchases, issuances, sales, and settlements: |  |  |  |  |  |  |  |  |  |  |  |
Settlements |  |  | (118 | ) |  |  | 0 |  |  |  | 0 |
Balance, June 30, 2011 |  | $ | 3,988 |  |  | $ | 1,860 |  |  | $ | 1,362 |
The table below presents a reconciliation and income statement classification of gains and losses for all securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2011:
|  | Residential mortgage and asset backed |  |  | Corporate notes and bonds |  |  | U.S. Gov’t Sponsored Entities |  |  | Pooled trust preferred |
Balance, January 1, 2011 |  | $ | 2,269 |  |  | $ | 1,240 |  |  | $ | 2,000 |  |  | $ | 1,292 |
Transfers out of Level 3 (a)(b) |  |  | 0 |  |  |  | 0 |  |  |  | (2,000 | ) |  |  | 0 |
Total gains or losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings (realized) |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | (398 | )
Included in other comprehensive income (unrealized) |  |  | 0 |  |  |  | 620 |  |  |  | 0 |  |  |  | 468 |
Purchases, issuances, sales, and settlements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchases |  |  | 1,917 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Settlements |  |  | (198 | ) |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Balance, June 30, 2011 |  | $ | 3,988 |  |  | $ | 1,860 |  |  | $ | 0 |  |  | $ | 1,362 |
(a) | Transferred from Level 3 to Level 2 since observable market data became available to value the security.
(b) | The Corporation’s policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstances that caused the transfer.
The unrealized losses reported in earnings for the six months ended June 30, 2011 for Level 3 assets that are still held at the balance sheet date relate to pooled trust preferred securities deemed to be other-than-temporarily impaired. The following table presents quantitative information about Level 3 fair value measurements at June 30, 2012:
|  | Fair value |  |  | Valuation Technique |  | Unobservable Inputs |  | Input Utilized
Corporate notes and bonds |  |  | $2,071 |  |  | Discounted cash flow |  | Constant prepayment rate Probability of default Discount rate |  | 0% 0% 9.2%
Pooled trust preferred |  |  | $360 |  |  | Discounted cash flow |  | Collateral default rate Discount rate Recovery probability Prepayment rate |  | 2% annually for 2 years; 0.36% thereafter 19% 10%, lagged 2 years 5% for next 5 years
The significant unobservable inputs used in the fair value measurement of the Corporation’s corporate notes and bonds are prepayment rates, probability of default, and discount rate. Significant increases/(decreases) in any of those inputs in isolation would result in a significantly lower/(higher) fair value measurement. The significant unobservable inputs used in the fair value measurement of the Corporation’s pooled trust preferred securities are collateral default rate, discount rate, recovery probability, and prepayment rate. Significant increases in specific-issuer default assumptions or decreases in specific-issuer recovery assumptions would result in a significantly lower fair value measurement. Conversely, decreases in specific-issuer default assumptions or increases in specific-issuer recovery assumptions would result in a higher fair value measurement. During the three months ended June 30, 2012 and 2011, the following available for sale securities reported as Level 1 securities as of the beginning of the period were transferred to the Level 2 category:
|  | 2012 |  |  | 2011 |
U.S. Treasury |  | $ | 0 |  |  | $ | 4,053 |
U.S. Government sponsored entities |  |  | 26,034 |  |  |  | 16,124 |
States and political subdivisions |  |  | 3,771 |  |  |  | 4,929 |
Residential mortgage and asset backed |  |  | 40,473 |  |  |  | 37,659 |
Commercial mortgage and asset backed |  |  | 0 |  |  |  | 2,085 |
Total |  | $ | 70,278 |  |  | $ | 64,850 |
During the six months ended June 30, 2012 and 2011, the following available for sale securities reported as Level 1 securities as of the beginning of the period were transferred to the Level 2 category:
|  | 2012 |  |  | 2011 |
U.S. Government sponsored entities |  | $ | 2,000 |  |  | $ | 2,000 |
States and political subdivisions |  |  | 4,655 |  |  |  | 4,750 |
Residential mortgage and asset backed |  |  | 8,577 |  |  |  | 20,405 |
Total |  | $ | 15,232 |  |  | $ | 27,155 |
These securities were transferred from the Level 1 category to the Level 2 category since there were no longer quoted prices for identical assets in active markets that the Corporation had the ability to access. During the six months ended June 30, 2011, two pooled SBA securities that were classified as Level 2 securities at December 31, 2010 were transferred to the Level 1 category. The fair value on the date of transfer was $3,437. There were no transfers of securities from the Level 2 category to the Level 1 category during the three months ended June 30, 2011. There were no transfers of securities from the Level 2 category to the Level 1 category during the three and six months ended June 30, 2012. The Corporation’s policy for determining when a transfer between the Level 1 and Level 2 categories has occurred is to monitor and report such transfers as of each quarterly reporting period. Assets and liabilities measured at fair value on a non-recurring basis are as follows at June 30, 2012 and December 31, 2011:
|  |  |  |  | Fair Value Measurements at June 30, 2012 Using |
Description |  | Total |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 7,907 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 7,907 |
Commercial, industrial, and agricultural |  |  | 3,986 |  |  |  | 0 |  |  |  | 0 |  |  |  | 3,986 |
Residential real estate |  |  | 437 |  |  |  | 0 |  |  |  | 0 |  |  |  | 437 |
|  |  |  |  | Fair Value Measurements at December 31, 2011 Using |
Description |  | Total |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 7,219 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 7,219 |
Commercial, industrial, and agricultural |  |  | 3,190 |  |  |  | 0 |  |  |  | 0 |  |  |  | 3,190 |
Residential real estate |  |  | 105 |  |  |  | 0 |  |  |  | 0 |  |  |  | 105 |
Impaired loans, which are measured for impairment using the fair value of collateral for collateral dependent loans, had a principal balance of $14,476 with a valuation allowance of $2,146 as of June 30, 2012, resulting in an additional provision for loan losses of $1,196 and $1,597 for the corresponding three and six months then ended. Impaired loans had a principal balance of $22,384 with a valuation allowance of $1,493 as of December 31, 2011, and an additional provision for loan losses of $345 and $263 for the corresponding three and six months ended June 30, 2011. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2012:
|  | Fair value |  |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted Average)
Impaired loans – commercial mortgages |  | $ | 7,907 |  |  | Sales comparison approach |  | Negative adjustment for selling costs and changes in market conditions since appraisal |  | 10% -65% (15%)
Impaired loans – commercial, industrial, and agricultural |  |  | 3,986 |  |  | Income approach |  | Negative adjustment for selling costs and changes in net operating income expectations since appraisal |  | 5% - 65% (29%)
Impaired loans – residential real estate |  |  | 437 |  |  | Sales comparison approach |  | Negative adjustment for selling costs and changes in market conditions since appraisal |  | 10% -19% (16%)
Fair Value of Financial Instruments The following table presents the carrying amount and fair value of financial instruments at June 30, 2012:
|  | Carrying |  |  | Fair Value Measurement Using: |  |  | Total |
|  | Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 24,228 |  |  | $ | 24,228 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 24,228 |
Interest bearing time deposits with other banks |  |  | 275 |  |  |  | 0 |  |  |  | 281 |  |  |  | 0 |  |  |  | 281 |
Securities available for sale |  |  | 715,452 |  |  |  | 49,574 |  |  |  | 663,447 |  |  |  | 2,431 |  |  |  | 715,452 |
Trading securities |  |  | 3,560 |  |  |  | 3,403 |  |  |  | 157 |  |  |  | 0 |  |  |  | 3,560 |
Loans held for sale |  |  | 1,499 |  |  |  | 0 |  |  |  | 1,554 |  |  |  | 0 |  |  |  | 1,554 |
Net loans |  |  | 893,077 |  |  |  | 0 |  |  |  | 0 |  |  |  | 918,918 |  |  |  | 918,918 |
FHLB and other equity interests |  |  | 6,848 |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
Accrued interest receivable |  |  | 6,903 |  |  |  | 264 |  |  |  | 3,527 |  |  |  | 3,112 |  |  |  | 6,903 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | (1,455,421 | ) |  | $ | (1,231,487 | ) |  | $ | (227,042 | ) |  | $ | 0 |  |  | $ | (1,458,529 | )
FHLB and other borrowings |  |  | (82,182 | ) |  |  | 0 |  |  |  | (91,059 | ) |  |  | 0 |  |  |  | (91,059 | )
Subordinated debentures |  |  | (20,620 | ) |  |  | 0 |  |  |  | 0 |  |  |  | (10,865 | ) |  |  | (10,865 | )
Interest rate swaps |  |  | (1,779 | ) |  |  | 0 |  |  |  | (1,779 | ) |  |  | 0 |  |  |  | (1,779 | )
Accrued interest payable |  |  | (1,121 | ) |  |  | (321 | ) |  |  | (783 | ) |  |  | (17 | ) |  |  | (1,121 | )
The following table presents the carrying amount and fair value of financial instruments at December 31, 2011:
|  | Carrying Amount |  |  | Fair Value |
ASSETS |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 39,703 |  |  | $ | 39,703 |
Interest bearing time deposits with other banks |  |  | 224 |  |  |  | 229 |
Securities available for sale |  |  | 638,107 |  |  |  | 638,107 |
Trading securities |  |  | 3,233 |  |  |  | 3,233 |
Loans held for sale |  |  | 1,442 |  |  |  | 1,470 |
Net loans |  |  | 837,268 |  |  |  | 862,389 |
FHLB and other equity interests |  |  | 6,537 |  |  |  | N/A |
Accrued interest receivable |  |  | 6,567 |  |  |  | 6,567 |
LIABILITIES |  |  |  |  |  |  |  |
Deposits |  | $ | (1,353,851 | ) |  | $ | (1,357,415 | )
FHLB and other borrowings |  |  | (74,456 | ) |  |  | (83,042 | )
Subordinated debentures |  |  | (20,620 | ) |  |  | (10,906 | )
Interest rate swaps |  |  | (1,669 | ) |  |  | (1,669 | )
Accrued interest payable |  |  | (1,308 | ) |  |  | (1,308 | )
The methods and assumptions, not otherwise presented, used to estimate fair values are described as follows: Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1. Interest bearing time deposits with other banks: The fair value of interest bearing time deposits with other banks is estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly maturities, resulting in a Level 2 classification. Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification. Loans: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values, resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality, resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. FHLB and other equity interests: It is not practical to determine the fair value of Federal Home Loan Bank stock and other equity interests due to restrictions placed on the transferability of these instruments. Accrued interest receivable: The carrying amount of accrued interest receivable approximates fair value resulting in a classification that is consistent with the asset with which it is associated. Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amount), resulting in a Level 1 classification. Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits, resulting in a Level 2 classification. FHLB and other borrowings: The fair values of the Corporation’s FHLB and other borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements, resulting in a Level 2 classification. Subordinated debentures: The fair value of the Corporation’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of arrangements, resulting in a Level 3 classification. Accrued interest payable: The carrying amount of accrued interest payable approximates fair value resulting in a classification that is consistent with the liability with which it is associated. While estimates of fair value are based on management’s judgment of the most appropriate factors as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates. In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures. Also, non-financial assets such as, among other things, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, and customer goodwill, which typically are not recognized on the balance sheet may have value but are not included in the fair value disclosures.

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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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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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