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Fair Value | 9 Months Ended
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Sep. 30, 2012
Fair Value [Abstract] |
Fair Value |
(6) | Fair Value
The Company is required to disclose fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company's financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good faith estimate of the increase or decrease in the value of financial instruments held by the Company since purchase, origination, or issuance. The Company groups assets and liabilities 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. These levels are:
· | Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
· | Level 2 – Valuation is based upon 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 in the market.
· | Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
Cash and Cash Equivalents For cash, due from banks and interest-bearing deposits, the carrying amount is a reasonable estimate of fair value. Investment Securities Available for Sale Fair values of investment securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges when available. If quoted prices are not available, fair value is determined using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities. Fair values for investment securities with quoted market prices are reported in the Level 1 fair value category. Fair value measurements obtained from independent pricing services are reported in the Level 2 fair value category. All other fair value measurements are reported in the Level 3 fair value category. Other Investments For other investments, the carrying value is a reasonable estimate of fair value. Mortgage Loans Held for Sale Mortgage loans held for sale are carried at lower of aggregate cost or market value. The cost of mortgage loans held for sale approximates the market value. Mortgage loans held for sale are reported in the Level 3 fair value category. Loans The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable rate loans, the carrying amount is a reasonable estimate of fair value. Impaired loans with current certified appraisals are included in the Level 2 fair value category. All other loans are included in the Level 3 fair value category, as the pricing of loans is more subjective than the pricing of other financial instruments. Cash Surrender Value of Life Insurance For cash surrender value of life insurance, the carrying value is a reasonable estimate of fair value. Other Real Estate The fair value of other real estate is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral. Other real estate is reported in the Level 3 fair value category. Derivative Instruments For derivative instruments, fair value is estimated as the amount that the Company would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts. Deposits The fair value of demand deposits, interest-bearing demand deposits and savings is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities. Securities Sold Under Agreements to Repurchase For securities sold under agreements to repurchase, the carrying value is a reasonable estimate of fair value. Federal Home Loan Bank ("FHLB") Borrowings The fair value of FHLB borrowings is estimated based upon discounted future cash flows using a discount rate comparable to the current market rate for such borrowings. Junior Subordinated Debentures Because the Company's junior subordinated debentures were issued at a floating rate, the carrying amount is a reasonable estimate of fair value. Commitments to Extend Credit and Standby Letters of Credit Commitments to extend credit and standby letters of credit are generally short-term and at variable interest rates. Therefore, both the carrying value and estimated fair value associated with these instruments are immaterial. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on many judgments. 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 estimates. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. 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 the estimates. GAAP establishes a framework for measuring fair value and expands disclosures about fair value measurements. There is a three-level fair value hierarchy for fair value measurements. Level 1 inputs are quoted prices in active markets for identical assets or liabilities that a company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The following tables present the balance of securities available for sale and mortgage loans held for sale, which are measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2012 and December 31, 2011.
(Dollars in thousands) |  |  |  |  |  |  |
| September 30, 2012
| Fair Value Measurements |  | Level 1 Valuation |  | Level 2 Valuation |  | Level 3 Valuation
Mortgage-backed securities | $ | 160,086 |  | - |  | 160,086 |  | -
U.S. Government |  |  |  |  |  |  |  |
sponsored enterprises | $ | 1,294 |  | - |  | 1,294 |  | -
State and political subdivisions | $ | 116,149 |  | - |  | 116,149 |  | -
Corporate bonds | $ | 1,551 |  | - |  | 1,551 |  | -
Trust preferred securities | $ | 1,250 |  | - |  | - |  | 1,250
Equity securities | $ | 1,455 |  | 1,455 |  | - |  | -
Mortgage loans held for sale | $ | 5,984 |  | - |  | - |  | 5,984
(Dollars in thousands) |  |  |  |  |  |  |
| December 31, 2011
| Fair Value Measurements |  | Level 1 Valuation |  | Level 2 Valuation |  | Level 3 Valuation
Mortgage-backed securities | $ | 213,693 |  | - |  | 208,349 |  | 5,344
U.S. Government |  |  |  |  |  |  |  |
sponsored enterprises | $ | 7,694 |  | - |  | 7,694 |  | -
State and political subdivisions | $ | 97,097 |  | - |  | 97,097 |  | -
Corporate bonds | $ | 543 |  | - |  | 543 |  | -
Trust preferred securities | $ | 1,250 |  | - |  | - |  | 1,250
Equity securities | $ | 1,111 |  | 1,111 |  | - |  | -
Mortgage loans held for sale | $ | 5,146 |  | - |  | - |  | 5,146
The following is an analysis of fair value measurements of investment securities available for sale using Level 3, significant unobservable inputs, for the nine months ended September 30, 2012. Transfers out of Level 3 during the nine months ended September 30, 2012 are attributable to one available for sale security reported in Level 3 at December 31, 2011 because market pricing was unavailable from the Bank's third party bond accounting provider at that time. This security was reported in Level 2 at September 30, 2012, as the market valuation was provided by the Bank's third party bond accounting provider.
(Dollars in thousands) |  |
| Investment Securities Available for Sale |
| Level 3 Valuation |
Balance, beginning of period | $ | 6,594 |
Change in book value |  | - |
Change in gain/(loss) realized and unrealized |  | - |
Purchases/(sales) |  | - |
Transfers in and/or (out) of Level 3 |  | (5,344 | )
Balance, end of period | $ | 1,250 |
Change in unrealized gain/(loss) for assets still held in Level 3 | $ | - |
The Company's September 30, 2012 and December 31, 2011 fair value measurement for impaired loans and other real estate on a non-recurring basis is presented below:
(Dollars in thousands) |  |  |  |  |  |  |  |  |
| Fair Value Measurements September 30, 2012 |  | Level 1 Valuation |  | Level 2 Valuation |  | Level 3 Valuation |  | Total Gains/(Losses) for the Nine Months Ended September 30, 2012 |
Impaired loans | $ | 57,495 |  | - |  | - |  | 57,495 |  | (5,408 | )
Other real estate | $ | 6,595 |  | - |  | - |  | 6,595 |  | (710 | )
(Dollars in thousands) |  |  |  |  |  |  |  |  |
| Fair Value Measurements December 31, 2011 |  | Level 1 Valuation |  | Level 2 Valuation |  | Level 3 Valuation |  | Total Gains/(Losses) for the Year Ended December 31, 2011 |
Impaired loans | $ | 49,901 |  | - |  | 431 |  | 49,470 |  | (11,864 | )
Other real estate | $ | 7,576 |  | - |  | - |  | 7,576 |  | (1,322 | )
The carrying amount and estimated fair value of the Company's financial instruments at September 30, 2012 and December 31, 2011 are as follows:
(Dollars in thousands) |  |  |  |  |  |  |  |  |
|  |  | Fair Value Measurements at September 30, 2012
| Carrying Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 55,904 |  | 55,904 |  | - |  | - |  | 55,904
Investment securities available for sale |  | 281,785 |  | 1,455 |  | 279,080 |  | 1,250 |  | 281,785
Other investments |  | 5,599 |  | - |  | - |  | 5,599 |  | 5,599
Mortgage loans held for sale |  | 5,984 |  | - |  | - |  | 5,984 |  | 5,984
Loans, net |  | 609,231 |  | - |  | - |  | 604,690 |  | 604,690
Cash surrender value of life insurance |  | 13,142 |  | - |  | 13,142 |  | - |  | 13,142
Liabilities: |  |  |  |  |  |  |  |  |  |
Deposits | $ | 768,470 |  | - |  | 767,543 |  | - |  | 767,543
Securities sold under agreements |  |  |  |  |  |  |  |  |  |
to repurchase |  | 43,136 |  | - |  | 43,136 |  | - |  | 43,136
FHLB borrowings |  | 70,000 |  | - |  | 75,938 |  | - |  | 75,938
Junior subordinated debentures |  | 20,619 |  | - |  | 20,619 |  | - |  | 20,619
(Dollars in thousands) |  |  |
| December 31, 2011
| Carrying Amount |  | Estimated Fair Value
Assets: |  |  |
Cash and cash equivalents | $ | 29,236 |  | 29,236
Investment securities available for sale |  | 321,388 |  | 321,388
Other investments |  | 5,712 |  | 5,712
Mortgage loans held for sale |  | 5,146 |  | 5,146
Loans, net |  | 653,893 |  | 648,640
Cash surrender value of life insurance |  | 12,835 |  | 12,835
Liabilities: |  |  |  |
Deposits and demand notes payable | $ | 827,111 |  | 826,810
Securities sold under agreements |  |  |  |
to repurchase |  | 39,600 |  | 39,600
FHLB borrowings |  | 70,000 |  | 75,046
Junior subordinated debentures |  | 20,619 |  | 20,619

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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. Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19207-110258 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 + Details
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