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Fair Value Measurements
 6 Months Ended
Jun. 30, 2011
Fair Value Measurements [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 5 — FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:
     
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 the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes 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 observe ability 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.
The following tables present the assets measured on a recurring 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. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
                                 
            June 30, 2011        
(Dollar amounts in thousands)   Level I     Level II     Level III     Total  
 
                               
Assets Measured on a Recurring Basis:
                               
U.S. government agency securities
  $ —     $ 27,239     $ —     $ 27,239  
Obligations of states and political subdivisions
    —       80,850       —       80,850  
Mortgage-backed securities in government — sponsored entities
            70,521               70,521  
Private-label mortgage-backed securities
    —       14,457       —       14,457  
 
                       
Total debt securities
    —       193,067       —       193,067  
Equity securities in financial institutions
    754       —       —       754  
 
                       
Total
  $ 754     $ 193,067     $ —     $ 193,821  
 
                       
                                 
            December 31, 2010        
    Level I     Level II     Level III     Total  
 
                               
Assets Measured on a Recurring Basis:
                               
U.S. government agency securities
  $ —       32,603       —       32,603  
Obligations of states and political subdivisions
    —       76,880       —       76,880  
Mortgage-backed securities in government — sponsored entities
            74,043               74,043  
Private-label mortgage-backed securities
    —       17,326       —       17,326  
 
                       
Total debt securities
    —       200,852       —       200,852  
Equity securities in financial institutions
    920       —       —       920  
 
                       
Total
  $ 920       200,852       —       201,772  
 
                       
Financial instruments are considered Level III when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. The Company has no securities considered to be Level III as of June 30, 2011 and December 31, 2010.
The Company uses prices compiled by third party vendors due to the recent stabilization in the markets along with improvements in third party pricing methodology that have narrowed the variances between third party vendor prices and actual market prices.
The following tables present the assets measured on a nonrecurring basis on the consolidated balance sheet 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.
                                 
            June 30, 2011        
(Dollar amounts in thousands)   Level I     Level II     Level III     Total  
 
                               
Assets Measured on a non-recurring Basis:
                               
Impaired loans
  $ —     $ 3,855       6,068     $ 9,923  
Other real estate owned
    —       2,145       —       2,145  
                                 
            December 31, 2010        
    Level I     Level II     Level III     Total  
 
                               
Assets Measured on a non-recurring Basis:
                               
Impaired loans
  $ —     $ 4,312     $ 2,758     $ 7,070  
Other real estate owned
    —       2,302       —       2,302  
The estimated fair value of the Company’s financial instruments is as follows:
                                 
    June 30, 2011     December 31, 2010  
    Carrying     Fair     Carrying     Fair  
(Dollar amounts in thousands)   Value     Value     Value     Value  
 
                               
Financial assets:
                               
Cash and cash equivalents
  $ 34,904     $ 34,904     $ 30,635     $ 30,635  
Investment securities Available for sale
    193,821       193,821       201,772       201,772  
Net loans
    378,312       353,573       366,277       347,599  
Bank-owned life insurance
    8,118       8,118       7,979       7,979  
Federal Home Loan Bank stock
    1,887       1,887       1,887       1,887  
Accrued interest receivable
    2,141       2,141       2,259       2,259  
 
                               
Financial liabilities:
                               
Deposits
  $ 569,745     $ 575,277     $ 565,251     $ 570,471  
Short-term borrowings
    6,787       6,787       7,632       7,632  
Other borrowings
    18,694       20,237       19,321       19,801  
Accrued interest payable
    755       755       790       790  
Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.
The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:
Cash and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, and Short-Term Borrowings
The fair value is equal to the current carrying value.
Bank-Owned Life Insurance
The fair value is equal to the cash surrender value of the life insurance policies.
Investment Securities Available for Sale
The fair value of investment securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Fair value for certain private-label collateralized mortgage obligations were determined utilizing discounted cash flow models, due to the absence of a current market to provide reliable market quotes for the instruments.
Loans
The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value.
Deposits and Other Borrowed Funds
The fair values of certificates of deposit and other borrowed funds are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of year-end.
Commitments to Extend Credit
These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure.