Fair Value Measurements (Notes)

6 Months Ended

Jun. 30, 2011

Fair Value Disclosures [Abstract]

Fair Value, by Balance Sheet Grouping [Text Block]

5. Fair Value Measurements

Accounting guidance on fair value measurements and disclosuresdefines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system, and defines required disclosures.  It clarifies that 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 in the market in which the reporting entity transacts business.

The Company's balance sheet contains securities available for sale that are recorded at fair value on a recurring basis.  The three-level valuation hierarchy for disclosure of fair value is as follows:

Level 1 uses quoted market prices in active markets for identical assets or liabilities.

Level 2 uses observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3 uses unobservable inputs that are not corroborated by market data.

When available, quoted market prices are used to determine the fair value of investment securities and such items are classified within Level 1 of the fair value hierarchy.  Examples include U.S. Treasury securities and certain corporate bonds.  For other securities, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar bonds where a price for the identical bond is not observable.  Securities measured at fair value by such methods are classified as Level 2.  The fair values of Level 2 securities are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers, and live trading systems. Certain securities may not be valued based on observable inputs and are, therefore, classified as Level 3.  The fair value of these securities is based on management's best estimates. The Company's policy is to recognize transfers between levels at the end of each reporting period, if applicable.

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis by level as of June 30, 2011, and December 31, 2010.

	June 30, 2011
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. government agencies and corporations	$	48,044	$	—	$	48,044	$	—
State and political subdivisions	54,530		—		54,530		—
Mortgage-backed securities	148,663		—		148,663		—
Trust preferred securities	2,180		—		598		1,582
Corporate notes and other investments	6,383		5,540		843		—
Total	$	259,800	$	5,540	$	252,678	$	1,582
	December 31, 2010
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. government agencies and corporations	$	47,798	$	—	$	47,798	$	—
State and political subdivisions	59,137		—		59,137		—
Mortgage-backed securities	141,220		—		141,220		—
Trust preferred securities	1,976		—		637		1,339
Corporate notes and other investments	6,195		5,280		915		—
Total	$	256,326	$	5,280	$	249,707	$	1,339

The following table presents changes in securities available for sale with significant unobservable inputs (Level 3) for the three and six months ended June 30, 2011 and 2010.

	Three months ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
Beginning balance	$	1,427	$	1,155		$	1,339	$	1,136
Transfer into level 3	—		625			—		625
Total gains or (losses):
Included in earnings	—		(188		)	—		(188		)
Included in other comprehensive income	155		67			243		86
Sale of security	—		—			—		—
Principal payments	—		—			—		—
Ending balance	$	1,582	$	1,659		$	1,582	$	1,659

The previous table includes one pooled TPS as of June 30, 2011.  See Note 3 for a detailed discussion of the valuation of this security.

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following tables present the assets carried on the balance sheet by caption and by level within the valuation hierarchy as of June 30, 2011, and December 31, 2010.

	June 30, 2011
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans	$	15,750	$	—	$	—	$	15,750
Other real estate owned	14,693		—		—		14,693
Total	$	30,443	$	—	$	—	$	30,443
	December 31, 2010
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans	$	17,799	$	—	$	—	$	17,799
Other real estate owned	19,193		—		—		19,193
Total	$	36,992	$	—	$	—	$	36,992

Loans in the tables above consist of impaired loans for which a fair value adjustment has been recorded.  Impaired loans are evaluated and valued at the lower of cost or fair value when the loan is identified as impaired.  Fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy.  Collateral may be real estate or business assets such as equipment, inventory, or accounts receivable. Fair value is determined by appraisals.  Appraised or reported values may be discounted based on management's opinions concerning market developments or the client's business.  Other real estate owned in the table above consists of property acquired through foreclosures and settlements of loans.  Property acquired is carried at fair value of the property, less estimated disposal costs, and is classified as Level 3 in the fair value hierarchy.

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis.  The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or nonrecurring basis are discussed above.  The methodologies for other financial assets and financial liabilities are discussed below.

Cash and due from banks:  The carrying amount approximates fair value.

Federal funds sold and other short-term investments:  The carrying amount approximates fair value.

Federal Home Loan Bank stock:  The fair value of this restricted stock is estimated at its carrying value and redemption price of $100 per share.

Loans held for sale:  The fair values of loans held for sale are based on estimated selling prices.

Loans:  The fair values of loans are estimated using discounted cash flow analysis based on observable market interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

Deposits:  The carrying amounts for demand and savings deposits, which represent the amounts payable on demand, approximate their fair values.  The fair values for fixed-rate and variable-rate certificates of deposit are estimated using discounted cash flow analysis, based on observable market interest rates currently being offered on certificates with similar terms.

Accrued interest receivable and payable:  The fair values of both accrued interest receivable and payable approximate their carrying amounts.

Short-term and other borrowings:  The carrying amounts of federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings approximate their fair values.  The fair values of Federal Home Loan Bank (FHLB) advances and subordinated notes are estimated using discounted cash flow analysis, based on observable market interest rates currently being offered with similar terms.

Commitments to extend credit and standby letters of credit:  The approximate fair values of commitments and standby letters of credit are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and creditworthiness of the counterparties.

The following table includes the carrying amounts and approximate fair values as of June 30, 2011, and December 31, 2010. 

	June 30, 2011				December 31, 2010
	Carrying Amount		Approximate Fair Value		Carrying Amount		Approximate Fair Value
Financial assets:
Cash and due from banks	$	37,944	$	37,944	$	20,069	$	20,069
Federal funds sold and other short-term investments	64,537		64,537		67,885		67,885
Securities available for sale	259,800		259,800		256,326		256,326
Federal Home Loan Bank stock	11,240		11,240		11,211		11,211
Loans held for sale	116		117		4,452		4,452
Loans, net	820,286		826,260		869,562		873,568
Accrued interest receivable	4,159		4,159		4,959		4,959
Financial liabilities:
Deposits	961,933		964,434		972,072		975,197
Federal funds purchased and securities sold under
agreements to repurchase	46,522		46,522		52,095		52,095
Other short-term borrowings	1,542		1,542		2,914		2,914
Accrued interest payable	697		697		1,200		1,200
Subordinated notes	20,619		10,817		20,619		10,853
Federal Home Loan Bank advances	105,000		110,813		105,000		108,449
Off-balance-sheet financial instruments:
Commitments to extend credit	—		—		—		—
Standby letters of credit	—		—		—		—