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Note 19 - Disclosures Regarding Fair Value

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

19. Disclosures Regarding Fair Value

Valuation Methodologies

Trading Account Assets

The fair values of trading account assets are primarily based on actively traded markets where prices are based on either direct market quotes or observed transactions. Liquidity is a significant factor in the determination of the fair values of trading account assets. Market prices may not be readily available for some positions or positions within a market sector where trading activity has slowed significantly or ceased.

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, 2013
		Level 1				Level 2				Level 3				Total
Assets
Trading account assets		$	3,323			$	1,704			$	-			$	5,027
Investment securities available for sale
State and municipal			-				8,135				-				8,135
Collateralized mortgage obligations (federal agencies)			-				100,038				-				100,038
Other mortgage-backed (federal agencies)			2,859				76,949				-				79,808
SBA loan-backed (federal agency)			21,423				17,675				-				39,098
Derivative financial instruments			-				264				-				264
Total assets measured at fair value on a recurring basis		$	27,605			$	204,765			$	-			$	232,370

Liabilities
Derivative financial instruments		$	-			$	61			$	-			$	61

		December 31, 2012
		Level 1				Level 2				Level 3				Total
Assets
Investment securities available for sale
State and municipal		$	-			$	11,530			$	-			$	11,530
Collateralized mortgage obligations (federal agencies)			14,057				109,451				-				123,508
Other mortgage-backed (federal agencies)			-				63,817				-				63,817
SBA loan-backed (federal agency)			44,683				20,964				-				65,647
Derivative financial instruments			-				370				-				370
Total assets measured at fair value on a recurring basis		$	58,740			$	206,132			$	-			$	264,872

Liabilities
Derivative financial instruments		$	-			$	5			$	-			$	5

For disclosure regarding the fair value of Pension Plan assets, see Note 14, Benefit Plans.

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, 2013 or December 31, 2012.

		September 30, 2013
		Level 1				Level 2				Level 3				Total
Assets
Mortgage loans held for sale		$	-			$	1,865			$	-			$	1,865
Impaired loans in gross loans			-				6,497				25				6,522
Foreclosed real estate and repossessed personal property			248				504				6,403				7,155
Long-lived assets held for sale			-				-				685				685
Total assets measured at fair value on a nonrecurring basis		$	248			$	8,866			$	7,113			$	16,227

		December 31, 2012
		Level 1				Level 2				Level 3				Total
Assets
Mortgage loans held for sale		$	-			$	6,114			$	-			$	6,114
Other loans held for sale			800				-				-				800
Impaired loans in gross loans			-				6,285				189				6,474
Foreclosed real estate and repossessed personal property			-				817				9,163				9,980
Long-lived assets held for sale			-				-				685				685
Total assets measured at fair value on a nonrecurring basis		$	800			$	13,216			$	10,037			$	24,053

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

Impaired loans. The fair value of an impaired loan is estimated using one of three methods: value of the underlying collateral, present value of expected cash flows and, in rare cases, the market value of the impaired loan itself. An allowance for loan losses or charge-off is recorded for the excess of the Company’s recorded investment in the loan over the loan’s estimated fair value. In the case of a collateral dependent impaired loan, any allowance for loan losses or charge-off is increased by estimated selling costs. Impaired loans not requiring an allowance for loan losses or charge-off represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. Impaired loans, where an allowance for loan losses or charge-off is recorded based on the fair value of collateral, require classification in the fair value hierarchy. When the fair value of the collateral is based on an executed sales contract with an independent third party, the Company records the impaired loan as Level 1. If the collateral is based on another observable market price or a current appraised value, the Company records the impaired loan as Level 2. 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 Company records the impaired loan as Level 3.

Foreclosed real estate and repossessed personal property. Foreclosed real estate and repossessed personal property is carried at the lower of carrying value or fair value less estimated selling costs. For purposes of classification in the fair value hierarchy, fair value of foreclosed real estate and repossessed property is generally based upon binding sales contracts, current appraisals, comparable sales and other estimates of value obtained principally from independent sources. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the asset as Level 2. However, the Company also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals such as changes in absorption rates or market conditions from the time of valuation. In situations where management adjustments are significant to the fair value measurement in its entirety, 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 subjected to nonrecurring fair value adjustments 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, 2013 (in thousands).

			Fair value			Valuation technique		Significant unobservable inputs

Assets
Impaired loans in gross loans			$	25		Internal assessment of collateral value		Adjustments to estimated value based on recent sales of comparable collateral

Foreclosed real estate and repossessed personal property				6,403		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 used management's best estimate of fair value. Thus, the fair values presented may not be the amounts that could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses that 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, 2013
Financial instruments - assets
Loans (1)		$	736,133			$	741,583

Financial instruments - liabilities
Deposits			944,812				938,326

December 31, 2012
Financial instruments - assets
Loans (1)		$	716,977			$	724,005

Financial instruments - liabilities
Deposits			1,023,242				1,020,446

(1)
Includes Loans, net less impaired loans valued based on the fair value of underlying collateral or contracted sales price which are included in the "Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis" table

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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