NOTE 6 – FAIR VALUE MEASUREMENTS

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels defined by U.S. generally accepted accounting principles are as follows:

Level I:

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:

Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III:

Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

This hierarchy requires the use of observable market data when available.

The following is a description of the valuation methodologies the Company uses for financial instruments recorded at fair value on either a recurring or nonrecurring basis:

Securities Available for Sale

Securities available for sale consists of both debt and equity securities. These securities are recorded at fair value on a recurring basis. At June 30, 2011 and December 31, 2010, all of these securities used valuation methodologies involving market based or market derived information, collectively Level I and Level II measurements, to measure fair value.

The Company closely monitors market conditions involving assets that have become less actively traded. If the fair value measurement is based upon recent observable market activity of such assets or comparable assets (other than forced or distressed transactions) that occur in sufficient volume, and do not require significant adjustment using unobservable inputs, those assets are classified as Level I or Level II; if not, they are classified as Level III. Making this assessment requires significant judgment.

The Company uses prices from independent pricing services and, to a lesser extent, indicative (non-binding) quotes from independent brokers to measure securities.

The following tables present the assets reported on the consolidated statements of financial condition at their fair value as of June 30, 2011 and December 31, 2010 by level within the fair value hierarchy. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands).

	June 30, 2011
	Level I		Level II		Level III		Total
Assets:
U.S. government agencies	$	-	$	12,377	$	-	$	12,377
Mortgage-backed securities of government- sponsored entities		-		26,121		-		26,121
Collateralized mortgage obligations of government-sponsored entities		-		2,714		-		2,714
Obligations of states and political subdivisions:
Taxable		-		1,289		-		1,289
Tax-exempt		-		33,135		-		33,135
Corporate securities		-		3,669		-		3,669
Commercial paper		7,399		-		-		7,399
Total debt securities		7,399		79,305		-		86,704

Equity securities		136		-		-		136
Equity securities of financial institutions		432		-		-		432
Total	$	7,967	$	79,305	$	-	$	87,272

	December 31, 2010
	Level I		Level II		Level III		Total
Assets:
U.S. government agencies	$	-	$	12,774	$	-	$	12,774
Mortgage-backed securities of government-		-		24,274		-		24,274
Obligations of states and political subdivisions:
Taxable		-		1,199		-		1,199
Tax-exempt		-		27,979		-		27,979
Corporate securities		-		4,730		-		4,730
Commercial paper		8,099		-		-		8,099
Total debt securities		8,099		70,956		-		79,055

Equity securities		145						145
Equity securities of financial institutions		455		-		-		455
Total	$	8,699	$	70,956	$	-	$	79,655

The following table presents the assets measured on a nonrecurring basis on the consolidated statements of financial condition at their fair value as of June 30, 2011 and December 31, 2010, 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 loan include: quoted market prices for identical assets classified as Level I inputs; observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included 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 III inputs (in thousands).

	June 30, 2011
	Level I		Level II		Level III		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	-	$	-	$	11,154	$	11,154
Other real estate owned	$	-	$	-	$	4,192	$	4,192
Mortgage servicing rights	$	-	$	-	$	580	$	580

	December 31, 2010
	Level I		Level II		Level III		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	-	$	13,755	$	-	$	13,755
Other real estate owned	$	-	$	960	$	-	$	960
Mortgage servicing rights	$	-	$	-	$	549	$	549