Fair Value

9 Months Ended

Sep. 30, 2011

Fair Value [Abstract]

Fair Value

8.   Fair Value

The Company follows the “Fair Value Measurement and Disclosures” topic of the FASB Accounting Standards Codification which requires additional disclosures about the Company’s assets and liabilities that are measured at fair value and establishes a 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 (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:  Significant other 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.

Level 3:  Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. While management believes the Company’s valuation methodologies are appropriate and consistent with other financial institutions, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges, which is a Level 1 input, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities, which is a Level 2 input.

The Company’s available for sale securities at September 30, 2011 and December 31, 2010 include several pooled trust preferred instruments. The recent severe downturn in the overall economy and, in particular, in the financial services industry has created a situation where significant observable inputs (Level 2) are not readily available. As an alternative, the Company combined Level 2 input of market yield requirements of similar instruments together with certain Level 3 assumptions addressing the impact of current market illiquidity to estimate the fair value of these instruments — See Note 3 “Securities” for further discussion of pooled trust preferred securities.

Assets and liabilities measured at fair value are summarized below:

	Fair Value Measurements at September 30, 2011
	Quoted Prices in		Significant		Significant
	Active Markets		Other		Unobservable
	for Identical		Observable Inputs		Inputs
	Assets (Level 1)		(Level 2)		(Level 3)		Total
	(000’s)
Measured on a recurring basis:
Available for sale securities:
U.S. Treasury and government agencies		—	$	3,003		—	$	3,003
Mortgage-backed securities — residential		—		367,675		—		367,675
Obligations of states and political subdivisions		—		101,702		—		101,702
Other debt securities		—		520	$	2,654		3,174
Mutual funds and other equity securities		—		10,584		—		10,584
Total assets at fair value		—	$	483,484	$	2,654	$	486,138
Measured on a non-recurring basis:
Impaired loans:(1)
Commercial real estate		—		—	$	2,007	$	2,007
Construction		—		—		8,539		8,539
Residential		—		—		6,493		6,493
Commercial & Industrial		—		—		1,969		1,969
Other		—		—		179		179
Total impaired loans		—		—		19,187		19,187
Loans held for sale(2)		—		—		2,244		2,244
Other real estate owned(3)		—		—		924		924
Total assets at fair value		—		—	$	22,355	$	22,355

(1)	Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 and Level 3 inputs which include independent appraisals and internally customized discounting criteria. The recorded investment in impaired loans subject to fair value reporting on September 30, 2011 was $20,075 for which a specific allowance of $888 has been established within the allowance for loan losses. The fair values were based on internally customized discounting criteria of the collateral and thus classified as Level 3 fair values.
(2)	Loans held for sale are reported at lower of cost or fair value. Fair value is based on average bid indicators received from third parties expected to participate in the loan sales.
(3)	Other real estate owned is reported at lower of cost or fair value less anticipated costs to sell. Fair value is based on third party or internally developed appraisals which, considering the assumptions in the valuation, are considered Level 2 or Level 3 inputs. The fair value of other real estate owned at September 30, 2011 was derived by management from appraisals which used various assumptions and were discounted as necessary, resulting in a Level 3 classification.

	Fair Value Measurements at December 31, 2010
	Quoted Prices in		Significant		Significant
	Active Markets		Other		Unobservable
	for Identical		Observable Inputs		Inputs
	Assets (Level 1)		(Level 2)		(Level 3)		Total
	(000’s)
Measured on a recurring basis:
Available for sale securities:
U.S. Treasury and government agencies		—	$	3,012		—	$	3,012
Mortgage-backed securities — residential		—		309,540		—		309,540
Obligations of states and political subdivisions		—		116,081		—		116,081
Other debt securities		—		686	$	3,687		4,373
Mutual funds and other equity securities		—		10,661		—		10,661
Total assets at fair value		—	$	439,980	$	3,687	$	443,667
Measured on a non-recurring basis:
Impaired loans:(1)
Commercial real estate		—		—	$	2,805	$	2,805
Construction		—		—		10,806		10,806
Residential		—		—		3,373		3,373
Commercial & Industrial		—		—		1,420		1,420
Other		—		—		190		190
Total impaired loans		—		—		18,594		18,594
Loans held for sale(2)		—		—		7,811		7,811
Other real estate owned(3)		—		—		11,028		11,028
Total assets at fair value		—	$	—	$	37,433	$	37,433

(1)	Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 and Level 3 inputs which include independent appraisals and internally customized discounting criteria. The recorded investment in impaired loans subject to fair value reporting on December 31, 2010 was $19,486 for which a specific allowance of $892 has been established within the allowance for loan losses. The fair values were based on internally customized discounting criteria of the collateral and thus classified as Level 3 fair values.
(2)	Loans held for sale are reported at lower of cost or fair value. Fair value is based on average bid indicators received from third parties expected to participate in the loan sales.
(3)	Other real estate owned is reported at lower of cost or fair value less anticipated costs to sell. Fair value is based on third party or internally developed appraisals which, considering the assumptions in the valuation, are considered Level 2 or Level 3 inputs. The fair value of other real estate owned at December 31, 2010 was derived by management from appraisals which used various assumptions and were discounted as necessary, resulting in a Level 3 classification.

The table below presents a reconciliation and income statement classification of gains and losses for securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine month periods ended September 30, 2011 and 2010:

	Level 3 Assets Measured on a Recurring Basis
	For the three months						For the nine months
	ended September 30,						ended September 30,
	2011			2010			2011			2010
	(000’s)						(000’s)
Balance at beginning of period	$	2,923		$	2,629		$	3,687		$	3,938
Transfers into (out of) Level 3		93			87			289			256
Net unrealized gain (loss) included in other comprehensive income		(242	)		245			(995	)		1,050
Principal payments		—			—			(3	)		—
Recognized impairment charge included in the statement of income		(119	)		(75	)		(323	)		(2,358	)
Balance at end of period	$	2,655		$	2,886		$	2,655		$	2,886