Fair Value Of Financial Instruments

6 Months Ended

Jun. 30, 2012

Fair Value Of Financial Instruments [Abstract]

Fair Value Of Financial Instruments

8. 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 instruments 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.  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 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 June 30, 2012 and December 31, 2011.  (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
June 30, 2012
Municipal bonds	$	0	$	45,824	$	0	$	45,824
Collateralized mortgage obligations issued by:
GSE agencies		0		21,773		0		21,773
Private label		0		36,298		0		36,298
Mortgage backed securities issued by agencies		0		54,203		0		54,203
Corporate debt		0		1,526		0		1,526
Equity securities		0		0		75		75
Securities available for sale	$	0	$	159,624	$	75	$	159,699
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

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 three months and six months ended June 30, 2012 and 2011.  (dollars in thousands)

Total Fair Value Measurements	Available for Sale Debt Securities
	Three Months Ended				Six Months Ended
	June 30,				June 30,
Level 3 Instruments Only	2012		2011		2012		2011
Beginning Balance	$	75	$	75	$	75	$	75
Purchases		0		0		0		0
Settlements		0		0		0		0
Ending Balance	$	75	$	75	$	75	$	75

There were no realized and unrealized gains and losses recognized in the accompanying consolidated statement of operations using significant unobservable (Level 3) inputs for the three months and six months ended June 30, 2012 and 2011.

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 June 30, 2012 and December 31, 2011.  (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
June 30, 2012
Impaired loans (collateral dependent)		0		0		13,084	13,084
December 31, 2011
Impaired loans (collateral dependent)		0		0		24,879	24,879
Other real estate owned		0		0		295	295

At June 30, 2012, collateral dependent impaired loans which had an evaluation adjustment during 2012 had an aggregate cost of $19.0 million and had been written down to a fair value of $13.1 million measured using Level 3 inputs within the fair value hierarchy. 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. Level 3 inputs for impaired loans included current and prior appraisals and discounting factors.

The significant unobservable inputs (Level 3) used in the fair value measurement for collateral dependent impaired loans included in the table above relate primarily to customized discounting criteria applied to the customer's collateral. The amount of the collateral discount depends upon the marketability of the underlying collateral and the age of the last independent evaluation. Less marketable collateral would receive a larger discount. As of June 30, 2012, collateral discounts ranged from zero to 31% for real estate collateral, 20% for accounts receivable and 50% for inventory and equipment.

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. 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)

	June 30, 2012										December 31, 2011
	Carrying Value		Fair Value			Level 1		Level 2		Level 3	Carrying Value		Fair Value
Assets:
Cash and cash equivalents	$	94,623	$	94,623	$	94,623	$	0	$	0	$	40,595	$	40,595
Securities available for sale		159,699		159,699				159,624		75		180,770		180,770
Loans held for sale		19,540		19,677				19,677		0		6,464		6,617
Loans, net		588,741		595,597						595,597		692,102		699,191
Accrued interest receivable		2,845		2,845				2,845				3,085		3,085
Federal Home Loan Bank stock		7,092		7,092				7,092				6,563		6,563
Liabilities:
Deposits		823,214		827,000				827,000				863,343		863,322
Junior subordinated debt		15,464		12,309						12,309		15,464		10,628
Advance payments by borrowers for taxes     and insurance		358		358				358				325		325
Accrued interest payable		45		45				45				61		61

Cash, Accrued Interest Receivable, Advance Payments by Borrowers for Taxes and Insurance and Accrued Interest Payable

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

Loans Held for Sale and Loans, net

The fair value of loans 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.

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 similar liabilities when traded as an asset in an active market.

The fair value estimates presented herein are based on information available to management at June 30, 2012.  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.