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FAIR VALUE DISCLOSURES | 12 Months Ended
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Dec. 31, 2017
FAIR VALUE DISCLOSURES |
FAIR VALUE DISCLOSURES | NOTE 19: FAIR VALUE DISCLOSURES The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction occurring in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. In estimating fair value, we use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Such valuation techniques are consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. Valuation inputs are categorized in a three-level hierarchy, from highest to lowest level of observable inputs. The highest level of inputs are prices in active markets for identical assets or liabilities and the lowest level of inputs are unobservable inputs. The fair value hierarchy is as follows: Level 1 Inputs—Inputs are based upon unadjusted quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. The fair values of the Company’s equity securities were measured using Level 1 inputs. Level 2 Inputs—Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 investments consist primarily of obligations of U.S. government sponsored enterprises and agencies, obligations of state and municipal subdivisions, corporate bonds and mortgage‑backed securities. Level 3 Inputs—Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities. During the years ended December 31, 2017 and 2016, there were no transfers of assets or liabilities within the levels of the fair value hierarchy. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon models that primarily use observable market‑based parameters as inputs. Valuation adjustments may be made to ensure that assets and liabilities are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Financial Instruments Recorded at Fair Value Assets and liabilities measured at fair value on a recurring basis include the following: Securities Available for Sale: Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For those securities classified as Level 2, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U. S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the bond’s terms and conditions, among other things. The other securities in the table below are mutual funds and the fair value is determined by using unadjusted quoted market prices which are considered Level 1 inputs. Interest Rate Swaps with Customers: For interest rate swaps with customers classified as Level 2, the Company obtains fair value measurements from an independent pricing service which uses the income approach. The income approach calls for the utilization of valuation techniques to convert future cash flows as due to be exchanged per the terms of the financial instrument, into a single present value amount. Measurement is based on the value indicated by the market expectations about those future amounts as of the measurement date. The proprietary curves of the independent pricing service utilize pricing models derived from industry standard analytic tools, considering both Level 1 and Level 2 inputs. Interest Rate Swaps with Financial Institutions: For interest rate swaps with financial institutions classified as Level 2, the Company obtains fair value measurements from an independent pricing service, which uses the income approach. The income approach calls for the utilization of valuation techniques to convert future cash flows as due to be exchanged per the terms of the financial instrument, into a single present value amount. Measurement is based on the value indicated by the market expectations about those future amounts as of the measurement date. The proprietary curves of the independent pricing service utilize pricing models derived from industry standard analytic tools, considering both Level 1 and Level 2 inputs. The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
|  | December 31, 2017
|  | Level 1 |  | Level 2 |  | Level 3 |  |  |
(Dollars in thousands) |  | Inputs |  | Inputs |  | Inputs |  | Total
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
State and municipal securities |  | $ | — |  | $ | 61,916 |  | $ | — |  | $ | 61,916
U.S. Agency Securities: |  |  |  |  |  |  |  |  |  |  |  |
Debt securities |  |  | — |  |  | 16,945 |  |  | — |  |  | 16,945
Collateralized mortgage obligations |  |  | — |  |  | 61,253 |  |  | — |  |  | 61,253
Mortgage-backed securities |  |  | — |  |  | 81,974 |  |  | — |  |  | 81,974
Other securities |  |  | 1,087 |  |  | — |  |  | — |  |  | 1,087
Interest rate swaps with customers |  |  | — |  |  | 340 |  |  | — |  |  | 340
Interest rate swaps with financial institutions |  |  | — |  |  | 426 |  |  | — |  |  | 426
Total financial assets |  | $ | 1,087 |  | $ | 222,854 |  | $ | — |  | $ | 223,941
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps with customers |  | $ | — |  | $ | 426 |  | $ | — |  | $ | 426
Interest rate swaps with financial institutions |  |  | — |  |  | 340 |  |  | — |  |  | 340
Total financial liabilities |  | $ | — |  | $ | 766 |  | $ | — |  | $ | 766
|  | December 31, 2016
|  | Level 1 |  | Level 2 |  | Level 3 |  |  |
(Dollars in thousands) |  | Inputs |  | Inputs |  | Inputs |  | Total
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
State and municipal securities |  | $ | — |  | $ | 58,979 |  | $ | — |  | $ | 58,979
U.S. Agency Securities: |  |  |  |  |  |  |  |  |  |  |  |
Debt securities |  |  | — |  |  | 20,341 |  |  | — |  |  | 20,341
Collateralized mortgage obligations |  |  | — |  |  | 33,770 |  |  | — |  |  | 33,770
Mortgage-backed securities |  |  | — |  |  | 91,790 |  |  | — |  |  | 91,790
Other securities |  |  | 1,064 |  |  | — |  |  | — |  |  | 1,064
Interest rate swaps with customers |  |  | — |  |  | 430 |  |  | — |  |  | 430
Interest rate swaps with financial institutions |  |  | — |  |  | 350 |  |  | — |  |  | 350
Total financial assets |  | $ | 1,064 |  | $ | 205,660 |  | $ | — |  | $ | 206,724
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps with customers |  | $ | — |  | $ | 350 |  | $ | — |  | $ | 350
Interest rate swaps with financial institutions |  |  | — |  |  | 430 |  |  | — |  |  | 430
Total financial liabilities |  | $ | — |  | $ | 780 |  | $ | — |  | $ | 780
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis as they are subject to fair value adjustments in certain circumstances, such as evidence of impairment. Financial assets measured at fair value on a non‑recurring basis during the reported periods include certain impaired loans reported at the fair value of the underlying collateral, if repayment is expected solely from the collateral. Repossessed real estate and other assets as well as collateral values are estimated using Level 2 inputs based on observable market data, typically in the case of real estate collateral, or Level 3 inputs based on customized discounting criteria, typically in the case of non‑real estate collateral such as inventory, accounts receivable, equipment or other business assets. The tables below outline certain assets measured at fair value on a non‑recurring basis at December 31, 2017 and 2016.
|  | December 31, 2017
|  | Level 1 |  | Level 2 |  | Level 3 |  |  |
(Dollars in thousands) |  | Inputs |  | Inputs |  | Inputs |  | Total
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | — |  | $ | — |  | $ | 340 |  | $ | 340
Commercial real estate |  |  | — |  |  | — |  |  | 603 |  |  | 603
1-4 family residential |  |  | — |  |  | — |  |  | 1,755 |  |  | 1,755
Total impaired loans |  | $ | — |  | $ | — |  | $ | 2,698 |  | $ | 2,698
|  | December 31, 2016
|  | Level 1 |  | Level 2 |  | Level 3 |  |  |
(Dollars in thousands) |  | Inputs |  | Inputs |  | Inputs |  | Total
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | — |  | $ | — |  | $ | 3,765 |  | $ | 3,765
Commercial real estate |  |  | — |  |  | — |  |  | 1,660 |  |  | 1,660
Total impaired loans |  | $ | — |  | $ | — |  | $ | 5,425 |  | $ | 5,425
Non‑Financial Assets and Non‑Financial Liabilities The Company does not have any non‑financial assets or non‑financial liabilities measured at fair value on a recurring basis. Certain non‑financial assets measured at fair value on a non‑recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non‑financial assets and non‑financial liabilities measured at fair value in the second step of a goodwill impairment test and intangible assets and other non‑financial long‑lived assets measured at fair value for impairment assessment. Non‑financial assets measured at fair value on a non‑recurring basis during the reported periods include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge‑off to the allowance for loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write‑down included in other noninterest expense. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. During the year ended December 31, 2017 and 2016, we used Level 2 inputs for our fair value measurements for foreclosed assets. The following table presents foreclosed assets that were remeasured subsequent to initial recognition and reported at fair value:
|  | December 31, |  | December 31,
(Dollars in thousands) |  | 2017 |  | 2016
Foreclosed assets remeasured at initial recognition: |  |  |  |  |  |
Carrying value of foreclosed assets prior to measurement |  | $ | 881 |  | $ | 2,018
Charge-offs recognized in the allowance for loan losses |  |  | — |  |  | (47)
Fair value |  | $ | 881 |  | $ | 1,971
Foreclosed assets remeasured subsequent to initial recognition: |  |  |  |  |  |
Carrying value of foreclosed assets prior to measurement |  | $ | 227 |  | $ | 630
Write-downs included in other noninterest expense |  |  | (51) |  |  | (65)
Fair value |  | $ | 176 |  | $ | 565
Fair Value Disclosure for all Financial Instruments The Company is required to disclose the fair value of all financial instruments, including those financial assets and financial liabilities not recorded at fair value in its consolidated balance sheets, for which it is practicable to estimate fair value. The tables below summarize the fair market values of all financial instruments of the Company at December 31, 2017 and 2016, followed by methods and assumptions that were used by the Company in estimating their fair value.
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Carrying
(Dollars in thousands) |  | Inputs |  | Inputs |  | Inputs |  | Fair Value |  | Amount
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 59,255 |  | $ | — |  | $ | — |  | $ | 59,255 |  | $ | 59,255
Interest bearing deposits in banks |  |  | 266,944 |  |  | — |  |  | — |  |  | 266,944 |  |  | 266,944
Time deposits in other banks |  |  | — |  |  | 600 |  |  | — |  |  | 600 |  |  | 600
Securities available for sale |  |  | — |  |  | 222,088 |  |  | — |  |  | 222,088 |  |  | 222,088
Other securities |  |  | 1,087 |  |  | — |  |  | — |  |  | 1,087 |  |  | 1,087
Securities held to maturity |  |  | — |  |  | 35 |  |  | — |  |  | 35 |  |  | 33
Other investments |  |  | — |  |  | — |  |  | 12,226 |  |  | 12,226 |  |  | 12,226
Loans, including held for sale, net |  |  | — |  |  | — |  |  | 2,299,742 |  |  | 2,299,742 |  |  | 2,288,226
Bank-owned life insurance |  |  | — |  |  | 68,010 |  |  | — |  |  | 68,010 |  |  | 68,010
Servicing asset |  |  | — |  |  | 209 |  |  | — |  |  | 209 |  |  | 209
Accrued interest receivable |  |  | — |  |  | 7,429 |  |  | — |  |  | 7,429 |  |  | 7,429
Interest rate swaps with customers |  |  | — |  |  | 340 |  |  | — |  |  | 340 |  |  | 340
Interest rate swaps with financial institutions |  |  | — |  |  | 426 |  |  | — |  |  | 426 |  |  | 426
Total financial assets |  | $ | 327,286 |  | $ | 299,137 |  | $ | 2,311,968 |  | $ | 2,938,391 |  | $ | 2,926,873
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest-bearing deposits |  | $ | 1,109,789 |  | $ | — |  | $ | — |  | $ | 1,109,789 |  | $ | 1,109,789
Interest-bearing deposits |  |  | — |  |  | 1,437,013 |  |  | — |  |  | 1,437,013 |  |  | 1,493,183
Repurchase agreements |  |  | — |  |  | 1,525 |  |  | — |  |  | 1,525 |  |  | 1,525
Junior subordinated debt |  |  | — |  |  | 6,726 |  |  | — |  |  | 6,726 |  |  | 6,726
Accrued interest payable |  |  | — |  |  | 374 |  |  | — |  |  | 374 |  |  | 374
Interest rate swaps with customers |  |  | — |  |  | 426 |  |  | — |  |  | 426 |  |  | 426
Interest rate swaps with financial institutions |  |  | — |  |  | 340 |  |  | — |  |  | 340 |  |  | 340
Total financial liabilities |  | $ | 1,109,789 |  | $ | 1,446,404 |  | $ | — |  | $ | 2,556,193 |  | $ | 2,612,363
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Carrying
(Dollars in thousands) |  | Inputs |  | Inputs |  | Inputs |  | Fair Value |  | Amount
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 53,000 |  | $ | — |  | $ | — |  | $ | 53,000 |  | $ | 53,000
Interest bearing deposits in banks |  |  | 329,103 |  |  | — |  |  | — |  |  | 329,103 |  |  | 329,103
Time deposits in other banks |  |  | — |  |  | 600 |  |  | — |  |  | 600 |  |  | 600
Securities available for sale |  |  | — |  |  | 204,880 |  |  | — |  |  | 204,880 |  |  | 204,880
Other securities |  |  | 1,064 |  |  | — |  |  | — |  |  | 1,064 |  |  | 1,064
Securities held to maturity |  |  | — |  |  | 37 |  |  | — |  |  | 37 |  |  | 34
Other investments |  |  | — |  |  | — |  |  | 12,063 |  |  | 12,063 |  |  | 12,063
Loans, including held for sale, net |  |  | — |  |  | — |  |  | 2,139,645 |  |  | 2,139,645 |  |  | 2,130,492
Bank-owned life insurance |  |  | — |  |  | 51,430 |  |  | — |  |  | 51,430 |  |  | 51,430
Servicing asset |  |  | — |  |  | 186 |  |  | — |  |  | 186 |  |  | 186
Accrued interest receivable |  |  | — |  |  | 6,674 |  |  | — |  |  | 6,674 |  |  | 6,674
Interest rate swaps with customers |  |  | — |  |  | 430 |  |  | — |  |  | 430 |  |  | 430
Interest rate swaps with financial institutions |  |  | — |  |  | 350 |  |  | — |  |  | 350 |  |  | 350
Total financial assets |  | $ | 383,167 |  | $ | 264,587 |  | $ | 2,151,708 |  | $ | 2,799,462 |  | $ | 2,790,306
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest-bearing deposits |  | $ | 1,025,425 |  | $ | — |  | $ | — |  | $ | 1,025,425 |  | $ | 1,025,425
Interest-bearing deposits |  |  | — |  |  | 1,451,512 |  |  | — |  |  | 1,451,512 |  |  | 1,515,335
Repurchase agreements |  |  | — |  |  | 2,342 |  |  | — |  |  | 2,342 |  |  | 2,343
Junior subordinated debt |  |  | — |  |  | 6,726 |  |  | — |  |  | 6,726 |  |  | 6,726
Note payable |  |  | — |  |  | 27,679 |  |  | — |  |  | 27,679 |  |  | 27,679
Accrued interest payable |  |  | — |  |  | 582 |  |  | — |  |  | 582 |  |  | 582
Interest rate swaps with customers |  |  | — |  |  | 350 |  |  | — |  |  | 350 |  |  | 350
Interest rate swaps with financial institutions |  |  | — |  |  | 430 |  |  | — |  |  | 430 |  |  | 430
Total financial liabilities |  | $ | 1,025,425 |  | $ | 1,489,621 |  | $ | — |  | $ | 2,515,046 |  | $ | 2,578,870
The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair values of all financial instruments have been determined as follows: Cash and Cash Equivalents and Time Deposits in Other Banks—For these short‑term instruments, the carrying amount is a reasonable estimate of fair value. Other Investments—Other investments consist of other correspondent bank stocks and CRA investments. For these investments, cost, which is generally the carrying amount, is a reasonable estimate of fair value due to redemption restrictions. Loans—Fair values of loans are estimated for segregated groupings of loans with similar financial characteristics. Loans are segregated by segment such as real estate, commercial and agricultural, consumer and other loans. Each of these categories is further subdivided into fixed and adjustable rate loans and performing and nonperforming loans. The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the various types of loans. Discount rates ranged from 2.30% to 16.50%. These rates reflect the rate environment for repricing the respective category of loans at December 31, 2017 and 2016. The fair value of the residential mortgage loans that are sold in the secondary market is estimated to be the carrying amount due to the short‑term nature of these loans. Bank‑owned Life Insurance—The carrying value for the cash value of life insurance is based on information received from the insurance carriers indicating the financial performance of the policies and the amount the Company would receive should the policies be surrendered and is considered a reasonable estimate of fair value. Deposits—The fair values for demand deposits are reported at a value equal to the amount payable on demand at the reporting date. Fair values for certificates of deposit, savings accounts and money market deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar deposits to a schedule of aggregated expected monthly maturities. Repurchase Agreements—For these short‑term borrowings, carrying value is deemed to be a reasonable estimate of their fair value. Junior Subordinated Debentures—The fair value for these debentures is considered to be the carrying value due to the variable rate feature of the instruments. Servicing Assets—Fair value of the servicing assets is estimated using discounted cash flows based on current market interest rates. Accrued Interest—The carrying amounts of accrued interest approximate their fair value due to short-term maturity.

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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 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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