Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2013

Assets Reported on Consolidated Balance Sheets at their Fair Value

The following tables present the assets reported on the consolidated balance sheets at their fair value as of March31, 2013 and December31, 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.

		(Amounts in thousands) FairValueMeasurementsat3/31/13Using
Description	March31, 2013	Level 1	Level 2	Level 3
ASSETS
U.S. Treasury securities	$121	$-	$121	$-
U.S. Government agencies and corporations	4,996	-	4,996	-
Obligations of states and political subdivisions	42,034	-	42,034	-
U.S. Government-sponsored mortgage-backed and CMO securities	117,123	-	117,123	-
Trust preferred securities	8,686	-	-	8,686
Loans held for sale	16,628	-	16,628	-
Mortgage banking derivatives	428	-	428	-
LIABILITIES
Mortgage banking derivatives	$99	$-	$99	$-
		Fair Value Measurements at 12/31/12 Using
Description	December31, 2012	Level 1	Level2	Level 3
ASSETS
U.S. Treasury securities	$123	$-	$123	$-
U.S. Government agencies and corporations	8,065	-	8,065	-
Obligations of states and political subdivisions	42,316	-	42,316	-
U.S. Government-sponsored mortgage-backed and CMO securities	123,481	-	123,481	-
Trust preferred securities	7,612	-	-	7,612
Loans held for sale	24,756	-	24,756	-
Mortgage banking derivatives	531	-	531	-
LIABILITIES
Mortgage banking derivatives	$199	$-	$199	$-

Changes in the Level 3 Fair Value Category

	(Amountsinthousands)
	March 31, 2013	March 31, 2012
	Trust preferred securities	Trust preferred securities
Beginning balance	$7,612	$9,145
Net realized/unrealized gains/(losses) included in:
Noninterest income	-	(171)
Other comprehensive income	1,074	970
Purchases, issuances and settlements	-	(14)
Ending balance	$8,686	$9,930
Losses included in net income for the period relating to assets held at period end	$-	(171)

Breakdown of Trust Preferred Securities

The following table details the breakdown of trust preferred securities for the periods indicated:

	(Dollaramountsinthousands)
	March31,2013	December31,2012
Total number of trust preferred securities	12	12
Par value	$14,449	$14,449
Number not considered OTTI	10	10
Par value	$11,491	$11,491
Number considered OTTI	2	2
Par value	$2,958	$2,958
Life-to-date impairment recognized in earnings	$351	$351
Life-to-date impairment recognized in other comprehensive income	1,687	1,868
Total life-to-date impairment	$2,038	$2,219

Trust Preferred Securities with OTTI, their Credit Ratings at Period End and Related Losses Recognized in Earnings

The following table details the 2 debt securities with other-than-temporary impairment, their credit ratings at March31, 2013 and the related losses recognized in earnings:

	(Amounts in thousands)
	Moody’s/Fitch Rating	AmountofOTTI relatedtocreditloss at January1, 2013	Additionsin QTDMarch31, 2013	AmountofOTTI related to credit loss at March31, 2013
PreTSL XXIII Class C-FP	Ca/C	$211	$-	$211
Trapeza IX B-1	Ca/CC	140	-	140
Total		$351	$-	$351

The following table details the 18 debt securities with other-than-temporary impairment, their credit ratings at March31, 2012 and the related losses recognized in earnings:

	(Amounts in thousands)
	Moody’s/Fitch Rating	AmountofOTTI relatedtocreditloss at January1, 2012	Additions in QTDMarch31, 2012	AmountofOTTI related to credit loss at March31, 2012
MM Community Funding II Class B	Ba1/CC	$11	$-	$11
PreTSL I Mezzanine	Ca/C	430	-	430
PreTSL II Mezzanine	Ca/C	1,416	81	1,497
PreTSL V Mezzanine	Ba3/D	97	-	97
PreTSL VIII B-3	C/C	1,635	-	1,635
PreTSL IX Class B-2	Ca/C	274	-	274
PreTSL XV Class B-2	C/C	277	-	277
PreTSL XV Class B-3	C/C	279	-	279
PreTSL XVI D	NR/C	518	-	518
PreTSL XVI D	NR/C	991	-	991
PreTSL XVII Class C	Ca/C	978	-	978
PreTSL XVII Class D	NR/C	930	-	930
PreTSL XVIII Class D	NR/C	513	-	513
PreTSL XXIII Class C-FP	Ca/C	211	-	211
PreTSL XXV Class D	NR/C	1,001	-	1,001
PreTSL XXVI Class D	NR/C	465	-	465
Trapeza CDO II Class C-1	Ca/C	598	-	598
Trapeza IX B-1	Ca/CC	50	90	140
Total		$10,674	$171	$10,845

Additional Information Related to the Company's Trust Preferred Securities

The following table provides additional information related to the Company’s trust preferred securities as of March31, 2013 used to evaluate other-than-temporary impairments:

	(Amounts in thousands)
Deal	Class	AmortizedCost	FairValue	Unrealized Gain/(Loss)	Moody’s/ FitchRating	Number of Issuers Currently Performing	Deferralsand Defaultsasa% of Current Collateral	Excess Subordinationasa % ofCurrent Performing Collateral
PreTSL XXIII	C-2	$1,011	$273	$(738)	Ca/C	90	26.11%	-%
PreTSL XXIII	C-FP	1,558	470	(1,088)	Ca/C	90	26.11	-
I-PreTSL I	B-1	986	680	(306)	NR/CCC	14	17.24	2.00
I-PreTSL I	B-2	1,000	680	(320)	NR/CCC	14	17.24	2.00
I-PreTSL I	B-3	1,000	680	(320)	NR/CCC	14	17.24	2.00
I-PreTSL II	B-3	2,990	2,520	(470)	NR/B	22	7.53	12.80
I-PreTSL III	B-2	1,000	710	(290)	Ba3/CCC	21	13.14	8.70
I-PreTSL III	C	1,000	440	(560)	NR/CCC	21	13.14	-
I-PreTSL IV	B-1	1,000	900	(100)	Ba2/CCC	22	9.91	6.20
I-PreTSL IV	B-2	1,000	900	(100)	Ba2/CCC	22	9.91	6.20
I-PreTSL IV	C	480	173	(307)	Caa1/CC	22	9.91	1.70
Trapeza IX	B-1	860	260	(600)	Ca/CC	32	20.21	-
Total		$13,885	$8,686	$(5,199)

The following table provides additional information related to the Company’s trust preferred securities as of December31, 2012 used to evaluate other-than-temporary impairments:

	(Amounts in thousands)
Deal	Class	AmortizedCost	FairValue	Unrealized Gain/(Loss)	Moody’s/ FitchRating	Number of Issuers Currently Performing	Deferralsand Defaultsasa% of Current Collateral	Excess Subordinationasa % of Current Performing Collateral
PreTSL XXIII	C-2	$1,011	$203	$(808)	C/C	88	26.28%	-%
PreTSL XXIII	C-FP	1,556	325	(1,231)	Ca/C	88	26.28	-
I-PreTSL I	B-1	986	368	(618)	NR/CCC	15	7.96	13.60
I-PreTSL I	B-2	1,000	757	(243)	NR/CCC	15	7.96	13.60
I-PreTSL I	B-3	1,000	758	(242)	NR/CCC	15	7.96	13.60
I-PreTSL II	B-3	2,990	1,810	(1,180)	NR/B	23	7.20	11.00
I-PreTSL III	B-2	1,000	765	(235)	Ba3/CCC	23	6.37	15.60
I-PreTSL III	C	1,000	822	(178)	NR/CCC	23	6.37	-
I-PreTSL IV	B-1	1,000	614	(386)	Ba2/CCC	23	14.16	5.60
I-PreTSL IV	B-2	1,000	822	(178)	Ba2/CCC	23	14.16	5.60
I-PreTSL IV	C	480	146	(334)	Caa1/CC	23	14.16	1.20
Trapeza IX	B-1	860	222	(638)	Ca/CC	34	19.91	-
Total		$13,883	$7,612	$(6,271)

Assets Measured on a Nonrecurring Basis on the Consolidated Balance Sheets at their Fair Value

The following tables present the assets measured on a nonrecurring basis on the consolidated balance sheets at their fair value as of March31, 2013 and December31, 2012, by level within the fair value hierarchy. 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: quoted market prices for identical assets, classified as Level 1 inputs; observable inputs employed by certified appraisers for similar assets, classified as Level 2 inputs. In cases where valuation techniques include inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level 3 inputs.

	(Amounts in thousands) March 31, 2013
	Level 1	Level 2	Level 3	Total
Assets measured on a nonrecurring basis:
Impaired loans:
Recorded investment	$-	$-	$4,881	$4,881
Reserve	-	-	(436)	(436)
Net balance	$-	$-	$4,445	$4,445
Other real estate owned:
Recorded investment	$-	$-	$395	$395
Valuation allowance	-	-	(71)	(71)
Net balance	$-	$-	$324	$324
	December 31, 2012

	Level1	Level2	Level3	Total
Assets measured on a nonrecurring basis:
Impaired loans:
Recorded investment	$-	$-	$5,080	$5,080
Reserve	-	-	(472)	(472)
Net balance	$-	$-	$4,608	$4,608
Other real estate owned:
Recorded investment	$-	$-	$216	$216
Valuation allowance	-	-	(71)	(71)
Net balance	$-	$-	$145	$145

Carrying Amounts and Estimated Fair Values of the Company's Financial Instruments

The carrying amounts and estimated fair values of the Company’s financial instruments are as follows:

	(Amounts in thousands) March 31, 2013
	Carrying Amount	Level1	Level2	Level3	Estimated FairValue
ASSETS:
Cash and cash equivalents	$29,238	$29,238	$-	$-	$29,238
Investment securities available-for-sale	176,009	3,049	164,274	8,686	176,009
Loans held for sale	16,628	-	16,628	-	16,628
Loans, net of allowance for loan losses	293,572	-	-	293,572	293,572
Bank-owned life insurance	14,094	14,094	-	-	14,094
Accrued interest receivable	1,971	1,971	-	-	1,971
Mortgage banking derivatives	428	-	428	-	428
LIABILITIES:
Demand, savings and money market deposits	$294,969	$294,969	$-	$-	$294,969
Time deposits	146,041	-	146,041	-	146,041
FHLB advances	42,000	-	-	45,015	45,015
Short-term borrowings	3,015	3,015	-	-	3,015
Subordinated debt	5,155	-	-	4,289	4,289
Accrued interest payable	335	335	-	-	335
Mortgage banking derivatives	99	-	99	-	99

	(Amounts in thousands) December 31, 2012
	Carrying Amount	Level 1	Level 2	Level 3	Estimated Fair Value
ASSETS:
Cash and cash equivalents	$27,577	$27,577	$-	$-	$27,577
Investment securities available-for-sale	184,646	-	177,034	7,612	184,646
Loans held for sale	24,756	-	24,756	-	24,756
Loans, net of allowance for loan losses	313,457	-	-	320,012	320,012
Bank-owned life insurance	14,009	14,009	-	-	14,009
Accrued interest receivable	1,765	1,765	-	-	1,765
Mortgage banking derivatives	531	-	531	-	531
LIABILITIES:
Demand, savings and money market deposits	$323,855	$323,855	$-	$-	$323,855
Time deposits	153,046	-	157,406	-	157,406
FHLB advances	42,000	-	-	45,113	45,113
Short-term borrowings	4,051	4,051	-	-	4,051
Subordinated debt	5,155	-	-	4,227	4,227
Accrued interest payable	359	359	-	-	359
Mortgage banking derivatives	199	-	199	-	199

Significant Unobservable Inputs for Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis

The following tables present quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at March31, 2013:

	(Amountsinthousands)
	Fair value at March31, 2013	ValuationTechnique	Significant UnobservableInput	DescriptionofInputs
Trustpreferredsecurities	$8,686	DiscountedCashFlow	Projected Prepayments	1) Trust preferred securities issued by banks subject to Dodd-Frank’s phase-out of trust preferred securities from Tier 1 Capital. All fixed rate within one year; variable rate at increasing intervals depending on spread. 2) Trust preferred securities issued by healthy, well capitalized banks that have fixed rate coupons greater than 8%. 3) 1%annually for all other fixed rate issues and all variable rate issues.4) Zero for collateral issued by REITs or insurance companies.
			Projected Defaults	1) All deferring issuers that do not meet the criteria for curing, as described below, are projected to default immediately. 2) Banks with high, near team default risk are identified using a CAMELS model, and projected to default immediately. Healthy banks are projected to default at a rate of 2% annually for 2 years, and 0.36% annually thereafter. 3) Insurance and REIT defaults are projected according to the historical default rates exhibited by companies with the same credit ratings. Historical default rates are doubled in each of the first two years of the projection to account for current economic conditions. Unrated issuers are assumed to have CCC- ratings.
			Projected Cures	1) Deferring issuers that have definitive agreements to either be acquired or recapitalized.
			Projected Recoveries	1) Zero for insurance companies, REITs and insolvent banks, and 10% for projected bank deferrals.
			Discount Rates	1) Ranging from ~5.34% to ~19.72%, depending on each bond’s seniority and remaining subordination after projected losses.
Impaired loans	3,350	Appraisalof Collateral(1)	Appraisal Adjustments (2)	0% to (27)%
			Liquidation Expenses(2)	0% to (10)%
	1,095	Discounted Cash Flow	Discount Rate	5.75% (only one loan)
Other real estate owned	324	Appraisalof Collateral(1),(3)	Appraisal Adjustments (2)	0% to (37)%
			Sales Agreements	0% to (36)%

(1)Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimatedliquidation expenses. The range and weighted average of liquidation expenses are presented as a percent of the appraisal. The adjustment of appraised value is measured as the effect on fair value as a percentage of unpaid principal.

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