Fair Value Measurement

12 Months Ended

Dec. 31, 2011

Fair Value Measurement [Abstract]

FAIR VALUE MEASUREMENT

NOTE 14—FAIR VALUE MEASUREMENT

U.S. generally accepted accounting principles establish a hierarchal disclosure framework associated with the level of observable pricing utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows: Level 1: Quoted prices for identical assets in active markets that are identifiable on the measurement date; Level 2: Significant other observable inputs, such as quoted prices for similar assets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data; Level 3: Significant unobservable inputs that reflect the Corporation’s own view about the assumptions that market participants would use in pricing an asset.

Securities: The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Corporation also used its own view about the assumptions that market participants would use in pricing certain securities (Level 3 inputs).

The following table presents the changes in the Level 3 fair value category for the fiscal period ended December 31, 2011. The Corporation classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to the unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly.

Securities available for sale
	2011			2010
Beginning balance January 1,	$	560		$	—
Impairment charge on securities		—			(575	)
Net change in unrealized loss on securities		(43	)		(10	)
Purchases, issuances, calls and settlements		—			—
Transfers in and/or out of Level 3		—			1,145
Ending balance December 31,	$	517		$	560

Impaired loans: The fair value of impaired loans is determined using the fair value of collateral for collateral dependent loans. The Corporation uses appraisals and other available data to estimate the fair value of collateral. (Level 2 inputs).

Assets measured at fair value are summarized below.

	Fair Value Measurements at December 31, 2011 Using:
Assets:	(Level 1)		(Level 2)		(Level 3)
Assets measured at fair value on a recurring basis:
U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	49,704	$	—
Obligations of states and political subdivisions		—		66,219		517
Mortgage-backed securities in government sponsored entities		—		87,518		—
Equity securities in financial institutions		676		—		—
Assets measured at fair value on a nonrecurring basis:
Impaired Loans	$	—	$	—	$	21,062
Other Real Estate Owned		—		—		1,097
Mortgage Servicing Rights		—		60		—

	Fair Value Measurements at December 31, 2010 Using:
Assets:	(Level 1)		(Level 2)		(Level 3)
Assets measured at fair value on a recurring basis:
U.S. Treasury securities and obligations of U.S. Government agencies	$	—	$	55,707	$	—
Obligations of states and political subdivisions		—		59,909		560
Mortgage-backed securities in government sponsored entities		—		68,100		—
Equity securities in financial institutions		676		—		—
Assets measured at fair value on a nonrecurring basis:
Impaired Loans	$	—	$	—	$	15,310
Other Real Estate Owned		—		1,795		—
Mortgage Servicing Rights		—		3		—

The carrying amount and estimated fair values of financial instruments not previously presented were as follows.

	December 31, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and due from financial institutions	$	52,127	$	52,127	$	79,030	$	79,030
Loans, net of allowance for loan losses		764,011		785,900		745,555		763,768
Bank Owned Life Insurance		17,963		17,963		12,320		12,320
Accrued interest receivable		3,787		3,787		4,382		4,382
Financial Liabilities:
Deposits		901,246		911,945		892,463		895,950
Federal Home Loan Bank advances		50,295		52,263		50,327		53,162
U.S. Treasury interest-bearing demand note payable		—		—		2,008		2,008
Securities sold under agreement to repurchase		19,029		19,029		21,842		21,842
Subordinated debentures		29,427		26,461		29,427		20,353
Accrued interest payable		258		258		362		362

The estimated fair value approximates carrying amount for all items except those described below. Estimated fair value for securities is based on quoted market values for the individual securities or for equivalent securities. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the cash flow analysis or underlying collateral values. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements and are considered nominal.

For certain homogeneous categories of loans, such as some residential mortgages, credit card receivables, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.