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Fair value estimates | 6 Months Ended
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Jun. 30, 2012
Fair value estimates [Abstract] |
Fair value estimates | 7. Fair value estimates: Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments. Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows. In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:
· | Level 1: Unadjusted quoted prices of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
· | Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
· | Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.
An asset or liability's placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The following is a discussion of assets and liabilities measured at fair value on a recurring basis and the valuation techniques applied: Investment securities available-for-sale: The fair value of investment securities available-for-sale which are measured on a recurring basis are determined primarily by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely 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 similar securities. These securities are classified within Level 1 or 2 of the fair value hierarchy. Positions that are not traded in active markets for which valuations are generated using assumptions not observable in the market or management's best estimate are classified within Level 3 of the fair value hierarchy. The Company does not have any investment securities available-for-sale that it considers to be within Level 3 of the fair value hierarchy. The Company may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of the following individual assets: Other real estate owned: Other real estate owned is recorded at fair value less cost to sell at the time of acquisition establishing a new cost basis. Other real estate owned is carried at the lower of the investment in the assets or the fair value of the assets less estimated selling costs. The use of independent appraisals and management's best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and therefore other real estate owned and repossessed assets are classified within Level 3 of the fair value hierarchy. Loans held for sale: Loans held for sale are carried, in aggregate, at the lower of cost or fair value. The use of a valuation model using quoted prices of similar instruments are significant inputs in arriving at the fair value and therefore loans held for sale are classified within Level 2 of the fair value hierarchy. Impaired loans: Impaired loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The use of independent appraisals, discounted cash flow models and management's best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within Level 3 of the fair value hierarchy. Assets and liabilities at fair value or a recurring and nonrecurring basis at June 30, 2012 and December 31, 2011, are summarized as follows:
|  | Fair Value Measurement Using
June 30, 2012 |  | Amount |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3)
Recurring fair value measurements |  |  |  |  |  |  |  |  |  |  |
Investment securities available-for-sale |  |  |  |  |  |  |  |  |  |  |
U.S. Government-sponsored enterprises |  | $ | 33,015 |  |  |  |  |  | $ | 33,015 |  |  |
State and municipals: |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  | 18,482 |  |  |  |  |  |  | 18,482 |  |  |
Tax-exempt |  |  | 35,497 |  |  |  |  |  |  | 35,497 |  |  |
Corporate debt securities |  |  | 3,491 |  |  |  |  |  |  | 3,491 |  |  |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  |  | 15,447 |  |  |  |  |  |  | 15,447 |  |  |
U.S. Government-sponsored enterprises |  |  | 22,194 |  |  |  |  |  |  | 22,194 |  |  |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred |  |  |  |  |  |  |  |  |  |  |  |  |
Common |  |  | 470 |  |  | $ | 470 |  |  |  |  |  |  |
Total investment securities available-for-sale |  | $ | 128,596 |  |  | $ | 470 |  |  | $ | 128,126 |  |  |
Total recurring fair value measurements |  | $ | 128,596 |  |  | $ | 470 |  |  | $ | 128,126 |  |  |
Nonrecurring fair value measurements |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 6,491 |  |  |  |  |  |  |  |  |  | $ | 6,491
Total nonrecurring fair value measurements |  | $ | 6,491 |  |  |  |  |  |  |  |  |  | $ | 6,491
|  | Fair Value Measurement Using
December 31, 2011 |  | Amount |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3)
Recurring fair value measurements |  |  |  |  |  |  |  |  |  |  |
Investment securities available-for-sale |  |  |  |  |  |  |  |  |  |  |
U.S. Government-sponsored enterprises |  | $ | 32,776 |  |  |  |  |  | $ | 32,776 |  |  |
State and municipals: |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  | 19,728 |  |  |  |  |  |  | 19,728 |  |  |
Tax-exempt |  |  | 39,686 |  |  |  |  |  |  | 39,686 |  |  |
Corporate debt securities |  |  | 3,850 |  |  |  |  |  |  | 3,850 |  |  |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agencies |  |  | 16,912 |  |  |  |  |  |  | 16,912 |  |  |
U.S. Government-sponsored enterprises |  |  | 26,263 |  |  |  |  |  |  | 26,263 |  |  |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred |  |  | 117 |  |  |  |  |  |  | 117 |  |  |
Common |  |  | 567 |  |  | $ | 567 |  |  |  |  |  |  |
Total investment securities available-for-sale |  | $ | 139,899 |  |  | $ | 567 |  |  | $ | 139,332 |  |  |
Total recurring fair value measurements |  | $ | 139,899 |  |  | $ | 567 |  |  | $ | 139,332 |  |  |
Nonrecurring fair value measurements |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans |  | $ | 7,341 |  |  |  |  |  |  |  |  |  | $ | 7,341
Total nonrecurring fair value measurements |  | $ | 7,341 |  |  |  |  |  |  |  |  |  | $ | 7,341
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
|  | Quantitative Information about Level 3 Fair Value Measurements
June 30, 2012 |  | Fair Value Estimate |  | Valuation Techniques | Unobservable Input | Range (Weighted Average)
Impaired loans |  | $ | 6,491 |  | Appraisal of collateral (1) | Appraisal adjustments (2) | 20.0% to 25.0% (24.6%)
|  |  |  |  |  | Liquidation expenses (2) | 6.0% to 10.0% (8.8%)
(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 Inputs which are not identifiable. (2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. The carrying and fair values of the Company's financial instruments at June 30, 2012 and their placement within the fair value hierarchy, is as follows:
|  |  |  |  | Fair Value Hierarchy |
June 30, 2012 |  | Carrying Value |  |  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable I nputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 22,389 |  |  | $ | 22,389 |  |  | $ | 22,389 |  |  |  |  |  |  |
Investment securities available-for-sale |  |  | 128,596 |  |  |  | 128,596 |  |  |  | 470 |  |  | $ | 128,126 |  |  |  |
Loans held for sale |  |  | 2,242 |  |  |  | 2,287 |  |  |  | 2,287 |  |  |  |  |  |  |  |
Net loans |  |  | 451,138 |  |  |  | 465,905 |  |  |  |  |  |  |  |  |  |  | $ | 465,905 |
Accrued interest receivable |  |  | 2,903 |  |  |  | 2,903 |  |  |  | 2,903 |  |  |  |  |  |  |  |  |
Restricted equity securities |  | $ | 2,507 |  |  | $ | 2,507 |  |  | $ | 2,507 |  |  |  |  |  |  |  |  |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 538,111 |  |  | $ | 542,024 |  |  | $ | 454,426 |  |  |  |  |  |  | $ | 87,598 |
Short-term borrowings |  |  | 13,233 |  |  |  | 13,233 |  |  |  | 13,233 |  |  |  |  |  |  |  |  |
Long-term debt |  |  | 18,533 |  |  |  | 18,781 |  |  |  |  |  |  | $ | 18,781 |  |  |  |  |
Accrued interest payable |  | $ | 248 |  |  | $ | 248 |  |  | $ | 248 |  |  |  |  |  |  |  |  |
The carrying and fair value of the Company's financial instruments at December 31, 2011 are as follows:
December 31, 2011 |  | Carrying Value |  |  | Fair Value |
Financial assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 10,559 |  |  | $ | 10,559 |
Investment securities available-for-sale |  |  | 139,899 |  |  |  | 139,899 |
Loans held for sale |  |  | 569 |  |  |  | 569 |
Net loans |  |  | 439,754 |  |  |  | 447,717 |
Accrued interest receivable |  |  | 3,448 |  |  |  | 3,448 |
Restricted equity securities |  | $ | 2,374 |  |  | $ | 2,374 |
Financial liabilities: |  |  |  |  |  |  |  |
Deposits |  | $ | 494,283 |  |  | $ | 497,680 |
Short-term borrowings |  |  | 43,791 |  |  |  | 43,791 |
Long-term debt |  |  | 18,927 |  |  |  | 19,300 |
Accrued interest payable |  | $ | 284 |  |  | $ | 284 |
The following methods and assumptions not previously disclosed were used to measure the fair value of certain assets and liabilities carried at cost on the Company's consolidated balance sheets: Cash and cash equivalents: The carrying amount for cash and cash equivalents is a reasonable estimate of fair value. Net loans: Fair values for loans are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and market factors, including liquidity. The valuation of the loan portfolio reflects discounts that the Company believes are consistent with transactions occurring in the marketplace for both performing and distressed loan types. The carrying value that fair value is compared to is net of the allowance for loan losses and other associated premiums and discounts. Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value. Restricted equity securities: The carrying amount of restricted equity securities approximates fair value. Deposits: The carrying amount is considered a reasonable estimate of fair value for demand, savings and other variable rate deposit accounts. The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using the rates currently offered for deposits of similar remaining maturities. Short-term borrowings: The carrying amount of short-term borrowings approximates fair value. Long-term debt: The fair value of fixed-rate long-term debt is based on the present value of future cash flows. The discount rate used is the current rates offered for long-term debt with the same maturity. Accrued interest payable: The carrying amount of accrued interest payable approximates its fair value. Off-balance sheet financial instruments: Off-balance sheet financial instruments consist of commitments to extend credit including letters of credit. Fair values for commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the counterparties. The estimated fair value of the commitments to extend credit and letters of credit are insignificant and therefore are not presented in the above table.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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