NOTE 21:

Fair Value Disclosures

FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

FASB ASC 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, FASB ASC 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

§	Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

§	Level 3 Inputs - Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Available for Sale Securities – Securities classified as available for sale are reported at fair value utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. 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 prepayments speeds, credit information and the bond’s terms and conditions, among other things.

Impaired Loans – Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on internally customized discounting criteria.

Loans Held for Sale – These loans are reported at the lower of cost or fair value. Fair value is determined based on expected proceeds based on sales contracts and commitments and are considered Level 2 inputs.

Repossessed Assets – Fair values are valued at the time the loan is foreclosed upon and the asset is transferred from loans. The value is based upon primary third party appraisals, less costs to sell. The appraisals are generally discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Such discounts are typically significant and result in Level 3 classification of the inputs for determining fair value. Repossessed assets are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on same or similar factors above.

Loan Subject to Fair Value Hedge – The Company has one loan that is carried at fair value subject to a fair value hedge. Fair value is determined utilizing valuation models that consider the scheduled cash flows through anticipated maturity and is considered a Level 3 input.

Derivative financial instruments – Fair values for interest rate swap agreements are based upon the amounts required to settle the contracts. These instruments are valued using Level 3 inputs utilizing valuation models that consider: (a) time value, (b) volatility factors and (c) current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Although the Company utilizes counterparties’ valuations to assess the reasonableness of its prices and valuation techniques, there is not sufficient corroborating market evidence to support classifying these assets and liabilities as Level 2.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):

	June 30, 2012
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Financial Assets:
Available for sale securities
U.S. Government and agency	$	-		21,055	$	-	$	21,055
Municipal obligations		-		42,060		-		42,060
Corporate obligations		-		3,945		-		3,945
Mortgage-backed securities								-
government backed		-		6,847		-		6,847
Private lable CMOs		-		169		-		169
CMOs - government backed		-		15,201		-		15,201
Loan subject to fair value hedge		-		-		12,372		12,372
Loans held-for-sale		-		10,613		-		10,613
Financial Liabilities:
Derivative financial instruments		-		-		1,054		1,054

	June 30, 2011
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Financial Assets:
Available for sale securities
U.S. Government and agency	$	-		26,208	$	-	$	26,208
Municipal obligations		-		39,186		-		39,186
Corporate obligations		-		6,216		-		6,216
Mortgage-backed securities		-		-		-		-
government backed		-		6,372		-		6,372
Private lable CMOs		-		291		-		291
CMOs - government backed		-		24,427		-		24,427
Loan subject to fair value hedge		-		-		11,405		11,405
Loans held-for-sale		-		1,784		-		1,784
Derivative financial instruments		-		-		650		650

The following tables present, for the years ended June 30, 2012 and 2011, the changes in Level 3 assets and liabilities that are measured at fair value on a recurring basis.

	Year Ended June 30, 2012
			Total Realized/
			Unrealized Gains			Purchases,
	Balance		(Losses) Included			Sales,			Balance
	as of		in Noninterest			Issuances, and			as of
	July 1, 2011		Income			Settlements, net			June 30, 2012
	(In thousands)
Financial Assets (Liabilities):
Loan subject to fair value hedge	$	11,405	$	1,287		$	(320	)	$	12,372
Derivative financial instruments		650		(1,704	)		-			(1,054	)

	Year Ended June 30, 2011
	Balance as of July 1, 2010		Total Realized/ Unrealized Gains (Losses) Included in Noninterest Income			Purchases, Sales, Issuances, and Settlements, net		Balance as of June 30, 2011
	(In thousands)
Financial Assets:
Loan subject to fair value hedge	$	-	$	(452	)	$	11,857	$	11,405
Derivative financial instruments				650			-		650

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

The following table summarizes financial assets and financial liabilities measured at fair value on a nonrecurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):

	June 30, 2012
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Impaired loans	$	-	$	-	$	-	$	-
Repossessed assets		-		-		2,361		2,361

	June 30, 2011
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Impaired loans	$	-	$	-	$	1,004	$	1,004
Repossessed assets		-		-		1,181		1,181

During the year ended June 30, 2012, certain impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for possible loan losses based upon the fair value of the underlying collateral. Impaired loans with a carrying value of $2,000 were reduced by specific valuation allowance allocations totaling $2,000 to a total reported fair value of $0 based on collateral valuations utilizing Level 3 valuation inputs.

FASB ASC Topic 825 requires disclosure of the fair value of financial instruments, both assets and liabilities recognized and not recognized in the statement of financial position, for which it is practicable to estimate fair value. Below is a table that summarizes the fair market values of all financial instruments of the Company at June 30, 2012 and 2011, followed by methods and assumptions that were used by the Company in estimating the fair value of the classes of financial instruments.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts 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.

	June 30, 2012
							Total
	Level 1		Level 2		Level 3		Estimated		Carrying
(Dollars in Thousands)	Inputs		Inputs		Inputs		Fair Value		Amount

Financial Assets:
Cash and cash equivalents	$	19,814	$	-	$	-	$	19,814	$	19,814
FHLB stock		-		-		2,003		2,003		2,003
Loans receivable, net		-		-		183,830		183,830		173,839
Accrued interest on dividends receivable		1,371		-		-		1,371		1,371
Mortage servicing rights		-		-		2,424		2,424		2,218
Cash surrender value of
life insurance		-		-		9,101		9,101		9,172
Financial Liabilities:
Deposits		138,630		-		-		138,630		138,630
Time certificates of deposit		-		-		82,613		82,613		81,359
Accrued expenses and other liabilities		5,809		-		-		5,809		5,809
Advances from the FHLB & other borrowings		-		-		44,310		44,310		42,696
Subordinated debentures						4,196		4,196		5,155
Off-balance-sheet instruments
Forward loan sales commitments		-		-		-		-		-
Commitments to extend credit		-		-		-		-		-
Rate lock commitments		-		-		-		-		-

	June 30, 2011
							Total
	Level 1		Level 2		Level 3		Estimated		Carrying
(Dollars in Thousands)	Inputs		Inputs		Inputs		Fair Value		Amount

Financial Assets:
Cash and cash equivalents	$	9,540	$	-	$	-	$	9,540	$	9,540
FHLB stock		-		-		2,003		2,003		2,003
Loans receivable, net		-		-		192,361		192,361		185,471
Accrued interest on dividends receivable		1,558		-		-		1,558		1,558
Mortage servicing rights		-		-		2,871		2,871		2,142
Cash surrender value of
life insurance		-		-		6,900		6,900		6,900
Financial Liabilities:
Deposits		124,633		-		-		124,633		124,633
Time certificates of deposit		-		-		85,719		85,719		84,553
Accrued expenses and other liabilities		3,371		-		-		3,371		3,371
Advances from the FHLB & other borrowings		-		-		63,612		63,612		60,896
Subordinated debentures						3,779		3,779		5,155
Off-balance-sheet instruments
Forward loan sales commitments		-		-		-		-		-
Commitments to extend credit		-		-		-		-		-
Rate lock commitments		-		-		-		-		-

The following methods and assumptions were used by the Company in estimating the fair value of the following classes of financial instruments.

Cash, interest-bearing accounts, accrued interest and dividend receivable, and accrued expenses and other liabilities – The carrying amounts approximate fair value due to the relatively short period of time between the origination of these instruments and their expected realization.

Securities held to maturity – Securities classified as held to maturity are reported at amortized cost. For these securities, the Company obtains fair value measurements from an independent pricing service. 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 prepayments speeds, credit information and the bond’s terms and conditions, among other things.

Stock in the FHLB – The fair value of stock in the FHLB approximates redemption value.

Loans receivable – Fair values are estimated by stratifying the loan portfolio into groups of loans with similar financial characteristics. Loans are segregated by type such as real estate, commercial, and consumer, with each category further segmented into fixed and adjustable rate interest terms. For mortgage loans, the Company uses the secondary market rates in effect for loans that have similar characteristics. The fair value of other fixed rate loans is calculated by discounting scheduled cash flows through the anticipated maturities adjusted for prepayment estimates. Adjustable interest rate loans are assumed to approximate fair value because they generally reprice within the short term.

Fair values are adjusted for credit risk based on assessment of risk identified with specific loans, and risk adjustments on the remaining portfolio based on credit loss experience.

Assumptions regarding credit risk are judgmentally determined using specific borrower information, internal credit quality analysis, and historical information on segmented loan categories for non-specific borrowers.

Cash surrender value of life insurance – The carrying amount for cash surrender value of life insurance approximates fair value as policies are recorded at redemption value.

Mortgage servicing rights – The fair value of servicing rights was determined using discount rates ranging from 9.0% to 20.0%, prepayment speeds ranging from 140% to 324% PSA, depending on stratification of the specific right. The fair value was also adjusted for the affect of potential past dues and foreclosures.

Deposits and time certificates of deposit – The fair value of deposits with no stated maturity, such as checking, passbook, and money market, is equal to the amount payable on demand. The fair value of time certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar maturities.

Advances from the FHLB & Subordinated Debentures – The fair value of the Company’s advances and debentures are estimated using discounted cash flow analysis based on the interest rate that would be effective June 30, 2012 and 2011, respectively if the borrowings repriced according to their stated terms.

Off-balance-sheet instruments - Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair values of these financial instruments are considered insignificant. Additionally, those financial instruments have no carrying value.