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Fair value estimates
 6 Months Ended
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
Inputs
(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.