Fair Value (Tables)

12 Months Ended

Dec. 31, 2013

Assets and Liabilities Measured at Fair Value

Assets and liabilities measured at fair value are summarized below:


	Fair Value Measurements at
	December 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
Measured on a recurring basis:
Available for sale securities:
U.S. Treasury and government agencies		—	$	93,692		—	$	93,692
Mortgage-backed securities — residential		—		339,695		—		339,695
Obligations of states and political subdivisions		—		89,304		—		89,304
Other debt securities		—		9,529		—		9,529
Mutual funds and other equity securities	$	9,978		—		—		9,978

Total assets at fair value	$	9,978	$	532,220		—	$	542,198

Measured on a non-recurring basis:
Impaired loans: (1)
Commercial Real Estate		—		—		—		—
Construction		—		—		—		—
Residential		—		—	$	380	$	380
Commercial & Industrial		—		—		895		895

Total assets at fair value		—		—	$	1,275	$	1,275

(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, 2013 was $1,275 for which no specific allowance has been established within the allowance for loan losses. During 2013, $31 of charge-offs were recorded related to these loans. The level of charge-offs has a direct impact on the determination of the provision for loan losses. The fair values were based on internally customized discounting criteria of the collateral and thus classified as Level 3 fair values.


	Fair Value Measurements at
	December 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
Measured on a recurring basis:
Available for sale securities:
U.S. Treasury and government agencies		—	$	53,223		—	$	53,223
Mortgage-backed securities — residential		—		295,088		—		295,088
Obligations of states and political subdivisions		—		82,602		—		82,602
Other debt securities		—		798	$	2,950		3,748
Mutual funds and other equity securities	$	10,409		—		—		10,409

Total assets at fair value	$	10,409	$	431,711	$	2,950	$	445,070

Measured on a non-recurring basis:
Impaired loans: (1)
Commercial Real Estate		—		—	$	6,835	$	6,835
Construction		—		—		3,219		3,219
Residential		—		—		8,514		8,514
Commercial & Industrial		—		—		1,737		1,737
Loans held for sale (2)		—		—		2,317		2,317
Other real estate owned (3)		—		—		250		250

Total assets at fair value		—		—	$	22,872	$	22,872

(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, 2012 was $20,305 for which no specific allowance has been established within the allowance for loan losses. During 2012, $7,344 of charge-offs were recorded related to these loans. The level of charge-offs has a direct impact on the determination of the provision 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 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, 2013 was derived by management from appraisals which used various assumptions and were discounted as necessary, resulting in a Level 3 classification.

Reconciliation and Income Statement Classification of Gains and Losses for Securities Available for Sale Measure at Fair Value on Recurring Basis

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 periods indicated:


	Level 3 Assets Measured on a Recurring Basis
	For the Year Ended
	2013			2012
	(In thousands)
Balance at beginning of period	$	2,950		$	2,816
Additions to Level 3		263			441
Net unrealized gain (loss) included in other comprehensive income (1)		7,571			1,267
Principal payments		(791	)		(1,046	)
Recognized impairment charge included in the statement of income (2)		(1,240	)		(528	)
Transfers out of Level 3		(8,753	)		—

Balance at end of period	$	—		$	2,950

(1)	Reported under “Gains recognized in comprehensive income”

(2)	Reported under “Net impairment loss recognized in earnings”

Quantitative Information about Level 3 Fair Value Measurements

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the dates indicated:


Asset	Fair Value at December 31, 2013 (In thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans — residential real estate	$	380	Sales comparison approach	Discounts to appraisals for market conditions	0% (0%)

Impaired loans — commercial and industrial		895	Sales comparison approach	Discounts to appraisals for market conditions	0% (0%)


Asset	Fair Value at December 31, 2012 (In thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans — commercial real estate	$	6,835	Sales comparison or income approach	Discounts to appraisals for market conditions	0%-62% (8%)
				Capitalization rate	8%

Impaired loans — construction		3,219	Sales comparison approach	Discounts to appraisals for market conditions	0%-21% (6%)

Impaired loans — residential real estate		8,514	Sales comparison or income approach	Discounts to appraisals for market conditions	0%-47% (4%)

Impaired loans — commercial and industrial		1,737	Sales comparison approach — secondary collateral	Discounts to appraisals for market conditions	7% (7%)

Other real estate owned		250	Sales comparison approach	Discounts to appraisals for market conditions	0% (0%)

Loans held for sale		2,317	Third party bids	Bids from interested third parties	60%-65% (64%)

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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