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Note 8 - Fair Value
9 Months Ended
Sep. 30, 2013
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]

NOTE 8 – FAIR VALUE


Accounting guidance on fair value measurement uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:


 

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in 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; and


 

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.


Assets measured at fair value on a recurring basis comprise the following at September 30, 2013 and December 31, 2012:


           

Fair Value Measurements at Reporting Date Using

 
   

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, 2013:

                               

Securities available for sale:

                               

U.S. govt. sponsored agency securities

  $ 367,524,887     $ -     $ 367,524,887     $ -  

Residential mortgage-backed and related securities

    166,544,470       -       166,544,470       -  

Municipal securities

    36,459,170       -       36,459,170       -  

Other securities

    1,808,802       285,214       1,523,588       -  
    $ 572,337,329     $ 285,214     $ 572,052,115     $ -  
                                 

December 31, 2012:

                               

Securities available for sale:

                               

U.S. govt. sponsored agency securities

  $ 338,609,371     $ -     $ 338,609,371     $ -  

Residential mortgage-backed and related securities

    163,601,103       -       163,601,103       -  

Municipal securities

    26,185,736       -       26,185,736       -  

Trust preferred securities

    139,400       -       139,400       -  

Other securities

    1,624,376       234,453       1,389,923       -  
    $ 530,159,986     $ 234,453     $ 529,925,533     $ -  

There were no transfers of assets or liabilities between Levels 1, 2, and 3 of the fair value hierarchy for the three and nine months ended September 30, 2013 and 2012.


A small portion of the securities available for sale portfolio consists of common stock issued by various unrelated bank holding companies. The fair values used by the Company are obtained from an independent pricing service and represent quoted market prices for the identical securities (Level 1 inputs).


The remainder of the securities available for sale portfolio consists of securities whereby the Company obtains fair values from an independent pricing service. The fair values are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level 2 inputs).


Certain financial assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).


Assets measured at fair value on a non-recurring basis comprise the following at September 30, 2013 and December 31, 2012:


           

Fair Value Measurements at Reporting Date Using

 
   

Fair Value

   

Level 1

   

Level 2

   

Level 3

 

September 30, 2013:

                               

Impaired loans/leases

  $ 11,239,694     $ -     $ -     $ 11,239,694  

Other real estate owned

    9,175,463       -       -       9,175,463  
    $ 20,415,157     $ -     $ -     $ 20,415,157  

December 31, 2012:

                               

Impaired loans/leases

  $ 18,054,234     $ -     $ -     $ 18,054,234  

Other real estate owned

    4,270,901       -       -       4,270,901  
    $ 22,325,135     $ -     $ -     $ 22,325,135  

Impaired loans/leases are evaluated and valued at the time the loan/lease is identified as impaired, at the lower of cost or fair value, and are classified as Level 3 in the fair value hierarchy.  Fair value is measured based on the value of the collateral securing these loans/leases.  Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable, and is determined based on appraisals by qualified licensed appraisers hired by the Company.  Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business.  


Other real estate owned in the table above consists of property acquired through foreclosures and settlements of loans.  Property acquired is carried at the estimated fair value of the property, less disposal costs, and is classified as a Level 3 in the fair value hierarchy. The estimated fair value of the property is determined based on appraisals by qualified licensed appraisers hired by the Company.  Appraised and reported values are discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the property.


The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value:


   

Quantitave Information about Level Fair Value Measurments

 
   

Fair Value

 

Valuation Technique

Unobservable Input

 

Range

 

September 30, 2013:

                       

Impaired loans/leases

  $ 11,239,694  

Appraisal of collateral

Appraisal adjustments

    -10.00% to -40.00%  

Other real estate owned

    9,175,463  

Appraisal of collateral

Appraisal adjustments

    -25.00% to -50.00%  

For the impaired loans/leases and other real estate owned, the Company records carrying value at fair value less disposal or selling costs. The amounts reported in the tables above are fair values before the adjustment for disposal or selling costs.


There have been no changes in valuation techniques used for any assets measured at fair value during the three and nine months ended September 30, 2013 and 2012.


The following table presents the carrying values and estimated fair values of financial assets and liabilities carried on the Company’s consolidated balance sheets, including those financial assets and liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis:


 

Fair Value

 

As of September 30, 2013

   

As of December 31, 2012

 
 

Hierarchy

Level

 

Carrying

Value

   

Estimated

Fair Value

   

Carrying

Value

   

Estimated

Fair Value

 
                                   

Cash and due from banks

Level 1

  $ 58,724,270     $ 58,724,270     $ 61,568,446     $ 61,568,446  

Federal funds sold

Level 2

    48,192,000       48,192,000       26,560,000       26,560,000  

Interest-bearing deposits at financial institutions

Level 2

    15,862,796       15,862,796       22,359,490       22,359,490  

Investment securities:

                                 

Held to maturity

Level 3

    131,361,845       125,292,362       72,079,385       73,005,706  

Available for sale

See Previous Table

    572,337,329       572,337,329       530,159,986       530,159,986  

Loans/leases receivable, net

Level 3

    10,407,124       11,239,694       16,716,883       18,054,234  

Loans/leases receivable, net

Level 2

    1,506,914,312       1,521,560,306       1,250,745,552       1,262,090,766  

Deposits:

                                 

Nonmaturity deposits

Level 2

    1,295,910,195       1,295,910,195       1,039,572,326       1,039,572,326  

Time deposits

Level 2

    445,921,780       447,290,000       334,541,774       337,343,000  

Short-term borrowings

Level 2

    169,259,562       169,259,562       171,082,961       171,082,961  

Federal Home Loan Bank advances

Level 2

    205,350,000       216,440,000       202,350,000       220,815,000  

Other borrowings

Level 2

    142,646,212       154,164,000       138,239,762       154,101,000  

Junior subordinated debentures

Level 2

    40,257,438       27,903,509       36,085,000       18,786,000  

The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include: cash and due from banks, federal funds sold, interest-bearing deposits at financial institutions, non-maturity deposits, and short-term borrowings. The Company used the following methods and assumptions in estimating the fair value of the following instruments:


Securities held to maturity: The fair values are estimated using pricing models that consider certain observable market data, however, as most of the securities have limited or no trading activity and are not rated, the fair value is partially dependent upon unobservable inputs.


Loans/leases receivable: The fair values for all types of loans/leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans/leases with similar terms to borrowers with similar credit quality. The fair value of loans held for sale is based on quoted market prices of similar loans sold in the secondary market.


Deposits: The fair values disclosed for demand deposits equal their carrying amounts, which represent the amount payable on demand. Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregate expected monthly maturities on time deposits.


FHLB advances and junior subordinated debentures: The fair value of these instruments is estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.


Other borrowings: The fair value for the wholesale repurchase agreements and fixed rate other borrowings is estimated using rates currently available for debt with similar terms and remaining maturities. The fair value for variable rate other borrowings is equal to its carrying value.


Commitments to extend credit: The fair value of these commitments is not material.