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Fair Value Instruments
9 Months Ended
Sep. 30, 2011
Fair Value Instruments [Abstract] 
FAIR VALUE OF INSTRUMENTS

NOTE 2 FAIR VALUE OF INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of financial instruments are management’s estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including deferred tax assets, premises, equipment and intangibles. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the elements.

The following assumptions and methods were used in estimating the fair value for financial instruments.

Cash and Cash Equivalents

The carrying amounts reported in the balance sheet for cash, cash equivalents and federal funds sold approximate their fair values. Also included in this line item are the carrying amounts of interest-bearing deposits maturing within ninety days which approximate their fair values. Fair values of other interest-bearing deposits are estimated using discounted cash flow analyses based on current rates for similar types of deposits.

Securities and Other Securities

Fair values for securities, excluding Federal Home Loan Bank stock, are based on quoted market price, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Loans

Most commercial, agricultural and real estate mortgage loans are made on a variable rate basis. For those variable rate loans that re-price frequently, and with no significant change in credit risk, fair values are based on carrying values.The fair values of the fixed rate and all other loans are estimated using discounted cash flow analysis. This is accomplished by using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

Deposits

The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts, which represent the amount payable on demand. The carrying amounts for variable-rate, fixed term money market accounts and certificates of deposit approximate their fair value at the reporting date. Fair value for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Borrowings

Short-term borrowings are carried at cost that approximates fair value. Other long-term debt was generally valued using a discounted cash flow analysis with a discounted rate based on current incremental borrowing rates for similar types of arrangements, or if not available, based on an approach similar to that used for loans and deposits.

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate their fair values.

Dividends Payable

The carrying amounts of dividends payable approximate their fair values and are generally paid within forty days of declaration.

Off Balance Sheet Financial Instruments

Fair values for off-balance sheet, credit related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties’ credit standing.

The estimated fair values, and related carrying or notional amounts, for balance sheet financial instruments as of September 30, 2011 and December 31, 2010 are reflected below.

 

                                 
    (In Thousands)  
    September 2011     December 2010  
    Carrying
Amount		     Fair
Value		     Carrying
Amount		     Fair
Value		  

Financial Assets:

                                

Cash and Cash Equivalents

   $ 38,404     $ 38,404     $ 43,379     $ 43,379  

Securities - available for sale

     316,372       316,372       287,317       287,317  

Other Securities

     4,365       4,365       4,406       4,406  

Loans, net

     500,326       500,763       521,883       520,766  

Accrued interest receivable

     4,250       4,250       4,036       4,036  
         

Financial Liabilities:

                                

Deposits

   $ 719,585     $ 722,830     $ 724,513     $ 725,270  

Short-term debt

                                

Repurchase agreement sold

     53,207       53,207       51,241       51,241  

Federal Home Loan Bank advances

     21,710       22,675       29,874       30,764  

Accrued interest payable

     332       332       471       471  

Dividends payable

     891       891       894       894  

Fair Value Measurements

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2011, and the valuation techniques used by the Company to determine those fair values.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

Disclosures concerning assets and liabilities measured at fair value are as follows:

Assets and Liabilities Measured at Fair Value on a Recurring Basis (In Thousands)

 

                         
September 30, 2011   Quoted Prices in Active
Markets for Identical
Assets (Level 1)		     Significant
Observable Inputs
(Level 2)		     Significant
Unobservable Inputs
(Level 3)		  

Assets-Securities Available for Sale

                        

U.S. Treasury

   $ 26,829                  

U.S. Government agency

     182,287                  

Mortgage-backed securities

     39,195                  

State and local governments

     —       $ 54,299     $ 13,762  
   

 

 

    

 

 

    

 

 

  

Total Securities Available for Sale

   $ 248,311     $ 54,299     $ 13,762  
   

 

 

    

 

 

    

 

 

  

Liabilities

   $ —       $ —       $ —    
   

 

 

    

 

 

    

 

 

  
       
December 31, 2010   Quoted Prices in Active
Markets for Identical
Assets (Level 1)		     Significant
Observable Inputs
(Level 2)		     Significant
Unobservable Inputs
(Level 3)		  

Assets-Securities Available for Sale

                        

U.S. Treasury

   $ 32,279                  

U.S. Government agency

     165,703                  

Mortgage-backed securities

     24,531                  

State and local governments

     —       $ 53,502     $ 11,302  
   

 

 

    

 

 

    

 

 

  

Total Securities Available for Sale

   $ 222,513     $ 53,502     $ 11,302  
   

 

 

    

 

 

    

 

 

  

Liabilities

   $ —       $ —       $ —    
   

 

 

    

 

 

    

 

 

  

The Company did have assets measured at fair value that were categorized as Level 3 during the period. The Company’s available for sale securities includes bonds issued by local municipalities. Those municipal bonds that did not have CUSIP or credit rating numbers were treated as Level 3. Those bonds, including municipalities, that did have CUSIP numbers or have similar characteristics of those in like markets, were considered comparable and marketable and reported as Level 2.

The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. At September 30, 2011, such assets consist primarily of impaired loans and other real estate. The Company has established the fair values of these assets using Level 3 inputs, each individually described below.

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals.)

Other real estate is reported at either the fair value of the real estate minus the estimated costs to sell the asset or the cost of the asset. The determination of fair value of the real estate relies primarily on appraisals from third parties. If the fair value of the real estate, minus the estimated costs to sell the asset, is less than the asset’s cost, the deficiency is recognized as a valuation allowance against the asset through a charge to expense.

 

                                 
    Assets Measured at Fair Value on a Nonrecurring Basis at  September 30, 2011 (In Thousands)  
    Balance at
September 30, 2011		     Quoted Prices in  Active
Markets for
Identical
Assets (Level 1)		     Significant
Observable Inputs
(Level 2)		     Significant
Unobservable Inputs
(Level 3)		  

Impaired loans

   $ 7,082     $ —       $ —       $ 7,082  

Other real estate owned - residential mortgages

   $ 1,069     $ —       $ —       $ 1,069  

Other real estate owned - commercial

   $ 2,786     $ —       $ —       $ 2,786  

 

                                 
    Assets Measured at Fair Value on a Nonrecurring Basis  at December 31, 2010 (In Thousands)  
    Balance at
December 31, 2010		     Quoted Prices in Active
Markets for
Identical
Assets (Level 1)		     Significant
Observable Inputs
(Level 2)		     Significant
Unobservable Inputs
(Level 3)		  

Impaired loans

   $ 4,369     $ —       $ —       $ 4,369  

Other real estate owned - residential mortgages

   $ 2,110     $ —       $ —       $ 2,110  

Other real estate owned commercial

   $ 2,328     $ —       $ —       $ 2,328