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FAIR VALUE | 6 Months Ended
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Jun. 30, 2017
Fair Value Disclosures [Abstract] |
FAIR VALUE | FAIR VALUE 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. 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. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are: Level 1 – quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date. Level 2 – significant other observable inputs other than Level 1 prices such as prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 – at least one significant unobservable input that reflects a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability. In instances in which multiple levels of inputs are used to measure fair value, hierarchy classification is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company used the following methods and significant assumptions to estimate fair value for instruments measured on a recurring basis: 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 June 30, 2017 and December 31, 2016. The following table summarizes assets at June 30, 2017 and December 31, 2016, measured at fair value on a recurring basis.
(Dollars in Thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value Measurements
June 30, 2017 |  |  |  |  |  |  |
AFS Securities: |  |  |  |  |  |  |
U.S. Government Agencies | $ | 0 |  |  | $ | 7,334 |  |  | $ | 0 |  |  | $ | 7,334 |
States and political subdivisions | 0 |  |  | 163,431 |  |  | 0 |  |  | 163,431 |
GSE residential MBSs | 0 |  |  | 104,776 |  |  | 0 |  |  | 104,776 |
GSE residential CMOs | 0 |  |  | 112,321 |  |  | 0 |  |  | 112,321 |
GSE commercial CMOs | 0 |  |  | 4,973 |  |  | 0 |  |  | 4,973 |
Private label CMOs | 0 |  |  | 3,540 |  |  | 0 |  |  | 3,540 |
Asset-backed | 0 |  |  | 5,418 |  |  | 0 |  |  | 5,418 |
Total debt securities | 0 |  |  | 401,793 |  |  | 0 |  |  | 401,793 |
Equity securities | 0 |  |  | 111 |  |  | 0 |  |  | 111 |
Total securities | $ | 0 |  |  | $ | 401,904 |  |  | $ | 0 |  |  | $ | 401,904 |
December 31, 2016 |  |  |  |  |  |  |
AFS Securities: |  |  |  |  |  |  |
U.S. Government Agencies | $ | 0 |  |  | $ | 39,592 |  |  | $ | 0 |  |  | $ | 39,592 |
States and political subdivisions | 0 |  |  | 164,282 |  |  | 0 |  |  | 164,282 |
GSE residential MBSs | 0 |  |  | 116,944 |  |  | 0 |  |  | 116,944 |
GSE residential CMOs | 0 |  |  | 69,383 |  |  | 0 |  |  | 69,383 |
GSE commercial CMOs | 0 |  |  | 4,856 |  |  | 0 |  |  | 4,856 |
Private label CMOs | 0 |  |  | 5,006 |  |  | 0 |  |  | 5,006 |
Total debt securities | 0 |  |  | 400,063 |  |  | 0 |  |  | 400,063 |
Equity securities | 0 |  |  | 91 |  |  | 0 |  |  | 91 |
Total securities | $ | 0 |  |  | $ | 400,154 |  |  | $ | 0 |  |  | $ | 400,154 |
Certain financial assets are measured at fair value on a nonrecurring basis. 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 Company used the following methods and significant assumptions to estimate fair value for these financial assets. Impaired Loans Loans are designated as impaired when, in the judgment of management and based on current information and events, it is probable that all amounts due, according to the contractual terms of the loan agreement, will not be collected. The measurement of loss associated with impaired loans for all loan classes can be based on either the observable market price of the loan, 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 ALL 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 ALL or partial charge-offs totaled $1,445,000 and $1,967,000 at June 30, 2017 and December 31, 2016. The following table presents changes in the fair value for impaired loans still held at June 30, considered in the determination of the provision for loan losses, for the three and six months ended June 30, 2017 and 2016.
| Three months ended June 30, |  | Six months ended June 30,
(Dollars in thousands) | 2017 |  | 2016 |  | 2017 |  | 2016
Changes in fair value of impaired loans still held at June 30 | $ | 4 |  |  | $ | 183 |  |  | $ | 2 |  |  | $ | 162 |
Foreclosed Real Estate OREO property acquired through foreclosure is initially recorded at the fair value of the property at the transfer date less estimated selling cost. Subsequently, OREO 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 June 30, 2017 and December 31, 2016 totaled $11,000 and $43,000. The following table presents changes in the fair value of OREO for properties still held at June 30, charged to real estate expenses, for the three and six months ended June 30, 2017 and 2016.
| Three months ended June 30, |  | Six months ended June 30,
(Dollars in thousands) | 2017 |  | 2016 |  | 2017 |  | 2016
Changes in fair value of OREO still held at June 30 | $ | 0 |  |  | $ | 44 |  |  | $ | 0 |  |  | $ | 95 |
The following table summarizes assets at June 30, 2017 and December 31, 2016, measured at fair value on a nonrecurring basis:
(Dollars in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value Measurements
June 30, 2017 |  |  |  |  |  |  |
Impaired Loans |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |
Owner-occupied | $ | 0 |  |  | $ | 0 |  |  | $ | 517 |  |  | $ | 517 |
Multi-family | 0 |  |  | 0 |  |  | 182 |  |  | 182 |
Non-owner occupied residential | 0 |  |  | 0 |  |  | 378 |  |  | 378 |
Commercial and industrial | 0 |  |  | 0 |  |  | 63 |  |  | 63 |
Residential mortgage: |  |  |  |  |  |  |
First lien | 0 |  |  | 0 |  |  | 1,781 |  |  | 1,781 |
Home equity - lines of credit | 0 |  |  | 0 |  |  | 154 |  |  | 154 |
Installment and other loans | 0 |  |  | 0 |  |  | 5 |  |  | 5 |
Total impaired loans | $ | 0 |  |  | $ | 0 |  |  | $ | 3,080 |  |  | $ | 3,080 |
Foreclosed real estate |  |  |  |  |  |  |
Residential | $ | 0 |  |  | $ | 0 |  |  | $ | 22 |  |  | $ | 22 |
December 31, 2016 |  |  |  |  |  |  |
Impaired Loans |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |
Owner-occupied | $ | 0 |  |  | $ | 0 |  |  | $ | 777 |  |  | $ | 777 |
Non-owner occupied | 0 |  |  | 0 |  |  | 736 |  |  | 736 |
Multi-family | 0 |  |  | 0 |  |  | 199 |  |  | 199 |
Non-owner occupied residential | 0 |  |  | 0 |  |  | 409 |  |  | 409 |
Acquisition and development: |  |  |  |  |  |  |
Commercial and land development | 0 |  |  | 0 |  |  | 1 |  |  | 1 |
Commercial and industrial | 0 |  |  | 0 |  |  | 66 |  |  | 66 |
Residential mortgage: |  |  |  |  |  |  |
First lien | 0 |  |  | 0 |  |  | 1,994 |  |  | 1,994 |
Home equity - lines of credit | 0 |  |  | 0 |  |  | 162 |  |  | 162 |
Installment and other loans | 0 |  |  | 0 |  |  | 6 |  |  | 6 |
Total impaired loans | $ | 0 |  |  | $ | 0 |  |  | $ | 4,350 |  |  | $ | 4,350 |
Foreclosed real estate |  |  |  |  |  |  |
Residential | $ | 0 |  |  | $ | 0 |  |  | $ | 88 |  |  | $ | 88 |
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
June 30, 2017 |  |  |  |  |  |  |
Impaired loans | $ | 3,080 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 10% - 75% discount
|  |  |  |  | - Management adjustments for liquidation expenses |  | 0% - 38% discount
Foreclosed real estate | 22 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 17% discount
|  |  |  |  | - Management adjustments for liquidation expenses |  | 10% discount
December 31, 2016 |  |  |  |  |  |  |
Impaired loans | $ | 4,350 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 10% - 75% discount
|  |  |  |  | - Management adjustments for liquidation expenses |  | 0% - 41% discount
Foreclosed real estate | 88 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 13% - 17% discount
|  |  |  |  | - Management adjustments for liquidation expenses |  | 10% - 18% discount
Fair values of financial instruments In addition to those disclosed above, the Company used the following methods and significant assumptions to estimate fair value for the indicated instruments: 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 fair value. Loans Held for Sale LHFS are carried at the lower of cost or fair value. These loans typically consist of one-to-four family residential loans originated for sale into 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 For variable rate loans that reprice frequently and have no significant change in credit risk, fair value is based on carrying value. Fair value for fixed rate loans is 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 value disclosed for demand deposits is, by definition, equal to the amount payable on demand at the reporting date (that is, the carrying amount). The carrying amount of variable rate, fixed-term money market accounts and certificates of deposit approximates fair value at the reporting date. Fair value for fixed rate certificates of deposits and Individual Retirement Accounts 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 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 approximates fair value 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 following table presents estimated fair values of the Company’s financial instruments at June 30, 2017 and December 31, 2016:
(Dollars in thousands) | Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
June 30, 2017 |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 19,754 |  |  | $ | 19,754 |  |  | $ | 19,754 |  |  | $ | 0 |  |  | $ | 0 |
Interest-bearing deposits with banks | 18,258 |  |  | 18,258 |  |  | 18,258 |  |  | 0 |  |  | 0 |
Restricted investments in bank stocks | 7,072 |  |  | n/a |  |  | n/a |  |  | n/a |  |  | n/a |
AFS securities | 401,904 |  |  | 401,904 |  |  | 0 |  |  | 401,904 |  |  | 0 |
Loans held for sale | 5,182 |  |  | 5,320 |  |  | 0 |  |  | 5,320 |  |  | 0 |
Loans, net of allowance for loan losses | 921,631 |  |  | 922,642 |  |  | 0 |  |  | 0 |  |  | 922,642 |
Accrued interest receivable | 4,467 |  |  | 4,467 |  |  | 0 |  |  | 2,501 |  |  | 1,966 |
Financial Liabilities |  |  |  |  |  |  |  |  |
Deposits | 1,195,936 |  |  | 1,193,225 |  |  | 0 |  |  | 1,193,225 |  |  | 0 |
Short-term borrowings | 90,562 |  |  | 90,562 |  |  | 0 |  |  | 90,562 |  |  | 0 |
Long-term debt | 23,991 |  |  | 24,487 |  |  | 0 |  |  | 24,487 |  |  | 0 |
Accrued interest payable | 448 |  |  | 448 |  |  | 0 |  |  | 448 |  |  | 0 |
Off-balance sheet instruments | 0 |  |  | 0 |  |  | 0 |  |  | 0 |  |  | 0 |
December 31, 2016 |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 16,072 |  |  | $ | 16,072 |  |  | $ | 16,072 |  |  | $ | 0 |  |  | $ | 0 |
Interest-bearing deposits with banks | 14,201 |  |  | 14,201 |  |  | 14,201 |  |  | 0 |  |  | 0 |
Restricted investments in bank stocks | 7,970 |  |  | n/a |  |  | n/a |  |  | n/a |  |  | n/a |
AFS securities | 400,154 |  |  | 400,154 |  |  | 0 |  |  | 400,154 |  |  | 0 |
Loans held for sale | 2,768 |  |  | 2,843 |  |  | 0 |  |  | 2,843 |  |  | 0 |
Loans, net of allowance for loan losses | 870,616 |  |  | 870,470 |  |  | 0 |  |  | 0 |  |  | 870,470 |
Accrued interest receivable | 4,672 |  |  | 4,672 |  |  | 0 |  |  | 2,643 |  |  | 2,029 |
Financial Liabilities |  |  |  |  |  |  |  |  |
Deposits | 1,152,452 |  |  | 1,149,727 |  |  | 0 |  |  | 1,149,727 |  |  | 0 |
Short-term borrowings | 87,864 |  |  | 87,864 |  |  | 0 |  |  | 87,864 |  |  | 0 |
Long-term debt | 24,163 |  |  | 24,966 |  |  | 0 |  |  | 24,966 |  |  | 0 |
Accrued interest payable | 437 |  |  | 437 |  |  | 0 |  |  | 437 |  |  | 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 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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