Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 9 - FAIR VALUE MEASUREMENTS

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

Ÿ	Level I:	Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Ÿ	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.
Ÿ	Level III:	Valuations derived from valuation techniques in which one or more significantinputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available.

The following table presents the assets reported on the balance sheet at their fair value as of September 30, 2012 and December 31, 2011, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

(dollars in thousands)	September 30, 2012
	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Securities available for sale:
U.S. Government corporations and agencies	$	—	$	42,347	$	—	$	42,347
Obligations of states and political subdivisions		—		49,261		—		49,261
Mortgage-backed securities
U.S. sponsored entities		—		74,643		—		74,643
Subtotal mortgage-backed securities		—		74,643		—		74,643
Equity securities		213		—		—		213
Total securities available for sale:	$	213	$	166,251	$	—	$	166,464
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	2,745	$	2,745
Other real estate	$	—	$	—	$	7	$	7
Mortgage servicing rights	$	—	$	—	$	45	$	45

(dollars in thousands)	December 31, 2011
	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Securities available for sale:
U.S. Government corporations and agencies	$	—	$	36,216	$	—	$	36,216
Obligations of states and political subdivisions		—		45,304		—		45,304
Mortgage-backed securities
U.S. sponsored entities		—		69,215		—		69,215
Subtotal mortgage-backed securities		—		69,215		—		69,215
Equity securities		226		—		—		226
Total securities available for sale:	$	226	$	150,735	$	—	$	150,961
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	3,055	$	3,055
Other real estate	$	—	$	—	$	138	$	138
Mortgage servicing rights	$	—	$	—	$	52	$	52

Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include observable inputs employed by certified appraisers for similar assets classified as Level III inputs. Other real estate owned is measured at fair value, less cost to sell at the date of foreclosure. Valuations are periodically performed by management and the assets are carried at the lower of carrying amount, or fair value less cost to sell.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Level 3 inputs were used in determining fair value.

(dollars in thousands)	Quantitative Information about Level 3 Fair Value  Measurements
September 30, 2012	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted         Average)
Impaired Loans	$	2,745	Appraisal of collateral (1)	Appraisal adjustments (2) Liquidation expenses (2)	0% to -36.3% (16.2%) 3.5% to 22.9% (10.3%)
Other real estate owned and repossessed assets	$	7	Appraisal of collateral (1)(3)
Mortgage Servicing Rights	$	45	Discounted Cash Flow	Remaining term Discount rate	2.9 years to 7 years (3.49 years) 9.5% to 10.5% (10%)

(1) The fair value is determined through independent appraisals by certified appraisers of the underlying collateral.

(2) Appraisals may be adjusted by management for qualitative factors and estimated liquidation expenses. The range and weighted average of liquidation expenses are expressed as a percent of discounted collateral value and other appraisal adjustments are presented as a percentage of the appraised amounts.

(3) Valuation includes qualitative adjustments by management and estimated liquidation expenses.

The reported fair values of financial instruments are based on a variety of factors. Where possible, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. Intangible values assigned to customer relationships are not reflected in the reported fair values. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year end or that will be realized in the future.

The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments:

Cash and Cash Equivalents: The carrying amount for cash and cash equivalents is a reasonable estimate of fair value.

Investment Securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans: The fair value for net loans is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value.

Bank Owned Life Insurance: The carrying amount of bank owned life insurance represents the cash surrender value of the underlying insurance policies, if such policies were terminated. Management believes that the carrying amount approximates the fair value.

Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.

Deposits: Noninterest bearing and interest bearing demand deposits and savings deposits are valued at the amount payable on demand as of year end. The fair values for time deposits are based on discounted value of cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities.

Federal Funds Purchased and Repurchase Agreements: The carrying amount for federal funds purchased and repurchase agreements are considered to be a reasonable estimate of fair value.

Federal Home Loan Bank borrowings: The fair value of FHLB and other long term borrowings is the carrying amount. Management believes that the carrying amount approximates the fair value.

Accrued Interest Payable: The carrying amount of accrued interest payable approximates it fair value.

Off-Balance-Sheet Instruments: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The amount of fees currently charged on commitments is determined to be insignificant and, therefore, the carrying value and fair value of off-balance-sheet instruments are not shown.

The estimates of fair values of financial instruments are summarized as follows at September 30, 2012 and December 31, 2011:

	September 30, 2012
(Amounts Expressed in Thousands)	Level I		Level II		Level III		Total Fair Value
Financial assets:
Cash and cash equivalents	$	21,033	$	—	$	—	$	21,033
Investment securities		213		166,221		—		166,464
Loans		—		—		99,360		99,360
Bank owned life insurance		3,598		—		—		3,598
Accrued interest receivable		1,186		—		—		1,186
Financial liabilities:
Deposits		158,335		70,878		—		229,213
Federal Funds Purchased and Repurchase Agreements		18,570		—		—		18,370
Federal Home Loan Bank borrowings		—		3,628		—		3,628
Accrued interest payable		171		—		—		171
	September 30, 2012				December 31, 2011
(Amounts Expressed in Thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	21,033	$	21,033	$	20,917	$	20,917
Investment securities		166,464		166,464		150,961		150,961
Loans		98,213		99,360		106,925		105,733
Bank owned life insurance		3,598		3,598		3,518		3,518
Accrued interest receivable		1,186		1,186		1,140		1,140
Financial liabilities:
Deposits		239,321		229,213		239,177		227,662
Federal funds purchased and repurchase agreements		18,570		18,570		14,014		14,014
Federal Home Loan Bank borrowings		3,628		3,628		3,693		3,693
Accrued interest payable		171		171		218		218