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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2011
Notes to Financial Statements [Abstract] |
Fair Value Measurements | Note 16: Fair Value Measurements The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations come into play in determining the fair value of financial assets in markets that are not active. The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:
| Level 1 – |  | Valuation is based on quoted prices in active markets for identical assets and liabilities.
| Level 2 – |  | Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
| Level 3 – |  | Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
68 The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements: Securities Available for Sale Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2). The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table. The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010:
|  |  |  |  | Fair Value Measurements at December 31, 2011 Using |
Description |  | Balance as of December 31, 2011 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
U.S. Treasury |  | $ | 2,150 |  |  | $ | --- |  |  | $ | 2,150 |  |  | $ | --- |
U.S. Government agencies and corporations |  |  | 96,003 |  |  |  | --- |  |  |  | 96,003 |  |  |  | --- |
States and political subdivisions |  |  | 49,122 |  |  |  | --- |  |  |  | 49,122 |  |  |  | --- |
Mortgage-backed securities |  |  | 7,725 |  |  |  | --- |  |  |  | 7,725 |  |  |  | --- |
Corporate debt securities |  |  | 16,077 |  |  |  | --- |  |  |  | 16,077 |  |  |  | --- |
Other securities |  |  | 2,175 |  |  |  | --- |  |  |  | 2,175 |  |  |  | --- |
Total securities available for sale |  | $ | 173,252 |  |  | $ | --- |  |  | $ | 173,252 |  |  | $ | --- |
|  |  |  |  | Fair Value Measurements at December 31, 2010 Using |
Description |  | Balance as of December 31, 2010 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
U.S. Treasury |  | $ | 2,183 |  |  | $ | --- |  |  | $ | 2,183 |  |  | $ | --- |
U.S. Government agencies and corporations |  |  | 88,152 |  |  |  | --- |  |  |  | 88,152 |  |  |  | --- |
States and political subdivisions |  |  | 61,682 |  |  |  | --- |  |  |  | 61,682 |  |  |  | --- |
Mortgage-backed securities |  |  | 11,379 |  |  |  | --- |  |  |  | 11,379 |  |  |  | --- |
Corporate debt securities |  |  | 17,680 |  |  |  | --- |  |  |  | 17,680 |  |  |  | --- |
Other securities |  |  | 2,062 |  |  |  | --- |  |  |  | 2,062 |  |  |  | --- |
Total securities available for sale |  | $ | 183,138 |  |  | $ | --- |  |  | $ | 183,138 |  |  | $ | --- |
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements: Loans Held for Sale Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the years ended December 31, 2011 and 2010. Gains and losses on the sale of loans are recorded within other income from mortgage banking on the Consolidated Statements of Income. 69 Impaired Loans Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Troubled debt restructurings are impaired loans. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). The Company discounts appraisals that become outdated or if declines in value are identified after the date of the appraisal, as well as for the Company’s own estimates of selling costs, resulting in a valuation based on Level 3 inputs. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income. The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis during the period.
|  |  |  | Carrying value at December 31, 2011 |
Description |  | Balance as of December 31, 2011 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans net of valuation allowance |  |  | $ | 5,968 |  |  | $ | --- |  |  | $ | --- |  |  | $ | 5,968 |
|  |  |  | Carrying value at December 31, 2010 |
Description |  | Balance as of December 31, 2010 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans net of valuation allowance |  |  | $ | 6,476 |  |  | $ | --- |  |  | $ | --- |  |  | $ | 6,476 |
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the fair discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. 70 Other Real Estate Owned Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate owned is determined using appraisals from independent parties, a level two input. The Company discounts appraisals that become outdated or if declines in value are identified after the date of the appraisal, as well as for the Company’s own estimates of selling costs, resulting in a valuation based on Level 3 inputs. The following table summarizes the Company’s other real estate owned that were measured at fair value on a nonrecurring basis during the period.
|  |  |  | Carrying Value at December 31, 2011 |
Description |  | Balance as of December 31, 2011 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Other real estate owned net of valuation allowance |  |  | $ | 1,489 |  |  | $ | --- |  |  | $ | --- |  |  | $ | 1,489 |
|  |  |  | Carrying Value at December 31, 2010 |
Description |  | Balance as of December 31, 2010 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Other real estate owned net of valuation allowance |  |  | $ | 1,723 |  |  | $ | --- |  |  | $ | --- |  |  | $ | 1,723 |
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: Cash and Due from Banks, Interest-Bearing Deposits, and Federal Funds Sold The carrying amounts approximate fair value. Securities The fair values of securities, excluding restricted stock, are determined by quoted market prices or dealer quotes. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, so fair value estimates are based on quoted market prices of similar instruments adjusted for differences between the quoted instruments and the instruments being valued. The carrying value of restricted securities approximates fair value based upon the redemption provisions of the applicable entities. Loans Held for Sale Fair values of loans held for sale are based on commitments on hand from investors or prevailing market prices. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, real estate – commercial, real estate – construction, real estate – mortgage, credit card and other consumer loans. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories. The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan, as well as estimates for prepayments. The estimate of maturity is based on the Company’s historical experience with repayments for loan classification, modified, as required, by an estimate of the effect of economic conditions on lending. Fair value for significant nonperforming loans is based on estimated cash flows which are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are determined within management’s judgment, using available market information and specific borrower information. Bank-Owned Life Insurance Bank-owned life insurance represents insurance policies on officers of the Company. The cash values of the policies are estimates using information provided by insurance carriers. These policies are carried at their cash surrender value, which approximates fair value. Deposits The fair value of demand and savings deposits is the amount payable on demand. The fair value of fixed maturity term deposits and certificates of deposit is estimated using the rates currently offered for deposits with similar remaining maturities. 71 Accrued Interest The carrying amounts of accrued interest approximate fair value. Other Borrowed Funds Other borrowed funds, represents treasury tax and loan deposits and short-term borrowings from the Federal Home Loan Bank. The carrying amount is a reasonable estimate of fair value because the deposits are generally repaid within 120 days from the transaction date. Commitments to Extend Credit and Standby Letters of Credit The only amounts recorded for commitments to extend credit, standby letters of credit and financial guarantees written are the deferred fees arising from these unrecognized financial instruments. These deferred fees are not deemed significant at December 31, 2011 and 2010, and, as such, the related fair values have not been estimated. The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:
|  | December 31, |
|  | 2011 |  |  | 2010 |
|  | Carrying Amount |  |  | Estimated Fair Value |  |  | Carrying Amount |  |  | Estimated Fair Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 11,897 |  |  | $ | 11,897 |  |  | $ | 9,858 |  |  | $ | 9,858 |
Interest-bearing deposits |  |  | 98,355 |  |  |  | 98,355 |  |  |  | 69,400 |  |  |  | 69,400 |
Securities |  |  | 318,913 |  |  |  | 326,347 |  |  |  | 315,907 |  |  |  | 314,820 |
Mortgage loans held for sale |  |  | 2,623 |  |  |  | 2,623 |  |  |  | 2,460 |  |  |  | 2,460 |
Loans, net |  |  | 580,402 |  |  |  | 572,357 |  |  |  | 568,779 |  |  |  | 539,152 |
Accrued interest receivable |  |  | 6,304 |  |  |  | 6,304 |  |  |  | 6,016 |  |  |  | 6,016 |
Bank-owned life insurance |  |  | 19,812 |  |  |  | 19,812 |  |  |  | 17,252 |  |  |  | 17,252 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 919,333 |  |  | $ | 913,882 |  |  | $ | 884,583 |  |  | $ | 880,290 |
Accrued interest payable |  |  | 206 |  |  |  | 206 |  |  |  | 257 |  |  |  | 257 |

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- Definition This element represents the disclosure related to the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 33 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 6 -Footnote 4 + Details
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