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Fair Value Disclosures | 9 Months Ended
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Sep. 30, 2014
Fair Value Disclosures [Abstract] |
Fair Value Disclosures | NOTE 11 - Fair Value Disclosures Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1 – Quoted prices (unadjusted) for 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 company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in our annual financial statements. Assets measured at fair value on a recurring basis are summarized in the table below. There were no liabilities measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013.
|  | Fair Value Measurements Using |  |  | Total |
September 30, 2014: |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agency obligations |  | $ | — |  |  | $ | 90,737 |  |  | $ | — |  |  | $ | 90,737 |
Mortgage-backed securities-residential |  |  | — |  |  |  | 30,713 |  |  |  | — |  |  |  | 30,713 |
Asset backed securities |  |  | — |  |  |  | 18,795 |  |  |  | — |  |  |  | 18,795 |
State and municipal |  |  | — |  |  |  | 4,603 |  |  |  | 3,495 |  |  |  | 8,098 |
Corporate bonds |  |  | — |  |  |  | 16,931 |  |  |  | — |  |  |  | 16,931 |
SBA pooled securities |  |  | — |  |  |  | 215 |  |  |  | — |  |  |  | 215 |
|  | $ | — |  |  | $ | 161,994 |  |  | $ | 3,495 |  |  | $ | 165,489 |
Loans held for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgages |  |  | — |  |  |  | 7,295 |  |  |  | — |  |  |  | 7,295 |
|  | $ | — |  |  | $ | 7,295 |  |  | $ | — |  |  | $ | 7,295 |
|  | Fair Value Measurements Using |  |  | Total |
December 31, 2013: |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government agency obligations |  | $ | — |  |  | $ | 95,834 |  |  | $ | — |  |  | $ | 95,834 |
Mortgage-backed securities-residential |  |  | — |  |  |  | 36,285 |  |  |  | — |  |  |  | 36,285 |
Asset backed securities |  |  | — |  |  |  | 18,839 |  |  |  | — |  |  |  | 18,839 |
State and municipal |  |  | — |  |  |  | 5,423 |  |  |  | 3,582 |  |  |  | 9,005 |
Corporate bonds |  |  | — |  |  |  | 20,843 |  |  |  | — |  |  |  | 20,843 |
SBA pooled securities |  |  | — |  |  |  | 248 |  |  |  | — |  |  |  | 248 |
Trust preferred |  |  | — |  |  |  | 3,600 |  |  |  | — |  |  |  | 3,600 |
|  | $ | — |  |  | $ | 181,072 |  |  | $ | 3,582 |  |  | $ | 184,654 |
Loans held for sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgages |  |  | — |  |  |  | 5,393 |  |  |  | — |  |  |  | 5,393 |
|  | $ | — |  |  | $ | 5,393 |  |  | $ | — |  |  | $ | 5,393 |
There were no transfers between levels during 2014 or 2013. At September 30, 2014, the Company classified $3,495 of municipal securities as level 3. These municipal securities are bond issues for municipal government entities located in northwestern Illinois and are privately placed, non-rated bonds without CUSIP numbers. The municipal securities are valued by an independent third party using matrix pricing according to the municipal bond index that most closely matches the bond issue. Fair values for each maturity of the bond issue are then calculated based on the index yield at the appropriate point on the yield curve. The Company does not make any internal adjustments to the third party bond valuations. The only activity related to the above level 3 securities during the nine months ended September 30, 2014 was associated with immaterial contractual payments and changes in fair value that were recorded in other comprehensive income. Assets measured at fair value on a non-recurring basis are summarized in the table below. There were no liabilities measured at fair value on a non-recurring basis at September 30, 2014 and December 31, 2013.
|  | Fair Value Measurements Using |  |  | Total |
September 30, 2014: |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
Impaired loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family residential properties |  | $ | — |  |  | $ | — |  |  | $ | 321 |  |  | $ | 321 |
Commercial |  |  | — |  |  |  | — |  |  |  | 732 |  |  |  | 732 |
Factored receivables |  |  | — |  |  |  | — |  |  |  | 141 |  |  |  | 141 |
Other real estate owned (1): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family residential properties |  |  | — |  |  |  | — |  |  |  | 97 |  |  |  | 97 |
Commercial |  |  | — |  |  |  | — |  |  |  | 391 |  |  |  | 391 |
Construction, land development, land |  |  | — |  |  |  | — |  |  |  | 870 |  |  |  | 870 |
|  | $ | — |  |  | $ | — |  |  | $ | 2,552 |  |  | $ | 2,552 |
|  | Fair Value Measurements Using |  |  | Total |
December 31, 2013: |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
Impaired loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family residential properties |  | $ | — |  |  | $ | — |  |  | $ | 106 |  |  | $ | 106 |
Commercial |  |  | — |  |  |  | — |  |  |  | 200 |  |  |  | 200 |
Factored receivables |  |  | — |  |  |  | — |  |  |  | 345 |  |  |  | 345 |
Other real estate owned (1): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family residential properties |  |  | — |  |  |  | — |  |  |  | 367 |  |  |  | 367 |
Commercial |  |  | — |  |  |  | — |  |  |  | 653 |  |  |  | 653 |
Construction, land development, land |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
|  | $ | — |  |  | $ | — |  |  | $ | 1,671 |  |  | $ | 1,671 |
|  | September 30, 2014 |  |  |  |  |  |  | December 31, 2013 |  |  |  |  |
Provision recorded for loans classified as impaired |  | $ | 699 |  |  |  |  |  |  | $ | 14 |  |  |  |  |
Valuation adjustments recorded on other real estate owned |  | $ | 363 |  |  |  |  |  |  | $ | 144 |  |  |  |  |
(1) Represents the fair value of OREO that was adjusted subsequent to its initial classification as OREO Impaired Loans with Specific Allocation of ALLL: A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due pursuant to the contractual terms of the loan agreement. Impairment is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan’s collateral. Fair value of the impaired loan’s collateral is determined by third party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. Unobservable inputs for estimated selling and closing costs range from 5% to 8% of the value of the underlying collateral. OREO: OREO is comprised of real estate acquired in partial or full satisfaction of loans. OREO is recorded at its estimated fair value less estimated selling and closing costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs is charged to the ALLL. Subsequent changes in fair value are reported as adjustments to the carrying amount and are recorded against earnings. The Company outsources the valuation of OREO with material balances to third party appraisers. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Company reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value. The estimated fair values of the Company’s financial instruments at September 30, 2014 and December 31, 2013 were as follows:
|  | September 30, 2014 |
|  | Carrying |  |  | Fair Value Measurements Using |  |  | Total |
|  | Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 75,625 |  |  | $ | 75,625 |  |  | $ | — |  |  | $ | — |  |  | $ | 75,625 |
Securities - Held to maturity |  |  | 745 |  |  |  | — |  |  |  | 750 |  |  |  | — |  |  |  | 750 |
Loans, net |  |  | 969,819 |  |  |  | — |  |  |  | — |  |  |  | 977,509 |  |  |  | 977,509 |
FHLB and Federal Reserve Bank stock |  |  | 5,826 |  |  | N/A |  |  | N/A |  |  | N/A |  |  | N/A |
Accrued interest receivable |  |  | 4,127 |  |  |  | — |  |  |  | 4,127 |  |  |  | — |  |  |  | 4,127 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 1,105,624 |  |  |  | — |  |  |  | 1,109,111 |  |  |  | — |  |  |  | 1,109,111 |
Customer repurchase agreements |  |  | 15,644 |  |  |  | — |  |  |  | 15,644 |  |  |  | — |  |  |  | 15,644 |
Federal Home Loan Bank advances |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Senior secured note |  |  | 11,630 |  |  |  | — |  |  |  | 11,434 |  |  |  | — |  |  |  | 11,434 |
Junior subordinated debentures |  |  | 24,359 |  |  |  | — |  |  |  | 24,359 |  |  |  | — |  |  |  | 24,359 |
Accrued interest payable |  |  | 901 |  |  |  | — |  |  |  | 901 |  |  |  | — |  |  |  | 901 |
|  | December 31, 2013 |
|  | Carrying |  |  | Fair Value Measurements Using |  |  | Total |
|  | Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 85,797 |  |  | $ | 85,797 |  |  | $ | — |  |  | $ | — |  |  | $ | 85,797 |
Securities - Held to maturity |  |  | 743 |  |  |  | — |  |  |  | 745 |  |  |  | — |  |  |  | 745 |
Loans, net |  |  | 877,454 |  |  |  | — |  |  |  | — |  |  |  | 884,307 |  |  |  | 884,307 |
FHLB and Federal Reserve Bank stock |  |  | 5,802 |  |  | N/A |  |  | N/A |  |  | N/A |  |  | N/A |
Accrued interest receivable |  |  | 3,748 |  |  |  | — |  |  |  | 3,748 |  |  |  | — |  |  |  | 3,748 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 1,044,854 |  |  |  | — |  |  |  | 1,046,226 |  |  |  | — |  |  |  | 1,046,226 |
Customer repurchase agreements |  |  | 11,330 |  |  |  | — |  |  |  | 11,329 |  |  |  | — |  |  |  | 11,329 |
Federal Home Loan Bank advances |  |  | 21,000 |  |  |  | — |  |  |  | 21,000 |  |  |  | — |  |  |  | 21,000 |
Senior secured note |  |  | 12,573 |  |  |  | — |  |  |  | 12,379 |  |  |  | — |  |  |  | 12,379 |
Junior subordinated debentures |  |  | 24,171 |  |  |  | — |  |  |  | 24,171 |  |  |  | — |  |  |  | 24,171 |
Accrued interest payable |  |  | 2,426 |  |  |  | — |  |  |  | 2,426 |  |  |  | — |  |  |  | 2,426 |

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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 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: 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=35750535&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: 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=35750535&loc=d3e13504-108611 + Details
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