Fair Value Measurement

12 Months Ended

Dec. 31, 2012

Fair Value Measurement [Abstract]

Fair Value Measurement

Note 16 - Fair Value Measurement

The following methods and assumptions were used to estimate fair values for financial instruments. Securities' fair values are based on quoted market prices or, if no quotes are available, on the rate and term of the security and or information about the issuer. For loans, leases, deposits, securities sold under repurchase agreements and fixed rate FHLB advances, the fair value is estimated by discounted cash flow analysis using market rates for the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable. The fair value of off-balance sheet items is based on the fees or cost that would currently be charged to enter or terminate such arrangements and the amount is not material. Fair value for cash and cash equivalents, accrued interest receivable, advances from borrowers for taxes and insurance and accrued interest payable are estimated at carrying value. The estimated fair value for Federal Home Loan Bank stock is equal to the carrying value based on the restricted nature of the stock.

In general, fair values determined by Level 1 inputs use a quoted price in active markets for identical securities that the Company had the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar securities in active markets, and other input such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest input that is significant to the valuation. The Company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each financial instrument.

The estimated year end fair values of financial instruments were:

December 31, 2012	Carrying			Estimated Fair Value
	Value			Total			Level 1			Level 2			Level 3
Financial assets:
Cash and cash equivalents	$	51,625			51,625		$	51,625		$	0		$	0
Interest bearing deposits in financial institutions – maturities of 90 days or more		5,408			5,408			5,408			0			0
Securities available for sale		79,150			79,150			4,292			74,041			817
Loans and leases, net		252,070			253,070			0			0			253,070
Federal Home Loan Bank stock		931			931			0			0			931
Accrued interest receivable		1,119			1,119			1,119			0			0
Financial liabilities:
Deposits	$	(358,594	)	$	(358,529	)	$	(251,899	)	$	(106,630	)	$	0
Securities sold under repurchase agreements		(19,262	)		(19,208	)		0			(19,208	)		0
Subordinated debentures		(10,310	)		(4,723	)		0			0			(4,723	)
Advances from borrowers for taxes and insurance		(1,335	)		(1,335	)		(1,335	)		0			0
Accrued interest payable		(1,205	)		(1,205	)		(1,205	)		0			0

December 31, 2011	Carrying			Estimated Fair Value
	Value			Total			Level 1			Level 2			Level 3
Financial assets:
Cash and cash equivalents	$	37,833		$	37,833		$	37,833		$	0		$	0
Securities available for sale		87,140			87,140			4,261			81,934			945
Loans and leases, net		303,729			313,338			0			0			313,338
Federal Home Loan Bank stock		1,801			1,801			0			0			1,801
Accrued interest receivable		1,401			1,401			1,401			0			0
Financial liabilities:
Deposits	$	(397,631	)	$	(397,885	)	$	(245,314	)	$	(152,571	)	$	0
Securities sold under repurchase agreements		(19,455	)		(19,417	)		0			(19,417	)		0
Subordinated debentures		(10,310	)		(4,375	)		0			0			(4,375	)
Advances from borrowers for taxes and insurance		(1,222	)		(1,222	)		(1,222	)		0			0
Accrued interest payable		(1,127	)		(1,127	)		(1,127	)		0			0

On an annual basis the Company validates the measurement of the fair values of its securities with an independent securities valuation firm. This independent securities valuation firm determines the fair values of the securities portfolio that is then compared to the fair value using the methods above. When this validation was last done on September 30, 2012, the difference between the fair value reported and the fair value determined by the independent securities valuation firm was considered immaterial.

Below shows information regarding the Company's securities that were measured at fair value on a recurring basis at year-end 2012 and 2011, and the valuation techniques used by the Company to determine fair values.

Securities Available for Sale			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
December 31, 2012	Total		(Level 1)		(Level 2)		(Level 3)
States and political subdivisions	$	2,592	$	0	$	1,775	$	817
Mortgage-backed securities		72,266		0		72,266		0
Equity securities		4,292		4,292		0		0
At December 31, 2012	$	79,150	$	4,292	$	74,041	$	817
December 31, 2011
States and political subdivisions	$	3,117	$	0	$	2,172	$	945
Mortgage-backed securities		79,762		0		79,762		0
Equity securities		4,261		4,261		0		0
At December 31, 2011	$	87,140	$	4,261	$	81,934	$	945

The Company's change in level 3 securities measured at fair value on a recurring basis were as follows:

Level 3 Securities Available for Sale	2012			2011			2010
Balance at beginning of year	$	945		$	20		$	37
Total realized and unrealized losses included in income		0			(163	)		(659	)
Total realized income included in other comprehensive income		0			143			642
Net purchase, sales, calls and maturities		(128	)		0			0
Net transfers into Level 3		0			945			0
Balance at end of year	$	817		$	945		$	20

During 2011, the fair value of a security having a carrying value of $945,000 at year-end 2011 could no longer be determined using significant other observable inputs, or Level 2, as it consisted of a local nonrated municipal issue. At year-ends 2012 and 2011, fair value was determined using significant unobservable inputs, or Level 3, based on an outside investment broker's analysis of the financial condition of the municipality issuing the security.

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are held to maturity loans or other real estate owned that are considered impaired per accounting principles. The Company has estimated the fair value of these impaired assets using Level 3 inputs, specifically discounted cash flow projections or fair value of collateral less costs to sell.

During 2012, 2011 and 2010, the Company recorded adjustments to certain collateral dependent loans that were measured for impairment in accordance with accounting guidelines. Such amounts are generally based on the estimated underlying collateral values less estimated costs to sell that support these loans. During 2012, 2011 and 2010, the Company also recorded adjustments to certain cash flow dependent loans consisting primarily of troubled debt restructured loans that were measured for impairment in accordance with accounting guidelines. In the case of the cash flow dependent troubled debt restructured loans, impairment was determined by comparing the discounted cash flows based on the concessions with the Company's recorded investment. The Company made allocations for impaired loans totaling $11,729,000, $6,303,000 and $9,776,000 in 2012, 2011 and 2010, respectively.

Impaired Loans			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
At December 31 2012	$	39,410	$	0	$	0	$	39,410
At December 31, 2011	$	40,744	$	0	$	0	$	40,744

The following table presents quantitative information about level 3 fair value for impaired loans measured at fair value on a non-recurring basis at December 31, 2012:

Impaired Loans:					Range
			Valuation		(Weighted
	Fair Value		Technique(s)	Unobservable Input(s)	Average)
Commercial	$	12	Sales comparison approach	Discount on market value and selling costs	10%-10%	(10%)
Real estate-construction		6,764	Sales comparison approach	Discount on market value and selling costs	8%-8%	(8%)
Real estate-mortgage 1-4 family		2,359	Sales comparison approach	Discount on market value and selling costs	8%-8%	(8%)
Real estate-mortgage 5+ family		734	Sales comparison approach	Discount on market value and selling costs	8%-8%	(8%)
Real estate-mortgage commercial		29,043	Sales comparison approach	Discount on market value and selling costs	6%-8%	(8%)
Home equity		498	Sales comparison approach	Discount on market value and selling costs	8%-8%	(8%)
Total at December 31, 2012	$	39,410

During 2012, 2011 and 2010, the Company recorded adjustments to certain properties carried as other real estate owned that were measured for impairment in accordance with accounting guidelines. Such amounts are generally based on the estimated underlying fair values of the properties less estimated costs to sell. In cases where the carrying values of the properties exceed the estimated fair values of the properties less estimated costs, an impairment loss was recognized. These adjustments recorded as write-downs of other real estate owned totaled $4,867,000, $4,018,000 and $3,791,000 in 2012, 2011 and 2010, respectively.

Impaired Other Real Estate Owned			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
At December 31 2012	$	11,509	$	0		0		11,509
At December 31, 2011	$	18,300	$	0		0		18,300

The following table presents quantitative information about level 3 fair value for impaired other real estate owned measured at fair value on a non-recurring basis at December 31, 2012:

Impaired Other Real Estate Owned					Range
			Valuation		(Weighted
	Fair Value		Technique(s)	Unobservable Input(s)	Average)
Real estate - vacant land	$	3,373	Sales comparison approach	Discount on market value and selling costs	6%-36%	(16%)
Real estate - 1-4 family		1,456	Sales comparison approach	Discount on market value and selling costs	3%-6%	(5%)
Real estate - 5+ family		987	Sales comparison approach	Discount on market value and selling costs	6%-6%	(6%)
Real estate - commercial		5,693	Sales comparison approach	Discount on market value and selling costs	3%-6%	(6%)
Total at December 31, 2012	$	11,509