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Disclosures about fair value of assets and liabilities
 6 Months Ended
Jun. 30, 2011
Disclosures about fair value of assets and liabilities [Abstract]  
Disclosures about fair value of assets and liabilities
Note 7 – Disclosures about fair value of assets and liabilities
The Fair Value Measurements topic of the FASB ASC defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. There are 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 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 3     Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying financial statements, as well as the general classification of such instruments pursuant to the valuation hierarchy.
Available for sale securities
When quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include United States Department of the Treasury (“U.S. Treasury”) and federal agency securities, state and municipal securities, federal agency mortgage obligations and mortgage-backed pools, and corporate notes. Level 2 securities are valued by a third party pricing service commonly used in the banking industry utilizing observable inputs. Observable inputs include dealer quotes, market spreads, cash flow analysis, the U.S. Treasury yield curve, trade execution data, market consensus prepayment spreads and available credit information and the bond’s terms and conditions. The pricing provider utilizes evaluated pricing models that vary based on asset class. These models incorporate available market information including quoted prices of securities with similar characteristics and, because many fixed-income securities do not trade on a daily basis, apply available information through processes such as benchmark curves, benchmarking of like securities, sector grouping, and matrix pricing. In addition, model processes, such as an option adjusted spread model is used to develop prepayment and interest rate scenarios for securities with prepayment features.
Hedged loans
Certain fixed rate loans have been converted to variable rate loans by entering into interest rate swap agreements. The fair value of those fixed rate loans is based on discounting the estimated cash flows using interest rates determined by the respective interest rate swap agreement. Loans are classified within Level 3 of the valuation hierarchy based on the unobservable inputs used.
Interest rate swap agreements
The fair value of the Company’s interest rate swap agreements is estimated by a third party using inputs that are primarily unobservable and cannot be corroborated by observable market data and, therefore, are classified within Level 3 of the valuation hierarchy.
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying financial statements measured at fair value on a recurring basis and the level within the FASB ASC fair value hierarchy in which the fair value measurements fall at the following:
                                 
            Quoted Prices in              
            Active Markets for     Significant Other     Significant  
            Identical Assets     Observable Inputs     Unobservable Inputs  
    Fair Value     (Level 1)     (Level 2)     (Level 3)  
     
June 30, 2011
                               
Available-for-sale securities
                               
U.S. Treasury and federal agencies
  $ 19,770     $ —     $ 19,770     $ —  
State and municipal
    138,634       —       138,634       —  
Federal agency collateralized mortgage obligations
    133,706       —       133,706       —  
Federal agency mortgage-backed pools
    152,858       —       152,858       —  
Private labeled mortgage-backed pools
    4,283       —       4,283       —  
Corporate notes
    566       547       20       —  
     
Total available-for-sale securities
    449,817       547       449,271       —  
 
                               
Hedged loans
    49,618       —       —       49,618  
Forward sale commitments
    455       —       —       455  
Interest rate swap agreements
    (3,846 )     —       —       (3,846 )
Commitments to originate loans
    (64 )     —       —       (64 )
 
                               
December 31, 2010
                               
Available-for-sale securities
                               
U.S. Treasury and federal agencies
  $ 25,251     $ —     $ 25,251     $ —  
State and municipal
    131,489       —       131,489       —  
Federal agency collateralized mortgage obligations
    101,837       —       101,837       —  
Federal agency mortgage-backed pools
    117,895       —       117,895       —  
Private labeled mortgage-backed pools
    5,323       —       5,323       —  
Corporate notes
    549       456       20       —  
     
Total available-for-sale securities
    382,344       456       381,815       —  
 
                               
Hedged loans
    50,088       —       —       50,088  
Forward sale commitments
    407       —       —       407  
Interest rate swap agreements
    (3,415 )     —       —       (3,415 )
Commitments to originate loans
    —       —       —       —  
The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying condensed consolidated balance sheet using significant unobservable (level 3) inputs (Unaudited):
                                 
            Forward Sale     Interest Rate     Commitments to  
    Hedged Loans     Commitments     Swaps     Originate Loans  
     
Beginning balance December 31, 2010
  $ 50,088     $ 407     $ (3,415 )   $ —  
Total realized and unrealized gains and losses
                               
Included in net income
    (410 )     (126 )     410       (56 )
Included in other comprehensive income, gross
    —       —       451       —  
Purchases, issuances, and settlements
    (352 )     —       —       —  
Principal payments
    (915 )     —       —       —  
     
Ending balance March 31, 2011
    48,411       281       (2,554 )     (56 )
Total realized and unrealized gains and losses
                               
Included in net income
    351       174       (351 )     (8 )
Included in other comprehensive income, gross
    —       —       (941 )     —  
Purchases, issuances, and settlements
    1,200       —       —       —  
Principal payments
    (344 )     —       —       —  
     
Ending balance June 30, 2011
  $ 49,618     $ 455     $ (3,846 )   $ (64 )
     
                                 
            Forward Sale     Interest Rate     Commitments to  
    Hedged Loans     Commitments     Swaps     Originate Loans  
     
Beginning balance December 31, 2009
  $ 31,153     $ 265     $ (715 )   $ (135 )
Total realized and unrealized gains and losses
                               
Included in net income
    403       141       (403 )     97  
Included in other comprehensive income, gross
    —       —       (420 )     —  
Purchases, issuances, and settlements
    7,991       —       —       —  
Principal payments
    (216 )     —       —       —  
     
Ending balance March 31, 2010
    39,331       406       (1,538 )     (38 )
Total realized and unrealized gains and losses
                               
Included in net income
    810       324       (810 )     38  
Included in other comprehensive income, gross
    —       —       (2,186 )     —  
Purchases, issuances, and settlements
    4,041       —       —       —  
Principal payments
    (284 )     —       —       —  
     
Ending balance June 30, 2010
  $ 43,898     $ 730     $ (4,534 )   $ —  
     
Realized gains and losses included in net income for the periods are reported in the condensed consolidated statements of income as follows:
                 
    Period Ended June 30  
Non Interest Income   2011     2010  
     
Total gains and losses from:
               
Hedged loans
  $ 351     $ 403  
Fair value interest rate swap agreements
    (351 )     (403 )
Derivative loan commitments
    165       237  
     
 
  $ 165     $ 237  
     
Certain other assets are measured at fair value on a nonrecurring basis in the ordinary course of business and are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment):
                                 
            Quoted Prices in              
            Active Markets for     Significant Other     Significant  
            Identical Assets     Observable Inputs     Unobservable Inputs  
    Fair Value     (Level 1)     (Level 2)     (Level 3)  
     
June 30, 2011
                               
Impaired loans
  $ 9,612     $ —     $ —     $ 9,612  
 
                               
December 31, 2010
                               
Impaired loans
  $ 9,919     $ —     $ —     $ 9,919  
Impaired (collateral dependent): Fair value adjustments for impaired and non-accrual loans typically occur when there is evidence of impairment. Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. The Company measures fair value based on the value of the collateral securing the loans. Collateral may be in the form of real estate or personal property, including equipment and inventory. The value of the collateral is determined based on internal estimates as well as third-party appraisals or non-binding broker quotes. These measurements were classified as Level 3. The fair value of the Company’s other real estate owned is determined using Level 3 inputs, which include current and prior appraisals net of estimated costs to sell.