Fair Value Of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value Of Financial Instruments [Abstract]

Fair Value Of Financial Instruments

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  GAAP established a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets or liabilities.
Level 2	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 for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such instrument pursuant to the valuation hierarchy.

Securities Available for Sale

When quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  Bond money market funds are included in Level 1.  If quoted market prices are not available, then fair values are estimated by using pricing models and quoted prices of securities with similar characteristics.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions.  Level 2 securities include collateralized mortgage obligations, mortgage backed securities, corporate debt, and agency and municipal bonds.  In certain cases where Level 1 and Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and consist of equity securities.

The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 and 2010.  (dollars in thousands)

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Fair Value
December 31, 2011
Municipal bonds	$	0	$	46,313	$	0	$	46,313
Collateralized mortgage obligations issued by:
GSE agencies		0		27,766		0		27,766
Private label		0		49,399		0		49,399
Mortgage backed securities
issued by agencies		0		55,817		0		55,817
Corporate debt		0		1,400		0		1,400
Equity securities		0		0		75		75
Securities Available for Sale	$	0	$	180,695	$	75	$	180,770
December 31, 2010
Municipal bonds	$	0	$	63,854	$	0	$	63,854
Asset backed securities		0		42		0		42
Collateralized mortgage obligations issued by:
GSE agencies		0		50,599		0		50,599
Private label		0		96,407		0		96,407
Mortgage backed securities
issued by agencies		0		13,261		0		13,261
Corporate debt		0		1,459		0		1,459
Bond money market funds		768		0		0		768
Equity securities		0		0		75		75
Securities Available for Sale	$	768	$	225,622	$	75	$	226,465

The following table presents a reconciliation of the beginning and ending balances of recurring securities available for sale fair value measurements recognized in the accompanying consolidated balance sheets using significant unobservable (Level 3) inputs for the year ended December 31, 2011 and 2010.  Activity in 2010 primarily relates to commercial paper which was classified as level 3.  (dollars in thousands)

Total Fair Value Measurements	Available for Sale Debt Securities
	Year Ended December 31,
Level 3 Instruments Only	2011		2010
Beginning Balance	$	75	$	75
Purchases		0		88,978
Settlements		0		(88,978	)
Ending Balance	$	75	$	75

There were no realized or unrealized gains or losses recognized in the accompaning consolidated statement of operations using significant unobservable (Level 3) inputs for the years ended December 31, 2011 and 2010.

The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a non recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 and 2010.  (dollars in thousands)

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Fair Value
December 31, 2011
Impaired loans	$	0	$	0	$	24,879	$	24,879
Other real estate owned		0		0		295		295
December 31, 2010
Impaired loans		0		0		33,170		33,170
Other real estate owned		0		0		1,602		1,602

At December 31, 2011, collateral dependent impaired loans which had an evaluation adjustment during 2011 had an aggregate cost of $25.4 million and had been written down to a fair value of $24.9 million measured using Level 3 inputs within the fair value hierarchy.  At December 31, 2010, collateral dependent impaired loans which had an evaluation adjustment during 2010 had an aggregate cost of $36.3 million and had been written down to a fair value of $33.2 million measured using Level 3 inputs within the fair value hierarchy. Level 3 inputs for impaired loans included current and prior appraisals and discounting factors.

At December 31, 2011, other real estate owned was reported at fair value less cost to sell of $295,000 measured using Level 3 inputs within the fair value hierarchy.  At December 31, 2010, other real estate owned was reported at fair value less cost to sell of $1.6 million measured using Level 3 inputs within the fair value hierarchy.  Level 3 inputs for other real estate owned included third party appraisals adjusted for cost to sell.

The disclosure of the estimated fair value of financial instruments is as follows: (dollars in thousands)

	Dec 2011				Dec 2010
	Carrying  Value		Fair  Value		Carrying  Value		Fair  Value
Assets:
Cash and cash equivalents	$	40,595	$	40,595	$	13,063	$	13,063
Securities available for sale		180,770		180,770		226,465		226,465
Loans held for sale		6,464		6,617		7,666		7,827
Loans, net		692,102		699,191		732,795		761,838
Accrued interest receivable		3,085		3,085		3,785		3,785
Federal Home Loan Bank stock		6,563		6,563		7,507		7,507
Liabilities:
Deposits		863,343		868,322		853,343		861,739
FHLB advances		0		0		53,284		55,028
Junior subordinated debt		15,464		10,628		15,464		9,281
Short-term borrowings		0		0		12,088		12,088
Advance payments by borrowers for taxes and insurance		325		325		272		272
Accrued interest payable		61		61		84		84

The Company, using available market information and appropriate valuation methodologies, has determined the estimated fair values of all financial instruments not recognized in the accompanying consolidated balance sheets.  Considerable judgment is required in interpreting market data to develop the estimates of fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash, Interest-bearing Deposits, Accrued Interest Receivable, Advance Payments by Borrowers for Taxes and Insurance, Accrued Interest Payable and Short-term Borrowings

The carrying amount as reported in the Consolidated Balance Sheets is a reasonable estimate of fair value.

Loans Held for Sale and Loans, net

The fair value is estimated by discounting the future cash flows using the current rates for loans of similar credit risk and maturities.  The estimate of credit losses is equal to the allowance for loan losses.  Loans held for sale are based on current market prices.

Federal Home Loan Bank Stock

The fair value is estimated to be the carrying value, which is par.

Deposits

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

FHLB Advances

The fair value is estimated by discounting future cash flows using rates currently available to the Company for advances of similar maturities.

Junior Subordinated Debt and Long Term Debt

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.  Fair value of Junior Subordinated Debt is based on quoted market prices for a similar liability when traded as an asset in an active market.

The fair value estimates presented herein are based on information available to management at December 31, 2011.  Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.