Fair value of financial instruments

12 Months Ended

Dec. 31, 2013

13. Fair value of financial instruments:

Assets and liabilities measured at fair value on a recurring basis at December 31, 2013 and 2012 are summarized as follows:


	Fair Value Measurement Using
December 31, 2013	Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government-agencies	$	204			$	204
U.S. Government-sponsored enterprises		113,045				113,045
State and Municipals:
Taxable		16,698				16,698
Tax-exempt		98,081				98,081
Corporate debt securities		4,387				4,387
Mortgage-backed securities:
U.S. Government agencies		20,229				20,229
U.S. Government-sponsored enterprises		45,974				45,974
Common equity securities		1,097	$	1,097

Total	$	299,715	$	1,097	$	298,618

	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)
U.S. Government-agencies
U.S. Government-sponsored enterprises	$	84,682			$	84,682
State and Municipals:
Taxable
Tax-exempt		58,837				58,837
Corporate debt securities
Mortgage-backed securities:
U.S. Government agencies
U.S. Government-sponsored enterprises		16,801				16,801
Common equity securities		1,071	$	1,071

Total	$	161,391	$	1,071	$	160,320

Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2013 and 2012 are summarized as follows:


	Fair Value Measurement Using
December 31, 2013	Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans	$	2,354			$	2,354
Other real estate owned	$	437			$	437

	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)
Impaired loans	$	2,637			$	2,637
Other real estate owned	$	237			$	237

Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

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

December 31, 2013

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range
(Weighted Average)

Impaired loans

2,354

Appraisal of collateral

Appraisal adjustments

11.0% to 33.7% (17.3%)

Liquidation expenses

3.0% to 6.0% (5.0%)

Other real estate owned

437

Appraisal of collateral

Appraisal adjustments

11.0% to 33.7% (17.3%)

Liquidation expenses

3.0% 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

2,637

Appraisal of collateral

Appraisal adjustments

11.0% to 33.7% (17.3%)

Liquidation expenses

3.0% to 6.0% (5.0%)

Other real estate owned

237

Appraisal of collateral

Appraisal adjustments

11.0% to 33.7% (17.3%)

Liquidation expenses

3.0% to 6.0% (5.0%)

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 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 December 31, 2013 and 2012 and their placement within the fair value hierarchy are as follows:


					Fair Value Hierarchy
December 31, 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	$	51,310	$	51,310	$	51,310
Investment securities:
Available-for-sale		299,715		299,715	$	1,097	$	298,618
Held-to-maturity		17,295		17,175				17,175
Loans held for sale		1,757		1,757				1,757
Net loans		1,167,966		1,180,387					$	1,180,387
Accrued interest receivable		5,866		5,866				5,866
Mortgage servicing rights		880		1,440				1,440
Restricted equity securities		4,102		4,102				4,102

Total	$	1,548,891	$	1,561,752

Financial liabilities:
Deposits	$	1,379,507	$	1,381,946				1,381,946
Short-term borrowings		22,052		22,052				22,052
Long-term debt		36,743		37,468				37,468
Accrued interest payable		723		723			$	723

Total	$	1,439,025	$	1,442,189


December 31, 2012	Carrying Value		Fair Value		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	$	47,844	$	47,844	$	47,844
Investment securities:
Available-for-sale		161,391		161,391	$	1,071	$	160,320
Held-to-maturity		15,902		16,774				16,774
Loans held for sale
Net loans		616,580		627,712					$	627,712
Accrued interest receivable		2,862		2,862				2,862
Mortgage servicing rights		491		879				879
Restricted equity securities		4,212		4,212				4,212

Total	$	849,282	$	861,674

Financial liabilities:
Deposits	$	721,948	$	724,771				724,771
Short-term borrowings		8,019		8,019				8,019
Long-term debt		45,397		48,625				48,625
Accrued interest payable		716		716			$	716

Total	$	776,080	$	782,131

- 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.

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