FAIR VALUES

12 Months Ended

Dec. 31, 2011

Fair Value [Abstract]

FAIR VALUES

(17)           FAIR VALUES

Fair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or

most advantageous market for the asset or liability in an orderly transaction between market participants on the

measurement date.  There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity

has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar

assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or

can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the

assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale are usually determined by obtaining quoted prices on nationally

recognized securities exchanges (Level 1 inputs), or matrix pricing, which is a mathematical technique widely

used to value debt securities without relying exclusively on quoted prices for the specific securities but rather by

relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).

The Corporation's investment in collateralized debt obligations consisting of pooled trust preferred securities

which are issued by financial institutions were historically priced using Level 2 inputs.  The lack of observable

inputs and market activity in this class of investments has been significant and resulted in unreliable external

pricing.  Broker pricing and bid/ask spreads, when available, have varied widely.  The once active market has

become comparatively inactive. As a result, these investments are now priced using Level 3 inputs.

The Corporation has developed an internal model for pricing these securities. This is the same model used in

determining other-than-temporary impairment (“OTTI”) as further described in Note 3.  Information such as

historical and current performance of the underlying collateral, deferral/default rates, collateral coverage ratios,

break in yield calculations, cash flow projections, liquidity and credit premiums required by a market participant,

and financial trend analysis with respect to the individual issuing financial institutions, are utilized in determining

individual security valuations. Discount rates were utilized along with the cash flow projections in order to

calculate an appropriate fair value.  These discount rates were calculated based on industry index rates and

adjusted for various credit and liquidity factors.  Due to current market conditions as well as the limited trading

activity of these securities, the market value of the securities is highly sensitive to assumption changes and market

volatility.

The fair values of trading assets are determined by quoted market prices (Level 1 inputs).

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on

recent real estate appraisals and collateral evaluations. The appraisals may utilize a single valuation approach or a

combination of approaches including comparable sales and the income approach.  Adjustments are routinely made

in the appraisal process by third party appraisers to adjust for differences between the comparable sales and

income data available.  Such adjustments are typically significant and result in a Level 3 classification of the

inputs for determining fair value.

Non-recurring adjustments to certain commercial and residential real estate properties classified as other real

estate owned ("OREO") are measured at the lower of carrying amount or fair value, less costs to sell. Fair values

are generally based on third party appraisals of the property, resulting in a Level 3 classification.  In cases where

the carrying amount exceeds the fair value less costs to sell, an impairment loss is recognized.

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurement at December 31, 2011 Using
Financial Assets:	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Obligations of U.S. Government and U.S.Government sponsored enterprises	$	152,079,770	$	35,950,000	$	116,129,770	$	-
Mortgage-backed securities, residential		50,766,604		-		50,766,604		-
Obligations of states and political subdivisions		46,512,971		-		46,512,971		-
Trust Preferred securities		2,310,066		-		2,015,156		294,910
Corporate bonds and notes		13,684,199		-		13,684,199		-
Collateralized mortgage obligations		7,536,753		-		7,536,753		-
SBA loan pools		1,949,606		-		1,949,606		-
Corporate stocks		6,029,841		5,339,839		690,002		-
Total available for sale securities	$	280,869,810	$	41,289,839	$	239,285,061	$	294,910
Trading assets	$	294,381	$	294,381	$	-	$	-

			Fair Value Measurement at December 31, 2010 Using
Financial Assets:	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Obligations of U.S. Government and U.S.   Government sponsored enterprises	$	102,131,517	$	40,581,250	$	61,550,267	$	-
Mortgage-backed securities, residential		62,761,633		-		62,761,633		-
Obligations of states and political subdivisions		38,765,092		-		38,765,092		-
Trust Preferred securities		2,344,094		-		2,009,509		334,585
Corporate bonds and notes		11,694,190		-		11,694,190		-
Corporate stocks		5,848,435		5,209,069		639,366		-
Total available for sale securities	$	223,544,961	$	45,790,319	$	177,420,057	$	334,585

The table below summarizes changes in unrealized gains and losses recorded in earnings for the years ended

December 31, 2011 and 2010, respectively for Level 3 assets:

Investment Securities Available for Sale	Fair Value Measurement twelve-months ended December 31, 2011 Using Significant Unobservable Inputs (Level 3)			Fair Value Measurement twelve-months ended December 31, 2010 Using Significant Unobservable Inputs (Level 3)
Beginning balance	$	334,585		$	511,480
Total gains/losses (realized/unrealized):
Included in earnings:
Income on securities		-			-
Impairment charge on investment securities		(67,400	)		(393,005	)
Included in other comprehensive income		27,725			216,110
Transfers in and/or out of Level 3		-			-
Ending balance, December 31	$	294,910		$	334,585

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurement at December 31, 2011 Using
Financial Assets:	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans:
Commercial, financial and agricultural:
Commercial and industrial	$	831,601	$	-	$	-	$	831,601
Commercial mortgages:				-		-
Other		3,321,838		-		-		3,321,838
Total Impaired Loans	$	4,153,439	$	-	$	-	$	4,153,439
Other real estate owned:
Commercial, financial and agricultural:
Commercial and industrial	$	218,040	$	-	$	-	$	218,040
Commercial mortgages:
Other		366,760		-		-		366,760
Residential mortgages		276,355		-		-		276,355
Consumer loans:
Home equity lines & loans		36,600		-		-		36,600
Total Other real estate owned, net	$	897,755	$	-	$	-	$	897,755

			Fair Value Measurement at December 31, 2010 Using
Financial Assets:	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans:
Commercial mortgages:
Construction	$	72,211	$	-	$	-	$	72,211
Other		580,329		-		-		580,329
Total Impaired Loans	$	652,540	$	-	$	-	$	652,540
Other real estate owned, net	$	740,620	$	-	$	-	$	740,620

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent

loans, had a carrying amount of $6,095,645, with a valuation allowance of $1,942,206 as of December 31, 2011,

resulting in a $958,333 provision for loan losses for the year ending December 31, 2011.  Impaired loans had a

carrying amount of $892,298, with a valuation allowance of $239,758 as of December 31, 2010, resulting in no

additional provision for loan losses for the year ending December 31, 2010.

OREO, which is measured by the lower of carrying or fair value less costs to sell, had a net carrying amount of

$897,755 at December 31, 2011.  The net carrying amount reflects the outstanding balance of $1,009,162 net of a

valuation allowance of $111,407 at December 31, 2011 which resulted in write downs of $12,120 for the year

ending December 31, 2011.  OREO had a net carrying amount of $740,620 at December 31, 2010.  The net

carrying amount reflected an outstanding balance of $909,947, net of a valuation allowance of $169,327 at

December 31, 2010 which resulted in write downs of $169,327 for the year ending December 31, 2010.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial

instruments:

Cash, Due From and Interest-Bearing Deposits in Other Financial Institutions

For those short-term instruments that generally mature in ninety days or less, the carrying value approximates fair

value.

FHLB and FRB Stock

It is not practicable to determine the fair value of FHLB and FRB stock due to restrictions on its transferability.

Loans Receivable

For variable-rate loans that reprice frequently, fair values approximate carrying values.  The fair values for other

loans are estimated through discounted cash flow analysis using interest rates currently being offered for loans

with similar terms and credit quality.

Deposits

The fair values disclosed for demand deposits, savings accounts and money market accounts are, by definition,

equal to the amounts payable on demand at the reporting date (i.e., their carrying values).

The fair value of certificates of deposits is estimated using a discounted cash flow approach that applies interest

rates currently being offered on certificates to a schedule of the weighted-average expected monthly maturities.

Securities Sold Under Agreements to Repurchase (Repurchase Agreements)

These instruments bear both variable and fixed rates of interest.  Therefore, the carrying value approximates fair

value for the variable rate instruments and the fair value of fixed rate instruments is based on discounted cash

flows to maturity.

Federal Home Loan Bank Advances

These instruments bear a stated rate of interest to maturity and, therefore, the fair value is based on discounted

cash flows to maturity.

Commitments to Extend Credit

The fair value of commitments to extend credit is based on fees currently charged to enter into similar

agreements, the counter-party's credit standing and discounted cash flow analysis.  The fair value of these

commitments to extend credit approximates the recorded amounts of the related fees and is not material at

December 31, 2011 and 2010.

Accrued Interest Receivable and Payable

For these short-term instruments, the carrying value approximates fair value.

The estimated fair value of the Corporation's financial instruments as of December 31, 2011 and 2010 are as

follows (dollars in thousands):

	2011				2010
Financial assets:	Carrying Amount		Estimated Fair Value (1)		Carrying Amount		Estimated Fair Value (1)
Cash and due from financial institutions	$	28,205	$	28,205	$	16,540	$	16,540
Interest-bearing deposits in other financial institutions		24,697		24,697		44,080		44,080
Trading assets		294		294		-		-
Securities available for sale		280,870		280,870		223,545		223,545
Securities held to maturity		8,312		9,176		7,715		8,297
Federal Home Loan and Federal Reserve Bank stock		5,509		N/A		3,329		N/A
Net loans		787,256		805,760		604,186		618,859
Loans held for sale		395		395		487		487
Accrued interest receivable		3,882		3,882		2,713		2,713
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts		721,503		721,503		532,555		532,555
Time deposits		276,990		279,441		253,804		256,281
Securities sold under agreements to repurchase		37,107		40,019		44,775		46,667
Federal Home Loan Bank advances		43,344		46,603		20,000		21,609
Accrued interest payable		800		800		784		784
Dividends payable		1,141		1,141		881		881

(1) Fair value estimates are made at a specific point in time, based on relevant market information and information

about the financial instrument.  These estimates are subjective in nature and involve uncertainties and matters of

significant judgment and, therefore, cannot be determined with precision.  Changes in assumptions could significantly

affect the estimates.