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FAIR VALUE OF ASSETS AND LIABILITIES | 6 Months Ended
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Jun. 30, 2012
Fair Value Disclosures [Abstract] |
Fair Value Disclosures [Text Block] | NOTE H – FAIR VALUE OF ASSETS AND LIABILITIES Fair value is 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. A fair value measurement must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of 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
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis, recognized in the accompanying balance sheets, as well as the general classifications of such assets pursuant to the valuation hierarchy. Available-for-Sale Securities The fair values of available-for-sale securities are determined by various valuation methodologies. Level 1 securities include money market mutual funds. Level 1 inputs included 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 the fair value hierarchy in which the fair value measurements fall at June 30, 2012 and December 31, 2011. Interest Rate Contracts The fair values of interest rate contracts are based upon the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account underlying interest rates, credit worthiness of underlying customers for credit derivatives and, when appropriate, the creditworthiness of the counterparties.
($'s in thousands) |  | Fair Values at |  |  | Fair Value Measurements Using: |
Description |  | 6/30/2012 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Available-for-Sale Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and Government |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agencies |  | $ | 14,611 |  |  | $ | - |  |  | $ | 14,611 |  |  | $ | - |
Mortgage-backed securities |  |  | 67,727 |  |  |  | - |  |  |  | 67,727 |  |  |  | - |
State and political subdivisions |  |  | 16,817 |  |  |  | - |  |  |  | 16,817 |  |  |  | - |
Money Market Mutual Fund |  |  | 3,359 |  |  |  | 3,359 |  |  |  | - |  |  |  | - |
Equity securities |  |  | 23 |  |  |  | - |  |  |  | 23 |  |  |  | - |
Interest rate contracts |  |  | 149 |  |  |  | - |  |  |  | 149 |  |  |  | - |
($'s in thousands) |  | Fair Values at |  |  | Fair Value Measurements Using: |
Description |  | 12/31/2011 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Available-for-Sale Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and Government Agencies |  | $ | 25,424 |  |  | $ | - |  |  | $ | 25,424 |  |  | $ | - |
Mortgage-backed securities |  |  | 67,698 |  |  |  | - |  |  |  | 67,698 |  |  |  | - |
State and political subdivisions |  |  | 16,793 |  |  |  | - |  |  |  | 16,793 |  |  |  | - |
Money Market Mutual Funds |  |  | 2,040 |  |  |  | 2,040 |  |  |  | - |  |  |  | - |
Equity Securities |  |  | 23 |  |  |  | - |  |  |  | 23 |  |  |  | - |
Level 1 – Quoted Prices in Active Markets for Identical Assets Level 2 – Significant Other Observable Inputs Level 3 – Significant Unobservable Inputs Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. Impaired Loans (Collateral-dependent) 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 June 30, 2012 and December 31, 2011. 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. Software The Company reviews the carrying value of software for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. 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 June 30, 2012 and December 31, 2011 ($’s in thousands):
($'s in thousands) |  | Fair Values at |  |  | Fair Value Measurements Using: |
Description |  | 6/30/2012 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Impaired loans |  | $ | 5,046 |  |  | $ | - |  |  | $ | - |  |  | $ | 5,046 |
Mortgage servicing rights |  |  | 3,359 |  |  |  | - |  |  |  | - |  |  |  | 3,359 |
Foreclosed assets |  |  | 1,122 |  |  |  | - |  |  |  | - |  |  |  | 1,122 |
($'s in thousands) |  | Fair Values at |  |  | Fair Value Measurements Using: |
Description |  | 12/31/2011 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Impaired loans |  | $ | 5,575 |  |  | $ | - |  |  | $ | - |  |  | $ | 5,575 |
Mortgage servicing rights |  |  | 2,820 |  |  |  | - |  |  |  | - |  |  |  | 2,820 |
Foreclosed assets |  |  | 877 |  |  |  | - |  |  |  | - |  |  |  | 877 |
Software |  |  | 159 |  |  |  | - |  |  |  | - |  |  |  | 159 |
Unobservable (Level 3) Inputs The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.
|  | Fair Value at |  |  | Valuation |  |  |  |  |  | Range (Weighted |
($'s in thousands) |  | 6/30/2012 |  |  | Technique |  |  | Unobservable Inputs |  |  | Average) |
Collateral-dependent impaired loans |  | $ | 5,046 |  |  |  | Market comparable properties |  |  |  | Comparability adjustments (%) |  |  |  | Not available |
Foreclosed assets |  |  | 1,122 |  |  |  | Market comparable properties |  |  |  | Marketability discount |  |  |  | 10.0 | %
Mortgage servicing rights |  |  | 3,359 |  |  |  | Discounted cash flow |  |  |  | Discount Rate |  |  |  | 8.5 | %
|  |  |  |  |  |  |  |  |  |  | Constant prepayment rate |  |  |  | 17.9 | %
|  |  |  |  |  |  |  |  |  |  | P&I earnings credit |  |  |  | 0.25 | %
|  |  |  |  |  |  |  |  |  |  | T&I earnings credit |  |  |  | 1.1 | %
|  |  |  |  |  |  |  |  |  |  | Inflation for cost of servicing |  |  |  | 1.5 | %
There were no changes in the inputs or methodologies used to determine fair value at June 30, 2012 as compared to December 31, 2011. The following table presents estimated fair values of the Company’s other financial instruments carried at other than fair value. 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. The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value. 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 June 30, 2012 and December 31, 2011, 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 June 30, 2012 and December 31, 2011. 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 June 30, 2012 and are not considered significant to this presentation.
June 30, 2012 |  | Carrying |  |  | Fair Value Measurments Using |
$'s in thousands |  | Amount |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 14,636 |  |  | $ | 14,636 |  |  | $ | - |  |  | $ | - |
Loans held for sale |  |  | 10,595 |  |  |  | - |  |  |  | 10,915 |  |  |  | - |
Loans, net of allowance for loan losses |  |  | 445,492 |  |  |  | - |  |  |  | - |  |  |  | 451,079 |
Federal Reserve and FHLB Bank stock |  |  | 3,748 |  |  |  | - |  |  |  | 3,748 |  |  |  | - |
Accrued interest receivable |  |  | 1,597 |  |  |  | - |  |  |  | 1,597 |  |  |  | - |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 518,661 |  |  | $ | - |  |  | $ | 522,162 |  |  | $ | - |
Short-term borrowings |  |  | 15,824 |  |  |  | - |  |  |  | 15,830 |  |  |  | - |
Notes payable |  |  | 2,249 |  |  |  | - |  |  |  | 2,279 |  |  |  | - |
FHLB advances |  |  | 17,500 |  |  |  | - |  |  |  | 18,295 |  |  |  | - |
Trust preferred securities |  |  | 20,620 |  |  |  | - |  |  |  | 8,652 |  |  |  | - |
Accrued interest payable |  |  | 3,836 |  |  |  | - |  |  |  | 3,836 |  |  |  | - |
December 31, 2011 |  | Carrying |  |  | Fair Value Measurments Using |
$'s in thousands |  | Amount |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 14,846 |  |  | $ | 14,846 |  |  | $ | - |  |  | $ | - |
Loans held for sale |  |  | 5,238 |  |  |  | - |  |  |  | 5,334 |  |  |  | - |
Loans, net of allowance for loan losses |  |  | 436,025 |  |  |  | - |  |  |  | - |  |  |  | 443,727 |
Federal Reserve and FHLB Bank stock, at cost |  |  | 3,685 |  |  |  | - |  |  |  | 3,685 |  |  |  | - |
Interest receivable |  |  | 1,635 |  |  |  | - |  |  |  | 1,635 |  |  |  | - |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 518,765 |  |  | $ | - |  |  | $ | 521,654 |  |  | $ | - |
Short-term borrowings |  |  | 18,779 |  |  |  | - |  |  |  | 18,903 |  |  |  | - |
Notes payable |  |  | 2,788 |  |  |  | - |  |  |  | 2,815 |  |  |  | - |
Federal Home Loan Bank advances |  |  | 12,776 |  |  |  | - |  |  |  | 13,149 |  |  |  | - |
Trust preferred securities |  |  | 20,620 |  |  |  | - |  |  |  | 8,320 |  |  |  | - |
Interest payable |  |  | 2,954 |  |  |  | - |  |  |  | 2,954 |  |  |  | - |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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