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Fair Value of Financial Instruments | 6 Months Ended
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Jun. 30, 2012
Fair Value of Financial Instruments [Abstract] |
Fair Value of Financial Instruments |
(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 estimated future cash flows utilizing contractual cash flows, 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 June 30, 2012 and December 31, 2011 is as follows:
|  |  |  |  |  |  |  | June 30, 2012 Fair Value Measurements |  |  |  |  |  |  |
|  | June 30, 2012 |  |  | Quoted Prices in Active Markets for Identical |  |  | Other Observable |  |  | Net Significant Unobservable |  |  | December 31, 2011 |
|  | Carrying amount |  |  | Fair value |  |  | Assets (Level 1) |  |  | Inputs (Level 2) |  |  | Inputs (Level 3) |  |  | Carrying amount |  |  | Fair value |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans |  | $ | 828,791,399 |  |  | $ | 825,932,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 825,932,000 |  |  | $ | 829,121,324 |  |  | $ | 830,077,000 |
Investment securities |  |  | 228,269,741 |  |  |  | 228,269,741 |  |  |  | — |  |  |  | 228,269,741 |  |  |  | — |  |  |  | 213,806,001 |  |  |  | 213,806,001 |
FHLB stock |  |  | 2,641,100 |  |  |  | 2,641,100 |  |  |  | — |  |  |  | 2,641,100 |  |  |  | — |  |  |  | 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 |  |  | 40,329,180 |  |  |  | 40,329,180 |  |  |  | 40,329,180 |  |  |  | — |  |  |  | — |  |  |  | 43,134,530 |  |  |  | 43,134,530 |
Mortgage servicing rights |  |  | 2,666,498 |  |  |  | 2,666,498 |  |  |  | — |  |  |  | — |  |  |  | 2,666,498 |  |  |  | 2,308,377 |  |  |  | 2,512,103 |
Cash surrender value - life insurance |  |  | 2,097,824 |  |  |  | 2,097,824 |  |  |  | — |  |  |  | 2,097,824 |  |  |  | — |  |  |  | 2,064,452 |  |  |  | 2,064,452 |
Accrued interest receivable |  |  | 5,280,353 |  |  |  | 5,280,353 |  |  |  | 5,280,353 |  |  |  | — |  |  |  | — |  |  |  | 5,340,610 |  |  |  | 5,340,610 |
|  | $ | 1,110,151,095 |  |  | $ | 1,107,291,696 |  |  | $ | 45,684,533 |  |  | $ | 233,008,665 |  |  | $ | 828,598,498 |  |  | $ | 1,098,588,394 |  |  | $ | 1,099,747,796 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand |  | $ | 169,124,794 |  |  | $ | 169,124,794 |  |  | $ | — |  |  | $ | 169,124,794 |  |  | $ | — |  |  | $ | 159,186,859 |  |  | $ | 159,186,859 |
NOW |  |  | 185,378,393 |  |  |  | 185,378,393 |  |  |  | — |  |  |  | 185,378,393 |  |  |  | — |  |  |  | 169,451,594 |  |  |  | 169,451,594 |
Savings |  |  | 67,514,234 |  |  |  | 67,514,234 |  |  |  | — |  |  |  | 67,514,234 |  |  |  | — |  |  |  | 62,075,470 |  |  |  | 62,075,470 |
Money market |  |  | 149,636,977 |  |  |  | 149,636,977 |  |  |  | — |  |  |  | 149,636,977 |  |  |  | — |  |  |  | 153,071,624 |  |  |  | 153,071,624 |
Time |  |  | 412,924,207 |  |  |  | 419,049,000 |  |  |  | — |  |  |  | 419,049,000 |  |  |  | — |  |  |  | 414,438,606 |  |  |  | 421,687,000 |
Federal funds purchased and securities sold under agreements to repurchase |  |  | 23,843,510 |  |  |  | 23,843,510 |  |  |  | — |  |  |  | 23,843,510 |  |  |  | — |  |  |  | 24,516,277 |  |  |  | 24,516,277 |
Subordinated notes |  |  | 49,486,000 |  |  |  | 21,328,000 |  |  |  | — |  |  |  | 21,328,000 |  |  |  | — |  |  |  | 49,486,000 |  |  |  | 22,082,000 |
Federal Home Loan Bank advances |  |  | 28,280,725 |  |  |  | 29,134,000 |  |  |  | — |  |  |  | 29,134,000 |  |  |  | — |  |  |  | 28,409,989 |  |  |  | 29,525,000 |
Accrued interest payable |  |  | 1,427,066 |  |  |  | 1,427,066 |  |  |  | 1,427,066 |  |  |  | — |  |  |  | — |  |  |  | 1,054,202 |  |  |  | 1,054,202 |
|  | $ | 1,087,615,906 |  |  | $ | 1,066,435,974 |  |  | $ | 1,427,066 |  |  | $ | 1,065,008,908 |  |  | $ | — |  |  | $ | 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.

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