Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2014

Assets Reported on Consolidated Balance Sheets at their Fair Value

The following table presents the assets reported on the consolidated balance sheets at their fair value as of June 30, 2014 and December 31, 2013 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	(Amounts in thousands)
			Fair Value Measurements at June 30, 2014 Using
Description	June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS
U.S. Treasury securities	$	107	$	—	$	107	$	—
U.S. Government agencies and corporations		8,608		—		8,608		—
Obligations of states and political subdivisions		50,783		—		50,783		—
U.S. Government-sponsored mortgage-backed securities		89,319		—		89,319		—
U.S. Government-sponsored collateralized mortgage obligations		18,367		—		18,367		—
Trust preferred securities		680		—		—		680
Regulatory stock		3,049		3,049		—		—
Trading securities		7,679		—		7,679		—
Loans held for sale		56		56		—		—

	(Amounts in thousands)
			Fair Value Measurements at December 31, 2013 Using
Description	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS
U.S. Treasury securities	$	112	$	—	$	112	$	—
U.S. Government agencies and corporations		8,947		—		8,947		—
Obligations of states and political subdivisions		43,535		—		43,535		—
U.S. Government-sponsored mortgage-backed securities		78,022		—		78,022		—
U.S. Government-sponsored collateralized mortgage obligations		17,085		—		17,085		—
Trust preferred securities		10,136		—		—		10,136
Regulatory stock		3,049		3,049		—		—
Trading securities		7,247		—		7,247		—
Loans held for sale		656		656		—		—

Changes in the Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the three and six months ended June 30, 2014 and 2013. The Company classifies financial instruments in Level 3 of the fair-value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

	(Amounts in thousands)
	Three Months Ended					Six Months Ended
	June 30, 2014			June 30, 2013		June 30, 2014			June 30, 2013
	Trust preferred securities			Trust preferred securities		Trust preferred securities			Trust preferred securities
Beginning balance	$	743		$	8,686	$	10,136		$	7,612
Net realized/unrealized gains/(losses) included in:
Noninterest income		—			—		—			—
Other comprehensive income		(6	)		998		730			2,070
Discount accretion (premium amortization)		—			2		7			4
Sales		—			—		(10,044	)		—
Purchases, issuance, and settlements		(57	)		—		(149	)		—
Ending balance	$	680		$	9,686	$	680		$	9,686
Losses included in net income for the period relating    to assets held at period end	$	—		$	—	$	—		$	—

Breakdown of Trust Preferred Securities

The following table details the breakdown of trust preferred securities for the periods indicated:

	(Dollar amounts in thousands)
	June 30, 2014		December 31, 2013
Total number of trust preferred securities		2		12
Par value	$	1,808	$	14,366
Number not considered OTTI		1		1
Par value	$	808	$	956
Number considered OTTI		1		11
Par value	$	1,000	$	13,410
Life-to-date impairment recognized in earnings	$	140	$	2,305
Life-to-date impairment recognized in other    comprehensive income		988		1,718
Total life-to-date impairment	$	1,128	$	4,023

Trust Preferred Securities with OTTI, their Credit Ratings at Period End and Related Losses Recognized in Earnings

The following table details the one debt security with other-than-temporary impairment, its credit rating at June 30, 2014 and the related losses recognized in earnings:

	(Amounts in thousands)
	Moody’s/Fitch Rating	Amount of OTTI related to credit loss at January 1, 2014		Additions in QTD March 31, 2014		Additions in QTD June 30, 2014		Amount of OTTI related to credit loss at June 30, 2014
Trapeza IX B-1	Ca/CC	$	140	$	—	$	—	$	140
Total		$	140	$	—	$	—	$	140

The following table details the two debt securities with other-than-temporary impairment, their credit ratings at June 30, 2013 and the related losses recognized in earnings:

	(Amounts in thousands)
	Moody’s/Fitch Rating	Amount of OTTI related to credit loss at January 1, 2013		Additions in QTD March 31, 2013		Additions in QTD June 30, 2013		Amount of OTTI related to credit loss at June 30, 2013
PreTSL XXIII Class C-FP	Ca/C	$	211	$	—	$	—	$	211
Trapeza IX B-1	Ca/CC		140		—		—		140
Total		$	351	$	—	$	—	$	351

Additional Information Related to the Company's Trust Preferred Securities

The following table provides additional information related to the Company’s trust preferred securities as of June 30, 2014 used to evaluate other-than-temporary impairments:

	(Amounts in thousands)
Deal	Class	Amortized Cost		Fair Value		Unrealized Gain/(Loss)			Moody’s/ Fitch Rating	Number of Issuers Currently Performing		Deferrals and Defaults as a % of Current Collateral			Excess Subordination as a % of Current Performing Collateral
PreTSL XXIII	C-2	$	808	$	250	$	(558	)	Ca/C		94		23.3	%		—	%
Trapeza IX	B-1		860		430		(430	)	Ca/CC		33		18.1			—
Total		$	1,668	$	680	$	(988	)

The following table provides additional information related to the Company’s trust preferred securities as of December 31, 2013 used to evaluate other-than-temporary impairments:

	(Amounts in thousands)
Deal	Class	Amortized Cost		Fair Value		Unrealized Gain/(Loss)			Moody’s/ Fitch Rating	Number of Issuers Currently Performing		Deferrals and Defaults as a % of Current Collateral			Excess Subordination as a % of Current Performing Collateral
PreTSL XXIII	C-2	$	956	$	392	$	(564	)	Ca/C		93		24.2	%		—	%
PreTSL XXIII	C-FP		1,535		811		(724	)	Ca/C		93		24.2			—
I-PreTSL I	B-1		770		770		—		NR/CCC		14		17.3			7.78
I-PreTSL I	B-2		770		770		—		NR/CCC		14		17.3			7.78
I-PreTSL I	B-3		770		770		—		NR/CCC		14		17.3			7.78
I-PreTSL II	B-3		2,700		2,700		—		NR/B		21		8.0			18.03
I-PreTSL III	B-2		870		870		—		Ba3/CCC		20		14.1			14.74
I-PreTSL III	C		620		620		—		NR/CCC		20		14.1			4.7
I-PreTSL IV	B-1		860		860		—		Ba2/B		30		—			17.67
I-PreTSL IV	B-2		860		860		—		Ba2/B		30		—			17.67
I-PreTSL IV	C		283		283		—		Caa1/CCC		30		—			11.16
Trapeza IX	B-1		860		430		(430	)	Ca/CC		32		20.9			—
Total		$	11,854	$	10,136	$	(1,718	)

Assets Measured on a Nonrecurring Basis on the Consolidated Balance Sheets at their Fair Value

The following table presents the assets measured on a nonrecurring basis on the consolidated balance sheets at their fair value as of June 30, 2014 and December 31, 2013, by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include: quoted market prices for identical assets classified as Level 1 inputs; observable inputs, employed by certified appraisers, for similar assets classified as Level 2 inputs. In cases where valuation techniques include inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level 3 inputs.

	(Amounts in thousands)
	June 30, 2014
	Level 1		Level 2		Level 3		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	5,729	$	5,729

	(Amounts in thousands)
	December 31, 2013
	Level 1		Level 2		Level 3		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	5,251	$	5,251
Other real estate owned	$	—	$	—	$	33	$	33

Carrying Amounts and Estimated Fair Values of the Company's Financial Instruments

The carrying amounts and estimated fair values of the Company’s financial instruments are as follows:

	(Amounts in thousands)
	June 30, 2014
	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
ASSETS:
Cash and cash equivalents	$	11,718	$	11,718	$	—	$	—	$	11,718
Investment securities available-for-sale		170,913		3,049		167,184		680		170,913
Trading securities		7,679		—		7,679		—		7,679
Loans held for sale		56		56		—		—		56
Loans, net of allowance for loan losses		312,433		—		—		316,852		316,852
Bank-owned life insurance		16,815		16,815		—		—		16,815
Accrued interest receivable		1,683		1,683		—		—		1,683
LIABILITIES:
Demand, savings and money market deposits	$	293,818	$	293,818	$	—	$	—	$	293,818
Time deposits		131,247		—		—		134,462		134,462
Short-term borrowings		3,780		3,780		—		—		3,780
Federal Home Loan Bank advances - short term		5,000		5,000		—		—		5,000
Federal Home Loan Bank advances - long term		34,500		—		—		36,241		36,241
Subordinated debt		5,155		—		—		5,096		5,096
Accrued interest payable		269		269		—		—		269

	(Amounts in thousands)
	December 31, 2013
	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value
ASSETS:
Cash and cash equivalents	$	12,396	$	12,396	$	—	$	—	$	12,396
Investment securities available-for-sale		160,886		3,049		147,701		10,136		160,886
Trading securities		7,247		—		7,247		—		7,247
Loans held for sale		656		656		—		—		656
Loans, net of allowance for loan losses		343,069		—		—		349,190		349,190
Bank-owned life insurance		15,049		15,049		—		—		15,049
Accrued interest receivable		1,675		1,675		—		—		1,675
LIABILITIES:
Demand, savings and money market deposits	$	316,708	$	316,708	$	—	$	—	$	316,708
Time deposits		131,961		—		—		135,712		135,712
Short-term borrowings		3,804		3,804		—		—		3,804
Federal Home Loan Bank advances - short term		8,100		8,100		—		—		8,100
Federal Home Loan Bank advances - long term		34,500		—		—		36,646		36,646
Subordinated debt		5,155		—		—		4,694		4,694
Accrued interest payable		290		290		—		—		290

Significant Unobservable Inputs for Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at June 30, 2014:

	(Amounts in thousands)
	Fair value at June 30, 2014		Valuation Technique	Significant Unobservable Input	Description of Inputs
Trust preferred securities	$	680	Discounted Cash Flow	Projected Prepayments	1) Trust preferred securities issued by banks subject to Dodd-Frank's phase-out of trust preferred securities from Tier 1 Capital.  All fixed rate within one year; variable rate at increasing intervals depending on spread. 2) Trust preferred securities issued by healthy, well capitalized banks that have fixed rate coupons greater than 8%.3) 1% annually for all other fixed rate issues and all variable rate issues.4) Zero for collateral issued by REITs and 2% for insurance companies.
				Projected Defaults	1) All deferring issuers that do not meet the criteria for curing, as described below, are projected to default immediately. 2) Banks with high, near team default risk are identified using a CAMELS model, and projected to default immediately. Healthy banks are projected to default at a rate of 2% annually for 2 years, and 0.36% annually thereafter. 3) Insurance and REIT defaults are projected according to the historical default rates exhibited by companies with the same credit ratings. Historical default rates are doubled in each of the first two years of the projection to account for current economic conditions. Unrated issuers are assumed to have CCC- ratings.
				Projected Cures	1) Deferring issuers that have definitive agreements to either be acquired or recapitalized.
				Projected Recoveries	1) Zero for insurance companies, REITs and insolvent banks, and 10% for projected bank deferrals lagged 2 years.
				Discount Rates	1) Ranging from ~11.38% to ~16.42%, depending on each bond's seniority and remaining subordination after projected losses.
Impaired loans	$	5,729	Appraisal of Collateral (1)	Appraisal Adjustments (2)	Range (10)% to (30)% Weighted average (12)%
				Liquidation Expenses (2)	Range (1)% to (24)% Weighted average (6)%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses are presented as a percent of the appraisal. The adjustment of appraised value is measured as the effect on fair value as a percentage of unpaid principal.

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at December 31, 2013:

	(Amounts in thousands)
	Fair value at December 31, 2013		Valuation Technique	Significant Unobservable Input	Description of Inputs
Trust preferred securities	$	10,136	Discounted Cash Flow	Projected Prepayments	1) Trust preferred securities issued by banks subject to Dodd-Frank's phase-out of trust preferred securities from Tier 1 Capital.  All fixed rate within one year; variable rate at increasing intervals depending on spread. 2) Trust preferred securities issued by healthy, well capitalized banks that have fixed rate coupons greater than 8%. 3) 1% annually for all other fixed rate issues and all variable rate issues. 4) Zero for collateral issued by REITs and 2% for insurance companies.
				Projected Defaults	1) All deferring issuers that do not meet the criteria for curing, as described below, are  projected to default immediately. 2) Banks with high, near team  default risk are identified using a CAMELS model, and projected to default immediately.  Healthy banks are projected to default at a rate of 2% annually for 2 years, and 0.36% annually thereafter. 3) Insurance and REIT defaults are projected according to the historical default rates exhibited by companies with the same credit ratings. Historical default rates are doubled in each of the first two years of the projection to account for current economic conditions. Unrated issuers are assumed to have CCC- ratings.
				Projected Cures	1) Deferring issuers that have definitive agreements to either be acquired or  recapitalized.
				Projected Recoveries	1) Zero for insurance companies, REITs and insolvent banks, and 10% for projected bank deferrals lagged 2 years.
				Discount Rates	1) Ranging from ~5.65% to ~17.85%, depending on each bond's seniority and remaining subordination after projected losses.
Impaired loans		5,251	Appraisal of Collateral (1)	Appraisal Adjustments  (2)	Weighted average (21)%
				Liquidation Expenses (2)	Weighted average (6)%
Other real estate owned		33	Appraisal of Collateral (1), (3)	Appraisal Adjustments  (2)		0%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses are presented as a percent of the appraisal. The adjustment of appraised value is measured as the effect on fair value as a percentage of unpaid principal.

(3) Includes qualitative adjustments by management and estimated liquidation expenses.