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DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS | 12 Months Ended
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Dec. 31, 2012
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract] |
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS | ## 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 and cash equivalents, and loans and deposits with floating interest rates have estimated fair values which approximate the recorded carrying values. The estimation methodologies used, the estimated fair values based on US GAAP measurements, and recorded carrying values at December 31, 2012 and 2011, were as follows:
|  | 2012
|  | Carrying Value |  | Fair Value |  | (Level 1) |  | (Level 2) |  | (Level 3)
|  | (IN THOUSANDS)
FINANCIAL ASSETS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 26,820 |  |  | $ | 26,820 |  |  | $ | 26,820 |  |  | $ | - |  |  | $ | - |
Investment securities - AFS |  |  | 151,538 |  |  |  | 151,538 |  |  |  | - |  |  |  | 151,538 |  |  |  | - |
Investment securities - HTM |  |  | 13,723 |  |  |  | 14,266 |  |  |  | - |  |  |  | 11,321 |  |  |  | 2,945 |
Regulatory stock |  |  | 6,304 |  |  |  | 6,304 |  |  |  | 6,304 |  |  |  | - |  |  |  | - |
Loans held for sale |  |  | 10,576 |  |  |  | 10,722 |  |  |  | 10,722 |  |  |  | - |  |  |  | - |
Loans, net of allowance for loan loss and unearned income |  |  | 708,594 |  |  |  | 716,756 |  |  |  | - |  |  |  | - |  |  |  | 716,756 |
Accrued income receivable |  |  | 2,960 |  |  |  | 2,960 |  |  |  | 2,960 |  |  |  | - |  |  |  | - |
Bank owned life insurance |  |  | 36,214 |  |  |  | 36,214 |  |  |  | 36,214 |  |  |  | - |  |  |  | - |
Fair value swap asset |  |  | 164 |  |  |  | 164 |  |  |  | - |  |  |  | 164 |  |  |  | - |
FINANCIAL LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits with no stated maturities |  | $ | 520,002 |  |  | $ | 520,002 |  |  | $ | 520,002 |  |  | $ | - |  |  | $ | - |
Deposits with stated maturities |  |  | 315,732 |  |  |  | 320,930 |  |  |  | - |  |  |  | - |  |  |  | 320,930 |
Short-term borrowings |  |  | 15,660 |  |  |  | 15,660 |  |  |  | 15,660 |  |  |  | - |  |  |  | - |
All other borrowings |  |  | 26,085 |  |  |  | 30,442 |  |  |  | - |  |  |  | - |  |  |  | 30,442 |
Accrued interest payable |  |  | 2,083 |  |  |  | 2,083 |  |  |  | 2,083 |  |  |  | - |  |  |  | - |
Fair value swap liability |  |  | 164 |  |  |  | 164 |  |  |  | - |  |  |  | 164 |  |  |  | - |
|  | 2011
|  | FAIR VALUE |  | CARRYING VALUE
|  | (IN THOUSANDS)
FINANCIAL ASSETS: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 34,783 |  |  | $ | 34,783 |
Investment securities - AFS |  |  | 182,923 |  |  |  | 182,923 |
Investment securities - HTM |  |  | 12,914 |  |  |  | 12,280 |
Regulatory stock |  |  | 8,016 |  |  |  | 8,016 |
Loans held for sale |  |  | 7,195 |  |  |  | 7,110 |
Loans, net of allowance for loan loss and unearned income |  |  | 655,357 |  |  |  | 649,114 |
Accrued income receivable |  |  | 3,216 |  |  |  | 3,216 |
Bank owned life insurance |  |  | 35,351 |  |  |  | 35,351 |
Fair value swap asset |  |  | 346 |  |  |  | 346 |
FINANCIAL LIABILITIES: |  |  |  |  |  |  |  |
Deposits with no stated maturities |  | $ | 482,859 |  |  | $ | 482,859 |
Deposits with stated maturities |  |  | 338,683 |  |  |  | 333,561 |
Short-term borrowings |  |  | 15,765 |  |  |  | 15,765 |
All other borrowings |  |  | 23,606 |  |  |  | 19,085 |
Accrued interest payable |  |  | 2,523 |  |  |  | 2,523 |
Fair value swap liability |  |  | 346 |  |  |  | 346 |
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 for similar securities. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the US 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. The Level 3 securities are valued by discounted cash flows using the US Treasury rate for the remaining term of the securities. 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 total borrowed funds 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 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.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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