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Document and Entity Information - USD ($)	6 Months Ended
Jun. 30, 2011	Jul. 27, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	FARMERS & MERCHANTS BANCORP INC
Entity Central Index Key	0000792966
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 86,373,431.65
Entity Common Stock, Shares Outstanding		4,682,697

Condensed Consolidated Balance Sheet (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2011	Dec. 31, 2010
ASSETS:
Cash and due from banks	$ 13,357	$ 14,675
Interest bearing deposits with banks	7,234	14,312
Federal funds sold	2,034	14,392
Total cash and cash equivalents	22,625	43,379
Securities - available for sale (Note 2)	327,666	287,317
Other Securities, at cost	4,365	4,406
Loans, net (Note 4)	500,671	521,883
Bank premises and equipment	17,137	17,202
Goodwill	4,074	4,074
Mortgage Servicing Rights	2,126	2,178
Other Real Estate Owned	3,559	4,468
Accrued interest and other assets	21,209	21,456
TOTAL ASSETS	903,432	906,363
Deposits:
Noninterest bearing	71,285	70,554
Interest bearing
NOW accounts	188,465	176,897
Savings	159,082	159,698
Time	303,775	317,364
Total deposits	722,607	724,513
Federal funds purchased and securities sold under agreement to repurchase	48,946	51,241
FHLB Advances	26,765	29,874
Dividend Payable	890	894
Accrued expenses and other liabilities	5,648	5,438
Total Liabilities	804,856	811,960
SHAREHOLDERS' EQUITY:
Common stock, 0 par value authorized 6,500,000 shares; issued 5,200,000 shares	12,677	12,677
Treasury Stock 489,368 shares 2011, 465,326 shares 2010	(10,028)	(9,799)
Unearned Stock Awards 27,935 shares 2011, 27,675 shares 2010	(560)	(580)
Retained Earnings	93,335	91,567
Accumulated other comprehensive income	3,152	538
Total Shareholders' Equity	98,576	94,403
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 903,432	$ 906,363

Consolidated Statement of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
INTEREST INCOME:
Loans, including fees	$ 7,088	$ 8,086	$ 15,111	$ 16,568
Debt Securities:
U.S. Treasury securities	107	76	207	102
Securities of U.S. Government agencies	1,046	1,087	1,980	2,301
Obligations of states and political subdivisions	536	532	1,068	1,076
Dividends	48	48	97	96
Federal funds sold	3	4	9	6
Other	16	36	27	44
Total Interest Income	8,844	9,869	18,499	20,193
INTEREST EXPENSE:
Deposits	1,772	2,321	3,655	4,776
Federal Funds purchased and securities sold under agreements to repurchase	76	66	151	134
Borrowed funds	261	422	524	819
Total Interest Expense	2,109	2,809	4,330	5,729
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES	6,735	7,060	14,169	14,464
PROVISION FOR LOAN LOSSES (Note 4)	657	1,985	1,429	3,675
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	6,078	5,075	12,740	10,789
NONINTEREST INCOME
Customer service fees	914	743	1,705	1,512
Other service charges and fees	837	837	1,613	1,567
Net gain (loss) on sale of other assets owned	(166)	(16)	(814)	(32)
Net gain on sale of loans	63	109	138	176
Net gain on sale of securities	33	260	372	518
Total Noninterest Income	1,681	1,933	3,014	3,741
NONINTEREST EXPENSE
Salaries and wages	2,155	2,018	4,408	4,332
Pension and other employee benefits	546	658	1,361	1,569
Occupancy expense (net)	457	211	770	484
Furniture and Equipment	352	433	744	848
Data processing	230	255	460	522
Franchise Taxes	224	208	442	448
FDIC Assessment	120	270	440	524
Mortgage servicing rights amortization	90	93	181	196
Other general and administrative	1,392	1,122	2,328	2,282
Total Noninterest Expense	5,566	5,268	11,134	11,205
INCOME BEFORE FEDERAL INCOME TAX	2,193	1,740	4,620	3,325
FEDERAL INCOME TAXES	626	399	1,072	728
NET INCOME	1,567	1,341	3,548	2,597
OTHER COMPREHENSIVE INCOME (NET OF TAX):
Unrealized gains on securities	2,029	534	2,614	224
COMPREHENSIVE INCOME	$ 3,596	$ 1,875	$ 6,162	$ 2,821
NET INCOME PER SHARE	$ 0.33	$ 0.28	$ 0.76	$ 0.55
Weighted Average Shares Outstanding	4,686,008	4,730,309	4,689,285	4,732,402
DIVIDENDS DECLARED	$ 0.19	$ 0.18	$ 0.38	$ 0.36

Condensed Consolidated Statement of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 3,548	$ 2,597
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation	675	688
Accretion and amortization of securities	1,422	599
Amortization of servicing rights	181	196
Amortization of core deposit intangible	156	79
PROVISION FOR LOAN LOSSES (Note 4)	1,429	3,675
Gain on sale of loans held for sale	(138)	(176)
Originations of loans held for sale	(16,958)	(19,275)
Proceeds from sale of loans held for sale	18,501	19,218
Loss on sale of other assets	814	32
Gain on sale of investment securities	(372)	(518)
Change in Operating Assets and Liabilities, net	(922)	(2,179)
Net Cash Provided by Operating Activities	8,336	4,936
Activity in securities:
Maturities, prepayments and calls	12,806	48,452
Sales	19,758	28,301
Purchases	(69,960)	(91,029)
Proceeds from sale of assets	10	2
Additions to premises and equipment	(629)	(345)
Loan originations and principal collections, net	18,240	21,873
Net Cash (Used) in Investing Activities	(19,775)	7,254
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits	(1,906)	(301)
Net change in short-term debt	(2,295)	(299)
Proceeds from issuance of long-term debt		9,000
Repayments of long-term debt	(3,109)	(133)
Purchase of Treasury stock	(220)	(533)
Cash dividends paid on common stock	(1,785)	(1,704)
Net Cash Provided by Financing Activities	(9,315)	6,030
Net Increase (Decrease) in cash and cash equivalents	(20,754)	18,220
Cash and cash equivalents - Beginning of year	43,379	33,648
Cash and cash equivalents - End of period	22,625	51,868
RECONCILIATION OF CASH AND CASH EQUIVALENTS:
Cash and cash due from banks	13,357	14,978
Interest bearing deposits with banks	7,234	36,141
Federal funds sold	2,034	749
Total reconciliation of cash and cash equivalents	22,625	51,868
Cash paid during the period for:
Interest	4,385	5,942
Income Taxes	$ 565	$ 975

Fair Value Instruments

6 Months Ended

Jun. 30, 2011

Fair Value Instruments [Abstract]

FAIR VALUE OF INSTRUMENTS

NOTE 2 FAIR VALUE OF INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of financial instruments are management’s estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including deferred tax assets, premises, equipment and intangibles. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the elements.

The following assumptions and methods were used in estimating the fair value for financial instruments.

Cash and Cash Equivalents

The carrying amounts reported in the balance sheet for cash, cash equivalents and federal funds sold approximate their fair values. Also included in this line item are the carrying amounts of interest-bearing deposits maturing within ninety days which approximate their fair values. Fair values of other interest-bearing deposits are estimated using discounted cash flow analyses based on current rates for similar types of deposits.

Securities and Other Securities

Fair values for securities, excluding Federal Home Loan Bank stock, are based on quoted market price, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Loans

Most commercial, agricultural and real estate mortgage loans are made on a variable rate basis. For those variable rate loans that re-price frequently, and with no significant change in credit risk, fair values are based on carrying values. The fair values of the fixed rate and all other loans are estimated using discounted cash flow analysis. This is accomplished by using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

Deposits

The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts, which represent the amount payable on demand. The carrying amounts for variable-rate, fixed term money market accounts and certificates of deposit approximate their fair value at the reporting date. Fair value for fixed- rate certificates of deposit are estimated using a discounted cash flow analysis that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Borrowings

Short-term borrowings are carried at cost that approximates fair value. Other long-term debt was generally valued using a discounted cash flow analysis with a discounted rate based on current incremental borrowing rates for similar types of arrangements, or if not available, based on an approach similar to that used for loans and deposits.

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate their fair values.

Dividends Payable

The carrying amounts of dividends payable approximate their fair values and are generally paid within forty days of declaration.

Off Balance Sheet Financial Instruments

Fair values for off-balance sheet, credit related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter- parties’ credit standing.

The estimated fair values, and related carrying or notional amounts, for on and off-balance sheet financial instruments as of June 30, 2011 and December 31, 2010 are reflected below.


	(In Thousands)
	June 2011				December 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial Assets:
Cash and Cash Equivalents	$	22,625	$	22,625	$	43,379	$	43,379
Securities – available for sale		327,666		327,666		287,317		287,317
Other Securities		4,365		4,365		4,406		4,406
Loans, net		500,671		498,003		521,883		520,766
Accrued interest receivable		3,847		3,847		4,036		4,036

Financial Liabilities:
Deposits	$	722,607	$	725,021	$	724,513	$	725,270
Short-term debt Repurchase agreement sold		48,946		48,946		51,241		51,241
Federal Home Loan Bank advances		26,765		27,666		29,874		30,764
Accrued interest payable		416		416		471		471
Dividends payable		890		890		894		894

Off-Balance Sheet Financial Instruments
Commitments to extend credit	$	—	$	—	$	—	$	—
Standby letters of credit		—		—		—		—

Fair Value Measurements

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2011, and the valuation techniques used by the Company to determine those fair values.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

Disclosures concerning assets and liabilities measured at fair value are as follows:


	Assets and Liabilities Measured at Fair Value on a Recurring Basis
	Quoted Prices in Active		Significant		Significant
(In Thousands)	Markets for Identical		Observable Inputs		Unobservable Inputs
June 30, 2011	Assets (Level 1)		(Level 2)		(Level 3)
Assets-Securities Available for Sale
U.S. Treasury	$	36,819
U.S. Government agency		188,604
Mortgage-backed securities		38,773
State and local governments		—	$	52,249	$	11,221

Total Securities Available for Sale	$	264,196	$	52,249	$	11,221

Liabilities	$	—	$	—	$	—


	Quoted Prices in Active		Significant		Significant
	Markets for Identical		Observable Inputs		Unobservable Inputs
December 31, 2010	Assets (Level 1)		(Level 2)		(Level 3)
Assets-Securities Available for Sale
U.S. Treasury	$	32,279
U.S. Government agency		165,703
Mortgage-backed securities		24,531
State and local governments		—	$	53,502	$	11,302

Total Securities Available for Sale	$	222,513	$	53,502	$	11,302

Liabilities	$	—	$	—	$	—

The Company did have assets measured at fair value that were categorized as Level 3 during the period. The Company’s available for sale securities includes bonds issued by local municipalities. Those municipal bonds that did not have CUSIP or credit rating numbers were treated as Level 3. Those bonds, including municipalities, that did have CUSIP numbers or have similar characteristics of those in like markets, were considered comparable and marketable and reported as Level 2.

The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. At June 30, 2011, such assets consist primarily of impaired loans and other real estate. The Company has established the fair values of these assets using Level 3 inputs, each individually described below.

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Company estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals.)

Other real estate is reported at either the fair value of the real estate minus the estimated costs to sell the asset or the cost of the asset. The determination of fair value of the real estate relies primarily on appraisals from third parties. If the fair value of the real estate, minus the estimated costs to sell the asset, is less than the asset’s cost, the deficiency is recognized as a valuation allowance against the asset through a charge to expense.


	Assets Measured at Fair Value on a Nonrecurring Basis at June 30, 2011 (In Thousands)
			Quoted Prices in Active
			Markets for		Significant		Significant
	Balance at		Identical		Observable Inputs		Unobservable Inputs
	June 30, 2011		Assets (Level 1)		(Level 2)		(Level 3)
Impaired loans	$	7,966	$	—	$	—	$	7,966

Other real estate owned – residential mortgages	$	975	$	—	$	—	$	975

Other real estate owned – commercial	$	2,564	$	—	$	—	$	2,564

Total change in fair value


	Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2010 (In Thousands)
			Quoted Prices in Active
			Markets for		Significant		Significant
	Balance at		Identical		Observable Inputs		Unobservable Inputs
	December 31, 2010		Assets (Level 1)		(Level 2)		(Level 3)
Impaired loans	$	4,369	$	—	$	—	$	4,369

Other real estate owned – residential mortgages	$	2,110	$	—	$	—	$	2,110

Other real estate owned commercial	$	2,328	$	—	$	—	$	2,328

Total change in fair value

- 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 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 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 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 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-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 Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-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 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.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 21
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612

Reference 11: 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=6947722&loc=d3e13433-108611

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 30
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612

Reference 13: 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=6947722&loc=d3e13504-108611

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

+ Details

Loans

6 Months Ended

Jun. 30, 2011

Loans [Abstract]

LOANS

NOTE 4 LOANS

Loan balances as of June 30, 2011 and December 31, 2010.:


	(In Thousands)
	June 30, 2011			December 31, 2010
Loans:
Commercial real estate	$	193,993		$	194,268
Agricultural real estate		32,228			33,650
Consumer real estate		81,557			86,036
Commercial and industrial		113,947			117,344
Agricultural		57,221			65,400
Consumer		25,342			29,008
Industrial Development Bonds		1,965			1,965

	$	506,253		$	527,671

Less: Net deferred loan fees and costs		(93	)		(82	)

		506,160			527,589
Less: Allowance for loan losses		(5,489	)		(5,706	)


Loans – Net	$	500,671		$	521,883

The following is a maturity schedule by major category of loans as of June 30, 2011:


	(In Thousands)
			After One
	Within		Year Within		After
	One Year		Five Years		Five Years
Commercial Real Estate	$	32,032	$	114,655	$	47,306
Agricultural Real Estate		2,556		12,896		16,776
Consumer Real Estate		5,511		15,820		60,226
Commercial/Industrial		78,992		27,844		7,111
Agricultural		39,601		14,920		2,700
Consumer		5,493		17,781		1,975
Industrial Development Bonds		556		446		963

The distribution of fixed rate loans and variable rate loans by major loan category is as follows as of June 30, 2011. Variable rate loans whose current rates are equal to their floor or ceiling are classified as fixed in this table.


	(In Thousands)
	Fixed		Variable
	Rate		Rate
Commercial Real Estate	$	77,983	$	116,010
Agricultural Real Estate		18,517		13,711
Consumer Real Estate		69,412		12,145
Commercial/Industrial		84,188		29,759
Agricultural		49,126		8,095
Consumer		20,860		4,389
Industrial Development Bonds		1,965		—

As of June 30, 2011 and 2010 one to four family residential mortgage loans amounting to $71.2 million and $75.3 million, respectively, have been pledged as security for loans the Bank has received from the Federal Home Loan Bank.

The percentage of delinquent loans has trended downward since the beginning of 2010 from a high of 2.85% of total loans in January to a low of .76% as of the end of March 2011. At the end of the second quarter 2011, the percentage increased to 1.99% with one large agricultural related credit behind the increase. A credit for which the Bank is fully collateralized and should be removed yet in 2011. Consumer delinquency continued to decrease and remained extremely low. These percentages do not include nonaccrual loans which are not past due. This level of delinquency is due in part to an adherence to sound underwriting practices over the course of time, an improvement in the financial status of companies to which the Bank extends credit, continued financial stability in the agricultural loan portfolio, and the writing down of uncollectible credits in a timely manner.

Industrial Development Bonds are included in the commercial and industrial category for the remainder of the tables in this Note 4.

The following table represents the contractual aging of the recorded investment in past due loans by class or loans as of June 30, 2011 and December 31, 2010 (in thousands):


													Recorded
					Greater Than						Total		Investment
	30-59 Days		60-89 Days		90 Days		Total				Financing		> 90 Days
June 30, 2011	Past Due		Past Due		Past Due		Past Due		Current		Receivables		and Accruing
Consumer real estate	$	756	$	220	$	907	$	1,882	$	79,675	$	81,557	$	—
Agricultural real estate		—		223		—		223		32,005		32,228		—
Agricultural		—		4,577		—		4,577		52,644		57,221		—
Commercial Real Estate		376		883		333		1,592		192,401		193,993		—
Commercial and Industrial		16		165		1,616		1,797		114,115		115,912		7
Consumer		23		1		—		24		25,225		25,249		—


Total	$	1,171	$	6,069	$	2,856	$	10,095	$	496,065	$	506,160	$	7


													Recorded
					Greater Than						Total		Investment
	30-59 Days		60-89 Days		90 Days		Total				Financing		> 90 Days
December 31, 2010	Past Due		Past Due		Past Due		Past Due		Current		Receivables		and Accruing
Consumer real estate	$	610	$	29	$	169	$	808	$	85,228	$	86,036	$	—
Agricultural real estate		—		—		—		—		33,650		33,650		—
Agricultural		—		—		1,474		1,474		63,926		65,400		—
Commercial Real Estate		548		—		445		993		193,275		194,268		—
Commercial and Industrial		957		52		831		1,840		117,469		119,309		15
Consumer		147		6		33		186		28,740		28,926		33


Total	$	2,262	$	87	$	2,952	$	5,301	$	522,288	$	527,589	$	48

The following table presents the recorded investment in nonaccrual loans by class or loans as of June 30, 2011 and December 31, 2010:


	(In Thousands)
	June 30		December 31
	2011		2010
Consumer real estate	$	1,132	$	587
Agricultural real estate		223		531
Agricultural		4,577		1,474
Commercial Real Estate		1,216		1,705
Commercial and Industrial		1,716		1,543
Consumer		3		4

Total	$	8,867	$	5,844

The Bank uses a nine tier risk rating system to grade its loans. The grade of a loan may change during the life of the loan. The risk ratings are described as follows.

1. Zero (0) Unclassified. Any loan which has not been assigned a classification.

	2.		One (1) Excellent. Credit to premier customers having the highest credit rating based on an extremely strong financial condition, which compares favorably with industry standards (upper quartile of RMA ratios). Financial statements indicate a sound earnings and financial ratio trend for several years with satisfactory profit margins and excellent liquidity exhibited. Prime credits may also be borrowers with loans fully secured by highly liquid collateral such as traded stocks, bonds, certificates of deposit, savings account, etc. No credit or collateral exceptions exist and the loan adheres to the Bank’s loan policy in every respect. Financing alternatives would be readily available and would qualify for unsecured credit. This grade is summarized by high liquidity, minimum risk, strong ratios, and low handling costs.

	3.		Two (2) Good. Desirable loans of somewhat less stature than Grade 1, but with strong financial statements. Loan supported by financial statements containing strong balance sheets, generally with a leverage position less than 1.50, and a history of profitability. Probability of serious financial deterioration is unlikely. Possessing a sound repayment source (and a secondary source), which would allow repayment in a reasonable period of time. Individual loans backed by liquid personal assets, established history and unquestionable character.

	4.		Three (3) Satisfactory. Satisfactory loans of average or slightly above average risk – having some deficiency or vulnerability to changing economic conditions, but still fully collectible. Projects should normally demonstrate acceptable debt service coverage. Generally, customers should have a leverage position less than 2.00. May be some weakness but with offsetting features of other support readily available. Loans that are meeting the terms of repayment.

			Loans may be graded 3 when there is no recent information on which to base a current risk evaluation and the following conditions apply: At inception, the loan was properly underwritten and did not possess an unwarranted level of credit risk:

	a.		At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss;

	b.		The loan exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance;

	c.		During the period that the loan has been outstanding, there has been no evidence of any credit weakness considered satisfactory but which is of average credit risk due to financial weakness or uncertainty. The loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in Satisfactory/Monitored classification is considered acceptable and within normal underwriting guidelines, so long as the loan is given management supervision.

	5.		Four (4) Satisfactory / Monitored. A “4” (Satisfactory/Monitored) risk grade may be established for a loan considered satisfactory but which is of average credit risk due to financial weakness or uncertainty. The loans warrant a higher than average level of monitoring to ensure that weaknesses do not advance. The level of risk in Satisfactory/Monitored classification is considered acceptable and within normal underwriting guidelines, so long as the loan is given management supervision.

	6.		Five (5) Special Mention. Loans that possess some credit deficiency or potential weakness which deserves close attention, but which do not yet warrant substandard classification. Such loans pose unwarranted financial risk that, if not corrected, could weaken the loan and increase risk in the future. The key distinctions of a 5 (Special Mention) classification are that (1) it is indicative of an unwarranted level of risk, and (2) weaknesses are considered “potential”, versus “defined”, impairments to the primary source of loan repayment and collateral.

	7.		Six (6) Substandard. One or more of the following characteristics may be exhibited in loans classified substandard:

	a.		Loans, which possess a defined credit weakness and the likelihood that a loan will be paid from the primary source, are uncertain. Financial deterioration is underway and very close attention is warranted to ensure that the loan is collected without loss.

	b.		Loans are inadequately protected by the current net worth and paying capacity of the borrower.

	c.		The primary source of repayment is weakened, and the Bank is forced to rely on a secondary source of repayment such as collateral liquidation or guarantees.

	d.		Loans are characterized by the distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

	e.		Unusual courses of action are needed to maintain a high probability of repayment.

	f.		The borrower is not generating enough cash flow to repay loan principal; however, continues to make interest payments.

	g.		The lender is forced into a subordinate position or unsecured collateral position due to flaws in documentation.

	h.		Loans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms.

	i.		The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.

	j.		There is significant deterioration in the market conditions and the borrower is highly vulnerable to these conditions.

Seven (7) Doubtful. One or more of the following characteristics may be exhibited in loans classified Doubtful:

	a.		Loans have all of the weaknesses of those classified as Substandard. Additionally, however, these weaknesses make collection or liquidation in full based on existing conditions improbable.

	b.		The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

	c.		The possibility of loss is high, but, because of certain important pending factors which may strengthen the loan, loss classification is deferred until its exact status is known. A Doubtful classification is established deferring the realization of the loss.

Eight (8) Loss. Loans are considered uncollectable and of such little value that continuing to carry them as assets on the institution’s financial statements is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The following table represents the risk category of loans by class based on the most recent analysis performed as of June 30, 2011 and December 31, 2010 (in thousands):


									Industrial
	Agriculture				Commercial		Commercial		Development
	Real Estate		Agriculture		Real Estate		and Industrial		Bonds

June 30, 2011
1-2	$	513	$	1,131	$	56	$	613	$	275
3		12,530		23,427		21,961		20,549		733
4		17,833		27,709		159,388		83,415		957
5		222		356		6,165		2,260		—
6		1,110		4,577		6,368		7,085		—
7		20		21		55		25		—
8		—		—		—		—

Total	$	32,228	$	57,221	$	193,993	$	113,947	$	1,965


									Industrial
	Agriculture				Commercial		Commercial		Development
	Real Estate		Agriculture		Real Estate		and Industrial		Bonds

December 31, 2010
1-2	$	484	$	109	$	—	$	341	$	275
3		12,216		27,964		26,333		14,026		733
4		19,624		35,655		153,948		92,066		957
5		208		173		6,765		3,388		—
6		1,097		1,474		6,771		6,688		—
7		21		25		451		835		—
8		—		—		—		—		—

Total	$	33,650	$	65,400	$	194,268	$	117,344	$	1,965

For consumer residential real estate, and other, the Company also evaluates credit quality based on the aging status of the loan, which was previously stated, and by payment activity. The following tables present the recorded investment in those classes based on payment activity and assigned grading as of June 30, 2011 and December 31, 2010 (in thousands):


	Consumer		Consumer
	Real Estate		Real Estate
	June 30		December 31
	2011		2010

Grade
Pass	$	79,898	$	84,723
Special Mention (5)		653		387
Substandard (6)		606		639
Doubtful (7)		400		287

Total	$	81,557	$	86,036


	Consumer		Consumer		Consumer		Consumer
	Credit		Credit		Other		Other

	June 30		December 31		June 30		December 31
		2011		2010		2011		2010
Performing	$	3,338	$	3,553	$	21,848	$	25,323
Nonperforming		5		6		58		44

Total	$	3,343	$	3,559	$	21,906	$	25,367

The Bank did classify approximately $3.5 million of its impaired loans as troubled debt restructured (TDR) during 2010 and this balance decreased to $3.2 million as of June 30, 2011 for those TDRs still current and accruing. The following table indicates the number of contracts and their corresponding balances which the Bank has classified as TDR ($ in thousands).


			Pre-		Post-
			Modification		Modification
June 30, 2011			Outstanding		Outstanding
	Number of		Recorded		Recorded
Troubled Debt Restructurings	Contracts		Investment		Investment
Commercial Real Estate		5	$	3,940	$	3,255
Ag Real Estate		2	$	154	$	152
Commercial and Industrial		2	$	1,431	$	159

Troubled Debt Restructurings	Number of		Recorded
That Subsequently Defaulted	Contracts		Investment
Commercial Real Estate		1	$	207
Ag Real Estate		—	$	—
Commercial and Industrial		1	$	132

For the majority of the Bank’s impaired loans, the Bank will apply the observable market price methodology. However, the Bank may also utilize a measurement incorporating the present value of expected future cash flows discounted at the loan’s effective rate of interest. To determine observable market price, collateral asset values securing an impaired loan are periodically evaluated. Maximum time of re-evaluation is every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations are obtained and heavily relied upon. Until such time that updated appraisals are received, the Bank may discount the collateral value used.

The Bank uses the following guidelines as stated in policy to determine when to realize a charge-off, whether a partial or full loan balance. A charge down in whole or in part is realized when unsecured consumer loans, credit card credits and overdraft lines of credit reach 90 days delinquency. At 120 days delinquent, secured consumer loans are charged down to the value of the collateral, if repossession of the collateral is assured and/or in the process of repossession. Consumer mortgage loan deficiencies are charged down upon the sale of

the collateral or sooner upon the recognition of collateral deficiency. Commercial and agricultural credits are charged down at 120 days delinquency, unless an established and approved work-out plan is in place or litigation of the credit will likely result in recovery of the loan balance. Upon notification of bankruptcy. unsecured debt is charged off. Additional charge-off may be realized as further unsecured positions are recognized.

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2011 and December 31, 2010 (in thousands):


June 30, 2011			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Consumer real estate	$	137	$	137	$	—	$	191	$	6
Agriculture real estate		—		—		—		291		5
Agriculture		4,900		4,900		—		4,582		1
Commercial real estate		760		953		—		1,506		12
Commercial and industrial		1,148		2,192		—		100		—
Consumer		—		—		—		4		—
With a specific allowance recorded:
Consumer real estate		915		924		292		463		1
Agriculture real estate		—		—		—		—		—
Agriculture		—		—		—		—		—
Commercial real estate		106		106		25		288		—
Commercial and industrial		—		—		—		595		4
Consumer		—		—		—		—		—

Totals:
Consumer real estate	$	1,052	$	1,061	$	292	$	654	$	7

Agriculture real estate	$	0	$	0	$	0	$	291	$	5

Agriculture	$	4,900	$	4,900	$	0	$	4,582	$	1

Commercial real estate	$	866	$	1,059	$	25	$	1,794	$	12

Commercial and industrial	$	1,148	$	2,192	$	0	$	695	$	4

Consumer	$	—	$	—	$	—	$	4	$	—


December 31, 2010			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Consumer real estate	$	—	$	—	$	—	$	—	$	—
Agriculture real estate		219		219		—		119		31
Agriculture		1,397		1,397		—		2,786		—
Commercial real estate		849		1,699		—		2,209		26
Commercial and industrial		—		—		—		2,221		2
Consumer		—		—		—		—		—
With a specific allowance recorded:
Consumer real estate		671		701		66		1,375		—
Agriculture real estate		—		—		—		—		—
Agriculture		—		—		—		5		1
Commercial real estate		476		476		73		296		1
Commercial and industrial		757		757		493		1,125		—
Consumer		—		—		—		—		—

Totals:
Consumer real estate	$	671	$	701	$	66	$	1,375	$	—

Agriculture real estate	$	219	$	219	$	0	$	119	$	31

Agriculture	$	1,397	$	1,397	$	0	$	2,791	$	1

Commercial real estate	$	1,325	$	2,175	$	73	$	2,505	$	27

Commercial and industrial	$	757	$	757	$	493	$	3,346	$	2

Consumer	$	—	$	—	$	—	$	—	$	—

The ALLL has a direct impact on the provision expense. An increase in the ALLL is funded through recoveries and provision expense. The following tables summarize the activities in the allowance for credit losses.


	(In Thousands)
	June 30, 2011			December 31, 2010

Allowance for Loan Losses
Balance at beginning of year	$	5,706		$	6,008
Provision for loan loss		1,429			5,325
Loans charged off		(1,854	)		(6,422	)
Recoveries		208			795

Allowance for Loan & Leases Losses	$	5,489		$	5,706

Allowance for Unfunded Loan Commitments & Letters of Credit	$	144		$	153

Total Allowance for Credit Losses	$	5,633		$	5,859

The Company segregates its Allowance for Loan and Lease Losses (ALLL) into two reserves: The ALLL and the Allowance for Unfunded Loan Commitments and Letters of Credit (AULC). When combined, these reserves constitute the total Allowance for Credit Losses (ACL).

The AULC is reported within other liabilities on the balance sheet while the ALLL is netted within the loans, net asset line. The ACL presented above represents the full amount of reserves available to absorb possible credit losses. The next table breaks down the activity within ALLL for each loan portfolio segment and shows the contribution provided by both the recoveries and the provision along with the reduction of the allowance caused by charge-offs.

Additional analysis related to the allowance for credit losses (in thousands) as of June 30, 2011 and December 31, 2010 is as follows:


																		Unfunded Loan
	Consumer			Agriculture					Commercial						Consumer (incl.			Commitment &
	Real Estate			Real Estate		Agriculture			Real Estate			Commercial			Credit Cards)			Letters of Credit			Unallocated			Total
June 30, 2011
ALLOWANCE FOR CREDIT LOSSES:
Beginning balance	$	258		$	122	$	327		$	1,868		$	2,354		$	380		$	153		$	397		$	5,859
Charge Offs		(190	)		—		(24	)		(155	)		(1,316	)		(169	)		—			—		$	(1,854	)
Recoveries		23			—		65			29			6			85			—			—		$	208
Provision		432			34		(80	)		310			1,002			44			—			(313	)	$	1,429
Other Non-interest expense related to unfunded	$	—			—		—			—			—			—			(9	)		—		$	(9	)

Ending Balance	$	523		$	156	$	288		$	2,052		$	2,046		$	340		$	144		$	84		$	5,633

Ending balance: individually evaluated for impairment	$	292			—		—		$	25		$	—			—			—			—		$	317

Ending balance: collectively evaluated for impairment	$	232		$	156	$	288		$	2,027		$	2,046		$	340		$	144		$	84		$	5,317

Ending balance: loans acquired with deteriorated credit quality		2			—		—			—			—			—			—			—		$	2

FINANCING RECEIVABLES:
Ending balance	$	81,557		$	32,228	$	57,221		$	193,993		$	115,912		$	25,249			—			—		$	506,160

Ending balance: individually evaluated for impairment	$	1,052		$	—	$	4,900		$	1,749		$	265			—			—			—		$	7,966

Ending balance: collectively evaluated for impairment	$	80,505		$	32,228	$	52,321		$	192,244		$	115,647		$	25,249			—			—		$	498,194

Ending balance: loans acquired with deteriorated credit quality	$	989		$	—	$	—		$	—		$	—		$	—			—			—		$	989


																		Unfunded Loan
	Consumer			Agriculture					Commercial						Consumer (incl.			Commitment &
	Real Estate			Real Estate		Agriculture			Real Estate			Commercial			Credit Cards)			Letters of Credit			Unallocated		Total
December 31, 2010
ALLOWANCE FOR CREDIT LOSSES:

Beginning balance	$	439		$	120	$	647		$	1,810		$	2,494		$	497		$	227		$	1	$	6,235
Charge Offs		(507	)		—		(136	)		(1,147	)		(4,188	)		(444	)		—			—		(6,422	)
Recoveries		55			—		17			52			515			156			—			—		795
Provision		271			2		(201	)		1,153			3,533			171			—			396		5,325
Other Non-interest expense		—			—		—			—			—			—			(74	)		—		(74	)

related to unfunded
Ending Balance	$	258		$	122	$	327		$	1,868		$	2,354		$	380		$	153		$	397	$	5,859

Ending balance: individually evaluated for impairment	$	66			—		—		$	73		$	493			—			—			—	$	632

Ending balance: collectively evaluated for impairment	$	190		$	122	$	327		$	1,795		$	1,861		$	380		$	153		$	397	$	5,226

Ending balance: loans acquired with deteriorated credit quality	$	2			—		—			—			—			2			—			—	$	4


FINANCING RECEIVABLES:

Ending balance	$	75,785		$	34,446	$	65,400		$	204,327		$	119,262		$	28,451			—			—	$	527,671

Ending balance: individually evaluated for impairment	$	671		$	219	$	1,397		$	1,325		$	757			—			—			—	$	4,369

Ending balance: collectively evaluated for impairment	$	75,114		$	34,227	$	64,003		$	203,002		$	118,505		$	28,451			—			—	$	523,302

Ending balance: loans acquired with deteriorated credit quality	$	987			—		—			—			—			156			—			—	$	1,143

- Definition

The entire disclosure for claims held for amounts due a company. Examples include trade accounts receivables, notes receivables, loans receivables.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 3, 4
-Article 5

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 03
-Paragraph 7
-Article 9

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 01-6
-Paragraph 13
-Subparagraph 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 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 4
-Section 08
-Paragraph k

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.3,4)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5074-111524

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5066-111524

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(k))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
-SubTopic 10
-Section 50
-Paragraph 11
-URI http://asc.fasb.org/extlink&oid=6965416&loc=d3e5162-111524

+ Details

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Cover Document and Entity Information Financial Statements Condensed Consolidated Balance Sheet (Unaudited) Condensed Consolidated Balance Sheet (Unaudited) (Parenthetical) Consolidated Statement of Income (Unaudited) Condensed Consolidated Statement of Cash Flows (Unaudited) Notes to Financial Statements Basis of Presentation Fair Value Instruments Asset Purchase Loans All Reports Rendering Log

Condensed Consolidated Balance Sheet (Unaudited) (Parenthetical) - $ / shares shares in Thousands	Jun. 30, 2011	Dec. 31, 2010
SHAREHOLDERS' EQUITY:
Common stock, par value	$ 0	$ 0
Common stock, shares authorized	6,500,000	6,500,000
Common stock, shares issued	5,200,000	5,200,000
Treasury stock, shares	489,368	465,326
Unearned stock awards, shares	27,935	27,675