Fair Values

9 Months Ended

Sep. 30, 2012

Fair Values [Abstract]

Fair Values

NOTE 10  FAIR VALUES:

Accounting Standards Codification (“ASC”) 820,“Fair Value Measurements and Disclosures” provides a framework for measuring fair value under generally accepted accounting principles and requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans and other real estate acquired through foreclosure).

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Fair Value Measurements and Disclosures also establishes 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 standard describes three levels of inputs that may be used to measure fair value:

Level 1:  Quoted prices in active markets for identical assets or liabilities.  Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an exchange market, as well as U. S. Treasury, other U. S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2:  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 for substantially the full term of the assets or liabilities.  Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  This category generally includes certain derivative contracts and impaired loans.

Level 3:  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.  For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Investment Securities Available for Sale – Investment securities available for sale are recorded at fair value on a recurring basis.  Fair value measurement is based upon quoted prices.  The Company’s available for sale securities, totaling $48.6 million and $32.4 million at September 30, 2012 and December 31, 2011, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an independent pricing service.

Loans -  The Company does not record loans at fair value on a recurring basis.  The Company is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans.  From time to time a loan is considered impaired and an allowance for loan losses is established.  Loans which are deemed to be impaired and require a reserve are primarily valued on a non-recurring basis at the fair values of the underlying real estate collateral.  Such fair values are obtained using independent appraisals, which management evaluates and determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, or an appraised value does not include estimated costs of disposition and management must make an estimate, the Company records the impaired loan as nonrecurring Level 3.  The aggregate carrying amount of impaired loans carried at fair value were $67.9 million and $85.8 million at September 30, 2012 and December 31, 2011, respectively.

Foreclosed Assets  – Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets.  Foreclosed assets are carried at the lower of the carrying value or fair value.  Fair value is based upon independent observable market prices or appraised values of the collateral with a third party estimate of disposition costs, which the Company considers to be level 2 inputs. When the appraised value is not available, management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, or an appraised value does not include estimated costs of disposition and management must make an estimate, the Company records the foreclosed asset as nonrecurring Level 3.  The aggregate carrying amounts of foreclosed assets were $11.4 million and $15.1 million at September 30, 2012 and December 31, 2011, respectively.

Assets and liabilities measured at fair value are as follows as of September 30, 2012 (for purpose of this table the impaired loans are shown net of the related allowance):

(Dollars are in thousands)		Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(On a recurring basis) Available for sale investments
U.S. Government Agencies	$	-	$	25,839	$	-
Taxable municipals		-		850		-
Mortgage backed securities		-		21,870		-
(On a non-recurring basis) Other real estate owned		-		-		11,368
Impaired loans:
Real estate secured:
Commercial		-		-		33,618
Construction and land development		-		-		5,246
Residential 1-4 family		-		-		11,469
Multifamily		-		-		2,889
Farmland		-		-		10,868
Commercial		-		-		3,222
Agriculture		-		-		467
Consumer installment loans		-		-		134
All other loans		-		-		-
Total	$	-	$	48,559	$	79,281

Assets and liabilities measured at fair value are as follows as of December 31, 2011 (for purpose of this table the impaired loans are shown net of the related allowance):

(Dollars are in thousands)		Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(On a recurring basis) Available for sale investments
U.S. Government Agencies	$	-	$	21,633	$	-
Taxable municipals		-		1,552		-
Tax-exempt municipals		-		1,054		-
Mortgage backed securities		-		8,195		-
(On a non-recurring basis) Other real estate owned		-		-		15,092
Impaired loans:
Real estate secured:
Commercial		-		-		43,321
Construction and land development		-		-		8,769
Residential 1-4 family		-		-		13,642
Multifamily		-		-		613
Farmland		-		-		13,951
Commercial		-		-		4,737
Agriculture		-		-		714
Consumer installment loans		-		-		28
All other loans		-		-		-
Total	$	-	$	32,434	$	100,867

For Level 3 assets measured at fair value on a recurring or non-recurring basis as of September 30, 2012, the significant unobservable inputs used in the fair value measurements were as follows:

(Dollars in thousands)		Fair Value at September 30, 2012	Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Impaired Loans	$	67,913	Appraised Value/Discounted Cash Flows/Market Value of Note	Appraisals and/or sales of comparable properties/Independent quotes	n/a
Other Real Estate Owned	$	11,368	Appraised Value/Comparable Sales/Other Estimates from Independent Sources	Appraisal and/or sales of comparable properties/Independent quotes/bids	n/a

Fair Value of Financial Instruments

Fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based upon the characteristics of the instruments and relevant market information.  Financial instruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument.

The following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments presented below.  The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise.  Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change.  Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2012 and December 31, 2011.  This table excludes financial instruments for which the carrying amount approximates fair value.  The carrying value of cash and due from banks, federal funds sold, interest-bearing deposits, deposits with no stated maturities, trust preferred securities and accrued interest approximates fair value.  The remaining financial instruments were valued based on the present value of estimated future cash flows, discounted at various rates in effect for similar instruments during the months of September 2012 and December 2011.

						Fair Value Measurements
(Dollars are in thousands)		Carrying Amount		Fair Value		Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
September 30, 2012
Financial Instruments – Assets
Net Loans	$	521,404	$	522,445	$	-	$	454,532	$	67,913
Financial Instruments – Liabilities
Time Deposits		387,540		391,266		-		391,266		-
FHLB Advances		6,858		6,858		-		6,858		-
December 31, 2011
Financial Instruments – Assets
Net Loans	$	579,436	$	588,888	$	-	$	493,661	$	85,775
Financial Instruments – Liabilities
Time Deposits		445,658		451,312		-		451,312		-
FHLB Advances		17,983		17,756		-		17,756		-