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FAIR VALUE OF ASSETS AND LIABILITIES
9 Months Ended
Sep. 30, 2011
us-gaap_FairValueDisclosuresAbstract 
Fair Value Disclosures [Text Block]
NOTE F – FAIR VALUE OF ASSETS AND LIABILITIES
 
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:
 
 
Level 1
Quoted prices in active markets for identical assets or liabilities
 
 
Level 2
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 for substantially the full term of the assets or liabilities
 
 
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
 
Available-for-Sale Securities
 
The fair value of available-for-sale securities are determined by various valuation methodologies.  Level 1 securities include money market mutual funds.  Level 1 inputs include quoted prices in an active market. Level 2 securities include U.S. government agencies, mortgage-backed securities, and obligations of political and state subdivisions.  Level 2 inputs do not include quoted prices for individual securities in active markets; however, they do include inputs that are either directly or indirectly observable for the individual security being valued.  Such observable inputs include interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates.  Also included are inputs derived principally from or corroborated by observable market data by correlation or other means.
 
The following table presents the fair value measurements of assets measured at fair value on a recurring basis and the level within ASC 820 fair value hierarchy in which the fair value measurements fall at September 30, 2011 and December 31, 2010:
 
Fair Value Measurements Using:
  
Description
  
9/30/2011
    
(Level 1)
    
(Level 2)
    
(Level 3)
  
Available-for-Sale Securities:
                        
U.S. Treasury and Government Agencies
   $ 25,777,477       -     $ 25,777,477       -  
Mortgage-backed securities
     61,083,547       -       61,083,547       -  
State and political subdivisions
     17,493,801       -       17,493,801       -  
Money Market Mutual Fund
     237,052       237,052       -       -  
Equity securities
     23,000       -       23,000       -  
 
Fair Value Measurements Using:
  
Description
  
Fair Values at
12/31/2010
    
(Level 1)
    
(Level 2)
    
(Level 3)
  
Available-for-Sale Securities:
                        
U.S. Treasury and Government Agencies
   $ 43,651,132       -     $ 43,651,132       -  
Mortgage-backed securities
     54,628,092       -       54,628,092       -  
State and political subdivisions
     32,297,779       -       32,297,779       -  
Money Market Mutual Funds
     2,162,055       2,162,055       -       -  
Equity Securities
     23,000       -       23,000       -  
 
Level 1 – Quoted Prices in Active Markets for Identical Assets
Level 2 – Significant Other Observable Inputs
Level 3 – Significant Unobservable Inputs
 
Impaired Loans
 
Loans for which it is probable the Company will not collect all principal and interest due according to contractual terms are measured for impairment.  If the impaired loan is collateral dependent, then the fair value method of measuring the amount of impairment is utilized.  This method requires obtaining an independent appraisal of the collateral and applying a discount factor to the value based on the Company’s loan review policy.  All impaired loans held by the Company were collateral dependent at September 30, 2011 and December 31, 2010.
 
Mortgage Servicing Rights
 
Mortgage servicing rights do not trade in an active, open market with readily observable prices.  Accordingly, fair value is estimated using discounted cash flow models associated with the servicing rights and discounting the cash flows using discount market rates. The servicing portfolio has been valued using all relevant positive and negative cash flows including servicing fees, miscellaneous income and float; marginal costs of servicing; the cost of carry of advances; and foreclosure losses; and applying certain prevailing assumptions used in the marketplace.  Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.
 
Foreclosed Assets Held for Sale
 
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value (based on current appraised value) at the date of foreclosure, establishing a new cost basis.  Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.  Management has determined fair value measurements on other real estate owned primarily through evaluations of appraisals performed, and current and past offers for the other real estate under evaluation.
 
Goodwill
 
Goodwill is evaluated independently for its fair value.  This measurement uses projected cash flows from operations and discounts those using appropriate discount rates to calculate fair value.  Management engaged a third party to determine the fair value of Goodwill in line with procedures pursuant to FASB Accounting Standards Codification Topic 350-20.
 
Intangible
 
Intangible assets are evaluated independently for fair value on an annual basis.  The measurement of these intangible assets is in line with procedures pursuant to FASB Accounting Standards Codification Topic 350-30.
 
The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2011 and December 31, 2010:
 
Fair Value Measurements Using:
  
Description
  
Fair Values at
09/30/11
    
(Level 1)
    
(Level 2)
    
(Level 3)
  
Impaired loans
   $ 4,374,881       -       -     $ 4,374,881  
Mortgage Servicing Rights
   $ 2,709,222       -       -     $ 2,709,222  
 
Fair Value Measurements Using:
  
Description
  
Fair Values at
12/31/2010
    
(Level 1)
    
(Level 2)
    
(Level 3)
  
Impaired loans
   $ 6,709,231       -       -     $ 6,709,231  
Mortgage Servicing Rights
   $ 3,190,389       -       -     $ 3,190,389  
Foreclosed Assets
   $ 1,054,500       -       -     $ 1,054,500  
Goodwill (RDSI)
   $ 380,748       -       -     $ 380,748  
Intangible (RDSI)
   $ 107,000       -       -     $ 107,000  
 
There were no changes in the inputs or methodologies used to determine fair value during the quarter ended September 30, 2011 as compared to the quarter ended December 31, 2010.
 
The following table presents estimated fair values of the Company’s financial instruments.  The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties.  Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.  Because no market exists for certain of these financial instruments, and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.
 
Cash and Cash Equivalents and Federal Reserve and Federal Home Loan Bank Stock and Accrued Interest Payable and Receivable
 
The carrying amount approximates the fair value.
 
Loans
 
The estimated fair value for loans receivable, including loans held for sale, net, is based on estimates of the rate State Bank would charge for similar loans at September 30, 2011 and December 31, 2010, applied for the time period until the loans are assumed to re-price or be paid.
 
Deposits & Other Borrowings
 
Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates the fair value. The estimated fair value for fixed-maturity time deposits, as well as borrowings, is based on estimates of the rate State Bank could pay on similar instruments with similar terms and maturities at September 30, 2011 and December 31, 2010.
 
The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  The estimated fair value for other financial instruments and off-balance-sheet loan commitments approximate cost at September 30, 2011 and are not considered significant to this presentation.
 
   
Carrying
    
Fair
  
   
Amount
    
Value
  
             
Financial assets
            
Cash and cash equivalents
   $ 13,764,025     $ 13,764,000  
Available-for-sale securities
     104,614,877       104,615,000  
Loans held for sale
     10,589,706       10,872,000  
Loans, net of allowance for loan losses
     432,690,807       435,075,000  
Federal Reserve and FHLB Bank stock
     3,748,250       3,748,000  
Accrued interest receivable
     2,061,201       2,061,000  
                 
Financial liabilities
                
Deposits
   $ 514,348,675     $ 516,396,000  
Short-term borrowings
     18,777,909       18,957,000  
Notes payable
     2,865,123       2,883,000  
FHLB advances
     12,939,598       13,314,000  
Trust preferred securities
     20,620,000       21,596,000  
Accrued interest payable
     2,704,466       2,704,000  
 
 
   
Carrying
    
Fair
  
   
Amount
    
Value
  
             
Financial assets
            
Cash and cash equivalents
   $ 30,417,813     $ 30,418,000  
Available-for-sale securities
     132,762,058       132,762,000  
Loans held for sale
     9,055,268       9,055,000  
Loans, net of allowance for loan losses
     420,829,017       424,144,000  
Federal Reserve and FHLB Bank stock, at cost
     3,748,250       3,748,000  
Interest receivable
     2,068,965       2,069,000  
                 
Financial liabilities
                
Deposits
   $ 515,677,742     $ 519,123,000  
Short-term borrowings
     45,785,254       47,515,000  
Notes payable
     3,290,471       3,276,000  
Federal Home Loan Bank advances
     22,807,351       23,243,000  
Trust preferred securities
     20,620,000       20,862,000  
Interest payable
     1,971,587       1,972,000