Fair Value Presentation

6 Months Ended

Jun. 30, 2011

Fair Value Presentation [Abstract]

Fair Value Presentation

4. Fair Value Presentation

U.S. generally accepted accounting principles establish a hierarchal disclosure framework associated with the level of observable pricing utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no observable pricing as of the reported date. These items do not have two-way markets and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following tables present the assets reported on the consolidated balance sheets at their fair value as of June 30, 2011, and December 31, 2010, by level within the fair value hierarchy. As required by U.S. generally accepted accounting principles, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Fair Value Measurements:

(DOLLARS IN THOUSANDS)

	June 30, 2011
	Level I		Level II		Level III		Total
U.S. treasuries & government agencies	$	-	$	47,432	$	-	$	47,432
U.S. agency mortgage-backed securities		-		47,558		-		47,558
U.S. agency collateralized mortgage obligations		-		57,709		-		57,709
Private collateralized mortgage obligations		-		10,807		-		10,807
Corporate debt securities		-		18,055		-		18,055
Obligations of states & political subdivisions		-		80,126		-		80,126
Equity securities		3,950		-		-		3,950
Total securities	$	3,950	$	261,687	$	-	$	265,637

On June 30, 2011, the Corporation held no securities valued using level III inputs. All of the Corporation's debt instruments were valued using level II inputs, where quoted prices are available and observable, but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation's CRA fund investments are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of June 30, 2011, the CRA fund investments had a $4,000,000 book value with a fair market value of $3,950,000.

Fair Value Measurements:

(DOLLARS IN THOUSANDS)

	December 31, 2010
	Level I		Level II		Level III		Total
U.S. treasuries & government agencies	$	-	$	47,886	$	-	$	47,886
U.S. agency mortgage-backed securities		-		38,838		-		38,838
U.S. agency collateralized mortgage obligations		-		65,393		-		65,393
Private collateralized mortgage obligations		-		11,812		-		11,812
Corporate debt securities		-		11,909		-		11,909
Obligations of states & political subdivisions		-		79,401		-		79,401
Equity securities		3,899		-		-		3,899
Total securities	$	3,899	$	255,239	$	-	$	259,138

On December 31, 2010, the Corporation held no securities valued using level III inputs. All of the Corporation's debt instruments were valued using level II inputs, where quoted prices are available and observable but not necessarily quotes on identical securities traded in active markets on a daily basis. As of December 31, 2010, the Corporation's CRA fund investments had a book value of $4,000,000 and a fair market value of $3,899,000 utilizing level I pricing.

Financial instruments are considered level III when their values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. There were no level III securities as of June 30, 2011, or December 31, 2010.

The following tables present the assets measured on a nonrecurring basis on the consolidated balance sheets at their fair value as of June 30, 2011, December 31, 2010, and June 30, 2010, by level within the fair value hierarchy:

ASSETS MEASURED ON A NONRECURRING BASIS

(DOLLARS IN THOUSANDS)

	June 30, 2011
	Level I		Level II		Level III		Total
Assets:
Impaired Loans	$	-	$	-	$	3,463	$	3,463
OREO		-		-		400		400
Total	$	-	$	-	$	3,863	$	3,863

	December 31, 2010
	Level I		Level II		Level III		Total
Assets:
Impaired Loans	$	-	$	-	$	5,325	$	5,325
OREO		-		-		400		400
Total	$	-	$	-	$	5,725	$	5,725

	June 30, 2010
	Level I		Level II		Level III		Total
Assets:
Impaired Loans	$	-	$	-	$	6,361	$	6,361
OREO		914		-		-		914
Total	$	914	$	-	$	6,361	$	7,275

The Corporation had a total of $3,735,000 of impaired loans as of June 30, 2011, with $272,000 of specifically allocated allowance against these loans. The Corporation had a total of $5,556,000 of impaired loans as of December 31, 2010, with $231,000 of specifically allocated allowance against these loans, and $6,939,000 of impaired loans at June 30, 2010, with $578,000 of specifically allocated allowance against these loans. Impaired loans are valued based on a discounted present value of expected future cash flows.

Other real estate owned (OREO) is measured at fair value, less estimated costs to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management. The assets are carried at the lower of carrying amount or fair value, less estimated costs to sell. The Corporation's OREO balance consists of one manufacturing property that has been classified as OREO since December 2006. Management has estimated the current value of the OREO property at $400,000 utilizing level III pricing. As of June 30, 2010, there was a signed agreement of sale on this property that directly supported the sales price less estimated costs to sell and was therefore shown as level I pricing. That agreement of sale expired at the end of 2010. As a result, the OREO valuation was written down by $120,000 as of December 31, 2010, to reflect management's best estimate of the current fair value of the property less anticipated selling costs. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO.