Valuation Methods for Financial Instruments Measured at Fair Value on a Recurring Basis Changes in the fair value of available-for-sale securities are included in other comprehensive income to the extent  the changes are not considered other-than-temporary impairments. Other-than-temporary impairment tests are performed on  a quarterly basis and any decline in the fair value of an individual security below its cost that is deemed to be other-than- temporary results in a write-down of that security’s cost basis. The following table reconciles the changes in the Company’s Level 3 financial instruments during 2012:  The following table represents the Company’s financial instruments that are measured at fair value on a recurring  basis at December 31, 2012 and 2011 allocated to the appropriate fair value hierarchy:  94  Available-for sale-securities Level 3 asset fair value at December 31, 2011 405 $ Transfers into Level 3 - Proceeds from sales (709) Payments applied to reduce carrying value (23) Total (losses) gains: Included in earnings (372) Included in other comprehensive income 699 Level 3 asset fair value at December 31, 2012 - $ Total Level 1 Level 2 Level 3 Assets: Available-for-sale securities U. S. federal agency obligations 9,164 $ - $ 9,164 $ - $ Municipal obligations, tax exempt 69,629 - 69,629 - Municipal obligations, taxable 19,135 - 19,135 - Mortgage-backed securities 94,472 - 94,472 - Common stocks 819 819 - - Pooled trust preferred securities 405 - - 405 Certificates of deposit  4,590 - 4,590 - Derivative financial instruments 255 $ - $ 255 $ - $ As of December 31, 2011 Fair value hierarchy (Dollars in thousands) Total Level 1 Level 2 Level 3 Assets: Available-for-sale securities U. S. federal agency obligations 8,848 $ - $ 8,848 $ - $ Municipal obligations, tax exempt 77,286 - 77,286 - Municipal obligations, taxable 38,142 - 38,142 - Mortgage-backed securities 81,848 - 81,848 - Common stocks 902 902 - - Certificates of deposit  6,274 - 6,274 - Derivative financial instruments 334 - 334 - Liabilities: Derivative financial instruments 28 $ - $ 28 $ - $ As of December 31, 2012 Fair value hierarchy