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Fair Value Measurements | 3 Months Ended
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Mar. 31, 2012
Investments, All Other Investments [Abstract] |
Fair Value Measurements | Fair Value Measurements Fair Value Hierarchy In accordance with applicable guidance, the Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Valuations within these levels are based upon: Level 1 — Quoted market prices (unadjusted) for identical instruments traded in active exchange markets that the Company has the ability to access as of the measurement date. Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable or can be corroborated by observable market data. Level 3 — Model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use on pricing the asset or liability. Valuation techniques include management judgment and estimation which may be significant. Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, we report the transfer at the beginning of the reporting period. The estimated carrying and fair values of the Company’s financial instruments are as follows (in thousands):
|  | March 31, 2012
|  | Carrying Amount |  | Fair Value
(In thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 20,496 |  |  | $ | 20,496 |  |  | $ | — |  |  | $ | — |  |  | $ | 20,496 |
Interest-earning deposits in other banks |  | 30,929 |  |  | 30,929 |  |  | — |  |  | — |  |  | 30,929 |
Federal funds sold |  | 475 |  |  | 475 |  |  | — |  |  | — |  |  | 475 |
Available-for-sale investment securities |  | 323,748 |  |  | 7,878 |  |  | 315,870 |  |  | — |  |  | 323,748 |
Loans, net |  | 398,063 |  |  | — |  |  | — |  |  | 400,255 |  |  | 400,255 |
Federal Home Loan Bank stock |  | 2,893 |  |  | N/A |  |  | N/A |  |  | N/A |  |  | N/A |
Accrued interest receivable |  | 3,512 |  |  | 22 |  |  | 1,822 |  |  | 1,668 |  |  | 3,512 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | 703,396 |  |  | — |  |  | 703,905 |  |  | — |  |  | 703,905 |
Short-term borrowings |  | 4,000 |  |  | — |  |  | 4,113 |  |  | — |  |  | 4,113 |
Junior subordinated deferrable interest debentures |  | 5,155 |  |  | — |  |  | — |  |  | 2,964 |  |  | 2,964 |
Accrued interest payable |  | 184 |  |  | — |  |  | 155 |  |  | 29 |  |  | 184 |
|  | December 31, 2011
(In thousands) |  | Carrying Amount |  | Fair Value
Financial assets: |  |  |  |
Cash and due from banks |  | $ | 19,409 |  |  | $ | 19,409 |
Interest-earning deposits in other banks |  | 24,467 |  |  | 24,467 |
Federal funds sold |  | 928 |  |  | 928 |
Available-for-sale investment securities |  | 328,413 |  |  | 328,413 |
Loans, net |  | 415,999 |  |  | 418,084 |
Federal Home Loan Bank stock |  | 2,893 |  |  | N/A |
Accrued interest receivable |  | 3,953 |  |  | 3,953 |
Financial liabilities: |  |  |  |
Deposits |  | 712,986 |  |  | 719,673 |
Short-term borrowings |  | — |  |  | — |
Long-term debt |  | 4,000 |  |  | 4,146 |
Junior subordinated deferrable interest debentures |  | 5,155 |  |  | 2,706 |
Accrued interest payable |  | 230 |  |  | 230 |
These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding 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 fair values presented. The methods and assumptions used to estimate fair values are described as follows: (a) Cash and Cash Equivalents The carrying amounts of cash and due from banks, interest-earning deposits in other banks, and Federal funds sold approximate fair values and are classified as Level 1. (b) Available-for-sale investment securities Available-for-sale investment securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for available-for-sale investment securities classified in Level 2 are based on quoted market prices for similar securities in active markets. (c) FHLB Stock It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. (d) Loans Fair values of loans, excluding loans held for sale, are estimated as follows: 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. (e) Deposits Fair value for fixed rate certificates of deposit are estimated using discounted cash flow analyses using interest rates offered at each reporting date by the Company for certificates with similar remaining maturities resulting in a Level 2 classification. Fair value of demand deposit, savings, and money market accounts are estimated using historical decay rates resulting in a Level 2 classification. (f) Short-term Borrowings The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification. (g) Other Borrowings The fair values of the Company’s long-term 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. The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification. (h) Accrued interest receivable/Payable The fair value of accrued interest receivable and payable is based on the fair value hierarchy of the related asset or liability. (i) Off-balance Sheet Instruments Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material. Assets Recorded at Fair Value The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2012: Recurring Basis The Company is required or permitted to record the following assets at fair value on a recurring basis under other accounting pronouncements as of March 31, 2012 (in thousands).
Description |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |  |
Debt Securities: |  |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ | 111,740 |  |  | $ | — |  |  | $ | 111,740 |  |  | $ | — |
U.S. Government agencies collateralized by residential mortgage obligations |  | 197,126 |  |  | — |  |  | 197,126 |  |  | — |
Private label residential mortgage backed securities |  | 7,004 |  |  | — |  |  | 7,004 |  |  | — |
Other equity securities |  | 7,878 |  |  | 7,878 |  |  | — |  |  | — |
Total assets and liabilities measured at fair value |  | $ | 323,748 |  |  | $ | 7,878 |  |  | $ | 315,870 |  |  | $ | — |
Securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for available-for-sale investment securities in Level 2 are based on quoted market prices for similar securities in active markets. Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings. During the three months ended March 31, 2012, no transfers between levels occurred. The were no Level 3 assets measured at fair value on a recurring basis at March 31, 2012 or December 31, 2011. There were no liabilities measured at fair value on a recurring basis at March 31, 2012. Non-recurring Basis The Company may be required, from time to time, to measure certain assets at fair value on a non-recurring basis. These include assets that are measured at the lower of cost or fair value that were recognized at fair value which was below cost at March 31, 2012 (in thousands).
Description |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 923 |  |  | $ | — |  |  | $ | — |  |  | $ | 923 |
Total commercial |  | 923 |  |  | — |  |  | — |  |  | 923 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | 900 |  |  | — |  |  | — |  |  | 900 |
Real estate-construction and other land loans |  | 4,806 |  |  | — |  |  | — |  |  | 4,806 |
Total real estate |  | 5,706 |  |  | — |  |  | — |  |  | 5,706 |
Total impaired loans |  | 6,629 |  |  | — |  |  | — |  |  | 6,629 |
Total assets measured at fair value on a non-recurring basis |  | $ | 6,629 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,629 |
At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. 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 independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. The fair value of impaired loans is based on the fair value of the collateral for all collateral dependent loans and for other impaired loans is estimated using a discounted cash flow model. Impaired loans and other real estate owned were determined to be collateral dependent and categorized as Level 3 due to ongoing real estate market conditions resulting in inactive market data, which in turn required the use of unobservable inputs and assumptions in fair value measurements. There were no changes in valuation techniques used during the three months ended March 31, 2012 or the year ended December 31, 2011. Impaired loans with a carrying value of $7,860,000 were written down to their fair value of $6,629,000, resulting in a related valuation allowance of $1,231,000 at March 31, 2012. The valuation allowance represents specific allocations of the allowance for credit losses for impaired loans. There was no provision for loan losses required on impaired loans for the three months ended March 31, 2012. Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. 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 independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Appraisals for both collateral-dependent impaired loans an d other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with via independent data sources such as recent market data or industry-wide statistics. At March 31, 2012, the fair value of the other real estate owned was based on the anticipated sales price. The property is in escrow, expected to close in the third quarter of 2012. 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 March 31, 2012 (dollars in thousands):
Description |  | Fair Value |  | Valuation Technique |  | Significant Unobservable Inputs |  | Range (Weighted Average)
Impaired Loans: |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 923 |  |  | Appraisal - price digest bluebook |  | Adjustments for lack of sales activity |  | -40 | %
Owner occupied |  | $ | 900 |  |  | Appraisal - sales comparison approach |  | Adjustment for difference between comparable sales |  | -10 | %
Real estate-construction and other land loans |  | $ | 4,806 |  |  | Appraisal - land development method |  | Adjustments for absorption rate, discount rate and lot value appreciation/depreciation |  | 0% - 30% (25%) |
There were no liabilities measured at fair value on a non-recurring basis at March 31, 2012. The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2011: Recurring Basis The Company is required or permitted to record the following assets at fair value on a recurring basis under other accounting pronouncements (in thousands).
Description |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |  |
Debt Securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  | $ | 149 |  |  | $ | — |  |  | $ | 149 |  |  | $ | — |
Obligations of states and political subdivisions |  | 108,431 |  |  | — |  |  | 108,431 |  |  | — |
U.S. Government agencies collateralized by residential mortgage obligations |  | 204,544 |  |  | — |  |  | 204,544 |  |  | — |
Private label residential mortgage backed securities |  | 7,398 |  |  | — |  |  | 7,398 |  |  | — |
Other equity securities |  | 7,891 |  |  | 7,891 |  |  | — |  |  | — |
Total assets measured at fair value |  | $ | 328,413 |  |  | $ | 7,891 |  |  | $ | 320,522 |  |  | $ | — |
Securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for available-for-sale investment securities in Level 2 are based on quoted market prices for similar securities in active markets. There were no liabilities measured at fair value on a recurring basis at December 31, 2011. Non-recurring Basis The Company may be required, from time to time, to measure certain assets at fair value on a non-recurring basis. These include assets that are measured at the lower of cost or fair value that were recognized at fair value which was below cost at December 31, 2011 (in thousands).
Description |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total Gains (Losses) in the Period
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 2,312 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,312 |  |  | $ | (271 | )
Agricultural production |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial |  | 2,312 |  |  | — |  |  | — |  |  | 2,312 |  |  | (271 | )
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  | 873 |  |  | — |  |  | — |  |  | 873 |  |  | (65 | )
Real estate-construction and other land loans |  | 8,782 |  |  | — |  |  | — |  |  | 8,782 |  |  | (996 | )
Commercial real estate |  | 1,487 |  |  | — |  |  | — |  |  | 1,487 |  |  | (1,366 | )
Total real estate |  | 11,142 |  |  | — |  |  | — |  |  | 11,142 |  |  | (2,427 | )
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity loans and lines of credit |  | 2,003 |  |  | — |  |  | — |  |  | 2,003 |  |  | 4 |
Consumer and installment |  | 51 |  |  | — |  |  | — |  |  | 51 |  |  | (23 | )
Total consumer |  | 2,054 |  |  | — |  |  | — |  |  | 2,054 |  |  | (19 | )
Total impaired loans |  | 15,508 |  |  | — |  |  | — |  |  | 15,508 |  |  | (2,717 | )
Other real estate owned |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total assets measured at fair value on a non-recurring basis |  | $ | 15,508 |  |  | $ | — |  |  | $ | — |  |  | $ | 15,508 |  |  | $ | (2,717 | )
In accordance with the provisions of ASC 360-10, impaired loans with a carrying value of $19,876,000 were written down to their fair value of $15,508,000, resulting in a valuation allowance of $4,368,000. The valuation allowance represents specific allocations for the allowance for credit losses for impaired loans. Impaired loans and other real estate owned were determined to be collateral dependent and categorized as Level 3 due to ongoing real estate market conditions resulting in inactive market data, which in turn required the use of unobservable inputs and assumptions in fair value measurements. There were no changes in valuation techniques used during the year ended December 31, 2011. There were no liabilities measured at fair value on a non-recurring basis at December 31, 2011.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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- Details
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