Fair Value

6 Months Ended

Jun. 30, 2011

Fair Value [Abstract]

Fair Value

Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 — Significant other 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.

Level 3 — Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Assets Measured on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at
			June 30, 2011 Using:
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
(In Thousands of Dollars)	Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Investment securities available-for sale
U.S. Treasury and U.S. government sponsored entities	$	90,935	$	0	$	90,935	$	0
State and political subdivisions		81,810		0		81,810		0
Mortgage-backed securities-residential		161,730		0		161,718		12
Collateralized mortgage obligations		23,088		0		23,088		0
Equity securities		506		506		0		0
Other securities		266		0		266		0
Total investment securities	$	358,335	$	506	$	357,817	$	12

			Fair Value Measurements at
			December 31, 2010 Using:
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
(In Thousands of Dollars)	Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Investment securities available-for sale
U.S. Treasury and U.S. government sponsored entities	$	69,978	$	0	$	69,978	$	0
State and political subdivisions		80,466		0		80,466		0
Mortgage-backed securities-residential		143,777		0		143,765		12
Collateralized mortgage obligations		19,660		0		19,660		0
Equity securities		199		199		0		0
Other securities		267		0		267		0
Total investment securities	$	314,347	$	199	$	314,136	$	12

There were no significant transfers between level 1 and level 2 during the three and six month periods ending June 30, 2011.

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis:

	Investment Securities
	Available-for-sale
	(Level 3)
	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands of Dollars)	2011		2010		2011		2010
Beginning balance	$	12	$	13	$	12	$	13
Total unrealized gains or losses:
Included in other comprehensive income or loss		0		0		0		0
Purchases, sales, issuances and settlements, net		0		0		0		0
Transfer in and/or out		0		0		0		0
Ending balance	$	12	$	13	$	12	$	13

Assets Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are summarized below:

	Fair Value Measurements
	at June 30, 2011 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
(In Thousands of Dollars)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Impaired loans
Commercial real estate
Owner occupied	$	441	$	0	$	0	$	441
Non-owner occupied		680		0		0		680
Other		724		0		0		724
Commercial		153		0		0		153

	Fair Value Measurements
	at December 31, 2010 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
(In Thousands of Dollars)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Impaired loans
Commercial real estate
Owner occupied	$	1,239	$	0	$	0	$	1,239
Non-owner occupied		164		0		0		164
Other		662		0		0		662
Commercial		186		0		0		186

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $2.6 million with a valuation allowance of $561 thousand, resulting in an additional provision for loan loss of $66 thousand and $397 thousand for the three and six month periods ending June 30, 2011. At December 31, 2010, impaired loans had a principal balance of $2.8 million, with a valuation allowance of $565 thousand. Excluded from the fair value of impaired loans, at June 30, 2011 and December 31, 2010, discussed above are $1.8 million of loans classified as troubled debt restructurings, which are not carried at fair value.

The carrying amounts and estimated fair values of financial instruments, at June 30, 2011 and December 31, 2010 are as follows:

(In Thousands of Dollars)
June 30, 2011	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	45,139	$	45,139
Securities available-for-sale		358,335		358,335
Restricted stock		4,224		n/a
Loans, net		557,828		577,969
Accrued interest receivable		4,086		4,086
Financial liabilities
Deposits		770,063		768,002
Short-term borrowings		108,720		108,720
Long-term borrowings		23,572		25,960
Accrued interest payable		678		678

(In Thousands of Dollars)
December 31, 2010	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	37,305	$	37,305
Securities available-for-sale		314,347		314,347
Restricted stock		3,977		n/a
Loans, net		581,060		590,331
Accrued interest receivable		4,125		4,125
Financial liabilities
Deposits		761,050		764,170
Short-term borrowings		105,634		105,634
Long-term borrowings		24,733		27,080
Accrued interest payable		703		703

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. The methods for determining the fair values for securities were described previously. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on current rates for similar financing. It was not practicable to determine the fair value of restricted stock due to restrictions placed on its transferability. The fair value of off-balance-sheet items is not considered material.