Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 10 - 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 significant inputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available.

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 the assets reported on the balance sheet at their fair value as of March 31, 2013 and December 31, 2012, 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)	March 31, 2013
	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Securities available for sale:
U.S. Government corporations and agencies	$	—	$	45,680	$	—	$	45,680
Obligations of states and political subdivisions		—		53,684		—		53,684
Mortgage-backed securities		—		76,274		—		76,274
Equity securities		215		—		—		215
Total securities available for sale:	$	215	$	175,638	$	—	$	175,853
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	3,297	$	3,297
Other real estate	$	—	$	—	$	—	$	—
Mortgage servicing rights	$	—	$	—	$	44	$	44

(dollars in thousands)	December 31, 2012
	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Securities available for sale:
U.S. Government corporations and agencies	$	—	$	47,295	$	—	$	47,295
Obligations of states and political subdivisions		—		52,030		—		52,030
Mortgage-backed securities		—		78,678		—		78,678
Equity securities		205		—		—		205
Total securities available for sale:	$	205	$	178,003	$	—	$	178,208
Assets measured on a nonrecurring basis:
Impaired loans	$	—	$	—	$	2,730	$	2,730
Other real estate	$	—	$	—	$	—	$	—
Mortgage servicing rights	$	—	$	—	$	47	$	47

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
March 31, 2013	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted         Average)
Impaired Loans	$	3,297	Appraisal of collateral (1)	Appraisal adjustments (2) Liquidation expenses (2)	0% to -63.8% (-9.5%) 1.6% to 30.0% (10.4%)
Mortgage Servicing Rights	$	44	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.

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 Held for Sale: Loans held for sale are carried at cost. The fair value is based on what the secondary market would offer for loans with similar characteristics.

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 Federal Home Loan Bank borrowings is generally carried at amortized cost. We are required to estimate the fair value of these long-term borrowings. The discounted cash flow method is used to estimate the fair value of Federal Home Loan Bank borrowings.

Accrued Interest Payable: The carrying amount of accrued interest payable approximates its 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 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 or that will be realized in the future.

The estimates of fair values of financial instruments are summarized as follows at March 31, 2013 and December 31, 2012:

	March 31, 2013
(Amounts Expressed in Thousands)	Level I		Level II		Level III		Total Fair Value
Financial assets:
Cash and cash equivalents	$	23,941	$	—	$	—	$	23,941
Investment securities		215		175,638		—		175,853
Loans held for sale
Loans		—		—		101,645		101,645
Bank owned life insurance		3,651		—		—		3,651
Accrued interest receivable		1,169		—		—		1,169
Financial liabilities:
Deposits		167,763		70,290		—		238,053
Federal funds purchased and repurchase agreements		18,155		—		—		18,155
Federal Home Loan Bank borrowings		—		4,136		—		4,136
Accrued interest payable		144		—		—		144
	March 31, 2013				December 31, 2012
(Amounts Expressed in Thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	23,941	$	23,941	$	15,877	$	15,877
Investment securities		175,853		175,853		178,208		178,208
Loans held for sale		—		—		110		110
Loans		100,806		101,645		97,206		98,303
Bank owned life insurance		3,651		3,651		3,625		3,625
Accrued interest receivable		1,169		1,169		1,128		1,128
Financial liabilities:
Deposits		250,902		238,053		246,462		235,036
Federal funds purchased and repurchase agreements		18,155		18,155		18,767		18,767
Federal Home Loan Bank borrowings		3,584		4,136		3,606		4,199
Accrued interest payable		144		144		163		163