Disclosures Regarding Fair Value

9 Months Ended

Sep. 30, 2012

Disclosures Regarding Fair Value

19. Disclosures Regarding Fair Value

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize assets and liabilities measured at fair value on a recurring basis at the dates indicated, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).

	September 30, 2012
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
State and municipal	$	—	$	12,412	$	—	$	12,412
Collateralized mortgage obligations		—		128,727		—		128,727
Other mortgage-backed (federal agencies)		—		86,871		—		86,871
SBA loan-backed (federal agency)		40,901		21,894		—		62,795
Derivative financial instruments		—		820		—		820
Total assets measured at fair value on a recurring basis	$	40,901	$	250,724	$	—	$	291,625
Liabilities
Derivative financial instruments	$	—	$	278	$	—	$	278

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
State and municipal	$	—	$	120,965	$	—	$	120,965
Collateralized mortgage obligations		—		118,949		—		118,949
Other mortgage-backed (federal agencies)		—		21,078		—		21,078
Derivative financial instruments		—		481		—		481
Total assets measured at fair value on a recurring basis	$	—	$	261,473	$	—	$	261,473
Liabilities
Derivative financial instruments	$	—	$	25	$	—	$	25

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

For financial assets measured at fair value on a nonrecurring basis that are recorded in the Consolidated Balance Sheets, the following tables summarize the level of valuation assumptions used to determine fair value of the related individual assets at the dates indicated (in thousands). There were no liabilities measured at fair value on a nonrecurring basis at September 30, 2012 and December 31, 2011.

	September 30, 2012
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held for sale	$	—	$	3,795	$	—	$	3,795
Other loans held for sale		150		6,938		—		7,088
Impaired loans in gross loans		193		15,718		3,516		19,427
Foreclosed real estate and repossessed personal property		1,022		624		10,002		11,648
Long-lived assets held for sale		165		—		685		850
Total assets measured at fair value on a nonrecurring basis	$	1,530	$	27,075	$	14,203	$	42,808

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held for sale	$	—	$	3,648	$	—	$	3,648
Other loans held for sale		—		12,857		1,321		14,178
Impaired loans in gross loans		—		36,314		7,111		43,425
Foreclosed real estate and repossessed personal property		3,491		2,266		22,067		27,824
Long-lived assets held for sale		—		—		1,603		1,603
Total assets measured at fair value on a nonrecurring basis	$	3,491	$	55,085	$	32,102	$	90,678

Level 3 Valuation Methodologies. Following is a description of the unobservable inputs used for Level 3 fair value measurements.

Impaired Loans. At September 30, 2012 and December 31, 2011, the fair value of a majority of impaired loans was estimated based on the fair value of the underlying collateral, which is considered a Level 2 fair value estimate. A property underlying an impaired loan was under binding contract to be sold at September 30, 2012 and was, therefore, valued based on the contracted sales price, which is considered a Level 1 fair value estimate. We generally obtain third-party “as-is” appraisals on collateral securing impaired loans at the time it is classified as such if an appraisal has not been obtained within the most recent 12 month period. For the term that the loan remains classified as impaired, we obtain updated appraisals annually. When an appraised value is not available or the Company determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the estimated fair value of the impaired loan is classified as Level 3. Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loan’s effective interest rate. The measurement of impaired loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from fair value disclosures in the table above.

Foreclosed Real Estate and Repossessed Personal Property. Fair value is generally based on binding sales contracts, current appraisals, comparable sales and other estimates of value obtained principally from independent sources adjusted for selling costs (Level 1 and Level 2). In situations where management’s adjustments are significant to the fair value measurement in its entirety or when appraisals lack current sales comparisons, such measurements are classified as Level 3 within the valuation hierarchy.

Long-Lived Assets Held for Sale. Nonrecurring fair value adjustments on long-lived assets held for sale reflect impairment writedowns. Appraisals are used to determine impairment, and these appraisals may require significant adjustments to market-based valuation inputs due to lack of recent comparable sales or the age of the appraisal. As a result, the assets subject to significant adjustments to market-based valuation inputs are typically classified as Level 3 due to the fact that unobservable inputs are significant to the fair value measurement.

The following table summarizes the significant unobservable inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis at September 30, 2012 (in thousands).

	Fair value at September 30, 2012		Valuation technique	Significant unobservable inputs
Assets
Impaired loans in gross loans	$	3,516	Internal assessment of collateral value	Adjustments to appraisals for recent comparable sales
Foreclosed real estate and repossessed personal property		10,002	Appraisals of collateral value	Adjustments to appraisal for age of comparable sales
Long-lived assets held for sale		685	Internal valuation	Appraisals and/or sales of comparable properties

Carrying Amounts and Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value

The following table summarizes the carrying amount and fair value for other financial instruments included in the Consolidated Balance Sheets at the dates indicated (in thousands) all of which are considered Level 3 fair value estimates. These fair value estimates are subject to fluctuation based on the amount and timing of expected cash flows as well as the choice of discount rate used in the present value calculation. The Company has used management’s best estimate of fair value based on methodologies as summarized in our 2011 Annual Report on Form 10-K. Thus, the fair values presented may not be the amounts which could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses, which would be incurred in an actual sale or settlement, are not taken into consideration in the fair values presented.

	Carrying amount		Fair value
September 30, 2012
Financial instruments - assets
Loans (1)	$	696,175	$	710,141
Financial instruments - liabilities
Deposits		1,016,229		1,016,438
December 31, 2011
Financial instruments - assets
Loans (1)	$	704,537	$	715,288
Financial instruments - liabilities
Deposits		1,064,181		1,069,792

(1) Includes Loans, net less impaired loans valued based on the fair value of underlying collateral or contracted sales price.