Fair value measurement of assets and liabilities

9 Months Ended

Sep. 30, 2011

Fair value measurement of assets and liabilities [Abstract]

Fair Value, Measurement Inputs, Disclosure [Table Text Block]

Fair value measurement of assets and liabilities

The fair value hierarchy established by ASC Topic 820, “Fair Value Measurements and Disclosures” prioritizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below.

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;

Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the assets or liabilities;

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following tables present the assets that are measured at fair value hierarchy at September 30, 2011 and December 31, 2010, respectively.

September 30, 2011
(In thousands)	Total		Level 1		Level 2		Level 3
Investment securities available for sale	$	96,343	$	3,236	$	92,699	$	408
Total assets	$	96,343	$	3,236	$	92,699	$	408

December 31, 2010
(In thousands)	Total		Level 1		Level 2		Level 3
Investment securities available for sale	$	105,420	$	3,429	$	102,492	$	499
Total assets	$	105,420	$	3,429	$	102,492	$	499

The fair value of Level 3 investments at September 30, 2011 was $91,000 less than the related fair value at December 31, 2010 due to an increase in the market value of the Level 3 investments.

Level 1 securities includes securities issued by the U.S. Treasury Department based upon quoted market prices. Level 2 securities includes fair value measurements obtained from various sources including the utilization of matrix pricing, dealer quotes, market spreads, live trading levels, credit information and the bond's terms and conditions, among other things. Any investment security not valued based on the aforementioned criteria are considered Level 3. Level 3 fair values are determined using unobservable inputs and include corporate debt obligations for which there are no readily available quoted market values as discussed under “Management's Discussion and Analysis of Financial Condition and Results of Operations” - Investments. For such securities, market values have been provided by the trading desk of an investment bank, which compares characteristics of the securities with those of similar securities and evaluates credit events in underlying collateral or obtained from an external pricing specialist which utilized a discounted cash flow model.

Impaired loans totaled $40.2 million at September 30, 2011, up from $34.8 million at December 31, 2010. The related allocation of the allowance for loan losses amounted to $1.7 million and $1.5 million. Charge-offs of impaired loans in the first nine months of 2011 totaled $1.9 million. $32.8 million of impaired loans have no allowance allocated to them as sufficient collateral exists. The average balance of impaired loans in the third quarter and first nine months of 2011 was $39.5 million and $37.7 million, respectively, compared to $25.4 million and $20.7 million in the similar periods of 2010. Most of the impaired loans are secured by commercial real estate properties. There was no interest income recognized on impaired loans during the first nine months of either 2011 or 2010.

At September 30, 2011, the Corporation had impaired loans with outstanding principal balances of $40.2 million, of which $1.9 million was written down to fair value during the first nine months of 2011, while at September 30, 2010, the Corporation had impaired loans with outstanding principal balances of $26.8 million, of which $2.8 million were written down to fair value during the first nine months of 2010. Impaired assets are valued utilizing current appraisals adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date, as well as costs to sell the underlying collateral.