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Fair Value | 9 Months Ended
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Sep. 30, 2017
Fair Value Disclosures [Abstract] |
Fair Value |
3. | FAIR VALUE
Fair Value Measurement Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an 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. A fair value hierarchy has also been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs are used to measure fair value: 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 fair values of most trading securities and securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Corporation’s structured pooled trust preferred securities are priced using Level 3 inputs. The decline in the level of observable inputs and market activity in this class of investments by the measurement date has been significant and resulted in unreliable external pricing. Broker pricing and bid/ask spreads, when available, vary widely, and the once-active market has become comparatively inactive. The Corporation engaged a third party consultant who has developed a model for pricing these securities. Information such as historical and current performance of the underlying collateral, deferral and default rates, collateral coverage ratios, break in yield calculations, cash flow projections, liquidity and credit premiums required by a market participant, and financial trend analysis with respect to the individual issuing financial institutions and insurance companies are utilized in determining the security valuation. Due to market conditions as well as the limited trading activity of these types of securities, the market value of the Corporation’s structured pooled trust preferred securities are highly sensitive to assumption changes and market volatility. The Corporation’s derivative instruments are interest rate swaps that are similar to those that trade in liquid markets. As such, significant fair value inputs can generally be verified and do not typically involve significant management judgments (Level 2 inputs). The fair value of impaired loans with specific allocations for the allowance for loan losses is generally based on recent real estate appraisals prepared by third-parties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also adjusts appraised values based on the length of time that has passed since the appraisal date and other factors. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Assets and liabilities measured at fair value on a recurring basis are as follows at September 30, 2017 and December 31, 2016:
|  |  |  |  | Fair Value Measurements at September 30, 2017 Using |
|  |  |  |  | Quoted Prices in |  |  |  |  |  | Significant |
|  |  |  |  | Active Markets for |  |  | Significant Other |  |  | Unobservable |
|  |  |  |  | Identical Assets |  |  | Observable Inputs |  |  | Inputs |
Description |  | Total |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities Available For Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government sponsored entities |  | $ | 121,596 |  |  | $ | 0 |  |  | $ | 121,596 |  |  | $ | 0 |
States and political subdivisions |  |  | 143,470 |  |  |  | 0 |  |  |  | 143,470 |  |  |  | 0 |
Residential and multi-family mortgage |  |  | 103,253 |  |  |  | 0 |  |  |  | 103,253 |  |  |  | 0 |
Corporate notes and bonds |  |  | 17,269 |  |  |  | 0 |  |  |  | 17,269 |  |  |  | 0 |
Pooled SBA |  |  | 38,204 |  |  |  | 0 |  |  |  | 38,204 |  |  |  | 0 |
Other equity securities |  |  | 969 |  |  |  | 969 |  |  |  | 0 |  |  |  | 0 |
Total Securities Available For Sale |  | $ | 424,761 |  |  | $ | 969 |  |  | $ | 423,792 |  |  | $ | 0 |
Interest Rate swaps |  | $ | 233 |  |  | $ | 0 |  |  | $ | 233 |  |  | $ | 0 |
Trading Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate equity securities |  | $ | 4,095 |  |  | $ | 4,095 |  |  | $ | 0 |  |  | $ | 0 |
Mutual funds |  |  | 1,371 |  |  |  | 1,371 |  |  |  | 0 |  |  |  | 0 |
Certificates of deposit |  |  | 205 |  |  |  | 205 |  |  |  | 0 |  |  |  | 0 |
Corporate notes and bonds |  |  | 257 |  |  |  | 257 |  |  |  | 0 |  |  |  | 0 |
U.S. Government sponsored entities |  |  | 53 |  |  |  | 0 |  |  |  | 53 |  |  |  | 0 |
Total Trading Securities |  | $ | 5,981 |  |  | $ | 5,928 |  |  | $ | 53 |  |  | $ | 0 |
Liabilities, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | (475 | ) |  | $ | 0 |  |  | $ | (475 | ) |  | $ | 0 |
|  |  |  |  | Fair Value Measurements at December 31, 2016 Using |
|  |  |  |  | Quoted Prices in |  |  |  |  |  | Significant |
|  |  |  |  | Active Markets for |  |  | Significant Other |  |  | Unobservable |
|  |  |  |  | Identical Assets |  |  | Observable Inputs |  |  | Inputs |
Description |  | Total |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities Available For Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government sponsored entities |  | $ | 140,351 |  |  | $ | 0 |  |  | $ | 140,351 |  |  | $ | 0 |
States and political subdivisions |  |  | 157,037 |  |  |  | 0 |  |  |  | 157,037 |  |  |  | 0 |
Residential and multi-family mortgage |  |  | 134,976 |  |  |  | 0 |  |  |  | 134,976 |  |  |  | 0 |
Corporate notes and bonds |  |  | 17,414 |  |  |  | 0 |  |  |  | 17,414 |  |  |  | 0 |
Pooled trust preferred |  |  | 2,049 |  |  |  | 0 |  |  |  | 0 |  |  |  | 2,049 |
Pooled SBA |  |  | 43,037 |  |  |  | 0 |  |  |  | 43,037 |  |  |  | 0 |
Other equity securities |  |  | 971 |  |  |  | 971 |  |  |  | 0 |  |  |  | 0 |
Total Securities Available For Sale |  | $ | 495,835 |  |  | $ | 971 |  |  | $ | 492,815 |  |  | $ | 2,049 |
Interest Rate swaps |  | $ | 211 |  |  | $ | 0 |  |  | $ | 211 |  |  | $ | 0 |
Trading Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate equity securities |  | $ | 3,312 |  |  | $ | 3,312 |  |  | $ | 0 |  |  | $ | 0 |
Mutual funds |  |  | 1,037 |  |  |  | 1,037 |  |  |  | 0 |  |  |  | 0 |
Certificates of deposit |  |  | 202 |  |  |  | 202 |  |  |  | 0 |  |  |  | 0 |
Corporate notes and bonds |  |  | 254 |  |  |  | 254 |  |  |  | 0 |  |  |  | 0 |
U.S. Government sponsored entities |  |  | 53 |  |  |  | 0 |  |  |  | 53 |  |  |  | 0 |
Total Trading Securities |  | $ | 4,858 |  |  | $ | 4,805 |  |  | $ | 53 |  |  | $ | 0 |
Liabilities, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | (670 | ) |  | $ | 0 |  |  | $ | (670 | ) |  | $ | 0 |
The table below presents a reconciliation of the fair value of securities available for sale measured on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30, 2017 and 2016:
|  | 2017 |  |  | 2016 |
Balance, July 1 |  | $ | 0 |  |  | $ | 1,702 |
Total gains or (losses): |  |  |  |  |  |  |  |
Included in other comprehensive income (unrealized) |  |  | 0 |  |  |  | 0 |
Sale of available-for-sale securities |  |  | 0 |  |  |  | 0 |
Balance, September 30 |  | $ | 0 |  |  | $ | 1,702 |
The table below presents a reconciliation of the fair value of securities available for sale measured on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2017 and 2016:
|  | 2017 |  |  | 2016 |
Balance, January 1 |  | $ | 2,049 |  |  | $ | 3,413 |
Total gains or (losses): |  |  |  |  |  |  |  |
Included in other comprehensive income (unrealized) |  |  | 134 |  |  |  | (922 | )
Sale of available-for-sale securities |  |  | (2,183 | ) |  |  | (789 | )
Balance, September 30 |  | $ | 0 |  |  | $ | 1,702 |
The following table presents quantitative information about Level 3 fair value measurements at December 31, 2016:
|  | Fair value |  |  | Valuation Technique |  | Unobservable Inputs |  | Input Utilized
Pooled trust preferred |  | $ | 2,049 |  |  | Discounted cash flow |  | Collateral default rate |  | 0.5% in 2016 and thereafter
|  |  |  |  |  |  |  | Yield (weighted average) |  | 10%
|  |  |  |  |  |  |  | Prepayment speed |  | 2.0% constant prepayment rate in 2016 and thereafter
At December 31, 2016, the significant unobservable inputs used in the fair value measurement of the Corporation’s pooled trust preferred securities were collateral default rate, yield, and prepayment speed. Significant increases in specific-issuer default assumptions or decreases in specific-issuer recovery assumptions would result in a lower fair value measurement. Conversely, decreases in specific-issuer default assumptions or increases in specific-issuer recovery assumptions would result in a higher fair value measurement. Assets and liabilities measured at fair value on a non-recurring basis are as follows at September 30, 2017 and December 31, 2016:
|  |  |  |  | Fair Value Measurements at September 30, 2017 Using |
|  |  |  |  | Quoted Prices in |  |  |  |  |  | Significant |
|  |  |  |  | Active Markets for |  |  | Significant Other |  |  | Unobservable |
|  |  |  |  | Identical Assets |  |  | Observable Inputs |  |  | Inputs |
Description |  | Total |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 11 |  |  |  | 0 |  |  |  | 0 |  |  | $ | 11 |
|  |  |  |  | Fair Value Measurements at December 31, 2016 Using |
|  |  |  |  | Quoted Prices in |  |  |  |  |  | Significant |
|  |  |  |  | Active Markets for |  |  | Significant Other |  |  | Unobservable |
|  |  |  |  | Identical Assets |  |  | Observable Inputs |  |  | Inputs |
Description |  | Total |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial mortgages |  | $ | 2,067 |  |  |  | 0 |  |  |  | 0 |  |  | $ | 2,067 |
Impaired loans, measured for impairment using the fair value of collateral for collateral dependent loans, had a recorded investment of $668 with a valuation allowance of $657 as of September 30, 2017, resulting in a negative provision for loan losses of ($22) and ($395) for the corresponding three and nine month periods ended September 30, 2017. Impaired loans had a recorded investment of $3,120 with a valuation allowance of $1,053 as of December 31, 2016. Impaired loans carried at fair value resulted in an additional negative provision for loan losses of ($95) and ($42) for the three and nine month periods ended September 30, 2016. The estimated fair values of impaired collateral dependent loans such as commercial or residential mortgages are determined primarily through third-party appraisals. When a collateral dependent loan, such as a commercial or residential mortgage loan, becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal, and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral and a further reduction for estimated costs to sell the property is applied, which results in an amount that is considered to be the estimated fair value. If a loan becomes impaired and the appraisal of related loan collateral is outdated, management applies an appropriate adjustment factor based on its experience with current valuations of similar collateral in determining the loan’s estimated fair value and resulting allowance for loan losses. Third-party appraisals are not customarily obtained for unimpaired loans, unless in management’s view changes in circumstances warrant obtaining an updated appraisal. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2017:
|  | Fair value |  |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted Average)
Impaired loans – commercial mortgages |  | $ | 11 |  |  | Discounted cash flow method |  | Discount used in discounted cash flow method |  | 10% (10%)
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2016:
|  | Fair value |  |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted Average)
Impaired loans – commercial mortgages |  | $ | 2,067 |  |  | Sales comparison approach and discounted cash flow method |  | Adjustment for differences between the comparable sales and discount used in discounted cash flow method |  | 10% - 14% (13%)
Fair Value of Financial Instruments The following table presents the carrying amount and fair value of financial instruments at September 30, 2017:
|  | Carrying |  |  | Fair Value Measurement Using: |  |  | Total |
|  | Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 35,675 |  |  | $ | 35,675 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 35,675 |
Securities available for sale |  |  | 424,761 |  |  |  | 969 |  |  |  | 423,792 |  |  |  | 0 |  |  |  | 424,761 |
Trading securities |  |  | 5,981 |  |  |  | 5,928 |  |  |  | 53 |  |  |  | 0 |  |  |  | 5,981 |
Loans held for sale |  |  | 1,672 |  |  |  | 0 |  |  |  | 1,673 |  |  |  | 0 |  |  |  | 1,673 |
Net loans |  |  | 2,080,725 |  |  |  | 0 |  |  |  | 0 |  |  |  | 2,056,755 |  |  |  | 2,056,755 |
FHLB and other equity interests |  |  | 26,145 |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |
Interest rate swaps |  |  | 233 |  |  |  | 0 |  |  |  | 233 |  |  |  | 0 |  |  |  | 233 |
Accrued interest receivable |  |  | 9,378 |  |  |  | 7 |  |  |  | 3,167 |  |  |  | 6,204 |  |  |  | 9,378 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | (2,060,610 | ) |  | $ | (1,820,972 | ) |  | $ | (237,587 | ) |  | $ | 0 |  |  | $ | (2,058,559 | )
FHLB and other borrowings |  |  | (342,158 | ) |  |  | 0 |  |  |  | (337,913 | ) |  |  | 0 |  |  |  | (337,913 | )
Subordinated debentures |  |  | (70,620 | ) |  |  | 0 |  |  |  | (62,923 | ) |  |  | 0 |  |  |  | (62,923 | )
Interest rate swaps |  |  | (475 | ) |  |  | 0 |  |  |  | (475 | ) |  |  | 0 |  |  |  | (475 | )
Accrued interest payable |  |  | (279 | ) |  |  | 0 |  |  |  | (279 | ) |  |  | 0 |  |  |  | (279 | )
The following table presents the carrying amount and fair value of financial instruments at December 31, 2016:
|  | Carrying |  |  | Fair Value Measurement Using: |  |  | Total |
|  | Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 29,183 |  |  | $ | 29,183 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 29,183 |
Securities available for sale |  |  | 495,835 |  |  |  | 971 |  |  |  | 492,815 |  |  |  | 2,049 |  |  |  | 495,835 |
Trading securities |  |  | 4,858 |  |  |  | 4,805 |  |  |  | 53 |  |  |  | 0 |  |  |  | 4,858 |
Loans held for sale |  |  | 7,528 |  |  |  | 0 |  |  |  | 7,553 |  |  |  | 0 |  |  |  | 7,553 |
Net loans |  |  | 1,857,206 |  |  |  | 0 |  |  |  | 0 |  |  |  | 1,817,341 |  |  |  | 1,817,341 |
FHLB and other equity interests |  |  | 19,186 |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |
Interest rate swaps |  |  | 211 |  |  |  | 0 |  |  |  | 211 |  |  |  | 0 |  |  |  | 211 |
Accrued interest receivable |  |  | 8,264 |  |  |  | 6 |  |  |  | 3,014 |  |  |  | 5,244 |  |  |  | 8,264 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | (2,017,522 | ) |  | $ | (1,786,748 | ) |  | $ | (219,765 | ) |  | $ | 0 |  |  |  | (2,006,513 | )
FHLB and other borrowings |  |  | (237,004 | ) |  |  | 0 |  |  |  | (226,769 | ) |  |  | 0 |  |  |  | (226,769 | )
Subordinated debentures |  |  | (70,620 | ) |  |  | 0 |  |  |  | (61,831 | ) |  |  | 0 |  |  |  | (61,831 | )
Deposits held for sale |  |  | (6,456 | ) |  |  | 0 |  |  |  | (6,417 | ) |  |  | 0 |  |  |  | (6,417 | )
Interest rate swaps |  |  | (670 | ) |  |  | 0 |  |  |  | (670 | ) |  |  | 0 |  |  |  | (670 | )
Accrued interest payable |  |  | (510 | ) |  |  | 0 |  |  |  | (510 | ) |  |  | 0 |  |  |  | (510 | )
The methods and assumptions, not otherwise presented, used to estimate fair values are described as follows: Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1. Interest bearing time deposits with other banks: The fair value of interest bearing time deposits with other banks is estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly maturities, resulting in a Level 2 classification. Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification. Loans: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values, resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality, resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. FHLB and other equity interests: It is not practical to determine the fair value of Federal Home Loan Bank stock and other equity interests due to restrictions placed on the transferability of these instruments. Accrued interest receivable: The carrying amount of accrued interest receivable approximates fair value resulting in a classification that is consistent with the asset with which it is associated. Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amount), resulting in a Level 1 classification. Fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits, resulting in a Level 2 classification. Deposits held for sale: The fair value of deposits held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification. FHLB and other borrowings: The fair values of the Corporation’s FHLB and other borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements, resulting in a Level 2 classification. Subordinated debentures: The fair value of the Corporation’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of arrangements, resulting in a Level 2 classification. Accrued interest payable: The carrying amount of accrued interest payable approximates fair value resulting in a classification that is consistent with the liability with which it is associated. While estimates of fair value are based on management’s judgment of the most appropriate factors as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates. In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures. Also, non-financial assets such as, among other things, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, and customer goodwill, which typically are not recognized on the balance sheet, may have value but are not included in the fair value disclosures.

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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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