XML 14 R14.htm IDEA: XBRL DOCUMENT  v2.3.0.11
FAIR VALUE MEASUREMENTS
 6 Months Ended
Jun. 30, 2011
FAIR VALUE MEASUREMENTS  
FAIR VALUE MEASUREMENTS
NOTE 7.  FAIR VALUE MEASUREMENTS

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP. Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial. Accordingly, such assets and liabilities are excluded from disclosure requirements. For example, no benefit is recorded for the value of low-cost funding subsequently discussed. In addition, the Bank's Wealth Management Division contributes fee income annually. Assets and liabilities of this Division are not considered financial instruments for this disclosure, and their values have not been incorporated into the fair value estimates.

The Company's assets that were considered financial instruments approximated percent of total assets at June 30, 2011, and 95.3 percent of total assets at December 31, 2010. Liabilities that were considered financial instruments approximated            percent of total liabilities at June 30, 2011, and 99.4 percent of total liabilities at December 31, 2010.

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument.

Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
 
The following methods and assumptions were used by the Company to construct the following table containing the fair values and related carrying amounts of financial instruments:

Cash and Cash Equivalents:   The carrying values of cash and cash equivalents as reported on the balance sheet approximate fair value.

Securities Available for Sale:   The fair value of marketable equity securities is based on quoted market prices from active exchange markets. The fair value of debt securities is based on pricing from a matrix pricing model.  The carrying value of restricted equity securities approximate fair value.

Loans held for sale, net:   The fair value of loans held for sale, net, are based on quoted market prices.

Net loans: For adjustable-rate loans that reprice immediately and with no significant credit risk, fair values are based on carrying values. The fair values of other nonimpaired loans are estimated using discounted cash flow analysis, using interest rates currently offered in the market for loans with similar terms to borrowers of similar credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis determined by the loan review function or underlying collateral values, where applicable.

Accrued interest receivable:   The carrying value of accrued interest receivable as reported on the balance sheet approximates fair value.

Deposits:   The fair value of noninterest-bearing deposits and savings, NOW and money market accounts is the amount payable on demand at the reporting date. The fair value estimates do not include the benefit that results from such low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. The carrying value of adjustable-rate, fixed-term time deposits approximates their fair value at the reporting date. For fixed-rate time deposits, the present value of future cash flows is used to estimate fair value. The discount rates used are the current rates offered for time deposits with similar maturities.

Short-term Borrowings:   The carrying value of short-term borrowings approximates fair value.

Long-term Debt:   The fair value of fixed-rate long-term debt is based on the present value of future cash flows. The discount rate used is the current rates offered for long-term debt with the same maturity.

Accrued interest payable :  The carrying value of accrued interest payable as reported on the balance sheet approximates fair value.
 
Off-balance sheet financial instruments:   The majority of commitments to extend credit, unused portions of lines of credit and standby letters of credit carry current market interest rates if converted to loans. Because such commitments are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. None of the commitments are subject to undue credit risk. The estimated fair values of off-balance sheet financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The fair value of off-balance sheet financial instruments was not material at June 30, 2011 and December 31, 2010.

The estimated fair values of the Company's financial instruments were as follows at June 30, 2011 and December 31, 2010.

 
June 30, 2011
 
December 31, 2010
 
 
Carrying Amount
Fair Value
 
Carrying Amount
  
Fair Value
 
Financial assets:
          
Cash and cash equivalents
     $17,841  $17,841 
Securities available for sale
      124,414   124,414 
Loans held for sale
      30   30 
Net loans
      386,672   442,259 
Accrued interest receivable
     $3,003  $3,003 
              
Financial liabilities:
            
Deposits
     $438,734  $440,529 
Short-term borrowings
      38,724   38,724 
Long-term borrowings
      27,336   27,872 
Accrued interest payable
     $311  $311 
              
 
In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:

•
Level 1: Unadjusted quoted prices of 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.

An asset's or liability's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
 
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2011 and December 31, 2010 are as follows:

   
Amount
  
(Level 1) Quoted Prices in Active Markets for Identical Assets
  
(Level 2) Significant Other Observable Inputs
(Level 3) Significant Unobservable Inputs
June 30, 2011
         
U.S. Government agencies and sponsored enterprises
 $34,946     $34,946 
Obligations of state and political subdivisions
  41,784      41,784 
Taxable obligations of state and political subdivisions
  19,177      19,177 
Corporate debt securities
  4,479      4,479 
Mortgage-backed securities-residential
  12,302      12,302 
Preferred equity securities
  226      226 
Common equity securities
  1,183  $1,183     
Restricted stock
  2,385       2,385 
Total
 $116,482  $1,183  $115,299 
December 31, 2010
            
U.S. Government agencies and sponsored enterprises
 $39,118      $39,118 
Obligations of state and political subdivisions
  50,309       50,309 
Taxable obligations of state and political subdivisions
  18,374       18,374 
Corporate debt securities
  4,020       4,020 
Mortgage-backed securities-residential
  8,670       8,670 
Preferred equity securities
  54       54 
Common equity securities
  1,227  $1,227     
Restricted stock
  2,642       2,642 
Total
 $124,414  $1,227  $123,187 
 
For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2011 and December 31, 2010 are as follows:

 
Amount
(Level 1) Quoted Prices in Active Markets for Identical Assets
(Level 2) Significant Other Observable Inputs
(Level 3) Significant Unobservable Inputs
June 30, 2011
       
Impaired loans
       
         
December 31, 2010
       
Impaired loans
$7,769
   
$7,769