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FAIR VALUE DISCLOSURES | 9 Months Ended
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Sep. 30, 2016
Fair Value Disclosures [Abstract] |
FAIR VALUE DISCLOSURES | FAIR VALUE DISCLOSURES The Company meets the requirements for disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. Fair value measurements under GAAP describes a framework for measuring fair value and requires disclosures about fair value measurements by establishing a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to valuation techniques that employ unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability. Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded and the reliability and transparency of the assumptions used to determine fair value. The three levels are defined as follows: Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market for the asset or liability, for substantially the full term of the financial instrument. Level 3 – the valuation methodology is derived from model-based techniques in which at least one significant input is unobservable to the fair value measurement and based on the Company’s own assumptions about market participants’ assumptions. Following is a description of the valuation methodologies used for instruments measured on a recurring basis at estimated fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy: Securities Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, securities are classified within Level 2 and fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. All of the Company’s securities are classified as available for sale. The Company had no fair value liabilities measured on a recurring basis at September 30, 2016 and December 31, 2015. A summary of assets at September 30, 2016 and December 31, 2015, measured at estimated fair value on a recurring basis was as follows:
(Dollars in Thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value Measurements
September 30, 2016 |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |
U.S. Government Agencies | $ | 0 |  |  | $ | 41,869 |  |  | $ | 0 |  |  | $ | 41,869 |
States and political subdivisions | 0 |  |  | 130,399 |  |  | 0 |  |  | 130,399 |
U.S. Government Sponsored enterprises (GSE) residential mortgage-backed securities | 0 |  |  | 123,881 |  |  | 0 |  |  | 123,881 |
GSE residential collateralized mortgage obligations (CMOs) | 0 |  |  | 72,698 |  |  | 0 |  |  | 72,698 |
Private label CMOs | 0 |  |  | 5,977 |  |  | 0 |  |  | 5,977 |
Total debt securities | 0 |  |  | 374,824 |  |  | 0 |  |  | 374,824 |
Equity securities | 0 |  |  | 78 |  |  | 0 |  |  | 78 |
Total securities | $ | 0 |  |  | $ | 374,902 |  |  | $ | 0 |  |  | $ | 374,902 |
December 31, 2015 |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |
U.S. Government Agencies | $ | 0 |  |  | $ | 47,227 |  |  | $ | 0 |  |  | $ | 47,227 |
States and political subdivisions | 0 |  |  | 125,961 |  |  | 0 |  |  | 125,961 |
GSE residential mortgage-backed securities | 0 |  |  | 132,349 |  |  | 0 |  |  | 132,349 |
GSE residential collateralized mortgage obligations (CMOs) | 0 |  |  | 15,843 |  |  | 0 |  |  | 15,843 |
GSE commercial CMOs | 0 |  |  | 63,770 |  |  | 0 |  |  | 63,770 |
Private label CMOs | 0 |  |  | 8,901 |  |  | 0 |  |  | 8,901 |
Total debt securities | 0 |  |  | 394,051 |  |  | 0 |  |  | 394,051 |
Equity securities | 0 |  |  | 73 |  |  | 0 |  |  | 73 |
Total securities | $ | 0 |  |  | $ | 394,124 |  |  | $ | 0 |  |  | $ | 394,124 |
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements: Impaired Loans The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral, or discounted cash flows based on a market rate of interest for performing TDRs. For collateral dependent loans, fair value is measured based on the value of the collateral securing the loan, less estimated costs to sell. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The value of the real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction, or if management adjusts the appraisal value, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal, if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3). Impaired loans with an allocation to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the consolidated statements of income. Specific allocations to the allowance for loan losses or partial charge-offs were $2,695,000 and $2,246,000 at September 30, 2016 and December 31, 2015. Changes in the fair value of impaired loans for those still held at September 30, considered in the determination as to the provision for loan losses, totaled $684,000 and $75,000 for the three months ended September 30, 2016 and 2015, and $815,000 and $766,000 for the nine months ended September 30, 2016 and 2015. Foreclosed Real Estate Other real estate property acquired through foreclosure is initially recorded at the fair value of the property at the transfer date less estimated selling cost. Subsequently, other real estate owned is carried at the lower of its carrying value or the fair value less estimated selling cost. Fair value is usually determined based upon an independent third-party appraisal of the property or occasionally upon a recent sales offer. Specific charges to value the real estate owned at the lower of cost or fair value on properties held at September 30, 2016 and December 31, 2015 were $204,000 and $129,000. Changes in the fair value of foreclosed real estate for those still held at September 30, charged to real estate expenses, totaled $42,000 and $21,000 for the three months ended September 30, 2016 and 2015, and totaled $109,000 and $21,000 for the nine months ended September 30, 2016 and 2015. Mortgage Servicing Rights The fair value of mortgage servicing rights is estimated to be equal to its carrying value, unless the quarterly valuation model calculates the present value of the estimated net servicing income is less than its carrying value, in which case a lower of cost or fair value charge is taken. As of September 30, 2016 and December 31, 2015, a $139,000 and $0 lower of cost or fair value reserve existed on the mortgage servicing right portfolio. For the three and nine months ended September 30, 2016, impairment charges of $128,000 and $139,000 were recorded. The following table presents additional qualitative information about assets measured on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
(Dollars in thousands) | Fair Value Estimate |  | Valuation Techniques |  | Unobservable Input |  | Range
September 30, 2016 |  |  |  |  |  |  |
Impaired loans | $ | 9,841 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 0% - 68% discount
|  |  |  |  | Management adjustments for liquidation expenses |  | 0% - 41% discount
Foreclosed real estate | 149 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 15% - 100% discount
|  |  |  |  | Management adjustments for liquidation expenses |  | 3% - 6% discount
Mortgage servicing rights | 2,532 |  |  | Discounted cash flows |  | Weighted average CPR |  | 12.80%
|  |  |  |  | Discount rate |  | 9.55%
December 31, 2015 |  |  |  |  |  |  |
Impaired loans | $ | 4,757 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 0% - 70% discount
|  |  |  |  | Management adjustments for liquidation expenses |  | 6% - 44% discount
Foreclosed real estate | 175 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 10% - 20% discount
|  |  |  |  | Management adjustments for liquidation expenses |  | 5% - 6% discount
A summary of assets at September 30, 2016 and December 31, 2015, measured at estimated fair value on a nonrecurring basis was as follows:
(Dollars in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value Measurements
September 30, 2016 |  |  |  |  |  |  |
Impaired Loans |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |
Owner-occupied | $ | 0 |  |  | $ | 0 |  |  | $ | 823 |  |  | $ | 823 |
Non-owner occupied | 0 |  |  | 0 |  |  | 6,181 |  |  | 6,181 |
Multi-family | 0 |  |  | 0 |  |  | 207 |  |  | 207 |
Non-owner occupied residential | 0 |  |  | 0 |  |  | 425 |  |  | 425 |
Acquisition and development: |  |  |  |  |  |  |
Commercial and land development | 0 |  |  | 0 |  |  | 2 |  |  | 2 |
Commercial and industrial | 0 |  |  | 0 |  |  | 66 |  |  | 66 |
Residential mortgage: |  |  |  |  |  |  |
First lien | 0 |  |  | 0 |  |  | 1,980 |  |  | 1,980 |
Home equity - lines of credit | 0 |  |  | 0 |  |  | 150 |  |  | 150 |
Installment and other loans | 0 |  |  | 0 |  |  | 7 |  |  | 7 |
Impaired loans, net | $ | 0 |  |  | $ | 0 |  |  | $ | 9,841 |  |  | $ | 9,841 |
Foreclosed real estate |  |  |  |  |  |  |
Residential | $ | 0 |  |  | $ | 0 |  |  | $ | 127 |  |  | $ | 127 |
Commercial and land development | 0 |  |  | 0 |  |  | 22 |  |  | 22 |
Total foreclosed real estate | $ | 0 |  |  | $ | 0 |  |  | $ | 149 |  |  | $ | 149 |
Mortgage servicing rights | $ | 0 |  |  | $ | 2,532 |  |  | $ | 0 |  |  | $ | 2,532 |
December 31, 2015 |  |  |  |  |  |  |
Impaired Loans |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |
Owner-occupied | $ | 0 |  |  | $ | 0 |  |  | $ | 881 |  |  | $ | 881 |
Non-owner occupied | 0 |  |  | 0 |  |  | 736 |  |  | 736 |
Multi-family | 0 |  |  | 0 |  |  | 233 |  |  | 233 |
Non-owner occupied residential | 0 |  |  | 0 |  |  | 570 |  |  | 570 |
Acquisition and development: |  |  |  |  |  |  |
Commercial and land development | 0 |  |  | 0 |  |  | 5 |  |  | 5 |
Residential mortgage: |  |  |  |  |  |  |
First lien | 0 |  |  | 0 |  |  | 2,094 |  |  | 2,094 |
Home equity - lines of credit | 0 |  |  | 0 |  |  | 229 |  |  | 229 |
Installment and other loans | 0 |  |  | 0 |  |  | 9 |  |  | 9 |
Impaired loans, net | $ | 0 |  |  | $ | 0 |  |  | $ | 4,757 |  |  | $ | 4,757 |
Foreclosed real estate |  |  |  |  |  |  |
Residential | $ | 0 |  |  | $ | 0 |  |  | $ | 101 |  |  | $ | 101 |
Commercial and land development | 0 |  |  | 0 |  |  | 74 |  |  | 74 |
Total foreclosed real estate | $ | 0 |  |  | $ | 0 |  |  | $ | 175 |  |  | $ | 175 |
Fair values of financial instruments In addition to those disclosed above, the following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein: Cash and Due from Banks and Interest Bearing Deposits with Banks The carrying amounts of cash and due from banks and interest bearing deposits with banks approximate their fair value. Loans Held for Sale Loans held for sale are carried at the lower of cost or fair value. These loans typically consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale. Loans Receivable For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered in the market for loans with similar terms to borrowers of similar credit quality. Restricted Investment in Bank Stock These investments are carried at cost. The Company is required to maintain minimum investment balances in these stocks, which are not actively traded and therefore have no readily determinable market value. Deposits The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposits and IRAs are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market to a schedule of aggregated expected maturities on time deposits. Short-Term Borrowings The carrying amounts of federal funds purchased, borrowings under Repurchase Agreements, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analysis based on the Company’s current borrowing rates for similar types of borrowing arrangements. Long-Term Debt The fair value of the Company’s fixed rate long-term borrowings is estimated using a discounted cash flow analysis based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements. The carrying amounts of variable-rate long-term borrowings approximate their fair values at the reporting date. Accrued Interest The carrying amounts of accrued interest receivable and payable approximate their fair values. Off-Balance-Sheet Instruments The Company generally does not charge commitment fees. Fees for standby letters of credit and other off-balance-sheet instruments are not significant. The estimated fair values of the Company’s financial instruments were as follows at September 30, 2016 and December 31, 2015:
(Dollars in thousands) | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
September 30, 2016 |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 17,787 |  |  | $ | 17,787 |  |  | $ | 17,787 |  |  | $ | 0 |  |  | $ | 0 |
Interest bearing deposits with banks | 19,854 |  |  | 19,854 |  |  | 19,854 |  |  | 0 |  |  | 0 |
Restricted investments in bank stocks | 6,615 |  |  | n/a |  |  | n/a |  |  | n/a |  |  | n/a |
Securities available for sale | 374,902 |  |  | 374,902 |  |  | 0 |  |  | 374,902 |  |  | 0 |
Loans held for sale | 3,956 |  |  | 4,066 |  |  | 0 |  |  | 4,066 |  |  | 0 |
Loans, net of allowance for loan losses | 833,211 |  |  | 847,597 |  |  | 0 |  |  | 0 |  |  | 847,597 |
Accrued interest receivable | 3,690 |  |  | 3,690 |  |  | 0 |  |  | 1,869 |  |  | 1,821 |
Financial Liabilities |  |  |  |  |  |  |  |  |
Deposits | 1,133,332 |  |  | 1,140,146 |  |  | 0 |  |  | 1,140,146 |  |  | 0 |
Short-term borrowings | 42,852 |  |  | 42,852 |  |  | 0 |  |  | 42,852 |  |  | 0 |
Long-term debt | 24,247 |  |  | 25,162 |  |  | 0 |  |  | 25,162 |  |  | 0 |
Accrued interest payable | 350 |  |  | 350 |  |  | 0 |  |  | 350 |  |  | 0 |
Off-balance sheet instruments | 0 |  |  | 0 |  |  | 0 |  |  | 0 |  |  | 0 |
December 31, 2015 |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 11,412 |  |  | $ | 11,412 |  |  | $ | 11,412 |  |  | $ | 0 |  |  | $ | 0 |
Interest bearing deposits with banks | 16,928 |  |  | 16,928 |  |  | 16,928 |  |  | 0 |  |  | 0 |
Restricted investments in bank stocks | 8,720 |  |  | n/a |  |  | n/a |  |  | n/a |  |  | n/a |
Securities available for sale | 394,124 |  |  | 394,124 |  |  | 0 |  |  | 394,124 |  |  | 0 |
Loans held for sale | 5,917 |  |  | 6,045 |  |  | 0 |  |  | 6,045 |  |  | 0 |
Loans, net of allowance for loan losses | 768,145 |  |  | 776,067 |  |  | 0 |  |  | 0 |  |  | 776,067 |
Accrued interest receivable | 3,845 |  |  | 3,845 |  |  | 0 |  |  | 2,257 |  |  | 1,588 |
Financial Liabilities |  |  |  |  |  |  |  |  |
Deposits | 1,032,167 |  |  | 1,032,265 |  |  | 0 |  |  | 1,032,265 |  |  | 0 |
Short-term borrowings | 89,156 |  |  | 89,156 |  |  | 0 |  |  | 89,156 |  |  | 0 |
Long-term debt | 24,495 |  |  | 25,357 |  |  | 0 |  |  | 25,357 |  |  | 0 |
Accrued interest payable | 366 |  |  | 366 |  |  | 0 |  |  | 366 |  |  | 0 |
Off-balance sheet instruments | 0 |  |  | 0 |  |  | 0 |  |  | 0 |  |  | 0 |

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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 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 Reference 2: 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 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 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13537-108611 Reference 5: 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=73719730&loc=d3e13504-108611 Reference 6: 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=73719730&loc=d3e13433-108611 + Details
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