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Fair value estimates
 9 Months Ended
Sep. 30, 2013
Fair value estimates [Abstract]  
Fair value estimates
 
8.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:

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.

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.
 
Assets and liabilities at fair value or a recurring and nonrecurring basis at September 30, 2013 and December 31, 2012, are summarized as follows:

 
 
Fair Value Measurement Using
 
September 30, 2013
 
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
 
$
31,316
 
  
$
31,316
     
State and municipals:
    
         
Taxable
  
17,103
 
   
17,103
     
Tax-exempt
  
47,759
 
   
47,759
     
Corporate debt securities
  
4,299
 
   
4,299
     
Mortgage-backed securities:
    
         
U.S. Government agencies
  
21,110
 
   
21,110
     
U.S. Government-sponsored enterprises
  
32,878
 
   
32,878
     
Common equity securities:
  
551
  
$
551
         
Total investment securities available-for-sale
 
$
155,016
  
$
551
  
$
154,465
     
Total recurring fair value measurements
 
$
155,016
  
$
551
  
$
154,465
     
 
                
Nonrecurring fair value measurements:
                
Impaired loans
 
$
5,463
          
$
5,463
 
Other real estate owned
                
Total nonrecurring fair value measurements
 
$
5,463
          
$
5,463
 

 
 
Fair Value Measurement Using
 
December 31, 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
 
$
32,931
 
  
$
32,931
     
State and municipals:
    
         
Taxable
  
18,694
 
   
18,694
     
Tax-exempt
  
47,388
 
   
47,388
     
Corporate debt securities
  
3,871
 
   
3,871
     
Mortgage-backed securities:
    
         
U.S. Government agencies
  
21,554
 
   
21,554
     
U.S. Government-sponsored enterprises
  
22,868
 
   
22,868
     
Common equity securities:
  
474
  
$
474
         
Total investment securities available-for-sale
 
$
147,780
  
$
474
  
$
147,306
     
Total recurring fair value measurements
 
$
147,780
  
$
474
  
$
147,306
     
 
                
Nonrecurring fair value measurements:
                
Impaired loans
 
$
5,484
          
$
5,484
 
Other real estate owned
  
2,003
           
2,003
 
Total nonrecurring fair value measurements
 
$
7,487
          
$
7,487
 
 
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
September 30, 2013
 
Fair Value Estimate
 
Valuation Techniques
Unobservable Input
Range
(Weighted Average)
Impaired loans
 
$
5,463
 
Appraisal of collateral
Appraisal adjustments
0.0% to 25.0% (23.8%)
 
    
   
Liquidation expenses
0.0% to 6.0% (5.0%)

 
 
Quantitative Information about Level 3 Fair Value Measurements
December 31, 2012
 
Fair Value Estimate
 
Valuation Techniques
Unobservable Input
Range
(Weighted Average)
Impaired loans
 
$
5,484
 
Appraisal of collateral
Appraisal adjustments
20.0% to 25.0% (24.6%)
 
    
   
Liquidation expenses
6.0% to 10.0% (8.8%)
Other real estate owned
 
$
2,003
 
Appraisal of collateral
Appraisal adjustments
20.0% to 25.0% (24.6%)
 
    
   
Liquidation expenses
6.0% to 10.0% (8.8%)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 Inputs which are not identifiable.

Appraisals may be adjusted downward 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.  Higher downward adjustments are caused by adverse changes in the condition of the collateral, actual offers or sales contract received or age of the appraisal.
 
The carrying and fair values of the Company's financial instruments at September 30, 2013 and December 31, 2012, and their placement within the fair value hierarchy, are as follows:
 
 
 
  
Fair Value Hierarchy
 
September 30, 2013
 
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
 
$
24,520
  
$
24,520
  
$
24,520
  
  
 
Investment securities available-for-sale
  
155,016
   
155,016
  
$
551
  
$
154,465
  
 
Loans held for sale
  
3,616
   
3,616
       
3,616
  
 
Net loans
  
498,274
   
504,668
          
$
504,668
 
Accrued interest receivable
  
3,395
   
3,395
       
3,395
     
Restricted equity securities
  
1,002
   
1,002
      
$
1,002
     
 
 
$
685,823
  
$
692,217
             
Financial liabilities:
                    
Deposits
 
$
621,800
  
$
624,294
      
$
624,294
     
Short-term borrowings
  
17,854
   
17,854
       
17,854
     
Long-term debt
  
2,507
   
2,599
       
2,599
     
Accrued interest payable
  
219
   
219
      
$
219
     
 
 
$
642,380
  
$
644,966
             

 
 
  
Fair Value Hierarchy
 
December 31, 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
 
$
28,083
  
$
28,083
  
$
28,083
  
  
 
Investment securities available-for-sale
  
147,780
   
147,780
  
$
474
  
$
147,306
  
 
Loans held for sale
  
1,917
   
1,917
       
1,917
  
 
Net loans
  
459,192
   
466,166
          
$
466,166
 
Accrued interest receivable
  
3,272
   
3,272
       
3,272
     
Restricted equity securities
  
1,972
   
1,972
      
$
1,972
     
Total
 
$
642,216
  
$
649,190
             
Financial liabilities:
                    
Deposits
 
$
574,311
  
$
578,628
      
$
578,628
     
Short-term borrowings
  
12,764
   
12,764
       
12,764
     
Long-term debt
  
13,130
   
13,354
       
13,354
     
Accrued interest payable
  
425
   
425
      
$
425
     
Total
 
$
600,630
  
$
605,171
             
 
The following methods and assumptions 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.

Investment securities available-for-sale:  The fair values of marketable equity securities are based on quoted market prices from active exchange markets.  The fair values of debt securities are based on pricing from a matrix pricing model.

Loans held for sale:  The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market.

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.