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Fair Value Disclosures
 3 Months Ended
Mar. 31, 2012
Fair Value Disclosures [Abstract]  
Fair Value Disclosures
Note 14 - Fair Value

Certain assets and liabilities are recorded at fair value to provide additional insight into the Company's quality of earnings. Some of these assets and liabilities are measured on a recurring basis while others are measured on a nonrecurring basis, with the determination based upon applicable existing accounting pronouncements. For example, securities available for sale are recorded at fair value on a recurring basis. Other assets, such as, mortgage servicing rights, loans held for sale, and impaired loans, are recorded at fair value on a nonrecurring basis using the lower of cost or market methodology to determine impairment of individual assets. The Company groups assets and liabilities which are recorded at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with level 1 considered highest and level 3 considered lowest). A brief description of each level follows.
Level 1 - Valuation is based upon quoted prices for identical instruments in active markets.
Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation includes use of discounted cash flow models and similar techniques.

The most significant instruments that the Company fair values include securities which fall into Level 2 in the fair value hierarchy. The securities in the available for sale portfolio are priced by independent providers. In obtaining such valuation information from third parties, the Company has evaluated their valuation methodologies used to develop the fair values in order to determine whether the valuations are representative of an exit price in the Company's principal markets. The Company's principal markets for its securities portfolios are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Securities Available for Sale. Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices for similar assets, if available. If quoted prices are not available, fair values are measured using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as yield curves, prepayment speeds, and default rates. Recurring Level 1 securities would include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Recurring Level 2 securities include federal agency securities, mortgage-backed securities, collateralized mortgage obligations, municipal bonds and corporate debt securities.
The following table presents the balances of assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2012, December 31, 2011 and March 31, 2011.

   
At March 31, 2012
 
   
Level 1
  
Level 2
  
Level 3
  
Total
 
Securities available for sale
            
   U.S. Treasury and agency
 $-  $-  $-  $- 
   Mortgage-backed securities
  -   232,115,000   -   232,115,000 
   State and political subdivisions
  -   83,162,000   -   83,162,000 
   Other equity securities
  -   1,834,000   -   1,834,000 
Total assets
 $-  $317,111,000  $-  $317,111,000 

   
At December 31, 2011
 
   
Level 1
  
Level 2
  
Level 3
  
Total
 
Securities available for sale
            
   U.S. Treasury and agency
 $-  $-  $-  $- 
   Mortgage-backed securities
  -   198,232,000   -   198,232,000 
   State and political subdivisions
  -   85,726,000   -   85,726,000 
   Corporate securities
  -   811,000   -   811,000 
   Other equity securities
  -   1,433,000   -   1,433,000 
Total assets
 $-  $286,202,000  $-  $286,202,000 

   
At March 31, 2011
 
   
Level 1
  
Level 2
  
Level 3
  
Total
 
Securities available for sale
            
   U.S. Treasury and agency
 $-  $15,943,000  $-  $15,943,000 
   Mortgage-backed securities
  -   253,110,000   -   253,110,000 
   State and political subdivisions
  -   55,081,000   -   55,081,000 
   Corporate securities
  -   923,000   -   923,000 
   Other equity securities
  -   394,000   -   394,000 
Total assets
 $-  $325,451,000  $-  $325,451,000 
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis

Mortgage Servicing Rights. Mortgage servicing rights represent the value associated with servicing residential mortgage loans. Servicing assets and servicing liabilities are reported using the amortization method. In evaluating the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type and term of the underlying loans and observable inputs for its assumptions. As such, the Company classifies mortgage servicing rights as nonrecurring Level 2.
Loans Held for Sale. Mortgage loans held for sale are recorded at the lower of carrying value or market value. The fair value of mortgage loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies mortgage loans held for sale as nonrecurring Level 2.
Other Real Estate Owned. Real estate acquired through foreclosure is initially recorded at market value. The fair value of other real estate owned is based on property appraisals and an analysis of similar properties currently available. As such, the Company records other real estate owned as nonrecurring Level 2.
Impaired Loans. A loan is considered to be impaired when it is probable that all of the principal and interest due under the original underwriting terms of the loan may not be collected. Impairment is measured based on the fair value of the underlying collateral or present value of expected cash flows. As such, the Company records impaired loans as nonrecurring Level 2.
The following tables includes asset measured at fair value on a nonrecurring basis that have had a fair value adjustment since their initial recognition. Other real estate owned is presented net of an allowance of $367,000,
$436,000, and $108,000 at March 31, 2012, December 31, 2011, and March 31, 2011, respectively. Impaired loans measured at fair value only include impaired loans with a related specific allowance for loan losses and are presented net of specific allowances of $2,348,000, $2,058,000 and $1,621,000 at March 31, 2012, December 31, 2011, and March 31, 2011, respectively.

   
At March 31, 2012
 
   
Level 1
  
Level 2
  
Level 3
  
Total
 
Mortgage servicing rights
 $-  $994,000  $-  $994,000 
Loans held for sale
  -   184,000   -   184,000 
Other real estate owned
  -   4,214,000   -   4,214,000 
Impaired loans
  -   12,082,000   -   12,082,000 
Total assets
 $-  $17,474,000  $-  $17,474,000 

   
At December 31, 2011
 
   
Level 1
  
Level 2
  
Level 3
  
Total
 
Mortgage servicing rights
 $-  $1,581,000  $-  $1,581,000 
Loans held for sale
  -   -   -   - 
Other real estate owned
  -   4,094,000   -   4,094,000 
Impaired loans
  -   12,165,000   -   12,165,000 
Total assets
 $-  $17,840,000  $-  $17,840,000 

   
At March 31, 2011
 
   
Level 1
  
Level 2
  
Level 3
  
Total
 
Mortgage servicing rights
 $-  $2,205,000  $-  $2,205,000 
Loans held for sale
  -   450,000   -   450,000 
Other real estate owned
  -   4,575,000   -   4,575,000 
Impaired loans
  -   7,002,000   -   7,002,000 
Total assets
 $-  $14,232,000  $-  $14,232,000 




Fair Value of Financial Instruments

FASB ASC Topic 825 "Financial Instruments", requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, if the fair values can be reasonably determined. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques using observable inputs when available. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The estimated fair values for financial instruments as of March 31, 2012 were as follows:

   
Carrying
  
Estimated
          
   
value
  
fair value
  
Level 1
  
Level 2
  
Level 3
 
Financial assets
               
Cash and cash equivalents
 $12,123,000  $12,123,000  $12,123,000  $-  $- 
Interest bearing deposits in other banks
  1,532,000   1,532,000   1,532,000   -   - 
Securities available for sale
  317,111,000   317,111,000   -   317,111,000   - 
Securities to be held to maturity
  137,606,000   144,633,000   -   144,633,000   - 
Federal Reserve Bank stock
  1,411,000   1,411,000   -   1,411,000   - 
Federal Home Loan Bank stock
  13,412,000   13,412,000   -   13,412,000   - 
Loans held for sale
  184,000   184,000   -   184,000   - 
Loans (net of allowance for loan losses)
                    
Commercial
                    
   Real estate
  247,962,000   248,737,000   -   -   248,737,000 
   Construction
  30,018,000   30,018,000   -   -   30,018,000 
   Other
  83,021,000   83,529,000   -   -   83,529,000 
Municipal
  15,939,000   17,471,000   -   -   17,471,000 
Residential
                    
   Term
  356,971,000   368,682,000   -   -   368,682,000 
   Construction
  6,383,000   6,385,000   -   -   6,385,000 
Home equity line of credit
  102,587,000   102,581,000   -   -   102,581,000 
Consumer
  15,057,000   16,049,000   -   -   16,049,000 
Total loans
  857,938,000   873,452,000   -   -   873,452,000 
Mortgage servicing rights
  801,000   994,000   -   994,000   - 
Accrued interest receivable
  5,690,000   5,690,000   -   5,690,000   - 
Financial liabilities
                    
Demand deposits
 $69,520,000  $67,807,000  $-  $67,807,000  $- 
NOW deposits
  120,844,000   111,703,000   -   111,703,000   - 
Money market deposits
  75,752,000   64,795,000   -   64,795,000   - 
Savings deposits
  118,946,000   107,036,000   -   107,036,000   - 
Local certificates of deposit
  215,013,000   220,572,000   -   220,572,000   - 
National certificates of deposit
  415,760,000   420,850,000   -   420,850,000   - 
Total deposits
  1,015,835,000   992,763,000   -   992,763,000   - 
Repurchase agreements
  89,990,000   89,990,000   -   89,990,000   - 
Federal Home Loan Bank advances
  150,161,000   157,589,000   -   157,589,000   - 
Total borrowed funds
  240,151,000   247,579,000   -   247,579,000   - 
Accrued interest payable
  644,000   644,000   -   644,000   - 




The estimated fair values for financial instruments as of December 31, 2011 and March 31, 2011 were as follows:

   
December 31, 2011
  
March 31, 2011
 
   
Carrying
  
Estimated
  
Carrying
  
Estimated
 
   
amount
  
fair value
  
amount
  
fair value
 
Financial assets
            
Cash and cash equivalents
 $14,115,000  $14,115,000  $13,700,000  $13,700,000 
Interest-bearing deposits in other banks
  -   -   100,000   100,000 
Securities available for sale
  286,202,000   286,202,000   325,451,000   325,451,000 
Securities to be held to maturity
  122,661,000   130,677,000   109,936,000   114,051,000 
Federal Home Loan Bank and Federal Reserve Bank stock
  15,443,000   15,443,000   15,443,000   15,443,000 
Loans held for sale
  -   -   450,000   450,000 
Loans (net of allowance for loan losses)
  851,988,000   866,442,000   880,684,000   885,204,000 
Mortgage servicing rights
  1,201,000   1,581,000   1,490,000   2,205,000 
Accrued interest receivable
  4,835,000   4,835,000   6,236,000   6,236,000 
Financial liabilities
                
Deposits
 $941,333,000  $921,388,000  $1,050,257,000  $998,261,000 
Borrowed funds
  265,663,000   273,568,000   217,534,000   222,498,000 
Accrued interest payable
  734,000   734,000   814,000   814,000 

The fair value estimates, methods, and assumptions for the Company's financial instruments are set forth below.

Cash and Cash Equivalents and Due from Banks
The carrying values of cash and cash equivalents and due from banks approximate their relative fair values. As such, the Company classifies cash and cash equivalents as Level 1.

Investment Securities
The fair values of investment securities are estimated by independent providers. In obtaining such valuation information from third parties, the Company has evaluated their valuation methodologies used to develop the fair values in order to determine whether the valuations are representative of an exit price in the Company's principal markets. The Company's principal markets for its securities portfolios are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets. Fair values are calculated based on the value of one unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications, or estimated transaction costs. If these considerations had been incorporated into the fair value estimates, the aggregate fair value could have been changed. The carrying values of restricted equity securities approximate fair values. As such, the Company classifies investment securities as Level 2.

Loans Held for Sale.
Loans held for sale are recorded at the lower of carrying value or market value. The fair value of mortgage loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies mortgage loans held for sale as nonrecurring Level 2.

Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. The fair values of performing loans are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest risk inherent in the loan. The estimates of maturity are based on the Company's historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions, and the effects of estimated prepayments. Fair values for significant non-performing loans are based on estimated cash flows and are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information. Management has made estimates of fair value using discount rates that it believes to be reasonable. However, because there is no market for many of these financial instruments, Management has no basis to determine whether the fair value presented above would be indicative of the value negotiated in an actual sale. As such, the Company classifies loans as Level 3.

Mortgage Servicing Rights.
Mortgage servicing rights represent the value associated with servicing residential mortgage loans. Servicing assets and servicing liabilities are reported using the amortization method. In evaluating the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type and term of the underlying loans and observable inputs for its assumptions. As such, the Company classifies mortgage servicing rights as nonrecurring Level 2.

Accrued Interest Receivable
The fair value estimate of this financial instrument approximates the carrying value as this financial instrument has a short maturity. It is the Company's policy to stop accruing interest on loans for which it is probable that the interest is not collectible. Therefore, this financial instrument has been adjusted for estimated credit loss. As such, the Company classifies accrued interest receivable as Level 2.

Deposits
The fair value of deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value estimates do not include the benefit that results from the low-cost funding provided by the deposits compared to the cost of borrowing funds in the market. If that value were considered, the fair value of the Company's net assets could increase. As such, the Company classifies deposits as Level 2.

Borrowed Funds
The fair value of borrowed funds is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently available for borrowings of similar remaining maturities. As such, the Company classifies borrowed funds as Level 2.

Accrued Interest Payable
The fair value estimate approximates the carrying amount as this financial instrument has a short maturity. As such, the Company classifies accrued interest payable as Level 2.

Off-Balance-Sheet Instruments
Off-balance-sheet instruments include loan commitments. Fair values for loan commitments have not been presented as the future revenue derived from such financial instruments is not significant.

Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These values do not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant
portion of the Company's financial instruments, fair value estimates are based on Management's judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial instruments include the deferred tax asset, premises and equipment, and other real estate owned. In addition, tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.