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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2011

Fair Value of Financial Instruments [Abstract]

(13)

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

Loans

The fair value of loans is estimated based on the discounted value of contractual cash flows. The discount rate is estimated using current offering rates applicable to each category of such financial instruments. The net carrying amount of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic 820.

Investment Securities

A detailed description of the fair value measurement of the debt instruments in the available for sale sections of the investment security portfolio is provided in the Fair Value Measurement section above. A schedule of investment securities by category and maturity is provided in the notes on Investment Securities.

Federal Funds Sold, Cash, and Due from Banks

For federal funds sold, cash, and due from banks, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

Mortgage Servicing Rights

The fair value of mortgage servicing rights is based on the discounted value of contractual cash flows utilizing servicing rate, constant prepayment rate, servicing cost, and discount rate factors.

Accrued Interest Receivable and Payable

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

Deposits

The fair value of deposits with no stated maturity, such as noninterest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time 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.

Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury

For securities sold under agreements to repurchase and interest-bearing demand notes to U.S. Treasury, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

Other Borrowings

The fair value of subordinated notes and other borrowings, Federal Home Loan Bank borrowings, is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

A summary of the carrying amounts and fair values of our Company’s financial instruments for the periods stated is as follows:


	September 30, 2011				December 31, 2010
	Carrying amount		Fair value		Carrying amount		Fair value
Assets:
Loans	$	837,110,422	$	839,435,000	$	883,907,596	$	889,291,000
Investment in debt securities		205,446,454		205,446,454		178,977,550		178,977,550
Federal fund sold and securities purchased under agreements to resell		75,000		75,000		125,815		125,815
Cash and due from banks		41,306,401		41,306,401		50,853,985		50,853,985
Mortgage servicing rights		2,266,109		2,937,000		2,355,990		3,027,000
Accrued interest receivable		5,383,405		5,383,405		5,733,684		5,733,684

	$	1,091,587,791	$	1,094,583,260	$	1,121,954,620	$	1,128,009,034

Liabilities:
Deposits:
Demand	$	157,183,939	$	157,183,939	$	137,749,571	$	137,749,571
NOW		160,292,788		160,292,788		160,225,356		160,225,356
Savings		62,799,247		62,799,247		54,722,129		54,722,129
Money market		152,553,205		152,553,205		164,190,054		164,190,054
Time		420,119,955		428,168,000		429,775,546		437,996,000
Federal funds purchased and securities sold under agreements to repurchase		26,196,899		26,196,899		30,068,453		30,068,453
Subordinated notes		49,486,000		21,619,000		49,486,000		21,105,000
FHLB advances		28,491,572		29,710,000		66,985,978		69,329,000
Accrued interest payable		850,188		850,188		1,491,503		1,491,503

	$	1,057,973,793	$	1,039,373,266	$	1,094,694,590	$	1,076,877,066

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. Our Company believes such commitments have been made on terms which are competitive in the markets in which it operates.

Limitations

The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of our Company’s financial instruments, fair value estimates are based on 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 fair value estimates.