12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

For the Company, as for most financial institutions, approximately 90% of its assets and liabilities are considered financial instruments. Many of the Company's financial instruments, however, lack an available trading market characterized by a willing buyer and willing seller engaging in an exchange transaction. Therefore, significant estimates and present value calculations were used by the Company for the purpose of this disclosure.

Fair values have been determined by the Company using independent third party valuations that uses best available data (Level 2) and an estimation methodology (Level 3) the Company believes is suitable for each category of financial instruments. Management believes that cash, cash equivalents, and loans and deposits with floating interest rates have estimated fair values which approximate the recorded book balances. The estimation methodologies used, the estimated fair values based on US GAAP measurements, and recorded book balances at December 31, 2011 and 2010, were as follows:


	2011				2010
	FAIR VALUE		CARRYING VALUE		FAIR VALUE		CARRYING VALUE
	(IN THOUSANDS)
FINANCIAL ASSETS:
Cash and cash equivalents	$	34,783	$	34,783	$	19,337	$	19,337
Investment securities		195,837		195,203		173,078		172,635
Regulatory stock		8,016		8,016		9,358		9,358
Loans held for sale		7,195		7,110		7,542		7,405
Loans, net of allowance for loan loss and unearned income		655,357		649,114		651,866		651,011
Accrued income receivable		3,216		3,216		3,210		3,210
Bank owned life insurance		35,351		35,351		34,466		34,466
Fair value swap asset		346		346		420		420
FINANCIAL LIABILITIES:
Deposits with no stated maturities	$	482,859	$	482,859	$	437,072	$	437,072
Deposits with stated maturities		338,683		333,561		369,972		364,144
Short-term borrowings		15,765		15,765		4,550		4,550
All other borrowings		23,606		19,085		25,419		22,835
Accrued interest payable		2,523		2,523		3,541		3,541
Fair value swap liability		346		346		420		420

The fair value of cash and cash equivalents, regulatory stock, accrued income receivable, short-term borrowings, and accrued interest payable are equal to the current carrying value.

The fair value of investment securities is equal to the available quoted market price. The fair value measurements consider observable data that may include dealer quoted 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, among other things.

Loans held for sale are priced individually at market rates on the day that the loan is locked for commitment with an investor. All loans in the held for sale account conform to Fannie Mae underwriting guidelines, with the specific intent of the loan being purchased by an investor at the predetermined rate structure. Loans in the held for sale account have specific delivery dates that must be executed to protect the pricing commitment (typically a 30, 45, or 60 day lock period).

The net loan portfolio has been valued using a present value discounted cash flow. The discount rate used in these calculations is based upon the treasury yield curve adjusted for non-interest operating costs, credit loss, current market prices and assumed prepayment risk.

The fair value of bank owned life insurance is based upon the cash surrender value of the underlying policies and matches the book value.

Deposits with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. Deposits with no stated maturities have an estimated fair value equal to both the amount payable on demand and the recorded book balance.

The fair value of all other borrowings is 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.

The fair values of the fair value swaps used for interest rate risk management represents the amount the Company would have expected to receive or pay to terminate such agreements.

Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. The Company's remaining assets and liabilities which are not considered financial instruments have not been valued differently than has been customary under historical cost accounting.