The Company measures or monitors certain of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities that are elected to be accounted for under ASC guidance as well as certain assets and liabilities in which fair value is the primary basis of accounting. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value, which are in accordance with the guidance for determining the fair value of a financial asset when the market for that asset is not active.

In accordance with ASC guidance, the Company applied the following fair value hierarchy:

Investment Securities Available for Sale—Measurement is on a recurring basis based upon quoted market prices, if available. If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for prepayment assumptions, projected credit losses, and liquidity. Level 1 securities include those traded on an active exchange or by dealers or brokers in active over-the-counter markets. Level 2 securities include mortgage-backed securities issued both by government sponsored enterprises and private label mortgage-backed securities. Generally these fair values are priced from established pricing models. Level 3 securities include corporate debt obligations and asset-backed securities that are less liquid or for which there is an inactive market.

Loans—Loans that are considered impaired are recorded at fair value on a non-recurring basis. Once a loan is considered impaired, measurement is based upon FASB ASC 310-10-35 "Loan Impairment." The fair value is estimated using one of several methods, including collateral liquidation value, market value of similar debt and discounted cash flows. Those impaired loans not requiring a specific charge against the allowance represent loans for which the fair value of the expected repayments or collateral meet or exceed the recorded investment in the loan. At December 31, 2011 and 2010, substantially all of the total impaired loans were evaluated based on the fair value of the underlying collateral. When the company records the fair value based upon a current appraisal the fair value measurement is considered Level 2. When a current appraisal is not available or there is estimated further impairment the measurement is considered a Level 3 measurement.

Other Real Estate Owned (OREO)—OREO is carried at the lower of carrying value or fair value on a non-recurring basis. Fair value is based upon independent appraisals or management's estimation of the collateral. When the OREO value is based upon a current appraisal it is considered a Level 2 measurement. When a current appraisal is not available or there is estimated further impairment the measurement is considered a Level 3 measurement.

Goodwill and Other Intangible Assets—Goodwill and other intangible assets are measured for impairment on an annual basis, as of September 30, or more frequently if there is a change in circumstances. If the goodwill or other intangibles exceed the fair value, an impairment charge is recorded in an amount equal to the excess. Impairment is tested utilizing accepted valuation techniques utilizing discounted cash flows of the business unit, and implied fair value based on a multiple of earnings and tangible book value for merger transactions. The measurement of these fair values is considered a Level 3 measurement.

The following tables present financial assets and financial liabilities measured at fair value on a recurring basis and the change in fair value for those specific financial instruments in which fair value has been elected.

	Fair Value Measurements at December 31, 2011

	Assets/Liabilities Measured at Fair Value December 31, 2011		Quoted Prices In Active Market for Identical Assets/ Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:
Assets
Securities available for sale:			$	—			$	—
State, county, and municipal securities	$	45,908,000		—	$	45,908,000		—
Mortgage-backed securities		69,229,000		—		69,229,000		—
Corporate securities		9,105,000		—		9,105,000		—
Nonrecurring Basis:
Assets
Impaired loans:
Commercial Real Estate	$	14,774,000		—		—	$	14,774,000
Construction & Development		614,000		—		—		614,000
Other real estate owned		10,076,000		—		—		10,076,000
Goodwill		362,000		—		—		362,000
Core deposit intangibles		2,006,000		—		—		2,006,000

	Fair Value Measurements at December 31, 2010

	Assets/Liabilities Measured at Fair Value December 31, 2010		Quoted Prices In Active Market for Identical Assets/ Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:
Assets
Securities available for sale:			$	—			$	—
State, county, and municipal securities	$	45,904,000		—	$	45,904,000		—
Mortgage-backed securities		72,969,000		—		72,969,000		—
Corporate securities		8,482,000		—		8,482,000		—
Nonrecurring Basis:
Assets
Impaired loans:
Commercial Real Estate	$	26,517,000		—		—	$	26,517,000
Construction and Development		1,348,000		—		—		1,348,000
Other real estate owned		9,110,000		—		—		9,110,000
Goodwill		362,000		—		—		362,000
Core deposit intangibles		2,478,000		—		—		2,478,000

Following are disclosures of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good-faith estimate of the increase or decrease in the value of financial instruments held by the Company since purchase, origination, or issuance.

Cash, Due From Banks, Federal Funds Sold, Interest-Bearing Deposits With Banks, and Certificates of Deposits—Carrying amount is a reasonable estimate of fair value due to the short-term nature of such items.

Investment Securities—Fair value of investment securities are based on quoted market prices.

Other Investments—The carrying amount of other investments approximates its fair value.

Loans—The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable rate loans, the carrying amount is a reasonable estimate of fair value.

Cash Surrender Value of Life Insurance—Cash values of life insurance policies are carried at the value for which such policies may be redeemed for cash.

Deposits—The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed rate certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

Advances from Federal Home Loan Bank—The fair values of advances from the Federal Home Loan Bank are estimated by discounting the future cash flows using the rates currently available to the Bank for debt with similar remaining maturities and terms.

Commitments to Extend Credit and Commercial Letters of Credit—Because commitments to extend credit and commercial letters of credit are made using variable rates, or are recently executed, the contract value is a reasonable estimate of fair value.

Limitations—Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on many judgments. 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.

Fair value estimates are based on existing on and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments; for example, premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The carrying values and estimated fair values of the Company's financial instruments at December 31, 2011 and 2010 are as follows:

	2011				2010

	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(in thousands)				(in thousands)
Financial assets:
Cash and due from banks	$	5,683	$	5,683	$	4,764	$	4,764
Interest-bearing deposits with banks		27,769		27,769		19,033		19,033
Cetificates of deposit		100		100		150		150
Investment securities		127,536		127,620		130,666		130,748
Other investments		1,312		1,312		2,058		2,058
Loans—net		195,432		195,815		191,994		192,893
Cash surrender value of life insurance		11,217		11,217		10,848		10,848
Financial liabilities:
Deposits		343,031		335,890		337,604		325,744
Advances from Federal Home Loan Bank		310		310		328		328
	Notional amount		Estimated fair value		Notional amount		Estimated fair value
Off-balance-sheet financial instruments:
Commitments to extend credit	$	18,035		—	$	20,072		—
Commercial letters of credit		2,367		—		2,499		—