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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2012
Fair Value Measurements [Abstract] |
Fair Value Measurements |
(11) | Fair Value Measurements
Our Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities. The FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. The standard applies whenever other standards require (permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, FASB clarified 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, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. As of June 30, 2012 and December 31, 2011, respectively, there were no transfers into or out of Levels 1-3. The fair value hierarchy is as follows: Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 – 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, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using our Company’s best information and assumptions that a market participant would consider. ASC Topic 820 also provides guidance on determining fair value when the volume and level of activity for the asset or liability has significantly decreased and on identifying circumstances when a transaction may not be considered orderly. Our Company is required to disclose assets and liabilities measured at fair value on a recurring basis separate from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis would include foreclosed real estate, long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred. Valuation methods for instruments measured at fair value on a recurring basis Following is a description of our Company’s valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis: Available-for-sale securities Available-for-sale securities are recorded at fair value on a recurring basis. Available-for-sale securities is the only balance sheet category for which our Company is required, in conformity with U.S. GAAP, to carry the asset at fair value on a recurring basis. Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, our Company obtains fair value measurements from an independent pricing service. 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 things. 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. The valuation models estimate the present value of estimated future net servicing income. Our Company classifies its servicing rights as Level 3.
|  |  |  |  | Fair Value Measurements |
June 30, 2012: |  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury |  | $ | 2,040,781 |  |  | $ | — |  |  | $ | 2,040,781 |  |  | $ | — |
Government sponsored enterprises |  |  | 71,048,653 |  |  |  | — |  |  |  | 71,048,653 |  |  |  | — |
Asset-backed securities |  |  | 120,889,297 |  |  |  | — |  |  |  | 120,889,297 |  |  |  | — |
Obligations of states and political subdivisions |  |  | 34,291,010 |  |  |  | — |  |  |  | 34,291,010 |  |  |  | — |
Mortgage servicing rights |  |  | 2,666,498 |  |  |  |  |  |  |  |  |  |  |  | 2,666,498 |
Total |  | $ | 230,936,239 |  |  | $ | — |  |  | $ | 228,269,741 |  |  | $ | 2,666,498 |
|  |  |  |  | Fair Value Measurements |
December 31, 2011: |  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury |  | $ | 2,054,102 |  |  | $ | — |  |  | $ | 2,054,102 |  |  | $ | — |
Government sponsored enterprises |  |  | 70,313,978 |  |  |  | — |  |  |  | 70,313,978 |  |  |  | — |
Asset-backed securities |  |  | 107,328,618 |  |  |  | — |  |  |  | 107,328,618 |  |  |  | — |
Obligations of states and political subdivisions |  |  | 34,109,303 |  |  |  | — |  |  |  | 34,109,303 |  |  |  | — |
Total |  | $ | 213,806,001 |  |  | $ | — |  |  | $ | 213,806,001 |  |  | $ | — |
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:
|  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Mortgage Servicing Rights |
|  | Three Months Ended June 30, 2012 |  |  | Six Months Ended June 30, 2012 |
Balance at beginning of period |  | $ | 2,746,606 |  |  | $ | 2,512,103 |
Total gains or losses (realized/unrealized): |  |  |  |  |  |  |  |
Included in earnings |  |  | (80,108 | ) |  |  | 154,395 |
Included in other comprehensive income |  |  | — |  |  |  | — |
Balance at end of period |  | $ | 2,666,498 |  |  | $ | 2,666,498 |
Total gains or losses for the three and six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2012 |  | $ | 106,045 |  |  | $ | 275,627 |
Valuation methods for instruments measured at fair value on a nonrecurring basis Following is a description of our Company’s valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis: Impaired Loans Our Company does not record loans at fair value on a recurring basis other than loans that are considered impaired. The net carrying value of impaired loans is generally based on fair values of the underlying collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. Once the fair value of the collateral has been determined and any impairment amount calculated, a specific reserve allocation is made. Because many of these inputs are not observable, the measurements are classified as Level 3. As of June 30, 2012, our Company identified $28.1 million in impaired loans that had specific allowances for losses aggregating $5.1 million. Related to these loans, there was $1.6 million in charge-offs recorded during the six months ended June 30, 2012. Other Real Estate Owned and Repossessed Assets Other real estate owned and repossessed assets consist of loan collateral which has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate owned assets are recorded as held for sale initially at the lower of the loan balance or fair value of the collateral less estimated selling costs. Our Company relies on external appraisals and assessment of property values by our internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3.
|  | Fair Value Measurements Using |
Description |  | Fair Value June 30, 2012 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total Gains (Losses)* |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial, & agricultural |  | $ | 2,242,464 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,242,464 |  |  | $ | (48,634 | )
Real estate construction - residential |  |  | 129,980 |  |  |  | — |  |  |  | — |  |  |  | 129,980 |  |  |  | — |
Real estate construction - commercial |  |  | 5,553,002 |  |  |  | — |  |  |  | — |  |  |  | 5,553,002 |  |  |  | — |
Real estate mortgage - residential |  |  | 2,260,515 |  |  |  | — |  |  |  | — |  |  |  | 2,260,515 |  |  |  | (545,454 | )
Real estate mortgage - commercial |  |  | 12,842,110 |  |  |  | — |  |  |  | — |  |  |  | 12,842,110 |  |  |  | (1,022,597 | )
Total |  | $ | 23,028,071 |  |  | $ | — |  |  | $ | — |  |  | $ | 23,028,071 |  |  | $ | (1,616,685 | )
Other real estate owned and repossessed assets |  | $ | 21,582,893 |  |  | $ | — |  |  | $ | — |  |  | $ | 21,582,893 |  |  | $ | (408,527 | )
|  | Fair Value Measurements Using |
Description |  | Fair Value December 31, 2011 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total Gains (Losses)* |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial, & agricultural |  | $ | 642,745 |  |  | $ | — |  |  | $ | — |  |  | $ | 642,745 |  |  | $ | (2,135,996 | )
Real estate construction - residential |  |  | 396,460 |  |  |  | — |  |  |  | — |  |  |  | 396,460 |  |  |  | (1,556,738 | )
Real estate construction - commercial |  |  | 6,028,792 |  |  |  | — |  |  |  | — |  |  |  | 6,028,792 |  |  |  | (279,088 | )
Real estate mortgage - residential |  |  | 3,600,744 |  |  |  | — |  |  |  | — |  |  |  | 3,600,744 |  |  |  | (1,509,328 | )
Real estate mortgage - commercial |  |  | 15,980,238 |  |  |  | — |  |  |  | — |  |  |  | 15,980,238 |  |  |  | (5,841,988 | )
Total |  | $ | 26,648,979 |  |  | $ | — |  |  | $ | — |  |  | $ | 26,648,979 |  |  | $ | (11,323,138 | )
Other real estate owned and repossessed assets |  | $ | 16,020,023 |  |  | $ | — |  |  | $ | — |  |  | $ | 16,020,023 |  |  | $ | (2,111,929 | )
* | Total gains (losses) reported for other real estate owned and repossessed assets includes charge offs, valuation write downs, and net losses taken during the periods reported.

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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. 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