FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2012

FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]

Schedule of estimated fair values of financial instruments

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC 825-10-50 requires that the Company disclose estimated fair values for both its on and off-balance-sheet financial instruments. The following methods and assumptions were used to estimate the fair value of the Company's financial instruments. Changes in estimates and assumptions could have a significant impact on these fair values.

Investment Securities - The fair values of investment securities are based on quoted market prices, where available. If a quoted market price is not available, fair value is estimated using quoted market prices of comparable instruments.

Loans - The fair value of the loan portfolio is estimated by evaluating homogeneous categories of loans with similar financial and credit risk characteristics. Loans are segregated by types, such as residential mortgage, commercial real estate and consumer. Each loan category is further segmented into fixed and adjustable-rate interest terms.

The fair values of each loan category are estimated by discounting contractual cash flows adjusted for estimated prepayments. Assumptions regarding prepayment estimates and discount rates are judgmentally determined by using available market information.

Restricted Investment Securities - The fair value of the Company's investment in stock of the FHLB and FRB approximates its carrying value.

Deposits - The fair values of deposits are estimated using a discounted cash flow calculation, adjusted for estimated decay rates, that applies interest rates currently offered for funding sources with similar maturities. Assumptions regarding discount rates and decay estimates are judgmentally determined by using available market information.

Junior Subordinated Debentures - The fair value was estimated by computing the discounted value of contractual cash flows payable at current interest rates for obligations with similar remaining terms.

Advances from the FHLB - The fair value of FHLB advances was estimated by computing the discounted value of contractual cash flows payable at current interest rates for obligations with similar remaining terms.

Other Borrowed Funds - The fair value was estimated by computing the discounted value of contractual cash flows payable at current interest rates for obligations with similar remaining terms.

Commitments to Extend Credit - The Company charges fees for commitments to extend credit. Interest rates on loans for which these commitments are extended are normally committed for periods of less than one month. Fees charged on standby letters of credit and other financial guarantees are deemed to be immaterial and these guarantees are expected to be settled at face amount or expire unused. It is impractical to assign any fair value to these commitments.

The estimated fair values of financial instruments (in thousands) at June 30, 2012 are as follows:

							Fair Value Measurements at Reporting Date Using
							Quoted Prices
							In Active			Significant
							Markets for			Other			Significant
							Identical			Observable			Unobservable
	Carrying						Assets			Inputs			Inputs
	Value			Fair Value			(Level 1)			(Level 2)			(Level 3)
Financial assets:
Investment securities:
Available-for-sale		$	26,526		$	26,526		$	1,818		$	24,708		$	-
Held-to-maturity			5,897			5,921			-			5,921			-
Loans receivable			324,190			365,342			-			-			365,342
Restricted investment securities			3,921			3,921			-			3,921			-
Financial liabilities:
Deposits			343,270			326,641			-			-			326,641
Junior subordinated debentures			17,000			17,004			-			17,004			-
Advances from FHLB			53,500			53,552			-			53,552			-
Other borrowed funds			1,169			1,168			-			1,168			-

The estimated fair values of financial instruments (in thousands) at December 31, 2011 are as follows:

							Fair Value Measurements at Reporting Date Using
							Quoted Prices
							In Active			Significant
							Markets for			Other			Significant
							Identical			Observable			Unobservable
	Carrying						Assets			Inputs			Inputs
	Value			Fair Value			(Level 1)			(Level 2)			(Level 3)
Financial assets:
Investment securities:
Available-for-sale		$	23,656		$	23,656		$	1,747		$	21,909		$	-
Held-to-maturity			9,745			9,736			-			9,736			-
Loans receivable			330,262			401,098			-			-			401,098
Restricted investment securities			4,296			4,296			-			4,296			-
Financial liabilities:
Deposits			339,075			322,027			-			-			322,027
Junior subordinated debentures			17,000			14,711			-			14,711			-
Advances from FHLB			63,500			63,662			-			63,662			-
Other borrowed funds			1,169			1,168			-			1,168			-