Fair Value Measurements (Notes)

12 Months Ended

Dec. 31, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 16. Fair Value Measurements

Accounting guidance on fair value measurements and disclosuresdefines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system, and defines required disclosures.  It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business.

The Company's balance sheet contains securities available for sale that are recorded at fair value on a recurring basis.  The three-level valuation hierarchy for disclosure of fair value is as follows:

Level 1 uses quoted market prices in active markets for identical assets or liabilities.

Level 2 uses observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3 uses unobservable inputs that are not corroborated by market data.

When available, quoted market prices are used to determine the fair value of investment securities and such items are classified within Level 1 of the fair value hierarchy.  Examples include U.S. Treasury securities and certain corporate bonds.  For other securities, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar bonds where a price for the identical bond is not observable.  Securities measured at fair value by such methods are classified as Level 2.  The fair values of Level 2 securities are determined by pricing models that consider observable market data, such as interest rate volatility, LIBOR yield curve, credit spreads and prices from market makers, and live trading systems. Certain securities are not valued-based on observable inputs and are, therefore, classified as Level 3.  The fair value of these securities is based on management's best estimates. The Company's policy is to recognize transfers between levels at the end of each reporting period, if applicable.

The following tables present the balances of assets measured at fair value on a recurring basis by level as of December 31, 2011 and 2010.

	2011
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. government agencies and corporations	$	13,003	$	—	$	13,003	$	—
State and political subdivisions	52,517		—		52,517		—
Collateralized mortgage obligations	175,498		—		175,498		—
Mortgage-backed securities	35,636		—		35,636		—
Trust preferred securities	2,011		—		766		1,245
Corporate notes and other investments	4,480		3,708		772		—
Total	$	283,145	$	3,708	$	278,192	$	1,245

	2010
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. government agencies and corporations	$	47,798	$	—	$	47,798	$	—
State and political subdivisions	59,137		—		59,137		—
Collateralized mortgage obligations	122,617		—		122,617		—
Mortgage-backed securities	18,603		—		18,603		—
Trust preferred securities	1,976		—		637		1,339
Corporate notes and other investments	6,195		5,280		915		—
Total	$	256,326	$	5,280	$	249,707	$	1,339

During 2010, two corporate securities totaling $5,280 at the time of transfer were transferred to Level 1 from Level 2 due to the Company becoming aware of an active market for those securities.

The following table presents changes in securities available for sale with significant unobservable inputs (Level 3) for the years ended December 31, 2011 and 2010.

Securities available for sale:	2011			2010
Beginning balance	$	1,339		$	1,136
Transfer into level 3	—			625
Total gains or (losses):
Included in earnings	(99		)	(305		)
Included in other comprehensive income	5			320
Sale of security	—			(437		)
Principal payments	—			—
Ending balance	$	1,245		$	1,339

The ending balances in the previous table include one pooled TPS (ALESCO Preferred Funding X, Ltd.). See Note 3 for a detailed discussion of the valuation of that security.

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following tables present these assets carried on the balance sheet by caption and level within the valuation hierarchy as of December 31, 2011 and 2010.

	2011
Description		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans		$	20,513	$	—	$	—	$	20,513
Other real estate owned		10,967		—		—		10,967
Total		$	31,480	$	—	$	—	$	31,480

	2010
Description		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans		$	17,799	$	—	$	—	$	17,799
Other real estate owned		19,193		—		—		19,193
Total		$	36,992	$	—	$	—	$	36,992

Loans in the previous tables consist of impaired loans for which a fair value adjustment has been recorded.  Impaired loans are evaluated and valued at the lower of cost or fair value when the loan is identified as impaired.  Fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy.  Collateral may be real estate or business assets such as equipment, inventory, or accounts receivable. Fair value is determined by appraisals.  Appraised or reported values may be discounted based on management's opinions concerning market developments or the client's business.  Other real estate owned in the tables above consist of property acquired through foreclosures and settlements of loans.  Property acquired is carried at fair value of the property less estimated disposal costs, and is classified as Level 3 in the fair value hierarchy.

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis.  The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or nonrecurring basis are discussed above.  The methodologies for other financial assets and financial liabilities are discussed below.

Cash and due from banks:  The carrying amount approximates fair value.

Federal funds sold and other short-term investments:  The carrying amount approximates fair value.

Federal Home Loan Bank stock:  The fair value of this restricted stock is estimated at its carrying value and redemption price of $100 per share.

Loans held for sale:  The fair values of loans held for sale are based on estimated selling prices.

Loans:  The fair values of loans are estimated using discounted cash flow analysis based on observable market interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

Deposits:  The carrying amounts for demand and savings deposits, which represent the amounts payable on demand, approximate their fair values.  Fair values for fixed-rate and variable-rate certificates of deposit are estimated using discounted cash flow analysis, based on observable market interest rates currently being offered on certificates with similar terms.

Accrued interest receivable and payable:  The fair values of both accrued interest receivable and payable approximate their carrying amounts.

Short-term and other borrowings:  The carrying amounts of federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings approximate their fair values.  Fair values of FHLB advances and subordinated notes are estimated using discounted cash flow analysis, based on observable market interest rates currently being offered with similar terms.

Commitments to extend credit and standby letters of credit:  The approximate fair values of commitments and standby letters of credit are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and creditworthiness of the counterparties.

The carrying amounts and approximate fair values as of December 31, 2011 and 2010, were as follows:

	2011				2010
	Carrying Amount		Approximate Fair Value		Carrying Amount		Approximate Fair Value
Financial assets:
Cash and due from banks	$	35,772	$	35,772	$	20,069	$	20,069
Federal funds sold and other short-term investments	51,332		51,332		67,885		67,885
Securities available for sale	283,145		283,145		256,326		256,326
Federal Home Loan Bank stock	11,352		11,352		11,211		11,211
Loans held for sale	4,089		4,139		4,452		4,452
Loans, net	822,181		829,675		869,562		873,568
Accrued interest receivable	4,183		4,183		4,959		4,959
Financial liabilities:
Deposits	957,373		960,607		972,072		975,197
Federal funds purchased and securities sold under
agreements to repurchase	55,841		55,841		52,095		52,095
Other short-term borrowings	—		—		2,914		2,914
Accrued interest payable	734		734		1,200		1,200
Subordinated notes	20,619		11,029		20,619		10,853
Federal Home Loan Bank advances	105,000		116,006		105,000		108,449
Off-balance-sheet financial instruments:
Commitments to extend credit	—		—		—		—
Standby letters of credit	—		—		—		—