Fair Value

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Note 12: Fair Value

FASB ASC Topic 820 “Fair Value Measurements” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an 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. FASB ASC Topic 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Under FASB ASC Topic 820, the Company groups assets and liabilities 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 the fair value. These hierarchy levels are:

Level 1: Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active 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.

A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy. As required by FASB ASC Topic 820, the Company does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid equities, state, municipal and provincial obligations, and certain physical commodities. Such instruments are generally classified within Level 2 of the fair value hierarchy.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management's best estimate is used.

Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or market value. Market value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable. The value of real estate collateral is determined based on appraisal by qualified licensed appraisers hired by the Company. The value of business equipment, inventory and accounts receivable collateral is based on the net book value on the business' financial statements and, if necessary, discounted based on management's review and analysis. Appraised and reported values may be discounted based on management's historical knowledge, changes in market conditions from the time of valuation, and/or management's expertise and knowledge of the client and client's business. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

The following table sets forth the Company's financial assets and liabilities that were accounted for or disclosed at fair value on a recurring basis as of September 30, 2012 and December 31, 2011.

September 30, 2012 (unaudited)			Quoted Price in		Significant
			Active Markets		Other		Significant
	Carrying		for Identical		Observable		Unobservable
	Value		Assets		Inputs		Inputs
(in thousands)	(Fair Value)		(Level 1)		(Level 2)		(Level 3)
Investment securities:
U.S. Federal agencies	$	35,544	$	-	$	35,544	$	-
Mortgage-backed securities		408		-		408		-
Loans held for sale		573		-		573		-

The following table sets forth the Company's financial assets and liabilities that were accounted for or disclosed at fair value on a nonrecurring basis as of September 30, 2012 and December 31, 2011.

September 30, 2012 - (unaudited)			Quoted Price in		Significant
			Active Markets		Other		Significant
	Carrying		for Identical		Observable		Unobservable
	Value		Assets		Inputs		Inputs
(in thousands)	(Fair Value)		(Level 1)		(Level 2)		(Level 3)
Other real estate owned	$	2,903	$	-	$	-	$	2,903
Impaired loans:
Construction and land		432		-		-		432
Residential - first lien		471		-		-		471
Residential - junior lien		-		-		-		-
Commercial - owner occupied		-		-		-		-
Commercial - non-owner occupied		3,144		-		-		3,144
Commercial loans and leases		1,980		-		-		1,980
Consumer		-		-		-		-

December 31, 2011			Quoted Price in		Significant
			Active Markets		Other		Significant
	Carrying		for Identical		Observable		Unobservable
	Value		Assets		Inputs		Inputs
(in thousands)	(Fair Value)		(Level 1)		(Level 2)		(Level 3)
Other real estate owned	$	1,885	$	-	$	-	$	1,885
Impaired loans:
Construction and land		-		-		-		-
Residential - first lien		611		-		-		611
Residential - junior lien		44		-		-		44
Commercial - owner occupied		1,988		-		-		1,988
Commercial - non-owner occupied		2,783		-		-		2,783
Commercial loans and leases		3,498		-		-		3,498
Consumer		9		-		-		9

The following table provides a reconciliation of all assets measured at fair value on a nonrecurring basis using significant unobservable inputs for the nine months ended September 30, 2012 and the twelve months ended December 31, 2011.

	Foreclosed			Impaired
(in thousands)	Properties			Loans
Balance at December 31, 2011	$	1,885		$	8,933
Total net gain (losses) for the year included in:
Gain (loss) on sale of foreclosed properties		(131	)		-
Other comprehensive gain (loss)		-			-
Purchase and sales, net		(422	)		-
Net transfers in (out)		1,598			(2,906	)
Valuation allowance		(27	)		-
Balance at September 30, 2012 - Unaudited	$	2,903		$	6,027

	Foreclosed			Impaired
(in thousands)	Properties			Loans
Balance at December 31, 2010	$	3,024		$	9,433
Total net gain (losses) for the year included in:
Gain on sale of foreclosed properties		459			-
Other comprehensive gain (loss)		-			-
Purchase and sales, net		(2,625	)		-
Net transfers in (out)		1,804			218
Valuation allowance		(777	)		(718	)
Balance at December 31, 2011	$	1,885		$	8,933

The following table presents required information in accordance with ASC Topic 825 “Financial Instruments” at September 30, 2012 and December 31, 2011. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are based on quoted market prices where available or calculated using present value techniques. Since quoted market prices are not available on many of our financial instruments, estimates may be based on the present value of estimated future cash flows and estimated discount rates. These financial assets and liabilities have not been recorded at fair value,

The following methods and assumptions were used to estimate the fair value of financial instruments where it is practical to estimate fair value:

Cash and cash equivalents: The fair value of cash and cash equivalents is estimated to approximate the carrying amounts.

Securities available-for-sale: Based on quoted market prices. If quoted market price is not available fair value is estimated using quoted market prices for similar securities. See Note 2 for additional information.

Nonmarketable equity securities: Because these securities are not marketable, the carrying amount approximates the fair value.

Loans: For variable rate loans the carrying amount approximates the fair value. For fixed rate loans the fair value is calculated by discounting estimated cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The estimated cash flows do not anticipate prepayments.

Deposits: The carrying amount of non-maturity deposits such as demand deposits, money market and saving deposits approximates the fair value. The fair value of deposits with predetermined maturity dates such as certificate of deposits is estimated by discounting the future cash flows using current rates of similar deposits with similar remaining maturities.

Short-term borrowing: Variable rate repurchase agreements carrying amounts approximate the fair values at the reporting date.

Long-term borrowing: Because the borrowing is a variable rate instrument, the carrying amount approximates the fair value.

Management has made estimates of fair value discount rates that it believes to be reasonable. However, because there is no market for many of these financial instruments, management has no basis to determine whether the fair value presented for loans would be indicative of the value negotiated in an actual sale.

					September 30, 2012 - Unaudited
					Quoted Price in		Significant
					Active Markets		Other		Significant
					for Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(in thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash and cash equivalents	$	18,336	$	18,336	$	-	$	18,336		0
Nonmarketable equity securities		1,205		1,205		-		1,205		0
Loans		299,387		304,950		-		-		304,950
Financial Liabilities
Deposits		287,426		286,789		-		286,789		0
Short-term borrowings		27,619		27,619		-		27,619		0
Long-term borrowings		6,000		6,028		-		6,028		0

					December 31, 2011
					Quoted Price in		Significant
					Active Markets		Other		Significant
					for Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(in thousands)	Amount		Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash and cash equivalents	$	18,205	$	18,205	$	-	$	18,205		0
Nonmarketable equity securities		1,313		1,313		-		1,313		0
Loans		277,177		280,653		-		-		280,653
Financial Liabilities
Deposits		262,642		262,412		-		262,412		0
Short-term borrowings		12,984		12,984		-		12,984		0
Long-term borrowings		10,000		10,052		-		10,052		0