Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE

v2.4.0.6
FAIR VALUE
 9 Months Ended
Sep. 30, 2012
FAIR VALUE [Abstract]  
FAIR VALUE
NOTE 5 – FAIR VALUE
 
ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value include:
 
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
 
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
 
Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.
 
Investment Securities: The fair values of investment securities are determined by matrix pricing, which is a mathematical technique widely used 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 (Level 2 inputs).  The fair values of certain securities held to maturity are determined by computing discounted cash flows using observable and unobservable market inputs (Level 3 inputs).
 
Loans Held for Sale: The fair value of loans held for sale is based upon binding quotes from third party investors (Level 2 inputs).
 
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned: Adjustments to commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized through a valuation allowance.
 
Assets measured at fair value on a recurring basis are summarized below (in thousands):
 
 
Fair
Value
 
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
 
Significant Other Observable Inputs (Level 2)
 
 
Significant Unobservable Inputs
(Level 3)
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agency securities
 
$
40,692
 
 
$
---
 
 
$
40,692
 
 
$
---
 
U.S. Agency MBS and CMOs
25,491
---
25,491
---
Tax-exempt state and municipal bonds
 
 
17,319
 
 
 
---
 
 
 
17,319
 
 
 
---
 
Taxable state and municipal bonds
26,236
---
26,236
---
Corporate bonds and other debt securities
 
 
4,815
 
 
 
---
 
 
 
4,815
 
 
 
---
 
Other equity securities
 
 
1,575
 
 
 
---
 
 
 
1,575
 
 
 
---
 
Loans held for sale
 
 
11,063
 
 
 
---
 
 
 
11,063
 
 
 
---
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agency securities
 
$
27,613
 
 
$
---
 
 
$
27,613
 
 
$
---
 
U.S. Agency MBS and CMOs
3,886
---
3,886
---
Tax-exempt state and municipal bonds
4,408
---
4,408
---
Taxable state and municipal bonds
 
 
16,716
 
 
 
---
 
 
 
16,716
 
 
 
---
 
Corporate bonds
1,081
---
1,081
---
Other equity securities
 
 
1,042
 
 
 
---
 
 
 
1,042
 
 
 
---
 
Loans held for sale
 
 
1,026
 
 
 
---
 
 
 
1,026
 
 
 
---
 
 
Assets measured at fair value on a non-recurring basis are summarized below (in thousands):
 
 
Fair
Value
 
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
 
Significant Other Observable Inputs (Level 2)
 
 
Significant Unobservable Inputs
(Level 3)
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Impaired loans
 
$
35,114
 
 
$
---
 
 
$
---
 
 
$
35,114
 
Other real estate owned
 
 
42,333
 
 
 
---
 
 
 
---
 
 
 
42,333
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impaired loans
 
$
22,525
 
 
$
---
 
 
$
---
 
 
$
22,525
 
Other real estate owned
 
 
39,730
 
 
 
---
 
 
 
---
 
 
 
39,730
 
 
The carrying amounts and estimated fair values of financial instruments, not previously presented, were as follows at September 30, 2012 and December 31, 2011 (dollars in thousands).
Level in
September 30, 2012
 
 
December 31, 2011
 
Fair Value
Carrying
 
 
Fair
 
 
Carrying
 
 
Fair
 
Hierarchy
Amount
 
 
Value
 
 
Amount
 
 
Value
 
Financial assets
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
Level 1
$
22,398
 
 
$
22,398
 
 
$
30,971
 
 
$
30,971
 
Cash equivalents
Level 2
211,853
211,853
212,071
212,071
Securities held to maturity
Level 3
 
4,300
 
 
 
4,300
 
 
 
300
 
 
 
300
 
FHLB stock
 
11,236
 
 
 
NA
 
 
 
11,236
 
 
 
NA
 
Loans, net
Level 2
 
957,800
 
 
 
965,558
 
 
 
1,016,809
 
 
 
1,024,766
 
Bank owned life insurance
Level 3
26,614
26,614
25,957
25,957
Accrued interest receivable
Level 2
 
3,719
 
 
 
3,719
 
 
 
3,595
 
 
 
3,595
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
 
 
 
 
Deposits
Level 2
 
(1,244,748
)
 
 
(1,244,506
)
 
 
(1,215,289
)
 
 
(1,216,452
)
Other borrowed funds
Level 2
 
(91,822
)
 
 
(95,380
)
 
 
(148,603
)
 
 
(151,566
)
Long-term debt
Level 2
 
(41,238
)
 
 
(34,857
)
 
 
(41,238
)
 
 
(34,820
)
Subordinated debt
Level 2
 
(1,650
)
 
 
(1,650
)
 
 
(1,650
)
 
 
(1,650
)
Accrued interest payable
Level 2
 
(4,535
)
 
 
(4,535
)
 
 
(3,517
)
 
 
(3,517
)
 
 
 
 
 
 
 
 
 
 
 
Off-balance sheet credit-related items
 
 
 
 
 
 
 
 
 
 
 
Loan commitments
 
---
 
 
 
---
 
 
 
---
 
 
 
---
 
 
The methods and assumptions used to estimate fair value are described as follows.
 
Carrying amount is the estimated fair value for cash and cash equivalents, bank owned life insurance, accrued interest receivable and payable, demand deposits, short-term borrowings and variable rate loans or deposits that reprice frequently and fully. Security fair values are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities as discussed above. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk (including consideration of widening credit spreads). Fair value of debt is based on current rates for similar financing. It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance sheet credit-related items is not significant.