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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2012

Fair Value of Financial Instruments [Abstract]

(12) Fair Value of Financial Instruments

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 such value:

Loans

The fair values of loans are estimated by discounting the expected future cash flows using the current rates at which similar loans could be made to borrowers with similar credit ratings and for the same remaining maturities. The net carrying amount of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic 820.

Investment Securities

A detailed description of the fair value measurement of the debt instruments in the available for sale sections of the investment security portfolio is provided in the Fair Value Measurement section above. A schedule of investment securities by category and maturity is provided in the notes on Investment Securities.

Federal Home Loan Bank (FHLB) Stock

Ownership of equity securities of FHLB is restricted and there is no established market for their resale. The carrying amount is a reasonable estimate of fair value.

Federal Funds Sold, Cash, and Due from Banks

The carrying amounts of short-term federal funds sold and securities purchased under agreements to resell, interest earning deposits with banks, and cash and due from banks approximate fair value. Federal funds sold and securities purchased under agreements to resell classified as short-term generally mature in 90 days or less.

Mortgage Servicing Rights

The fair value of mortgage servicing rights is based on the discounted value of contractual cash flows utilizing servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model which calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees.

Cash surrender value – life insurance

The fair value of Bank owned life insurance (BOLI) approximates the carrying amount. Upon liquidation of these investments, our Company would receive the cash surrender value which equals the carrying amount.

Accrued Interest Receivable and Payable

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

Deposits

The fair value of deposits with no stated maturity, such as noninterest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time deposits 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.

Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury

For securities sold under agreements to repurchase and interest-bearing demand notes to U.S. Treasury, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

Subordinated Notes and Other Borrowings

The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

A summary of the carrying amounts and fair values of our Company’s financial instruments at March 31, 2012 and December 31, 2011 is as follows:


			March 31, 2012
			Fair Value Measurements
	March 31, 2012		Quoted Prices in Active Markets for Identical		Other Observable		Net Significant Unobservable				December 31, 2011
	Carrying amount		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Fair value		Carrying amount		Fair value
Assets:
Loans	$	825,299,296	$	—	$	—	$	824,290,000	$	824,290,000	$	829,121,324	$	830,077,000
Investment securities		229,154,263		—		229,154,263		—		229,154,263		213,806,001		213,806,001
FHLB stock		2,685,200		—		2,685,200		—		2,685,200		2,738,100		2,738,100
Federal fund sold and securities purchased under agreements to resell		75,000		75,000		—		—		75,000		75,000		75,000
Cash and due from banks		63,492,273		63,492,273		—		—		63,492,273		43,134,530		43,134,530
Mortgage servicing rights		2,746,606		—		—		2,746,606		2,746,606		2,308,377		2,512,103
Cash surrender value—life insurance		2,084,638		—		2,084,638		—		2,084,638		2,064,452		2,064,452
Accrued interest receivable		4,974,750		4,974,750		—		—		4,974,750		5,340,610		5,340,610

	$	1,130,512,026	$	68,542,023	$	233,924,101	$	827,036,606	$	1,129,502,730	$	1,098,588,394	$	1,099,747,796

Liabilities:
Deposits:
Demand	$	166,475,667	$	—	$	166,475,667	$	—	$	166,475,667	$	159,186,859	$	159,186,859
NOW		196,463,097		—		196,463,097		—		196,463,097		169,451,594		169,451,594
Savings		65,882,109		—		65,882,109		—		65,882,109		62,075,470		62,075,470
Money market		153,905,749		—		153,905,749		—		153,905,749		153,071,624		153,071,624
Time		410,378,033		—		416,832,000		—		416,832,000		414,438,606		421,687,000
Federal funds purchased and securities sold under agreements to repurchase		22,747,919		—		22,747,919		—		22,747,919		24,516,277		24,516,277
Subordinated notes		49,486,000		—		21,472,000		—		21,472,000		49,486,000		22,082,000
Federal Home Loan Bank advances		28,345,357		—		29,300,000		—		29,300,000		28,409,989		29,525,000
Accrued interest payable		1,196,794		1,196,794		—		—		1,196,794		1,054,202		1,054,202

	$	1,094,880,725	$	1,196,794	$	1,073,078,541	$	—	$	1,074,275,335	$	1,061,690,621	$	1,042,650,026

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. Our Company believes such commitments have been made on terms, which are competitive in the markets in which it operates.

Limitations

The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of our 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 fair value estimates.