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Fair Value disclosure | 9 Months Ended
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Sep. 30, 2011
Fair value disclosures abstract |
Fair Value Disclosures Text Block | NOTE 8: FAIR VALUE DISCLOSURES “Fair value” is defined by FASB ASC 820, Fair Value Measurements and Disclosures, as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2—inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company's assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with FASB ASC 820. Securities – Securities available-for-sale are recorded at fair value on a recurring basis. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government securities such as U.S. Treasuries and exchange-traded equity securities. When instruments are traded in secondary markets and quoted market prices are not available, the Company generally relies on prices obtained from independent vendors. Vendors compile prices from various sources and often apply matrix pricing for similar securities when no price is observable for a security. Securities measured with these valuation techniques are generally classified within Level 2 of the valuation hierarchy and often involve using quoted market prices for similar securities, pricing models or discounted cash flow analyses using inputs observable in the market where available. Examples include U.S. government agency securities and residential mortgage-backed securities. Security fair value measurements using significant inputs that are unobservable in the market due to limited activity or a less liquid market are classified within Level 3 of the valuation hierarchy. Such measurements include securities valued using models or a combination of valuation techniques such as weighting of models and certain vendor or broker pricing, where the unobservable inputs are significant to the overall fair value measurement. Securities classified as Level 3 include pooled and individual issuer trust preferred securities. Loans held for sale – Loans held for sale are carried at the lower of cost or estimated fair value and are subjected to nonrecurring fair value adjustments. Estimated fair value is determined on the basis of the current market value of similar loans. All of the Company's loans held for sale are classified within Level 2 of the valuation hierarchy. Loans, net — A loan is considered impaired when it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected payments using the loan's original effective rate as the discount rate, the loan's observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance may be established as a component of the allowance for loan losses or the expense is recognized as a charge-off. Impaired loans are classified within Level 3 of the valuation hierarchy. Other real estate owned — Other real estate owned, consisting of properties obtained through foreclosure or in satisfaction of loans, are initially recorded at the lower of the loan's carrying amount or the fair value less costs to sell upon transfer of the loans to other real estate. Subsequently, other real estate is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. All of the Company's other real estate is classified within Level 3 of the valuation hierarchy. Other assets – The Company has certain financial assets carried at fair value on a recurring basis, including interest rate swap agreements. The carrying amount of interest rate swap agreements is based on information obtained from a third party bank. The Company classified these derivative assets within Level 2 of the valuation hierarchy. These swaps qualify as derivatives, but are not designated as hedging instruments. The Company had no derivative contracts to assist in managing interest rate sensitivity at September 30, 2011 or December 31, 2010. Mortgage servicing rights, net, included in other assets on the accompanying consolidated balance sheets, are carried at the lower of cost or estimated fair value and are subjected to nonrecurring fair value adjustments. MSRs do not trade in an active market with readily observable prices. To determine the fair value of MSRs, the Company engages an independent third party. The independent third party's valuation model calculates the present value of estimated future net servicing income using assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Because the valuation of MSRs requires the use of significant unobservable inputs, all of the Company's MSRs are classified within Level 3 of the valuation hierarchy. Other liabilities – The Company has certain financial liabilities carried at fair value on a recurring basis, including interest rate swap agreements. The carrying amount of interest rate swap agreements is based on information obtained from a third party bank. The Company classified these derivative liabilities within Level 2 of the valuation hierarchy. These swaps qualify as derivatives, but are not designated as hedging instruments. The Company had no derivative contracts to assist in managing interest rate sensitivity at September 30, 2011 or December 31, 2010. Assets and liabilities measured at fair value on a recurring basis The following table presents the balances of the assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, respectively, by caption, on the Condensed C onsolidated Balance S heets by FASB ASC 820 valuation hierarchy (as described above).
|  |  |  |  |  | Quoted Prices in |  | Significant |  |
|  |  |  |  |  | Active Markets |  | Other |  | Significant
|  |  |  |  |  | for |  | Observable |  | Unobservable
|  |  |  |  |  | Identical Assets |  | Inputs |  | Inputs
(Dollars in thousands) |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3)
September 30, 2011: |  |  |  |  |  |  |  |
Securities available-for-sale: |  |  |  |  |  |  |  |
| Agency obligations | $ | 41,259 |  | — |  | 41,259 |  | —
| Agency RMBS |  | 157,060 |  | — |  | 157,060 |  | —
| State and political subdivisions |  | 82,800 |  | — |  | 82,800 |  | —
| Trust preferred securities: |  |  |  |  |  |  |  |
|  | Pooled |  | 100 |  | — |  | — |  | 100
|  | Individual issuer |  | 1,851 |  | — |  | — |  | 1,851
Total securities available-for-sale |  | 283,070 |  | — |  | 281,119 |  | 1,951
Other assets (1) |  | 1,334 |  | — |  | 1,334 |  | —
|  | Total assets at fair value | $ | 284,404 |  | — |  | 282,453 |  | 1,951
Other liabilities(1) |  | 1,334 |  | — |  | 1,334 |  | —
|  | Total liabilities at fair value | $ | 1,334 |  | — |  | 1,334 |  | —
December 31, 2010: |  |  |  |  |  |  |  |
Securities available-for-sale: |  |  |  |  |  |  |  |
| Agency obligations | $ | 90,471 |  | — |  | 90,471 |  | —
| Agency RMBS |  | 143,144 |  | — |  | 143,144 |  | —
| State and political subdivisions |  | 76,766 |  | — |  | 76,766 |  | —
| Trust preferred securities: |  |  |  |  |  |  |  |
|  | Pooled |  | 20 |  | — |  | — |  | 20
|  | Individual issuer |  | 2,129 |  | — |  | — |  | 2,129
| Corporate debt |  | 2,690 |  | 2,690 |  | — |  | —
Total securities available-for-sale |  | 315,220 |  | 2,690 |  | 310,381 |  | 2,149
Other assets (1) |  | 1,101 |  | — |  | 1,101 |  | —
|  | Total assets at fair value | $ | 316,321 |  | 2,690 |  | 311,482 |  | 2,149
Other liabilities(1) |  | 1,101 |  | — |  | 1,101 |  | —
|  | Total liabilities at fair value | $ | 1,101 |  | — |  | 1,101 |  | —
(1)Represents the fair value of interest rate swap agreements.
Level changes in fair value measurements Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Corporation's monthly and/or quarterly valuation process. The Company monitors the valuation techniques utilized for each category of financial assets and liabilities to ascertain when transfers between levels have been affected. The nature of the Company's financial assets and liabilities generally is such that transfers in and out of any level are expected to be rare. For the nine months ended September 30, 2011, there were no transfers between levels. The following is a reconciliation of the beginning and ending balances of recurring fair value measurements for trust preferred securities recognized in the accompanying Condensed Consolidated Balance S heets using Level 3 inputs:
|  |  |  |  |  |  | Nine months ended September 30,
(Dollars in thousands) |  |  |  |  |  |  |  | 2011 |  |  | 2010
Beginning balance |  |  |  |  |  |  | $ | 2,149 |  | $ | 1,463
| Total realized and unrealized gains and (losses): |  |  |  |  |  |  |  |  |  |  |
|  | Included in net earnings |  |  |  |  |  |  |  | (338) |  |  | (390)
|  | Included in other comprehensive income |  |  |  |  |  |  |  | 140 |  |  | 1,327
| Purchases |  |  |  |  |  |  |  | — |  |  | —
| Issuances |  |  |  |  |  |  |  | — |  |  | —
| Settlements |  |  |  |  |  |  |  | — |  |  | —
| Transfers in and/or (out) of Level 3 |  |  |  |  |  |  |  | — |  |  | —
Ending balance |  |  |  |  |  |  | $ | 1,951 |  | $ | 2,400
Assets and liabilities measured at fair value on a nonrecurring basis The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2011 and December 31, 2010, respectively, by caption, on the Condensed Consolidated Balance S heets and by FASB ASC 820 valuation hierarchy (as described above):
|  |  |  |  | Quoted Prices in |  |  |  |
|  |  |  |  | Active Markets |  | Other |  | Significant
|  |  |  |  | for |  | Observable |  | Unobservable
|  |  |  |  | Identical Assets |  | Inputs |  | Inputs
(Dollars in thousands) |  | Amount |  | (Level 1) |  | (Level 2) |  | (Level 3)
September 30, 2011: |  |  |  |  |  |  |  |
Loans held for sale | $ | 2,906 |  | — |  | 2,906 |  | —
Loans, net(1) |  | 9,513 |  | — |  | — |  | 9,513
Other real estate owned |  | 7,770 |  | — |  | — |  | 7,770
Other assets (2) |  | 1,237 |  | — |  | — |  | 1,237
| Total assets at fair value | $ | 21,426 |  | — |  | 2,906 |  | 18,520
December 31, 2010: |  |  |  |  |  |  |  |
Loans held for sale | $ | 4,281 |  | — |  | 4,281 |  | —
Loans, net(1) |  | 10,362 |  | — |  | — |  | 10,362
Other real estate owned |  | 8,125 |  | — |  | — |  | 8,125
Other assets (2) |  | 1,189 |  | — |  | — |  | 1,189
| Total assets at fair value | $ | 23,957 |  | — |  | 4,281 |  | 19,676
(1)Loans considered impaired under FASB ASC 310-10-35 Receivables. This amount reflects the recorded investment in
| impaired loans, net of any related allowance for loan losses.
(2)Represents the carrying value of MSRs, net.

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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 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: 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 3: 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=6947722&loc=d3e13433-108611 Reference 4: 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 5: 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 6: 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=6947722&loc=d3e13504-108611 Reference 7: 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 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=6947722&loc=d3e13537-108611 Reference 9: 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 10: 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=6925170&loc=d3e19207-110258 Reference 11: 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 Reference 12: 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 13: 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 14: 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. + Details
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