FAIR VALUE MEASUREMENT DISCLOSURES

6 Months Ended

Jun. 30, 2011

FAIR VALUE MEASUREMENT DISCLOSURES

NOTE 4 – FAIR VALUE MEASUREMENT DISCLOSURES

In accordance with ASC 820, the Company groups its financial assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that are available at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.  These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs – Unobservable inputs for determining the fair value of the assets or liabilities that are based on the entity’s own assumption about the assumptions that market participants would use to price the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general clarification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets and liabilities carried at fair value for June 30, 2011 and December 31, 2010.  The Company did not have any significant transfers of assets or liabilities to and from Levels 1 and 2 of the fair value hierarchy during the six months ended June 30, 2011.

      The Company’s cash instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

     The Company’s investment in obligations of states and municipalities, mortgage-backed securities and other debt securities available-for-sale are generally classified within Level 2 of the fair value hierarchy.  For these securities, we obtain fair value measurements from independent pricing services.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information, and the instrument’s terms and conditions.

     The Company’s impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.  Collateral values are estimated using Level 2 inputs based upon appraisals of similar properties obtained from a third party.  For Level 3 inputs, fair values are based on management estimates.

     Other real estate owned values are estimated using Level 2 inputs based upon appraisals of similar properties obtained from a third party.  For Level 3 inputs, fair values are based on management estimates.

     The following summarizes assets measured at fair value for the periods ended June 30, 2011 and December 31, 2010.

Assets Measured at Fair Value on a Recurring Basis

	(Dollars in thousands)
	Fair Value Measurements at Reporting Date Using:
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		Level 1		Level 2		Level 3
June 30, 2011:
Securities available-for-sale	$	53,857	$	-	$	53,857	$	-
Totals	$	53,857	$	-	$	53,857	$	-
December 31, 2010:
Securities available-for-sale	$	46,289	$	34	$	46,255	$	-
Totals	$	46,289	$	34	$	46,255	$	-

Assets Measured at Fair Value on a Nonrecurring Basis

	(Dollars in thousands)
	Fair Value Measurements at Reporting Date Using:
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		Level 1		Level 2		Level 3
June 30, 2011:
Impaired loans	$	502	$	-	$	-	$	502
Totals	$	502	$	-	$	-	$	502
December 31, 2010:
Impaired loans	$	312	$	-	$	-	$	312
Totals	$	312	$	-	$	-	$	312

	Fair Value Measurements
	Using Significant Unobservable Inputs
	Level 3
	Impaired Loans
Beginning balance, December 31, 2010	$	312
Transfers in and/or out of Level 3		171
Specific allocation decrease		23
Principal payments		(4	)
Ending balance, June 30, 2011	$	502

The estimated fair values of the Company’s financial instruments, all of which are held or issued for purposes other than trading, were as follows as of June 30, 2011 and December 31, 2010:

	(Dollars in thousands)
	June 30, 2011				December 31, 2010
	Carrying amount		Fair value		Carrying amount		Fair value
Financial assets:
Cash and cash equivalents	$	59,804	$	59,804	$	30,871	$	30,871
Interest-bearing time deposits with other banks		4,641		4,837		5,963		6,257
Available-for-sale securities		53,857		53,857		46,289		46,289
Federal Home Loan Bank stock		660		660		660		660
Loans, net		207,293		211,162		202,792		204,841
Accrued interest receivable		967		967		905		905
Financial liabilities:
Deposits		309,149		309,875		269,279		270,082
Securities sold under agreements to
repurchase		2,581		2,581		3,235		3,235